#7 - JRL 7244
June 28, 2003
Economic Wonder Will Kill Russia
A report delivered by Presidential Aide Andrey Illarionov revealed that Russian functionaries do not know how to fulfill the objective of doubling GDP by 2010 set by President Vladimir Putin
The report the Presidential Aide for economic problems Andrey Illarionov delivered this week put rather sad ideas into the heads of many of Russian economists. The report was called "How to double Russia's GDP. The first step toward the Russian economic wonder". Although the report lasted for about three hours and covered a wide range of problems, it gave no understandable answer to the question how the Russian GDP could be doubled by 2010. Experts say the situation looks rather distressing, as the promise the President gave in his State of the Nation Address to the Federal Assembly may be frustrated. What is more, if governmental officials responsible for GDP doubling will start realizing their initiatives with zeal, this situation may entail negative consequences for the economy of Russia on the whole. For instance, Andrey Illarionov suggests that the share of public expenses in GDP must be considerably reduced which in its turn, he says, will raise the well-being of the population. The presidential aide thinks that now the share of the government in Russia's economy is too big which hampers economic growth.
At the very beginning of the report, Andrey Illarionov said that GDP growth within the last five months made up 7.1% as compared with the same year-ago period, and real earnings of the population went up by 14.3%. Then the presidential aide mentioned some more economic positive statistics. He summed up the report and said that Russia was obviously experiencing an economic boom. According to Andrey llarionov, the present-day economic growth rate will be quite enough to double the GDP by 2010. It is said in the text of the report's presentation that the average annual GDP growth must make up not less than 7.2% in order to double the GDP within ten years. For this purpose Andrey Illarionov offers to reduce the share of public expenses in Russia's GDP from 37% to 20%. After that, he says, the GDP will go up (however, it is not clear for what reasons this may happen). Finally, Illarionov's report says "if an optimal economic policy is carried out in Russia, the GDP may go up 2.8 times by 2015, which in its turn will increase the share of public expenses per head 1.6 times." To make the theory more convincing, Andrey Illarionov cited the example of China's economy that, as the presidential aide thinks, went up as a result of public expenses reduction. In 1979, public expenses made up 35.88% in China, while the figure was 14.32% in 1995; economic growth made up 7% per year within the period of 1979-1990.
According to experts questioned by RBC Daily, the comparison of Russia with China all the same gave no ideas of methods that Andrey Illarionov suggests for improvement of the Russian economy. Andrey Klepach from the Center of Development told RBC Daily that although Illarionov's report was rather long, the presidential aides voiced no effective plan for GDP doubling. President of the Eastern Financial Company Andrey Godzinsky shares the same opinion. He says that Illarionov's speech looked like a report delivered by a functionary from the statistics department. As far as he is the chief economic specialist in the country, Illarionov must voice an understandable program of further activities.
As for the reduction of public expenses, specialists say the thesis is rather dubious. Andrey Klepach says: "According to Illarionov, the share of public expenses in GDP is excessive now and must be reduced. If we follow his logic, it turns out that the present-day financing of science, education and other important spheres is excessive (which is quite wrong in fact). If the share of public expenses is considerably reduced, Russia may give up for lost the idea to gain some particular role in the world." Andrey Godzinsky agrees with this position; he says: "About $60 billion of the state budget in Russia fall at public expenses, while the sum makes up $2.5 trillion in the USA. As is seen from Illarionov's logic the USA must be a miserable country under these conditions, however it is prospering as compared with Russia."
Andrey Godzinsky says that the scenario of reforms suggested by the Presidential Aide for economic problems Andrey Illairionov may let Vladimir Putin down. "The president set the clear objective of GDP doubling, but it has dissolved in vague discussions." Andrey Klepach thinks that with a view to gain steady growth of the Russian economy effectiveness of the governmental functioning must be raised first of all. One of the main objectives now is to attract private capital into those industries where only the government has been represented until recently.