Russia’s government must come to terms with the full extent of the crisis gripping the economy or face years of stagflation, a leading economic reformer warned on Saturday.
Anatoly Chubais, one of the architects of Russia’s transition to a market economy, said those offering easy answers to the crisis were superficial. Government plans based on overly optimistic forecasts would hinder any recovery, he said. Russia’s economy is heading for the first contraction in a decade after the prices for its raw materials exports tumbled. But some say top officials seem out of touch with reality.
“These are events that have no precedent in our history. So it seems to me that those who say they know what to do are superficial,” Chubais told reporters on the sidelines of the annual meeting of the World Economic Forum in Davos. “If you cannot do a proper forecast for the world economy, then to work out an annual strategy for the Russian economy, and that is what is happening now, you really must take the worst scenario of all,” he told reporters.
“That goes for all the basic indicators. Oil - no-one knows what the price of oil will be. So decide a range - $25 to $50. Then you have to take $25, $25 full stop and not a dollar more. Base the budget on the very worst forecasts. Not $41 but $25.” “If the real price is higher and things are better than we expected, then thank God and there will be more income and spending. But if they are not better?”
His comments indicate a growing frustration among some of Russia’s business elite about the government’s economic plans, which they view as too optimistic. “Of course business asks for help, business asks for support, but in reality the most important thing the government should now give business is not support but a scenario for annual development that is realistic,” he said.
Russia’s powerful prime minister, Vladimir Putin, opened the forum on Wednesday and proposed several ideas on how to deal with the crisis.
A deputy economy minister got into trouble last year with Putin for predicting a 2009 recession. Putin said growth would continue before having to accept official forecasts that the economy would contract 0.2%.
This month, Putin ordered that the 2009 budget be recalculated at an average oil price of $41 a barrel, less than half the original estimate of $95 per barrel.
“People like to discuss a soft landing or a hard landing but we need to discuss the hard start, the toughest start possible,” Chubais said. “Are we to have a V scenario or an L scenario? V is sharply down and then sharply up again. L is when you go down fast and stay down a very long time, basically stagflation,” he said.
Chubais served as chief of staff under late President Boris Yeltsin and was made the Kremlin’s main negotiator with the International Monetary Fund just before the 1998 crisis. But he is blamed by many in Russia for allowing a small group of tycoons to enrich themselves in the privatizations of the 1990s while millions of Russians were left in poverty as the economy collapsed. (Reuters)