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Rossiyskaya Gazeta
December 28, 2001
Interview with Vladimir Mau of the Working Center for Economic Reforms.
Author: Mikhail Antonov
[from WPS Monitoring Agency, www.wps.ru/e_index.html]


High oil prices are more dangerous for Russia than low ones - says Vladimir Mau, head of the Working Center for Economic Reforms of the Russian government.

Question: There are a lot of inflation forecasts for 2002. The budget envisages a level of 13%, and now there is talk of 15-16%. How much will prices increase?

Mau: This will depend on the economic policy of the government. There are two major approaches. The first one is not to suppress the momentum of the currency rate, gradually devaluating the ruble. This will increase inflation up to 20-25%, but will facilitate production. This is how stimuli for export and import substitution will be made. And it is important to tighten budget policy and activate negotiations about writing off our foreign debts. Importers, enterprises, which need foreign equipment, will profit by it. Such a policy demands active state regulation - significant budget investments, government work.

Question: From the political point of view, the "left" variant looks more attractive: firm position of the ruble, active state, and all for the people's good...

Mau: Alas, activity of the state in market does not always brings good to citizens. Who will manipulate people's money? Bureaucracy. To which extent will it be effective? It is hard to say. Tomorrow it will turn out that budget money was sent not where it should have been sent...Besides, the policy of artificial securing of the ruble's position will result in depression of several branches of industry - food production, textiles, light industry, a considerable part of mechanical engineering. It will not do any good to populations, who not only consume, but also produce.

Question: Why?

Mau: Because with the strong ruble and "cheap" dollar, it will be more profitable to buy goods abroad.

It often happens that a country loses its competitiveness because of high influx of foreign currency. This is called "Dutch disease": currency inpayments of export deprive our production of any stimulus to development. Roughly speaking, it is more profitable to sell a ton of oil and buy grain with the profit than to grow it in our country. The excess of foreign currency leads to rising the ruble rate, which makes importing cheaper. As a result, export branches are increasing, the rest - dying out.

Question: Over the recent time, a lot of Russian citizens are watching world oil prices with great attention. Is this a really important question for Russia? If prices sink - we are sure to face a catastrophe, if not - we will be thriving, is it so?

Mau: These are mostly just emotions. From the strategical point of view, it is high prices that are dangerous for Russia. Like cheap foreign loans, they relax the government. There appears a temptation: not to change anything, just distributing dollars and everyone is happy. The most important economic reforms of the past years took place in Russian in such periods, when oil prices were low - 1985, 1991, 1998.

Question: This is strange, we receive much more money from export, and it creates problems for us. Usually, thriving is associated with financial abundance...

Mau: Oil prices are important, but appropriate state policies are much more important - budget, monetary, structural policies. I would like to remind you that in the Brezhnev era oil cost much more than it does now on global markets. If we were to re-calculate that price, taking dollar inflation into account, which was quite considerable in the 1980s, we would get around $80 a barrel.

But this profit brought huge losses along. Huge money, which the Soviet Union was getting for oil exporting, was spent on senseless projects - changing river-beds, support of authoritative regimes abroad... In the 1970s the west was carrying out painful but extremely necessary structural reforms, and we were lagging behind more and more. The west was increasing economy efficiency, developing communications, changing technologies, and we were dealing with "mastering investments": the more you spend, the better. As a result, the west entered a principally new, post-industrial phase of development, and we stuck in cast iron and steel volumes and number of tanks per capita. The collapse os such system was inevitable.

Question: Western experts do not agree with you in the question of investments in defense industry. They believe that Russia should not count on developing the military sector.

Mau: In fact, investing budget money in the defense industry in much more profitable than in agriculture, from the state point of view. Not because missiles are more important than bread to us. The thing is that the rate of stealing in the defense industry is much lower. When earlier money for "supporting villages" was provided, it was clear that producers would not get anything, all would be spent "in transit". Besides, production of the defense industry leads to demand in many other industries, which greatly stimulates economic development.

Question: Western experts assure that we will die if we do not manage to get investments from abroad. Here is a typical quotation, German economist Wolfgang Schrettl writes, "We should do away with the myth that Russia is rich enough to overcome the crisis by itself. From the economic point of view, it is not a hyper-state. Its human potential is useless without foreign investments." Do you agree?

Mau: It would be wrong to place hopes only on foreign investments. The most important thing is that Russia is open to innovations, world processes of technology development. The present situation in the world makes self-isolation disadvantageous. The country should compete in markets, including stock markets. However, we should not take this indisputable thesis as Russia's hopelessness and its dependence on foreign investments.

(Translated by Daria Brunova)

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