Structural Reforms Should Have Been Started Yesterday

A year ago, about 30% of speakers were optimistic about the developments which took place at that time and many of them even avoided the mention of the word “crisis”, but at present everybody admits existence of serious problems in the economy.

Evidence of the crises started to emerge from 2013 when a downward trend in investment and business activities became quite discernable. It is to be noted that there was a decrease not only in foreign investments, but in internal ones, too: companies preferred to accumulate funds in their accounts rather than to invest them in their own production.

The crisis in question is of a structural nature, not of a cyclic one. If in 2008 there was a cyclic crisis, that is, the global economy was falling and then picked up again, at present the situation is different: though global economic growth rates are declining, they remain still positive, while the Russian economy demonstrates negative dynamics. Unfortunately, in such a situation hitting the bottom will not guarantee a subsequent recovery and growth.

The factor behind the present worsening of the economic situation was the fact that structural reforms were disregarded. Historically, amid high prices on oil the ruling bureaucracy is usually guided by false motives. To prove that, it will suffice to refer to the experience of the USSR. After Stalin’s death, the Soviet government carried out among other things a budget maneuver having cut substantially defense expenditures and increased spendings on healthcare and education and started to import food which situation engineered smooth economic growth. But from the mid-60s the resources of that mechanism started to be exhausted, so the government had to think about the prospect of granting more freedom to enterprises and the so-called Kosygin reforms were started. However, that process was hindered by detection of oil in Siberia in the late 60s and revision of the economic growth model: the authorities understood that amid high prices on energy commodities current problems could be dealt with by means of exports of crude oil. So, for quite a while the USSR existed at the expense of high oil prices, while structural reforms were never begun and that resulted in a complicated economic situation in the late 80s when oil prices started to fall.

The answer to the challenges of the 2000s was Gref’s economic program which was fulfilled only for 40% by the end of President V. Putin’s first term in office. Complete implementation of the above program was prevented again by appreciation of prices on energy commodities, so structural reforms were not required.

At present, a similar situation is observed: oil prices go down and everybody is talking about the need of structural reforms. An important lesson taken by modern Russia from the experience of the USSR consists in the fact that reserves should be accumulated while prices on oil are high. Thanks to Alexei Kudrin, those reserves were in place and helped Russia go through the 2008 crisis. Moreover, they will help the country to hold out for 1.5-2 years. However, if in 2008 it was a cyclic crisis, now it is a structural one and it is difficult to say how long it is going to last.

Unfortunately, so far recognition of problems in the economy and comprehension of the need to make relevant decisions do not materialize in full-scale structural reforms.

Alexander Knobel, Head of the Foreign Trade Department