“We’ve saved wellbeing of millions of Russians” – Russia’s finance minister
Published: 18 April, 2011, 13:10
Edited: 18 April, 2011, 16:26
TAGS: Markets, Natural resources, Oil, Russia,Crisis, Crisis Chronicle, Currencies,Russia and the global economy, Budget,Modernization, Gayane Chichakyan, Inflation ,Government Spending, Modernization, Finance
The Russian economy looks pretty good compared to most developed countries that have either come close to or gone beyond the acceptable limit of national debt and entered the risk zone, Russia's Finance Minister Aleksey Kudrin told RT.
RT: As the uprisings spread through the Middle East and North Africa oil prices went up by 19 per cent, since the beginning of the year. What are the gains and losses of such a spike in prices for Russia, the world’s number one oil exporter?
Aleksey Kudrin: This will certainly slow down the global economy as a whole, it will bring down demand, including energy demand, and therefore at the end of the day oil prices will have to go down, too. That's one thing. Another thing is that such price volatility, when the prices swing up and down, is a big challenge for investors. Oil production investors need to have clear benchmark prices, and therefore seesaw prices make the investment processes very difficult.
RT:Many are saying that although Russia gains billions of dollars from high price oil sales, in the long run it may actually hurt the Russian economy. Is there a problem with how that super profit is being managed and invested inside Russia?
AK: The thing is that whenever the price grows significantly over a short period of time, Russia gets a large inflow of petrodollars and that either causes inflation, which again hinders investment into Russia as inflation causes the interest rates to go up, or leads to the strengthening of the ruble. A stronger ruble leads to a poorer export performance and increased import volumes, and makes imports cheaper thus making the imported goods competitive with domestic ones. This slows down the domestic production rates. Therefore, such an inflow of petrodollars can have a negative impact, and the Russian government puts part of these profits aside as a reserve in order to avert this negative impact.
RT: Let’s talk about currencies. How dependent is the Russian ruble on oil prices? How stable is its worth now and what should we expect in the future?
AK: Right now, we're strengthening the ruble a bit due to the increased oil prices. We surely understand that they won't stay this high for a long while – it could last for 12 or 18 months, but not in the long term. That's one thing. The other thing is that a stronger ruble leads to increased import volumes, which causes outflow of funds, Russia pays for the import and so the money in a way returns where it belonged. Thus, high oil prices at the end of the day get balanced out by the increased import, which ultimately leads to the ruble’s stabilization. We do not expect any significant changes to the ruble from a two to three year perspective.
RT: At the recent BRICS summit, the member states' development banks agreed to open credit lines in their national currencies rather than the US dollar. Is it a beginning of the end for the dollar's domination, what's your assessment?
AK: You shouldn't overestimate these measures. The talk was about simplifying procedures for businesses which may prefer to switch to other currencies, and thus facilitate cooperation between banks – by making these transactions simpler, by allowing them on our markets. Under any circumstances, no reserve currency, freely convertible or the world’s major currencies will be able to come near to competing with the dollar for many years ahead – I said recently for at least 20 years into the future. On the other hand, the arrival of the euro is in itself a big step putting pressure on the dollar, and when the euro zone lives to overcome its present difficulties – and I'm sure it will – the euro's significance in the global economy will continue to grow.
RT: The US is facing a debt crisis now, Europe is facing that debt crisis. Where does Russia stand when it comes to borrowing?
AK: Russia is one of those countries which are doing very well on the national debt. At the moment our national debt is about 11% of GDP. Just think that the Maastricht Treaty on the European Union sets the top limit at 60% of GDP. Most developed countries have either come close to or gone beyond this limit, and over the next five years we’ll see the average national debt figure grow almost by 100%, thus entering the risk zone which is unfavorable for the global economy. For instance, we know that Italy’s current debt exceeds 100%, and Japan’s debt is over 200%. These countries are already in the risk zone. Thus Russia looks pretty good compared to their situation.
RT: We heard President Medvedev saying many times the only way for Russia to break out of dependency on national resources is to modernize its economy, to diversify it. How is that process going?
AK: You see, we had these objectives stated in our long-term development plan up to 2020. The plan was developed before the crisis, and thus modernization is our objective. We have a large number of modernization projects on our budget. We didn’t cut down on them during the crisis; instead we increased their number, so all of our current priorities are linked to modernization.
The most important and fundamental goal of modernization is to bring down inflation and the interest rate on credits. In this case we'll be able to modernize all the basic sectors of economy.
The need for equipment renovation is huge in all sectors from oil refining and the metal industry to engineering, the space and aircraft industry as well as biological and nanotechnology – practically in all spheres. This process is underway today. Do you want me to name the industries that are being modernized most efficiently? Among them are the engineering and chemical industries, cellulose and paper industry. The process is now also active in the processing industries, first of all in home electronics production. A lot of new factories have been built. Recently, the process has spread to both pharmaceutical and automotive industries. A lot of foreign companies have made their way into the Russian market and started introducing new state-of-the art equipment, that is contributing to the modernization process in these industries. Even good old Avtovaz is included in the modernization project. So modernization gradually comes to all branches of industry but it can't be completed promptly if the credit interest rate is not lowered.
RT: How much would Russia's accession to the World Trade Organization contribute to that goal of modernization?
AK: It will definitely help to modernize Russian industry because the country will obtain free access to new technology and equipment. And, of course, foreign investors will realize that if they launch production in Russia, the goods they produce will go to all the markets of the world unhindered. Today the access for Russian products to the world markets is rather limited and there seems to be no point in investing in Russian industry which is barred from international markets and intended for internal use only. That's why once we have joined the WTO, more focus will be made on investments in Western-market-oriented production, say for the CIS and Europe, or even Asia and other regions of the world.
RT: You have said that Russia could join the WTO as early as this summer. We know the US administration is all for it, but there is still Congress which has to lift the Jackson-Vanik amendment first. And judging by their ability to stall things, including important win-win deals – For example the debates over the START Treaty, it was amazing how tense it was, how political rather than substantial it was – so what do you expect from the US lawmakers on the Jackson-Vanik amendment?
AK: The Jackson-Vanik amendment does not pose any real obstacles to Russia's accession to the WTO. I mean if the lifting of this amendment is delayed it doesn't mean Russia will have to abandon its intention to join the WTO. It will limit the US presence on the Russian market, cooperation between Russian and American companies will be affected. And Russian trade relations with other countries will be defined by the WTO regulations. That's to say American companies are in greater need of waiving the amendment than we are. Once again, Russia's WTO entry can be ensured with the amendment still in force. But if Obama's support of this step gets no parliamentary backing in his country, politically, it will be a certain sign for us – we'll draw our own conclusions.
RT: It's interesting that everybody in Washington keeps saying they would like to see a more open, more transparent Russia in terms of doing business, but now that Russia's willing to accept its set of WTO rules that will make it more open and more transparent, there are still forces opposing its WTO accession. Do you see any common sense behind it?
AK: The technical problems we have faced on the way towards the WTO basically involve the creation of special rules for individual sectors of the US economy and US companies. We have been working on this in the sphere of intellectual property and have resolved the issue. We've been working on phytosanitary control and have resolved the problems existing there. We have also discussed the issue of American chicken meat import quotas. Each time the issues got more and more difficult to resolve. The lifting of the Jackson-Vanik amendment was linked to tackling one such issue. I think the situation has grown absurd, for example, one of the Soviet human rights advocates who had served terms in various prisons of Russia at the time when the amendment in question was introduced, and it was designed to grant such people the right of free emigration from the Soviet Union, told me, "But I went to prison and for reasons other than US poultry imports". And I think the amendment should finally be lifted, the whole situation has long been overdue.
RT: Let's get back to some of the measures the Russian government is doing to make the country's economy more efficient, like selling large stakes of state assets to private owners or removing high ranking government officials from state companies’ management boards. Is it a way of reducing government influence on business and how does it work?
AK: Of course it is. It's what these measures are aimed at: reduction of state influence over business and stimulation of competition in the market. I believe the most important step is the sale of state holdings of shares. It deals with the largest share holdings of both oil producers and banks and also shipbuilding companies and others. The withdrawal of state officials from boards of directors substantially reduces the influence of top officials, but nevertheless the state will not cease influencing these companies, remember that they are state-owned. So it's more important to focus on selling the enterprises.
RT: You too are going to lose your seat on the board of directors of Alrosa, the world’s biggest diamond producer. Do you think the company will be better off without you?
AK: You know, we have approached a very important decision in Alrosa: for years we had been consolidating the company's assets, revising its property and reducing the costs of diamond mining and only two months ago it had its IPO and became a JSC. And I think I have fulfilled the tasks set, at least I consider them fulfilled.
RT: You have been Russia's Finance Minister for more than a decade now. What is your greatest achievement, any decisions that you regret?
AK: I think I can be credited with setting up a consistent, well-balanced budgeting system. This country had rather a high level of economic growth in the pre-crisis period. I expect it to go up to hit the pre-crises mark of five to six per cent in the next three to four years. And it will be another achievement. But even the current policy has brought some major results: first of all it’s the establishment of the RF Stabilization Fund and then the Reserve Fund and the National Welfare Fund. It helped Russia to survive the crisis much better than most other countries.
And you see even at the recent IMF session it was recognized, and the IMF session report proves it, that Russia has managed to retain financial stability. This saved the deposits as well as the wellbeing of millions of Russians. And it is the result of the policy we carried out. I'm proud of it.
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