Day 2 of the Gaidar Forum 2017

On January 13, representatives of the Russian authorities and foreign experts continued their discussion of the prospects of development of the Russian economy.

The second day of the 8th Gaidar Forum began with a panel discussion – Sustainable Economic Growth: A Model for Russia – under moderation of Sergei Sinelnikov-Murylev, Academic Director of the Gaidar Institute and Rector of the Russian Foreign Trade Academy.

Participants in the discussion were the following: Tatiana Golikova, Chairman of the Accounts Chamber of the Russian Federation, Аnton Siluanov, Finance Minister of the Russian Federation, Кsenia Yudayeva, Deputy Chairman of the Central Bank of Russia, Мaksim Oreshkin, Minister of Economic Development of the Russian Federation, Cyrill Muller, Vice President, Europe and Central Asia, World Bank and Аndrei Klepach, Deputy Chairman of the Vneshekonombank (Chief Economist).

Аlexei Kudrin. Chairman of the Board of the Center for Strategic Research Foundation and Chairman of the Supervisory Board of the Gaidar Institute delivered a key report. According to Alexei Kudrin, the old model does not work any longer in Russia, but the new model of the economy does not work, either. Alexei Kudrin says that resolute measures to start the new model have not been taken.

At present, Russia’s economic growth rates are at a low level, Alexei Kudrin stressed. Also, A. Kudrin drew attention to the fact that the country’s main problems were not related to oil prices alone, but were of internal nature. Among challenges facing the Russian economy, Alexei Kudrin singled out demographic problems, a lack of investments, technological inferiority, low quality of management and low efficiency. At the same time, he expressed confidence that resolute actions should be taken in carrying out of reforms and responding to challenges.

The forecast of the Center for the Center for Strategic Research Foundation implies raising of the pensionable age fr om 2020 for women to 63 years and for men to 65 years. According to Alexei Kudrin it is a predicted level.

In carrying out system reforms, by 2022 Russia may achieve economic growth rates of 4%, Alexei Kudrin says. According to Alexei Kudrin, if Russia does not carry out reforms its presence on global markets, including hydrocarbon markets may shrink.
“The funds we have at our disposal are the sources of long-term funds and they are not big enough”, Alexei Kudrin said referring to the investment situation.

“We should be more active on external markets and change the share of non-primary products”, Alexei Kudrin declared. According to him, the share of non-primary and non-energy products in exports should exceed 50% within the next 15 years.

“Why do we lag behind in technologies? In technologies, there are, certainly, more risks, a short planning horizon and overregulation. Even those measures which the government takes establishing supporting funds do not necessarily work. As a result, Russia is lagging behind in technologies. In my view, that is the most serious challenge”, Alexei Kudrin said. According to Alexei Kudrin, the main emphasis is to be made on development of technologies. “Dynamics of development of new technologies is such that one should not stand still.”

Then, Alexei Kudrin touched upon the institutions of management. “At present, the state of public management institutions and business environment is at the level which does not permit to solve the issues mentioned above”, Alexei Kudrin said.
“We should manage changes and optimize those processes which already exist”, Alexei Kudrin declared. Also, he called for digitization of state processes. According to him, a number of countries have already started such processes, while Russia risks being late and may never catch up with those countries in future. “The government should start with itself. We should transfer public management to new technological platforms”, Alexei Kudrin stressed.

Also, Alexei Kudrin spoke about the need to free private initiatives.

According to Alexei Kudrin, it is necessary to carry out a judicial reform, modify a personnel selection procedure and ensure independence of judges. “We need an independent arbitration”, Alexei Kudrin said.

In addition, Alexei Kudrin stressed the importance of permanent education.

Also, Alexei Kudrin believes that it is important to establish in Russia 10–15 large agglomerations which could become an alternative to Moscow and St. Petersburg and attract the youth to regions. “There are only two cities in Russia which can compete with the world’s leading cities as regards the quality of living. Young people in regions do not believe that they live in a modern country; one can only get familiar with the modern quality of living if he or she moves to Moscow.”

“We need a creative industry to transform industrial sectors and services”, Alexei Kudrin declared. As an example, he referred to the Apple Corporation and quoted Steven Jobs as saying that only 30% of the company’s employees were software programmers, while 2/3 of the remaining personnel was people of liberal professions who dealt with design and created high-quality and convenient products.

“The most important instrument is confidence. The level of confidence in the President is high, while in others it is low. It would be difficult to carry out reforms of the main institutions with such a low level of confidence”, Alexei Kudrin said.

Before the beginning of Alexei Kudrin’s report, all those present in the hall were asked to take part in a survey on the main challenges to the Russian economy. According to the outputs of the survey, inefficient public management was recognized as the major challenge to Russia.

In the course of the discussion of the report, Ksenia Yudayeva, Deputy Chairman of the Central Bank of Russia pointed out that the low rate of inflation was a method of creating an environment for economic reforms and higher differentiation of the economy. “There is confidence on the market, our forecasts show that a 4% rate of inflation is quite an achievable goal and we set an objective to retain it at that level”, Ksenia Yudayeva said. Reduction of the inflation target should be discussed as the economy and financial markets develop, Ksenia Yudayeva said.

Maksim Oreshkin, Minister of Economic Development of the RF said that his Ministry did not see any serious threats which could prevent the rate of inflation in Russia to amount to 4% in 2017. According to him, on the basis of the 2017 results the Reserve Fund will be preserved.

Maxim Oreshkin stressed the importance of carrying out fine tuning of the tax system in Russia. According to him, the RF Ministry of Economic Development expects a serious reduction of the rate of unemployment and growth in real wages. Maxim Oreshkin believes that the issue of quality of functioning of the RF financial system will be a priority to the Central Bank of Russia in the near future.

“Thankfully, Russia has overcome the shock of the oil price market”, Аnton Siluanov, Minister of Finance said.

Anton Siluanov said that his Ministry was working on the strategy of upgrading the system of pension accruals. According to him, the above document will permit to carry out a budget maneuver and allocate more funds to other sectors, for example, healthcare or education. Anton Siluanov said that the planned reform would be a “fair one”.

Answering the question if his Ministry was going to reform the existing system of fiscal federalism, Anton Siluanov said: “The Ministry of Finance is reviewing different issues, including the issue of fiscal federalism.”

In her speech, Tatiana Golikova, Chairman of the Accounts Chamber of the Russian Federation touched upon the issue of efficiency of state investments. “In reality, there is a serious problem related to undisbursed investments; state investments are highly inefficient. The preliminary results of 2016 point to the fact that state investments were carried out at an unprecedentedly low level as compared to all the previous years, that is, 90.4% short of the target”, Golikova said. “In natural units, as of December 1, 2016 only 73 projects were put into service out of 501 ones which were planned to be commissioned in 2016”, the Chairman of the Accounts Chamber said.

Also, Tatyana Golikova called for upgrading the social insurance system.

Answering the question about efficiency of state investments, Tatyana Golikova called for observing quite an obvious thing, that is, to comply with the existing legislation.

Commenting on Alexei Kudrin’s proposal to increase expenditures on healthcare and education, Tatiana Golikova said it was necessary to decide what the share of healthcare and education was and at what stage it would be appropriate to invest in those sectors. “Then, we shall be confronted with the issue of labor efficiency and technological lagging because depreciation in healthcare has exceeded 50% long ago”, Tatyana Golikova said.

Tatyana Golikova drew attention to imbalances in the social insurance system. In particular, she called for fighting the shadow employment as “people would not voluntarily declare it.”

In her opinion, raising of the pensionable age is not a panacea and that issue should be handled comprehensively.

According to Аndrei Klepach, Deputy Chairman of the Vneshekonombank there is a paradox: on the one side everybody agrees that it is necessary to do away with technological lagging, but on the other side expenditures on R&D have been reduced to the minimum in the past few years.

At the end of the discussion, all those present in the hall took part in another survey. Participants were asked to answer the question: what is the main factor behind a switchover to a new model of economic growth? Most votes were given to “personal readiness for changes” (47.2%), while “active participation of the President and government” and “low oil prices” were rated the second and the third, respectively (34.78% and 18.01%). Commenting on the results of voting, Alexei Kudrin summed it up as follows: “I am glad that everyone is ready for changes. Let us discuss, analyze and take coordinated steps.”

A panel discussion -- Competitive Policy Priorities – was held under moderation of Аndrei Makarov, Chairman of the State Duma Committee for Budget and Taxes.

Participants in the panel discussion were the following: Igor Shuvalov, First Deputy Prime Minister of the Russian Federation, Igor Artemiev, Head of the Federal Anti-Monopoly Service, Аnatoly Aksakov, Head of the State Duma Financial Market Committee, Аlexei Likhachev, General Director of Rosatom, National Nuclear Corporation, Аlexei Mordashov, Chairman of the Board of Directors of PJSC Severstal, Esko Aho, Chairman of the Board of Directors, East Office of Finnish Industries, Prime Minister of Finland (1991–1995).

During the panel discussion the following issues were discussed: ethics and eternal values of competition; in which areas should protection be reduced; should protection of Russian companies fr om foreign competition be reduced; should public procurement be used to support businesses; what should we answer to those who will suffer fr om the competition?

The floor was given first to Esko Aho, Chairman of the Board of Directors, East Office of Finnish Industries, Prime Minister of Finland (1991–1995). Esko Aho told about the experience of Nokia – the company which survived both the rise and fall -- where he worked for many years.

Аlexei Mordashov, Chairman of the Board of Directors of PJSC Severstal said that fr om Nokia’s experience “one may take all or almost all.”

According to Alexei Mordashov, “without competition we cannot achieve economic growth and growth in the living standards of our people”. Alexei Mordashov stressed that competition in Russia has always existed and will remain in future. Also, Alexei Mordashov noted that the standard of living in Russia had improved substantially over the past 20 years and the completion contributed much to that effect.

Giving the floor to Igor Shuvalov, Andrei Makarov asked him not to cite as an example of competition the Rosneft and the Gazprom.

According to Igor Shuvalov, the biggest problem consists in shrinkage of the competitive field due to the fact that tenders are not held in some cases at all and providers of services are assigned by the government. As an example, the First Deputy Prime Minister referred to building of stadiums for the 2018 Football World Cup.

Answering the moderator’s question about the use of public procurement for support of small and mid-sized businesses, Igor Shuvalov said that he was confident that that mechanism was effective.

Igor Shuvalov paid attention to the fact that though the country had a good legislation and the Federal Antimonopoly Service was doing its job well, problems related to competition prevailed anyway. Igor Shuvalov believes that problems with competition stem fr om regional and municipal authorities which rarely hold tenders and conclude often agreements with those “whom they know well and for long”.

Speaking about sanctions, the First Deputy Prime Minister said that he accepted both sanctions and counter-sanctions as a given. “Probably, time has come to understand that sanctions and counter-sanctions will be lifted soon”, Igor Shuvalov said. Igor Shuvalov does not exclude that counter-sanctions may be lifted by Russia on December 31 in case of improvement of relations with the West and market players should take that into account.

Igor Artemiev, Head of the Federal Anti-Monopoly Service spoke about the advantages of the competition. Igor Artemiev stressed that competition was needed for development, technological breakthroughs and economic growth. According to Igor Artemiev competition is a basic necessity of the liberal economy, however, that economy needs social counterbalance, that is, social guarantees. Also, Igor Artemiev said that he would not like the Federal Anti-Monopoly Service to turn into “another agency of cops”. He would like his agency of “white-collar workers” to remain as it is now.

Igor Artemiev is confident that in the near future liberalization of the domestic gas market, as well as the railway infrastructure market will open up great prospects for competition. Also, he believes that the competition will be growing in the pharmaceutical market. According to Igor Artemiev, competition can develop successfully in all the sectors in Russia. It is important to ensure that competition is promoted prudently.

Svetlana Avdasheva, Professor of the National Research University Higher School of Economics said that the Federal Anti-Monopoly Service should be thanked not for what they did, but for what they managed to prevent.

The moderator of the panel discussion – Industrial Policy: Attraction of Investments under Sanctions – was Yermolay Solzhenitsyn, Managing Partner of the Moscow Office of the Mckinsey & Company.

Participants were asked to discuss the following issues: how can the overcoming of raw material dependence and diversification of the Russian economy influence the place of Russia in the global distribution of production; what practical steps should be taken first to implement the policy of attracting investments into the industry; what advanced sectorial makeup would be the most beneficial to Russia; what industries can become engines of growth and have traditional industry tools reached their limits?

Participants in the discussion were the following: Denis Manturov, Minister of Industry and Trade of the Russian Federation, Valentin Gapanovich, Senior Vice President of OJSC Russian Railways, Pyotr Fradkov, Director General of JSC Russian Export Center, Kirill Dmitriev, CEO, Russian Direct Investment Fund, Dmitri Zauers, Deputy Chairman of the Management Board, Gazprombank and Аlexei Rakhanov, President of the JSC United Shipbuilding Corporation.

Speaking at the Forum, Denis Manturov, Minister of Industry and Trade of the Russian Federation said that Russia was going to double exports of agricultural machinery by 2018. Also, Denis Manturov stressed that at present it was impossible to abandon subsidies on development of industrial production in Russia.

According to Denis Manturov, car sales indices in 2017 are expected to be in no way worse than in 2016, while in industry small growth is expected.

Within the frameworks of the expert discussion – The Financial Infrastructure of Economic Growth – participants tried to assess the quality of the Russian financial system in terms of its potential to accumulate savings, evaluate and imply system risks and attract long-term funds. The moderator of the discussion was Оleg Vyugin, Member of the Board of Directors of BINBANK who gave a negative assessment of the state of things in the Russian financial system. “Long-term funds are not generated in the financial system. The financial system has funds, but not for long-term projects. The system of assessment and implying risks is not satisfactory, either”, Oleg Vyugin said.

Mikhail Zadornov, Board Chairman of the VTB24 who was present at the roundtable discussion said that despite the crisis households’ confidence in banks remained strong which fact was underpinned by deposit volume growth. However, transformations were underway in the banking sector due to new digital technologies. According to Mikhail Zadornov, banks will have to adjust to customers and promote internet/mobile banking whether or not the introduction of new technologies yields additional profits.

Sergei Drobyshevsky, Scientific Director of the Gaidar Institute noted that the Russian financial system was better prepared for economic growth though it remained one-sided: institutions of the banking and non-banking sectors were still underdeveloped. “It is not the issue of regulation or development of the makeup of the banking sector. It is important to carry out institutional and structural reforms. We are inconsistent in the pension reform as we still do not know what to do with the funded pension which is a key source of long-term funds for the economy. So, there is no environment for formation of such funds in the financial system”, Sergei Drobyshevsky stressed.

Sergei Drobyshevsky is more skeptical about the state of the global financial system. ”One cannot say that the global financial system has finally overcome the consequences of the 2008 crisis and a new model of sustainable growth has been formed. But quantitative easing programs implemented in the US and a number of European countries have largely distorted risk assessment and the system’s sensitivity to risks”, Sergei Drobyshevsky said.

Touching upon the issue of long-term funds, the expert singled out a few factors which prevented accumulation of such funds. “Firstly, it is the level of the rate of inflation which determines investors’ confidence in the national currency and their behavior. A high rate of inflation makes investors choose the most optimal strategy, that is, investing in short-term funds. Secondly, households’ low incomes do not stimulate individuals to invest in pension funds, either. Households with average income prefer to invest in real-estate, while households with high income do not invest in long-term projects because their ownership rights are not duly protected. Thirdly, insurance is historically perceived as the lost money, so the insurance market is not regarded as a source of long-term funds“, Sergei Drobyshevsky summed it up.

In his turn, speaking about long-term funds in the Russian financial system, Sergei Shvetsov, First Deputy Chairman of the Central Bank of Russia said that in the period of 15 years till 2014 mostly foreign long-term funds accumulated in the financial system, while with introduction of sanctions they had to look for long-term funds on the domestic market. According to Sergei Shvetsov, pension funds, insurance companies and equity and bond markets can be a source of such funds. Sergei Shvetsov noted that enterprises own funds accounted for 85% of investments, while the borrowed funds, for the mere 15%. “Banks should not be requested to take interest risks in providing long-term funds to companies. They should support companies’ working capital, while the latter make investments themselves”, Sergei Shvetsov said.

Also, Sergei Shvetsov stressed that in Russia individuals were not accustomed to invest in equities and bonds, but preferred bank deposits (short-term investments) as they did not have to pay taxes on deposit income and they were protected by the deposit insurance system. “People do not even know that there are alternative investment instruments”, Sergei Shvetsov said.

Yekaterina Trifonova, CEO of the Analytical Credit Rating stressed the importance of cultivating a domestic investor in order to manage risks and control the situation.

More than 120 participants gathered at the panel discussion -- A Long-Term Strategy of Development of Agriculture in Russia and the World – wh ere they were asked to discuss a few issues related to challenges and goals of strategic development of agriculture in Russia and its regions. The moderator of the discussion was Natalia Shagaida, Director of the Center for Agrifood Policy, RANEPA and Head of the Department of Agricultural and Food Policy of the Gaidar Institute.

Participants in the discussion were the following federal officials: Andrei Fursenko, Assistant to the President of the Russian Federation, Yelena Astrakhantseva, Deputy Minister of Agriculture of the Russian Federation; Yevgenia Serova, Head of the Moscow Office of the UN Food and Agriculture Organization for the Russian Federation; Governors of large agrarian regions: Yevgeny Savchenko, Governor of the Belgorod Region and Alexander Karlin, Governor of the Altai Territory; business representatives: Sergei Filippov, CEO of the Dmitrov Vegetables Group and Vladislav Shershulsky, Director, Technology Cooperation, Microsoft.

Topicality of the discussion is justified by the fact that agrarian policy documents are based on the agricultural production growth paradigm. The aspects related to sustainable development of the agriculture, such as the state of the agricultural science, agricultural education, ecological issues and other are beyond the focus of the agrarian policy and their presence is mostly of declarative nature. At present agricultural growth models aimed at domestic demand by the main group of products, export demand on wheat and vegetable oil and import substitution have actually reached their limits. The goal of the panel discussion was to determine how the agrarian strategy is to be modified in such an environment and form new approaches.

As a result of the discussion, it has become clear that in Russia there is a one-sided understanding of sustainable development – sustainable growth in production. According to Yevgenia Serova, sustainable development is such an organization of agricultural production wh ere a new generation could have access to resources and engage in agriculture on the scale which would meet households’ needs in food. Yevgenia Serova said that agrarian production was highly unstable in Russia due to insufficient utilization of modern technologies which reduced the impact of nature on production. In addition to that, Yevgenia Serova noted that the notion of food security was related to meeting of needs in physical terms and no proper attention was paid to such issues as overeating, economic affordability and waste reduction. Yevgenia Serova singled out aspects which should be taken into account in development of the strategy: protection of soil and water, reforms in education and agricultural science and promotion of knowledge on healthy nutrition for people.

Yelena Astrakhantseva touched on the agrarian sector R&D forecast the till 2030 prepared by NRU Higher School of Economics. According to the Ministry of Agriculture of the Russian Federation, a Global Breakthrough development scenario is a priority one. It envisages development of export potential, diversification of the agrarian sector, system integration of the agriculture, food industry and processing industry, promotion of resource efficiency and development of climate-adaptive infrastructure. The state support of the agrarian sector will be primarily aimed at formation of modern institutions, co-financing of strategically important science and technology projects, training of high-skilled experts, promotion of domestic products to foreign markets and development of the infrastructure for sustainable development of agrarian territories.

Yevgeni Savchenko noted that the strategy should take into account such issues as ecologization of production, extensive application of digital technologies and a switchover to animal breeding without utilization of antibiotics. Also, Yevgeni Savchenko touched upon the mechanism of a switchover to new goals which were mainly based on the state support and maintenance of a low exchange rate of the ruble against currencies of the main importers of Russian products. Within the frameworks of ecologization of production, it was proposed to monitor the ratio between the input and output nutritive mass, as well establishment of a network of suburban family farms. Those measures were meant to support small agrarian businesses which produced quality home-made products.

On the basis of experience of a dynamically developing region with a high share of rural population (44%) and experience both in production of food whose quality was equal to foreign analogs (cheese) and functioning in the area of a high-risk farming, Аlexander Karlin formulated a few priority lines of the agrarian strategy. Firstly, Alexander Karlin believes that orientation of individual regions on self-reliance is incorrect because each territory should be integrated into the structure of interregional and international labor division and make an emphasis on those industries which have competitive advantages. Secondly, Alexander Karlin calls for reviewing every region’s potential to enter a foreign market with products which have no analogs. He cited as example sport nutrition produced on the basis of natural and unique products. Thirdly, Alexander Karlin believes that development of rural territories should remain a priority as social control over such territories can be ensured through it. So, priority lines should still include provision of support to development of rural territories, reduction of agricultural producers’ costs related to entering of their products to foreign markets, identification of unique products and rendering of assistance in promotion of those products on domestic and foreign markets.

According to Аndrei Fursenko, the Strategy should include such lines as saving of people’s health, science and education and reduction of production costs. Accordingly, measures of implementation of those strategic goals should be developed. So, for reduction of costs it would be expedient to motivate producers to maintain high quality of production, processing and storage. The above measures may be effective for saving of people’s health, too, as they contribute to promotion of quality and safety of food. During the discussion with the audience, an idea was put forward that business and the Ministry of Agriculture should form a request for budget-funded research.

By comparative estimates, the agricultural science in Russia is financed 60 times less than in the US. It is not only the volume of funding, but the organization thereof that matters. So far, that issue remains unsolved.

Sergei Filippov spoke about educational issues, the standard of agricultural education and a lack of agriculturists and livestock experts. Sergei Filippov suggested that measures stimulating young people to receive education in agriculture and return to rural areas should be developed. Also, Sergei Filippov believes that it is necessary to promote a practical component of education.
During the discussion, the following concrete proposals were formed: to change the ratio of budget-funded vocational training places and reallocate funds to pay for training in lines which are most required in agriculture (agriculturists, livestock experts and other); to oblige graduates who received education free of charge in the most required lines of agriculture and were paid a stipend to work for minimum five years with an agrarian company, farm or rural administration; in case of refusal to work or reduction of that period the graduate has to return funds in proportion to the period he/she did not work; to develop the procedure for revival of the system of scientific-experimental farms of agricultural universities for expansion of practical studies during training. It would be expedient to envisage amendments to the land legislation so that an agricultural university could sublease a plot of land received in unlimited utilization to scientific-experimental farms for concrete purposes and develop a privatization procedure which ensures control over organization of such a tenant entity. Also, it is necessary to develop documents regulating activities of agricultural universities’ supervisory boards controlling scientific-experimental farms and create conditions for promotion of students’ practical work and other.

Vladislav Shershulsky touched upon the incentives and prerequisites of development of digital technologies in agriculture. His speech helped formulate another line of the strategy, that is, broad digital technology training of rural school children (within the frameworks of the rural economy course), farmers and experts of agricultural entities.

The discussion showed that the audience was much concerned about the following issues: growth in the share of hired workers in large agrarian entities; insufficient attention paid to development of rural areas; vagueness of the government’s plans as regards R&D that poses a threat both to implementation of the strategy for agrarian producers and development of rural areas as a whole.

Presentations to reports:
Y. Serova. Sustainable Development of the Agrarian Sector: Challenges for the World and Russia
Y. Аstrakhantseva. The Long-Term Strategy of Development of Agriculture in Russia and the World

The afternoon expert discussion – Technological Challenges and Economic Dynamics: What is Really Going On? Part 1 – was moderated by Vladimir Mau, Rector of the RANEPA.

Participants in the discussion included the following: Herman Gref, Chairman of the Board of the Sberbank, Аnatoly Chubais, Chairman of the Executive Board of ROSNANO, Pavel Betsis, President of Microsoft Rus, Аlexander Komissarov, Director of the Industry Development Foundation and Аlexander Surinov, Head of the Federal State Statistics Service.

Participants discussed among other things technological backgrounds and standard methods of economic growth assessment, as well as institutional implications of new technologies.

Аnatoly Chubais expects a few industrial clusters to emerge and develop in Russia in the next 5–10 years. The renewable energy sector is one of them. “The issue of the solar energy is already solved. The Russian equipment which surpasses foreign analogs has been created. It is KPD – 21. They have nothing of that kind in the world, but we already have it in Russia“, Anatoly Chubais said. Also, Anatoly Chubais mentioned the nuclear medicine. “Tens of thousands of people have been successfully diagnosed for cancer by means of a positron-emission method.”

According to Anatoly Chubais, the third cluster – industrial storage of energy -- does not exist yet. So far, nobody knows how to do it. At present, power is generated and consumed at one and the same moment. In the next 10 years, accumulation of power will be a routine thing in the world and Russia will face two options: either to buy the equipment or sell it.

Herman Gref noted that stagnation of the economy did not necessarily mean worsening of the living standard. “If one takes a look of multiple economies, there has been stagnation for quite a long period of time. But has the standard of living grown? Certainly, it has“, Herman Gref declared.

During the discussion, Anatoly Chubais and Herman Gref expressed different views on the prospects of alternative energy in Russia.

“Renewable energy sectors are going to appear in Russia in the near future. During the past 15 years amendments have been introduced into regulatory acts so that renewable energy startups could be launched. In the solar energy sector, they have created instrument engineering and put into operation solar energy plants. So, the solar energy has eventually come to Russia. As regards the wind energy, the work is still going on and in a year I hope I can tell you that the wind energy has successfully come to Russia, too”, Anatoly Chubais declared.

“So far, I do not see either the solar energy, or the wind energy in this country. You have said that is an established fact. Probably, we shall see it soon, too. I do not understand what the solar energy is needed for if prices on energy resources are low now. I just do not see any option wh ere the solar or wind energies may appear in this country in the next ten years”, Herman Gref opposed.

According to the Head of the ROSNANO, which company is one of the investors in alternative energy, “in Russia 90% of experts do not understand what this industry is like and what it is needed for.” “However, in the next few years, global alternative power generation will pass the grid parity point and its cost of production will be comparable to that of a traditional one. It is to be noted that the potential of technological upgrade of the solar energy is much higher than that of traditional power, so, it is inevitable that price curves overlap sooner or later and if we do nothing at present Russia will have to buy cheaper renewable energy”, Anatoly Chubais believes.

“In three-five years, it will be difficult to differ a robot form a man by its social functions, abilities and responsibilities”, Yevgeny Kuznetsov, General Director of the Russian Venture Company said.

Presentations to the reports:
• H. Gref. How to Choose the Economic Quality Indicator?
• А. Surinov. GDP and Economic Prosperity Measuring

In the evening, a panel discussion – Where the Talk Ends and Assistance to Small- and Medium-Sized Businesses Begin – was held.

Participants discussed the following issues: what do small- and medium-sized companies think about their development opportunities; how do they overcome economic challenges and administrative barriers; what assistance do they need; how do small-and medium-sized companies sel ect market niches for their business; do their products meet the requirements of large customers and what hinders small and mid-sized businesses?

The moderator of the discussion was Аlexander Braverman, CEO and Chairman of the Board of Directors of the Federal Corporation for Development of Small and Medium-Sized Businesses, JSC. The participants in the discussion included Igor Shuvalov, First Deputy Prime Minister of the Russian Federation and Dmitri Tulin, First Deputy Chairman of the Central Bank of Russia.

According to Dmitri Tulin, all the leading banks with state participation have started to extend more loans to small and mid-sized business entities. At the same time, he said that the program interest rate of 6.5% was unlikely to be reduced in the next two-three years.

Dmitri Tulin advised banks not to become co-investors of startups despite the fact that there was an apparent shortage in Russia of mechanisms of funding innovations of small and mid-sized business entities. “If banks start financing such projects, all other small and mid-sized entities which have successfully operated on the market for a long period of time will have to pay quite a high interest rate on loans against floating assets due to the fact that banks have to make up for their losses related to those startups”.

“Cakes are baked by a baker and shoes are made by a shoemaker”, Dmitri Tulin concluded.

Also, Dmitri Tulin declared that volumes of lending to small and medium-sized companies and the share of loans to small and mid-sized business entities in banks’ portfolios had stopped falling. “Generally, lending to small and mid-sized businesses reached its peak in Russia in mid-2014 as regards both accumulation volumes and the unit weight of loans to small and mid-sized businesses in the banking sector’s assets and loan portfolios. Then, lending volumes and the share of loans started to go down. The maximum share of lending to small and mid-sized companies in loans to nonfinancial entities was equal to about 23% and then it fell to 14% by 2016. At present, the situation has stabilized and both the share and volumes do not fall anymore.”

In his speech, Igor Shuvalov stressed that the issue of lending to small and mid-sized business entities by banks with state participation in their capital cannot be solved by administrative measures alone. At the same time, Igor Shuvalov praised the work of the Russian Central Bank as regards relations with small and mid-sized businesses.

According to the First Prime Minister of the Russian Federation, uncertainty is the main challenge for businessmen. “Lending is not the most important issue (for development of the business). We know from the feedback received directly from businessmen that they are much concerned about uncertainties they face in their business. They want to know and ask us how much the ruble will cost in a year? They ask other questions, too, about taxes and what we are going to do with a simplified taxation system?”

Аnatoly Popov, Senior Vice President of the Sberbank proposes to reduce the ultimate rate offered to small and mid-sized businesses within the frameworks of the easy-term lending program from 6.5% to 5.5%. In 2016, The MSP corporation extended Rb 50bn worth of guarantees under the 6.5% interest rate program.

The level of overdue debt under the 6.5% interest rate program is almost nil with Promsvyazbank, said Dmitri Ananiev, Chairman of the Board of Promsvyazbank. According to Dmitri Ananiev, it would be expedient to expand the range of priority lines of activity for receipt of easy-term lending under that program. At present, the program is available to businessmen operating in such priority lines as industry, agriculture and tourism.

Svetlana Orlova, Governor of the Vladimir Region proposed to hold a seminar in the region for representatives of authorities, banks, non-government organizations and small business. Svetlana Orlova said a law on international cooperation was needed for regions. “We need a law on international cooperation because regions may do what the country cannot do in some cases. We can attract investments and enter markets, too”, she said.

At the expert discussion – The Strategy and Tactics of the Monetary Policy of the Central Bank of Russia – the following issues were discussed: priorities of the monetary policy, management of inflation expectations and promotion of efficiency of a transmission mechanism of the monetary policy. Pavel Trunin, Leading Researcher, RANEPA and Head of the Center for Macroeconomics, Center for Strategic Research Foundation was the moderator of the discussion.

The discussion was opened by Sergei Drobyshevsky, Scientific Director of the Giadar Institute who presented possible options of the monetary policy of the Central Bank of Russia in the mid-term prospect. According to Sergei Drobyshevsky, the inflation rate in Russia is still a problem because its level is much higher than in most developed and developing countries, so reduction of the rate of inflation is still a topical issue. “The long-term goal of the Central Bank of Russia and the Ministry of Economic Development of the Russian Federation is to achieve the inflation rate of 4%. However that level is 1 p.p.-3 p.p. higher than in OECD countries, but closer to targets of central banks of developing countries (from 2% to 6%)”, Sergei Drobyshevsky said.

According to Sergei Drobyshevsky, the instrument that reduces the inflation rate is the inflation targeting regime under which the inflation indicator is a kind of a notional anchor. “The declared level of a 4% inflation rate by the end of 2017 is justified for Russia. More frequent changes in the declared rates are unwelcome because it affects inflationary expectations of economic agents. In future, the Central Bank of Russia should adopt tougher guidelines and gradually switch over to inflation targeting at the level of 2%-3%”, said Serge Drobyshevsky. However, implementation of that scenario can be prevented by a lack of coordinated policy between the Russian Central Bank and the Ministry of Finance.

As regards foreign exchange policy, Sergei Drobyshevsky believes that the free floating regime should be preserved as it is compatible with inflation targeting: all the countries targeting the rate of inflation maintain a free floating regime of the exchange rate. “A floating exchange rate permits the economy to adapt better to trade shocks which factor is particularly important to the Russian economy as seen from experience of 2014–2015. Thanks to the floating exchange rate, the economy has managed to adapt faster to a new environment and a dramatic economic slump was avoided. The scenario of rapid growth in oil prices in the foreseeable future is not considered so the floating exchange rate regime will be acceptable and it will help do away with short-term shocks and contribute to appreciation of the ruble real exchange rate that does not depress the real sector of the economy”, Sergei Drobyshevsky said.

Also, Sergei Drobyshevsky touched upon coordination between the fiscal policy and the monetary policy. Higher coordination is needed between the monetary policy and the fiscal policy in a situation of sustainable budget deficit. Financing of the budget deficit affects money supply in the economy, so, the Russian Central Bank has to take additional measures to avoid pressure on the rate of inflation. In such a situation, further promotion of the interest rate by 50 b.p.-100 b.p. with the inflation rate target of 4% achieved is not a substantial growth in the interest rate that permits to make up for the effect from preservation of the budget deficit.

However, there are inflation rate factors which are beyond control of the Central Bank of Russia: indexation of regulated prices and tariffs (annual indexation of tariffs on power- and gas-supply, public utility services and railway carriage), growth in excises on fuel in 2013 and 2016 and regular growth in excises on tobacco and alcohol. Indexation of pensions and wages in the public sector ahead of the inflation rate is a factor against reduction of the rate of inflation. The effect of inflation factors which are beyond the control of the Central Bank of Russia can be reduced to the minimum through adjustment of the key interest rate depending on indexation of tariffs: +25 b.p.–30 b.p. per 1 p.p. of advanced tariff indexation.

In addition to that, Sergei Drobyshevsky touched upon the issue of formation of long-term funds in the economy. In the Russian financial sector, the legislative and institutional environment has been formed for development of non-banking financial institutions, but long-term funds have not appeared. A high rate of inflation and inflationary expectations prevent a reasonable economic agent to make long-term investments. So, key macroeconomic policy measures in that field include reduction of the rate of inflation, development of the pension system and the life insurance system and other.

In his turn, Igor Dmitriev, Director of the Monetary Policy Department of the Central Bank of Russia said that the Central Bank of Russia was looking for a threshold inflation rate level wherefrom further growth in the inflation rate would have an adverse effect on economic growth. According to Igor Dmitriev, for developing countries inflation threshold value amounts to 4%–5%, while for developed countries, to 1%–3%. “It is important to understand wh ere that threshold for Russia is. At the same time, we proceed from the fact that the threshold value is not optimal”, Igor Dmitriev said. According to Igor Dmitriev, it is necessary to have a broader view on the transmission mechanism of the monetary policy and factors beyond the control of the Russian Central Bank. Igor Dmitriev believes that the monetary policy should not react to short-term fluctuations as the system has to adjust itself. However, when fluctuations of inflationary expectations are fixed in the pricing policy and salary policy, monetary policy measures need be used to anchor inflationary expectations and return to the inflation target.

In her speech, Polina Badasen, Deputy Director of the Budgetary Policy and Strategic Planning Department of the Ministry of Finance of the Russian Federation singled out a few points wh ere the monetary policy and the budgetary policy could overlap and network. According to Polina Badasen, both the monetary policy and the fiscal policy influence consumer demand and the rate of inflation. In carrying out the monetary policy, the monetary authorities perceive the budgetary policy as a condition. However, implementation of a one-way monetary and budgetary-fiscal policy – in terms of the effect on aggregate demand – appears to be quite complicated as known from the international practice. According to Polina Badasen, in the past two years there was successful coordination between the monetary policy and budgetary policy in Russia: due to the fact that expenditures were not indexed to a high value, an inflationary-devaluation spiral was avoided.

According to the estimates of Natalia Orlova, Chief Economist of the JSC Alfa-Bank, in 2017 the rate of inflation is going to amount to 6%, which is justified by growth in state expenditures and indexation of wages and social payments. “Budget deficit growth is related not only to a drop in revenues, but also growth in expenditures on social obligations, wages and salaries to public sector workers, defense and other. However, it is impossible to carry out a tough budgetary policy amid a zero % growth”, Natalia Orlova said. According to her, in 2017 a rise in the inflation rate is possible due to a retail lending surge which factor is to force the Central Bank of Russia to pursue a tougher monetary policy. Also, Natalia Orlova paid attention to the issue of substantial overdue debt growth on the balance-sheet of the banking sector as it implies serious risks.

Оleg Solntsev, Head of Monetary Policy and Banking Sector Analysis, Center for Macroeconomic Analysis and Short-Term Forecasting presented the outputs of research into structural surplus of the banking sector liquidity. A substantial contribution to formation of the money supply is made not only by monetization of the budget deficit, bus also cash funds. According to Oleg Solntsev, the existence of structural deficit or surplus is a cycle process integrated into the financial sector and related to credit cycle fluctuations. The above assumption was checked by econometric methods on the basis of a sample of developed and developing countries with utilization of various metrics of the credit cycle. The research outputs pointed to existence of the effect of autonomous dynamics of credit market fluctuations on the factors of formation of liquidity surplus/deficit in the Russian environment. Oleg Solntsev believes that if a credit cycle phase is taken into account reduction of the Russian Central Bank’s key interest rate will not speed up the inflation rate.

According to Еvsey Gurvich, Head of the Economic Expert Group, the mechanism of the inflation rate suggests existence of the inflation rate of costs and the inflation rate of demand. The inflation rate of costs is a mechanism under which prices are affected by excessive growth in costs, while the inflation rate of demand suggests dependence of costs on aggregate demand. The monetary policy may have an effect on costs through its influence on aggregate demand, thus reducing the rate of inflation. Evsay Gurvich says that calculation outputs showed existence in the Russian economy both of the inflation rate of demand and the inflation rate of costs. Due to the above, it is impossible to solve the issue of the inflation rate by monetary policy measures alone. A special attention is to be paid to the state of the labor market in Russia. In particular, excessive growth in labor remuneration following growth in labor efficiency should be avoided, retirement age should be raised and the excessive number of public sector workers reduced.

Presentations to reports:
S. Drobyshevsky. Scenarios of the Russian Central Bank’s Monetary Policy in the Short-Term Prospect
I. Dmitirev. Priorities of the Monetary Policy of the Central Bank of Russia and the Response of the Monetary Policy to Inflationary Shocks
P. Badasen. Networking between the Budgetary policy and the Monetary Policy
N. Orlova. Inflation Targeting: Challenges for the Central Bank of Russia
О. Solntsev. Evaluation of the Credit Cycle Effect on Formation of Structural Surplus of the Banking Sector Liquidity and Implications for the Monetary Policy

The expert discussion – Technological Challenges and Economic Dynamics: What is Really Going On? (Part 2) – was opened by Carol Leonard, Professor of the Oxford University, Director for the Center for Russian Studies, Institute of Social Science, RANEPA. According to Carol Leonard, the expert discussion with participation of experts in long-term economic growth is aimed at getting a better idea of changes in long-term growth due to the effect of fundamental variables and shocks and what can be done to speed it up.

The first roundtable session dedicated to the analysis of technologies and long-term growth was opened by Knick Harley, Emeritus Fellow, University of Oxford, who presented his views on economic growth and technical progress in the modern world.
In his report, Аlessandro Nuvolari, Nuffield Collage, University of Oxford touched on innovations which contributed to sustainable economic growth. Analyzing the statistics on patents dating back to the period of the Industrial Revolution in Great Britain, Alessandro Nuvorali found out that though innovations had appeared in the country’s different sectors, the breakthrough innovations in terms of economic growth were related to a limited range of lines: textile production upgrading, invention of steam engines and steelmaking.

Opening the second session of the roundtable discussion which was dedicated to the analysis of economic growth factors and efficiency, moderator Мaria Kazakova, Deputy Head of the International Department of Budget Stability Research of the Gaidar Institute gave the floor to Chris Parageorgiou, Deputy Division Chief of the International Monetary Fund who delivered an inducement report in which he outlined the general context of economic growth.

Мaria Kazakova said that the discussion focused on the analysis of modern economic growth factors as applied, primarily, to Russia, as well as methods of stimulation of economic growth in future. In particular, within the frameworks of the session, participants discussed such issues as main sources of economic growth, the role of institutions in increasing export technological complexity and efficiency of Russian companies in carrying out technological breakthroughs in Russia. Maria Kazakova stressed that though economists paid attention to those issues in the past, new models and approaches had been developed in theoretical and applied economic science in the past decade (in particular, an approach to evaluation of export technological complexity developed by R. Houseman, Harvard University and Caesar Hidalgo, MIT). In other words, the economic science has attained such results that permit it to provide more comprehensive answers to the above issues. In addition to that, those issues have become of crucial importance to the Russian economy amid serious external and internal shocks, such as a drop in oil prices, geopolitical instability and slowdown of structural factors of growth.

In his report Ivan Lyubimov, Senior Researcher of the Gaidar Institute stressed the importance of promoting diversification and economic growth. Citing as an example a few episodes from international experience, Ivan Lyubimov spoke about the role of the initial export makeup in future development of export production and decisions which helped form incentives for establishing new export industries, some of which led to higher complexity of export baskets of some developing economies.

Such issues as the quality of institutions, liquidation of technological lagging, diversification and formation of a single market in the context of growth intensification are highly topical for Russia. Those issues can be reviewed not only at a country level (or individual regions), but also in a sectoral dimension and at the level of enterprises. Due to the above, the report by Ilya Voskoboinikov, Senior Researcher of NRU Higher School of Economics was of great interest. In his report, Ilya Voskoboinikov analyzed changes in the pattern of growth sources before and after the 2008 crisis and showed that out of the three main pre-crises sources of the 1995–2008 growth efficiency growth at the expense of adaptation of technologies in commodity sectors, finances and business services stimulating growth in relocation of workers and growth in capital in the oil and gas sector and services which did not require high-skilled workers only the latter kept working in the post-crisis period. So, development of the environment to promote efficiency of the industry and agriculture is becoming a key factor behind sustainable long-term growth.

The report by Аnna Fedyunina, Director of the Analytical Center, St. Petersburg Campus, NRU Higher School of Economics was dedicated to correlation between the extent of complexity of production and growth. Anna Fedyunina spoke about the outputs of her research carried out jointly with Professor Sergei Kadochnikov, Director of the St. Petersburg in which she sought to determine the factors behind success of fast-growing Russian companies: either they achieved it with utilization of complex modern technologies or by opening up new markets. The outputs of the research point to the fact that most companies grow thanks to agglomerative effects, while the level of utilized technologies is highly incoherent. In other words, at present the institutional environment of Russian regions is a serious obstacle to growth.

Summing up the results of the second session of the roundtable discussion, Maria Kazakova noted that all the reports presented outlined potential long-term sustainable growth sources which in reality were interlinked. Actually, economic growth is largely related to economies’ potential to promote production efficiency. Instruments for such growth are as follows: new breakthrough technologies; development of new export production and integration into international production chains; institutions facilitating technological modernization and development. Certainly, individual countries have their own specifics and it is to be determined in which sectors breakthrough technologies may yield the best economic effect, which lines of economic diversification are the most preferable ones for achieving the optimal result and, finally, which institutions require modernization and what factors hinder growth the most and need to be dealt with urgently. According to Maria Kazakova, comprehensive identification of the most serious growth limitations is dealt with by “growth diagnostics” which is a new domain of economics and deserves another roundtable discussion.

The third final session of the roundtable discussion was dedicated to current economic policy issues. A topical issue of the post-industrial world which has been discussed by economists for decades is a growing lagging of economies of the European Union from the US fr om the mid-1990s. A special attention was paid to the report by Аnders Аslund, Senior Advisor of the Atlanic Council. Anders Aslund presented his views on economic policy measures of the European Union aimed at eliminating the gap with the US in the post-crisis world. Anders Aslund’s proposals come down to easing of economic regulation, promotion of competitive environment, motivation of development of high technologies and innovations and formation of common markets of energy, services and e-commerce. According to Anders Aslund’s estimates, such reforms will speed up growth of European countries by 1 p.p. John Zysman, Professor of University California-Berkeley, Founding Director of Berkeley Roundtable on International Economics and Мathilde Mesnard, Deputy Director for Financial and Enterprises Affairs, OECD answered questions related to a search for incentives for efficiency growth and technological transformation and discussed which decisions in social, political and business areas contributed to technological transformation. The report by Pyotr Kaznacheyev, Director of the Center for Resource Economics, RANEPA was dedicated to the post-shale revolution and promotion of efficiency amid lower prices on oil and other types of primary products. Also, Pyotr Kaznacheyev spoke about utilization of artificial intelligence as a method of reducing costs and raising labor efficiency in power-engineering.

At the end of the roundtable discussion, Carol Leonard and Maria Kazakova thanked the participants and the audience for an interesting and comprehensive discussion.

Presentations to reports:
А. Nuvolari. Patents and Innovations: Some Unconventional History Lessons
I Lyubimov. Growth, Export Complexity and Binding Constraints
А. Fedyunina. Do Small and Mid-Sized Russian Companies Contribute to Technological Development? The “First Approach” to Search for Growth Factors