Experts and officials spar over growth

The forecast for socio-economic development of the country through 2030, recently published by the government, has come straight into the depths of discussions flaring up in connection with the sharp slowdown in the rate of GDP growth and with discussion of a new economic model.

At the annual conference at the Higher School of Economics this month, participants took advantage of the event to criticize government representatives. Experts assert that forecasts for economic growth are unachievable because they are not founded upon the reform of state institutions. There is no call in the Economic Development Ministry, for example – which prepared the forecast – to re-assess its role.

As with similar forecasts, it proposes several scenarios for the future, but specifically three: conservative (growth on average of 3 to 3.2 percent GDP per year), innovative (4 to 4.2 percent) and accelerated (5 to 5.4 percent). Each of these options operates under the conditions that the price of oil does not fall lower than $90 per barrel, but does not climb above $110.

Additional budget allocations for modernization and development have been identified as financial sources in two scenarios, while a growth in credit and private investment has been proposed in all three. However, the disparity in the assessment of income is vast: the annual inflow of private investment is forecast between 0.1 to 6.5 percent of GDP.

Experts demonstrated a deficiency in the forecast: where such a certainty in the inflow of investment and in growth had come from, if there were almost no mention of the improvement of the quality of state institutions.

“Capital flight, which has been witnessed since the fall of 2011, and also the small scale of foreign investment are explained by bad institutions,” the HSE said in a collective report presented at the conference.

The main tasks for the government, in order to achieve “rule of law” and independence of the courts, are to lower corruption, rebuild the relationship between business and the entire assembly of law enforcement agencies, broaden the authority of local administration, reconstruct the social fabric and establish political competition.

“There are no investments. The feeling is such that business is quietly lying sideways, not incurring any additional risks. We’re expected to plan something with this?” Yevgeny Yasin, academic director of the HSE, asked First Deputy Prime Minister Igor Shuvalov.

Shuvalov assured his listeners that the strict budget rule would be adhered to (with the exception of “external shocks”), but money from the budget for infrastructure projects would be given out on a basis of generating returns. But many problems remain: in the lack of desire of businesses, including state companies, to change their model of behavior.

“No one is used to working according to the methods of project financing and the return of capital,” he said.

However, the experts continued to insist that the increase in institutional quality was one of the key factors for growth. They even carried out a quantitative assessment of what influence such an increase has on the movement of GDP.

The head of the Economic Expert Group, Yevsei Gurvich, estimates the contribution of institutional quality to GDP growth at 1.2 percent annually, but Sergei Guriyev, rector of the New Economic School, says that the contribution is 2 percent.

“Then you could count on a growth of 5 to 6 percent in GDP per year,” Guriyev said.

According to Guriyev, more than 70 percent of businesspeople at the World Economic Forum in Davos, Switzerland, in January counted problems in Russian state administration first among negative factors for investment. Additionally, the rise in one year of Russia’s position on the World Bank’s Ease of Doing Business Index, from 120th to 112th place, does not please experts very much yet. The Economic Expert Group’s Gurvich pointed out that in the World Bank’s assessment of rule of law, Russia stands at 160th. The relationship of this indicator to economic growth, he said, was impossible to deny.

Government representatives are not hearing calls for the improvement of state institutions for the first time. They also know that such improvement depends not only on the government, and second, that even upon unlikely successes in this arena, results will not show themselves immediately, but that something needs to be done now. Therefore, during the conference, they moved to a decisive counter-attack.

“There are no valid assessments or accounts that show a direct connection between institutional quality and the rate of growth,” Deputy Economic Development Minister Andrei Klepach said, although even he did not deny the importance of improving the investment climate.

“In the 2000s, our growth rate was around 7 percent. But then, the quality of institutions was not three times higher than now,” he said. “If we talk about democracy, then there is a sea of research that says that it in itself does not mean higher rates of growth.”

Klepach cited the experience of Central Asia, noting that “in Uzbekistan, where there is no freedom of the press nor any democracy, where agencies of repression work stably, there is stable growth.”

Following on from Shuvalov, Klepach also pointed out the importance of the conduct of business.

“The behavior model of business, the level of professionalism, play no smaller role, but even a larger one. When we start to delve into large-scale accidents – the Sayano- Shushenskaya power station, the Raspadskaya mine – everywhere [we find] flagrant technological violations,” Klepach said. “This does not have a direct relationship to freedom of conscience, [to freedom] of assembly, or even to bribes.”

Here, too, the experts objected, especially on the subject of bribes.

Source: http://themoscownews.com/business/20130415/191442133/Experts-and-officials-spar-over-growth.html