MOSCOW. April 2 (Interfax) - Chairman of the board of MDM Bank Oleg Vyugin said that the model of economic growth followed by Russia is unstable in the long run, and that the view that high economic growth should take precedent over stability is short-sighted.

"The model of economic growth that has formed in Russia is attractive on the one hand, but unstable in the long-term," Vyugin told a conference entitled Modernization of the Economy and Globalization organized by the High School of Economics.

He said the existing model was characterized by several elements, such as the huge mass of public savings through putting aside oil and gas money, the pegging of the ruble exchange rate to two currencies, despite the imbalance in the balance of payments, negative real interest rates and high nominal interest rates under a fixed ruble exchange rate, which stimulate capital inflow. As a consequence, the public is less inclined to save and, given the "powerful inflow of capital," this generates "chronic inflation." And this, subsequently, with the indexation of wages and growing costs, leads to lower competitiveness.

Vyugin proposed another economic model that would be more attuned to the long-term. In particular, he proposed switching to a floating exchange rate and control by the Central Bank over interest rates. Regarding taxes, he proposed modifying the tax system with a view to stimulating savings and investments, in particular returning investment tax concessions in the profit tax.