The recent slowdown of the Russian economy has fundamental roots and cannot be overcome by ‘simple’ measures like alleviation of monetary or fiscal policy. The major impediment to growth is marked weakness of the market environment, explained primarily with dominance of state-owned and quasi-state companies. Strong incentives for efforts to enhance efficiency by both business and public administration are required. The key objectives of policies needed to develop a new growth model are listed.
This article represents an extended version of the report "Scenarios of development for the Russian economy in the conditions of sanctions and falling oil prices" produced for the Civil Initiatives Committee in December 2014.
The paper looks into the impact of the Western financial sanctions on the Russian economy. The results of modeling of capital flow components (taking into account the influence of other factors, including the fall in oil prices) demonstrate that, apart from the direct effect of constraints on foreign funding for sanctioned state-controlled banks, oil, gas and arms companies, there is also a significant indirect effect of lower inflows of foreign direct investment and worsening funding conditions for non-sanctioned companies. The overall negative effect on gross capital inflow in 2014-2017 is estimated at about $280bn. However, the effect on net capital inflow is significantly lower ($160-170bn) thanks to self-adjustment of Russian companies evident in utilization of foreign assets accumulated earlier for debt repayment and overall decrease in gross capital outflow. The estimated sanctions’ effect on GDP is significant (-2.4 p.p. by 2017 as compared to hypothetical scenario without sanctions) but 3.3 times lower than the estimated effect of oil price shock.
The problems underlying the current slowdown of the Russian economy are of a persistent nature tal reason for these problems is the weak market environment dominated by public and quasi-public companies. A new growth model should be based upon strong incentive for the business, as well as the building such a model.
This article is an attempt to find a grounded answer to the question of why many large-scale economic development programs worked out in Russia from 2000 through 2010 have failed to yield the expected results. To this end, the author has diagnosed the Russian economy, including a comparative analysis against 20 countries at similar levels of development and analyzed both the Russian and global experience in developing and implementing economic programs. The author concludes that the development of the Russian economy is currently hindered by a rigid institutional framework and that growth cannot accelerate without removing it as part of the political process. Based on the analysis of various types of institutional reforms, specific measures are proposed that can ensure the country's evolutional development and can mitigate the economic and social risks threatening Russia if the status quo is maintained.
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