19.12.2014 – The First Meeting of the Academy Debate Club: Economic Challenges and Risks – 2015

The Academy Debate Club is a joint project of the Gaidar Institute and the RANEPA. The project's objective is to present to the scientific, expert and mass media community different points of views on the most topical issues of the economy and the community in general and signal about painful points of the social medium and try to find by means of a free discussion if not solutions of the most difficult issues, then approaches to handling them.

Invited to the first meeting of the Club with representatives of the expert community and journalists were Alexei Kudrin, Head of the Civil Initiatives Committee and Chairman of the Board of Trustees of the Gaidar Institute, Vladimir Mau, Rector of the RANEPA, Alexander Auzan, Dean of the Economic Department of the Moscow State University, Sergei Prikhodko, Executive Director of the Gaidar Institute, Sergei Drobyshevsky, Academic Director of the Gaidar Institute, Pavel Trunin, Director of the Center for Macroeconomics and Finance, Georgy Idrisov, Director of the Center for the Real Sector of the Economy and Alexander Knobel, Director of the International Trade Department.

The mass media was represented by the leading information agencies and newspapers, such as the TASS, the RBK, the Bloomberg, the Vedomosti daily, the Kommersant daily, the Gazeta.ru, the Forbes, the Slon.ru and other.

The moderators of the meeting were Andrei Kolesnikov and Vladimir Gurevich, advisors to the Rector of the RANEPA.

According to Alexei Kudrin, Russia is entering a real full-scale economic crisis and one will experience it in full in 2015. Economic growth will be falling by different scenarios from 2% to 4%. If oil prices amount to $80 a barrel, Russia will lose from 1%–1.5% to 2%, while with a price of $60 a barrel it may lose up to 4%. There has been no such situation since 2000; even in 2009 thanks to budget allocations there was small GDP growth (slightly above 0%). In 2015, it will be a negative one and the year 2016 will be the year of decrease in Russian GDP, too. Later on, the situation will depend on the entire number of factors, including "the risk of economic model uncertainty".

Also, А. Kudrin gave estimates of the effect of different factors on depreciation of the ruble exchange rate. So, depreciation of the ruble can be explained by a drop in global oil prices (25%), introduction of sanctions (25% to 35%–40%) and appreciation of the US dollar against other world currencies (5%–10%). Other factors are related to "risks, expectations and fears", including a lack of confidence on the part of the market to the government's measures aimed at upgrading of the investment climate and support of economic growth.
According to A. Kudrin, the main threats to the economy next year will be preservation of the Ukrainian conflict and toughening of sanctions against Russia. Also, A. Kudrin warned that a decrease in the standard of living would result in a higher level of protest activities.

Аlexander Auzan touched upon external and internal situation over the present crisis. He admitted that "in spring the situation went out of control and resembled the pre-war situation of 1914".

А. Auzan noted that time had come when regardless of sanctions and other factors economic growth in Russia came to a halt, anyway. It could have happened earlier if not large-scale allocations like those for the Olympic Games.

There are only two ways of initiating economic growth and "the investment motor": either to create an adequate investment and business climate which attracts private investments, or invest a huge volume of government funds. Judging by the present situation, A. Auzan concludes that things tend to the latter option, that is, the mobilization scenario.

The expert expects the following scenario of developments in 2015: social tensions are likely to occur in spring mainly due to the rate of inflation which is to be combated one way or another; there may be problems with employment. According to A.Auzan, social support measures and indexation will most probably be carried out. An effort to start "the engine" will be related to realization of large investment projects with a view to ensure economic growth of up to 2% by the 2017–2018 election period. However, after that a serious recession will follow with depletion of financial, human capital and other resources.

According to Vladimir Mau, the present-day situation represents a system crisis which is similar to those of the 1970s and not of the 1930s. It is to be noted that if the Russian situation resembles more the development of the 1970s the situation in the West is more akin to the 1930s. In the beginning of the system crisis, they always start with anti-crisis measures which have been used during the past 50 years and the situation is made even worse. After that they start looking for new models. At present, they look for a new regulation model; formation of such a model is evidence of system crises.

In 2009, in Davos Vladimir Putin used the term – the ideal storm – to characterize the crises which had just begun. At present, there are even more reasons for applying that term to characterize the current developments in Russia. The country is facing a wide range of interlinked problems: oil, geopolitics, sanctions, the "bottom" of the investment cycle, demographic problems and exhaustion of the growth model of the past decade. The problem consists in the fact that different approaches (often quite the opposite ones) are required for handling the above issues.

Vladimir Mau pointed to a number of risks, primarily, a temptation to start a policy of "acceleration". It is known from experience that it may take 4 years to pass over from economic stability to an economic catastrophe and it is to be noted that during two years out of four the economy will be accelerating.

Russia has the following three advantages: substantial foreign currency reserves, balanced budget and low sovereign debt. Any worsening of those parameters is very dangerous in terms of the market reaction.

Also, the expert pointed to the fact that in Russia social risks were underestimated (in terms of the rate of inflation and possible unemployment). In Russia, for demographic reasons the rate of unemployment is rather low. However a conflict is looming over the horizon: on one side there is a growing number of pensioners, while on the other side, the youth which is not ready to work at those jobs which become available. According to Vladimir Mau, at present it is important to maintain people who can be workers in the real economy. In that field, a prudent weighted policy of social support of those people, rather than enterprises is required.