Soros Says Russia Should Become Less Dependent on Commodities
June 5 (Bloomberg) -- Russia, the world's second-biggest oil supplier, should become less dependent on natural resources by making changes to the economy that would help it survive falling oil prices, said George Soros, chairman of Soros Fund Management LLC, the world's biggest hedge-fund group.
Soros, speaking to students at the Higher School of Economics in Moscow, said Russia should try to make ``structural changes'' to make the economy more versatile. Oil and commodities account for about three-quarters of Russia's exports.
``The outlook for Russia, looking from the outside, is indeed very good,'' Soros said. ``The Russian economy is one of the strongest economies in the world today. But it remains exceedingly dependent on natural resources and would become much better balanced if you had the development of other enterprises.''
Russia's top ministers and economic advisers are discussing how to prolong the longest economic boom since the fall of the Soviet Union and how to make the country less dependent on oil and other natural resources. The economy, expected to grow more than 4.5 percent to $410 billion this year, grew 6.4 percent in 1999, 10 percent in 2000, 5 percent in 2001 and 4.3 percent in 2002.
Prime Minister Mikhail Kasyanov said today he expects growth to rise to 5 percent in 2004.
In August 1998, Russia defaulted on $40 in domestic debt and allowed the ruble to devalue. That helped trigger the collapse of Long-Term Capital Management LP, a hedge fund run by former Salomon Brothers Inc. partner John Meriwether, and the biggest one-month decline in the Dow Jones Industrial Average since the 1987 recession.
Today, the Russian cabinet approved the main budget forecasts for 2004. Russia will run a surplus of 95.1 billion rubles ($3.1 billion), or 0.6 percent of GDP in 2004, the fifth straight year of budget surpluses.
The surplus will be put into a stabilization fund to be created to help Russia weather declines in oil prices or other external shocks to the economy, Finance Minister Alexei Kudrin said.
``All of our achievements could be ruined in one moment if, for example, the price of oil fell or there were other problems,'' Kudrin told journalists. ``We must create adequate reserves, insurance, to prepare for such a situation.''
Spreads between Russian Eurobonds and U.S. Treasuries of the same maturity have narrowed to 287 basis points from more than 6,800 basis points following Russia's domestic default and ruble devaluation in 1998.
``You need to use the good times to bring about those structural changes that will then make it easier to adjust at a time when say oil prices really do drop significantly,'' Soros said.