Medvedev says no more bailouts, no more subsidies - experts on budget address
Moscow, 25 May: The budget address of the Russian president has sent a very important message to business and state-owned companies: there will be no more anticrisis measures or subsidies - instead anticrisis management should take their place. Experts expressed this opinion at a meeting on Monday (25 May) of the Crisis Expertise club which was organized by RIA Novosti.
The 10 theses announced by Dmitriy Medvedev in his address include reducing the budget deficit, austerity policy with regard to state funds while increasing the effectiveness of budget spending and providing state support to enterprises only on condition of modernization of production.
"This means: don't ask for money any more. There will be no more anticrisis measures. And there will be no more subsidies for Avtovaz (car manufacturer) and others. And there will be no additional allocations to the banking system. This is a very important message," Oleg Vyugin, chairman of the MDM Bank board of directors, said.
In his opinion, subsidies could have prevented a drop in production had the crisis been short-lived. "But if the crisis lasts for three years, subsidies won't help. What will help is the arrival of a new type of managers who can work in these conditions," Vyugin added.
The presidential address means that Russia has chosen a conservative approach to the three-year budget, Yevsey Gurvich, head of the Economic Expert Group, said. He also agreed that there would be no additional anticrisis measures at the expense of the budget.
"This can be welcomed. This means a radical change in the whole budget policy," Gurvich said. According to the expert, from now on budget spending will be growing much slower - in nominal terms its increase over the next three years will be about the same as the current annual increase.
Yevgeniy Nadorshin, chief analyst at the Trust bank, also welcomed the change of policy regarding spending, in particular the targeting of social support. At the same time the expert expressed doubt that the authorities would be able to meet in full the social obligations they had already pledged. He disagreed in principle with the government's increased social obligations.
"It is dangerous that we pledge to meet the social obligations at any cost. This is an old paradigm and it is dangerous. This will lead to no good," Nadorshin said.
It will still come (second wave of crisis) (agency's subheading)
On Monday Deputy Prime Minister Aleksandr Zhukov said that there "shouldn't be" a second wave of crisis or increase in unemployment.
Participants in the Crisis Expertise club thought differently. Discussing the future prospects of the global crisis and possible repercussions for the situation in Russia, experts agreed that the "second wave" most likely would come.
Vyugin said that the policy of pumping money in the economy conducted by the USA was a forced measure but, in his opinion, it was a "wrong decision" - it slows down the economic recession but does not remove the fundamental causes of the crisis. In Russia, the expert added, there is an obvious drop in consumer demand which used to support economic growth.
Gurvich feared that investors would not invest in production until they understood in which sectors of the economy demand would start recovering first; as for the banks, in the conditions of this uncertainty they would be unwilling to provide loans to the real sector of the economy. He also said that in the Russian economy - although it had not reached the bottom - the further deterioration of the situation could not be ruled out.
Gurvich recalled that, following a landslide fall in November-December, in February production grew a little, in March it stabilized and in April it fell again - according to the Economic Expert Group's calculations, it fell by 1.5 per cent on March (seasonally adjusted).
"The equilibrium at the bottom is very unstable - it can fluctuate either way," Gurvich said. According to him, the state of the banking system will be defining in the further development of the situation.
Nadorshin saw the main risk in growing overdue loans. He agreed with the assessment of the Deposit Insurance Agency that overdue loans might grow up to 20 per cent by the end of the year. In his opinion, the real state of affairs was worse than the official statistics. "This means that banking credit portfolios have stopped brining money. And this means that some time soon banks will start experiencing problems," Nadorshin concluded.