Wednesday, August 12, 2009

Window on Eurasia: Crisis Only Highlights ‘Chronic Illnesses’ of Russian Economy, Moscow Banker Says

Paul Goble

Vienna, August 12 – Russia’s economy is “chronically ill,” something the current crisis has exacerbated and highlighted but not caused, the president of the Association of Russian Banks said in Moscow today, adding that the Russian government and the Russian people must “not panic but rather seek to cure this illness.”
Garegin Tosunyan said that the current crisis, which is reflected in high interest rates, is “the result of a monetary and credit policy which had not been thought through,” but he suggested that “the crisis, just like the intensification of a [physical] illness should help the Russian financial system to restructure and recover (
“We are permanently in crisis,” he continued. “Double-digit interest rates and inflation, is this not a crisis? … We’ve had this for a long time. It was simply more or less stable … and we became accustomed to this state of affairs and even considered it normal.” Now, the crisis has shown that we cannot continue to live the way we have been living.
At present, Tosunyan said, “the Russian banking system itself had survived the sharp phase of the crisis. But the situation with loans is correcting itself very slowly,” and despite the efforts of the Central Bank to lower the rates for refinancing, “the market is reacting with a delay of several months.”
“As a result of the illness of the banking system” which has been more focused on finance than on the real sector of the economy, the banker argued, there are problems and backwardness in the development of production and business” where, he argued, “we are reaping the results of a poorly thought through monetary and credit policy.”
“This illness won’t be cured in one day just be talking about it.” Instead, “what will be necessary is constantly and undeviating lowering the high temperature of the credit market. Only not by administrative measures and orders but through a literate monetary and credit policy,” something he said he hoped the government understood and would act on.
Tosunyan’s remarks come only a day after Yevgeny Gontmakher of Moscow’s Institute of Contemporary Development made even more sweeping comments about what the current crisis had revealed rather than caused in Russia in an article in Moscow’s “Vedomosti” newspaper (
As the crisis in the Russian Federation has deepened, Gontmakher pointedly argued, discussions among Russians about “how to get out of it” have broadened from discussions about the price of oil to include “the qualities of state administration and the structure of our entire social and political life.”
And as these discussions have proceeded, ever more people have recognized that there will be no “breakthrough on social problems without innovative economic growth, something that in turn will be impossible without the creation of a favorable milieu for private initiative, the formation of a competitive political system, the freeing of the media, and so on.”
In short, there has been a growing realization that the reforms Russia needs to address its problems will be “broad and, what is most important, intersectoral.” But “this banal conclusion,” Gontmakher observed, “raises an anything but banal question: who will offer this program and what is even more important who will realize it?”
The Russian bureaucracy has proved incapable of doing this, Gontmakher argued, and neither Vladimir Putin nor Dmitry Medvedev has been able to move the country in a positive direction. Given Russia’s traditions, that apparent roadblock has led most Russians to retreat either into naive hopes or potentially dangerous despair.
One group has thought that “nothing can be done” except to hope that things will improve possibly with a return to high prices for oil, gas and metals. “The main thing” for those who hold this view is “to survive the troubled times.” But that approach is based more on wishes than realities, Gontmakher argued.
Another has decided in contrast that it is time to adopt repressive measures, “to take out the whip.” Even if that approach won support initially, Gontmakher said, it would result in “international isolation, a fall in exports and imports, fixed prices and an inevitable transition to rationing.” In short, Russia would become like Cuba, Myanmar or “even North Korea.”
But according to the social analysis, the approaches of both would ultimately and “inevitably lead to revolutionary traumas.” Indeed, he said, the only approach that could avoid that outcome is “the evolutionary path of modernization,” a far more “complicated” course that will require a fundamental shift in the mindset of the Russian government and people.
To promote that, Gontmakher called for the formation of a brain trust that could guide the decisions of the president and the government, a group of thinkers representing “the most authoritative research centers and individuals who had not distinguished themselves by their participation in leading the country to its [current impasse].
And while such a group might come up with good ideas, the possibility that the Russian government would sponsor its creation or listen to its views appears almost as utopian as the notions underlying the other alternatives, an indication of just how serious Russia’s problems are and how difficult its government and people face as they try to escape them.

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