Alexey Vedev, Head of Financial Department of the Gaidar Institute, spoke in an interview to Invest-Foresight on a dramatic impact of pandemic on the Russian economy and the need to extend measures for direct support to businesses and households.
- How severe can a coronavirus pandemic affect the Russian economy, what do you think?
- The impact of this event on the Russian economy can be very severe. Moreover, it works in a team with two others, i.e. the fall in oil prices and the decline in the global economy. They have interlocked. I believe that the structural changes under the influence of "distance work mode" are somewhat exaggerated, but it is not doubtful that many will go broke and recover in different ways. However, the structural impact on the domestic economy will definitely take place. I agree that this crisis is comparable to the Great Depression as far as its impact is concerned. It is true that we have not experienced this depression, but the current pandemic will result in a crisis that all of us will gradually overcome. 

— How long this “gradually” may last?

 — They quote different figures. I can’t say for sure, but I think that the recovery will take fr om one to three years.

 - How do you feel about measures to support the households providing them with “cash” that is being done worldwide? Is it possible to do it here? Is this really necessary?

 - I initially advocated for a change in rhetoric: fr om “holidays” and loans to direct financing. Therefore, I believe that, truly, we must provide direct support. The amount from RUB 6 to 8 trillion must be targeted to direct funding. Especially, it concerns the households and small and medium-sized businesses. 

— What amount could be considered, in your opinion?

 - I totally agree with the view of many economists that we have the Federal Tax Service for accurate calculation. Definitely, about 80% of the reported salary has to be paid. Obviously, it is critical to compensate the costs to those who pay taxes. All this information is available, it is necessary to take into consideration, March, for example, or, probably, December of last year, when bonuses were still paid, and compensate 80% to those who paid taxes, individual entrepreneurs and small businesses, rather than RUB 12.000- odd, as it is proposed now. Moreover, it should be only direct financing, since anything else will not solve the problems. 
The rhetoric should be the following: the government should pay either from the National Welfare Fund, for example, or from direct emission of the Central Bank to make the “minus” less.

— By “minus”, do you mean the decline of GDP growth rate?

— Yes, minus in terms of the decline in economic growth rate.

— The government almost daily announces measures to support the economy and business. How do you think, are these measures sufficient and relevant? Maybe, it is worth considering any other additional measures? 

—- I think they are absolutely insufficient. The President’s statement (April 15 - ed.) became fundamentally different when the rhetoric turned to the substantive part regarding direct financing. This is right. However, the measures need to be somehow expanded.

- And how to expand them, in which perspective?

— I think it should be precisely  in the context of industries. As for the content, we need to switch to direct spending and, probably more significant one. I recall, by the way, how this is happening in Europe, wh ere small businesses get funds to pay wages promptly for three months in advance. This is not like in this country, wh ere funds will be given out as from May 18 to cover wages for April.

- What conclusions should be made about this pandemic in macroeconomic context?

— First of all, it is worth recognizing that this pandemic and its scale was quite a surprise. In my opinion, the government and the state were not prepared for it from a managerial point of view. And, last but not the least, conclusions must be drawn taking into consideration the public administration and steps to make it more effective.

- What do you mean by effectiveness?

— We need a health care reform, a reform of the government decision-making system. I believe that the National Welfare Fund is still a blessing in this situation. Although Europe, for example, does not have such a money- box. Therefore, in this case, by the way, I do not see the threat of inflation in Russia, and part of the problems could be resolved quite easily using money emission.