Sanc­tions can be used to speed up Rus­sian econ­omy, says Putin

Financial Mirror (Cyprus) - - FRONT PAGE -

Pres­i­dent Vladimir Putin has sug­gested us­ing the pe­riod of U.S. and EU sanc­tions against the coun­try to in­crease the com­pet­i­tive­ness of the Rus­sian econ­omy, with a thrust planned to im­prove the com­pet­i­tive­ness of the real sec­tor in the next two years. An­a­lysts are di­vided on whether this ob­jec­tive is at­tain­able.

Dur­ing a ses­sion of the State Coun­cil, Putin sug­gested that the sanc­tions could be turned to Rus­sia’s ad­van­tage by in­creas­ing com­pet­i­tive­ness, fo­cus­ing on gross do­mes­tic and na­tional prod­uct, con­sump­tion, sav­ings, and cap­i­tal for­ma­tion, or the real sec­tor.

“In the next one and a half to two years it is nec­es­sary to take a real leap in the im­prove­ment of the real sec­tor’s com­pet­i­tive­ness. Do­ing some­thing that in the past would have taken years to do,” he an­nounced.

Ac­cord­ing to Putin, the ef­forts of all fed­eral and re­gional gov­ern­ment or­gans must be ori­ented to­wards the de­vel­op­ment of the real sec­tor. In par­tic­u­lar, key in­stru­ments must be ac­ces­si­ble to credit and new com­pet­i­tive con­di­tions for fi­nanc­ing business.

In gen­eral, the gov­ern­ment plans on us­ing the do­mes­tic mar­ket in or­der to de­velop the real econ­omy.

“The com­pet­i­tive­ness of Rus­sian en­ter­prises will di­rectly de­pend on whether they will be able to put out a suf­fi­cient quan­tity of pro­duc­tion that will not be in­fe­rior to for­eign pro­duc­tion in price and qual­ity,” Putin ex­plained.

In his words, “we need to use one of the coun­try’s most im­por­tant com­pet­i­tive edges: the ca­pa­cious do­mes­tic mar­ket.” It needs to be filled with qual­ity goods made by the econ­omy, while main­tain­ing the econ­omy’s sta­bil­ity equi­lib­rium, Putin said. Ex­perts re­acted to the pres­i­dent’s words with cau­tion. “Talk of ac­ces­si­ble credit has been around in Rus­sia since the fall of the USSR, but en­ter­prises have still not re­ceived it,” said An­ton Soroko, an­a­lyst at the Fi­nam In­vest­ment Hold­ing.

“Fur­ther­more, the sit­u­a­tion in Ukraine has not helped. There­fore, in the near fu­ture we must start anew.”

Ac­cord­ing to Soroko, the opaque­ness of the in­sti­tu­tional en­vi­ron­ment can eas­ily neu­tralise prac­ti­cally any mon­e­tary flows into the coun­try.

Vladimir Osakovsky, Chief Economist on Rus­sia and the CIS coun­tries at the Bank of Amer­ica Mer­rill Lynch is also not count­ing on the growth of the Rus­sian econ­omy in the near fu­ture.

“We ex­pect that the macroe­co­nomic sit­u­a­tion will worsen as a re­sult of the ac­cel­er­at­ing in­fla­tion caused by the re­stric­tions on food im­ports, the fall of con­sump­tion and the vol­ume of in­vest­ment, as well as the re­duc­tion of ex­ports,” the RBC business daily cited Osakovsky as say­ing.

Ac­cord­ing to Osakovsky’s new fore­cast, in the sec­ond part of 2014 and the first half of 2015, Rus­sia will sink into re­ces­sion, which will be fol­lowed by a re­cov­ery gen­er­ated, mainly, by the base ef­fect.

Alexei Ko­zlov, chief an­a­lyst of UFS IC, has a dif­fer­ent opin­ion. “The pro­posal to ac­cel­er­ate the de­vel­op­ment of the Rus­sian econ­omy that we heard dur­ing the State Coun­cil ses­sion is com­pletely re­al­is­tic,” he said.

The ob­jec­tives have a max­i­mal­ist character, but with­out set­ting such high goals, it is im­pos­si­ble to make a rad­i­cal change in the way the Rus­sian econ­omy func­tions, he added.

“On the whole, Rus­sia has been voic­ing its aim to re­duce its raw ma­te­rial de­pen­dence for a long time,” re­marked Ko­zlov. “In light of the re­cent events, this goal has been ex­panded and is now at­tain­able.” real and

Rus­sian in­dus­trial en­ter­prises pos­i­tive eco­nomic signs.

Ac­cord­ing to data col­lected in Septem­ber by the Gaidar In­sti­tute of Eco­nom­i­cal Pol­icy (IEP), short-term in­vest­ment ex­pec­ta­tions in the in­dus­trial sec­tor are still high, on a par with those of 2012.

More­over, the in­sti­tute’s “in­dus­trial op­ti­mism in­dex” reached a three-year peak in Septem­ber. The in­sti­tute be­lieves that it is highly likely that a growth in pro­duc­tion out­put will also be recorded.

In the first half of the year the growth of in­dus­trial pro­duc­tion was 1.5% com­pared with the same pe­riod in 2013, while GDP grew by almost twice as less: 0.8%. Ac­cord­ing to a study car­ried out by the Higher School of Eco­nomics, the last time this hap­pened was in 2010-2011, dur­ing the phase of re­serves ac­cu­mu­la­tion. How­ever, in this case, growth de­pends com­pletely on state or­ders.

For the time be­ing, ac­cord­ing to ex­perts, only a cer­tain in­dus­trial sec­tor is wit­ness­ing growth: the pro­duc­tion of ves­sels, air­crafts, space­craft and other means of trans­porta­tion. This seg­ment also in­cludes the pro­duc­tion of rail­road cars, air­planes, he­li­copters, sub­marines and so on, that is, a sub­stan­tial part of trans­porta­tion bought by the gov­ern­ment and by state com­pa­nies, in­clud­ing mil­i­tary tech­nol­ogy.

Pro­duc­tion in this sec­tor has been grow­ing since the mid­dle of 2013, and in 2014 it dras­ti­cally in­creased. While at the end of 2013 this sub­sec­tor’s con­tri­bu­tion was only 0.1% of the growth of in­dus­trial pro­duc­tion (out of 0.4% of growth), in the pe­riod be­tween Jan­uary and Au­gust 2014 it was al­ready 0.7% out of 1.3%, which is more than half. This means that this year, in­dus­trial growth was fully con­di­tioned by state de­mand, ac­cord­ing to the Higher School of Eco­nomics.

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