Stable economic policy is the best anti-crisis measure
Dmitry Butrin, Pyotr Netreba
Prime Minister Vladimir Putin acknowledged for the first time on Thursday that the Russian Government's handling of the economic crisis was for the most part a reaction to force majeure. The Government does not plan any essential changes in the country's economic development strategy, he said.
On the contrary, he considers the Government's earlier economic policy to be a major factor in helping Russia's economy weather the crisis and preserve its potential for a better tomorrow.
That policy also includes Russian capital's moderate Western expansion, as suggested by the Prime Minister's tentative hint.
The Russian Government's fight against the economic crisis in fact crossed into the next phase on Thursday, November 20. Prime Minister Putin announced a major tax cut, by over 1% of GDP, at a congress of the ruling United Russia party. He also gave a few explanations of the goals and objectives of the Kremlin's and the Government's anti-crisis economic policies.
His speech was seconded by official statements from First Deputy Prime Minister Igor Shuvalov after the meeting and complemented by several anonymous sources in the Government who explained what was going on.
First of all, the Prime Minister assured his audience that the Russian Government's actions were similar to other countries' policies in dealing with this force majeure. The "stabilisation package" aimed at supporting the economy was a natural and prompt reaction.
The Government began with injecting over 1 trillion roubles into the country's banking system, then went on to "pinpoint" solutions to support companies and banks in September and October of 2008, refinancing banks through Vnesheconombank and adopting an economic rehabilitation package on October 30. The tax cuts announced Thursday include reducing the profit tax and several other taxes to a total of 556 billion roubles.
"We certainly did the right thing by giving money to the banks, as many other countries did the same. Otherwise, the economy could have slid into bigger problems. We have managed to revive settlements. Lending is growing too, although it is unclear how much of this growth is really a revision of old loan agreements. In any case, the system is running, even if it is not as well as we would like it to be," Mr Shuvalov said.
The current measures to support the industry follow the same logic: it is assumed that these are temporary measures. Social taxes will be raised to 2% of the GDP in 2010, the year the Government expects the crisis to end.
Mr Putin did not cite any economic policy problems that could have conditioned the crisis. On the contrary, he said the Government's policy in the past few years - meaning Finance Minister Alexei Kudrin's and former Presidential Economic Adviser Andrei Illarionov's successful push for setting up a stabilisation fund - in fact enabled the Russian economy to retain relative stability in the face of the crisis.
The Government is not planning to change any of its 2005-2008 plans, from national projects to infrastructure spending. Mr Shuvalov confirmed yesterday that the Government would not revise the concept of Russia's social and economic development through 2020, or any major infrastructure projects. He said the May decision to hike natural monopolies' tariffs in 2009 would not be changed, either.
It appeared from Mr Putin's presentation that the Government would stick to its controversial policy of fuelling domestic demand through state investments, and even keep the defence allocations moderate, a mere 50 billion roubles in 2009. It will pursue a conservative financial policy and support the rouble's stability.
The reason why the Government insists on maintaining prior policies rather than changing them probably lies in the Prime Minister's expectations for 2009. The audience made almost no notice of his statement about "buying into high-tech foreign assets with the goal of developing mutually advantageous cooperation and an economically justified plan to move part of their production facilities to Russia."
It sounded like the Russian Government expects the crisis to force down Western companies' assets (primarily in Europe), and is bracing the Russian economy for moving toward a better tomorrow.
However, neither the Prime Minister nor further commentators elaborated on the issue.