Ex-Economy Minister of Russia Yakov Urinson: ‘It is necessary to create a real federation, not the one existing now’

About outflow of capitals, the probability of new crisis and new wave of privatisation to develop businesses

Ex-Economy Minister of Russia Yakov Urinson: ‘It is necessary to create a real federation, not the one existing now’
Photo: hse.ru

Businesses’ confidence in the future is key to their development, thinks Russian economist, former head of the economic block of the government of Russia in the 90s and Minister of Economy of the country during the default in 1998 Yakov Urinson. According to him, businesses haven’t had this confidence by late 2019, though capital outflow fell to $30-40 billion, it is still huge money for the country. At the moment our economy keeps stagnating. In an interview with Realnoe Vremya, Yakov Urinson said what else scotched it and what steps could change the situation.

Stagnating economy

Mr Urinson, what has this year been notable for in the Russian economy?

When slow progressive stagnation began after 2015, that’s to say, when the economy’s growth pace fluctuates at about zero), and it still goes on. This stagnation is a very dangerous thing. It is good if after the crisis the economy pushes off the bottom and starts to develop fast. And it seems that in conditions of stagnation everything is fine, without significant changes, but there is no progress, as you see. This is why 2019 hasn’t added a bit of optimism here.

Could any steps have been made over these five years to stimulate the economy’s growth? Why weren’t they made?

Less and less competition in our economy is the main reason for such sad processes, the reason for the reduction of the Russian economy’s effectiveness, and precisely competition is the driver of progress in the country’s economy, and even classic authors of Marxism-Leninism talked about it. But economic competition can’t appear without political competition, while in Russia, in fact, we went back to a one-party system again, it is known that the Duma doesn’t have room for discussions — all is fine there, everybody votes “for”. And if there isn’t political competition, there isn’t economic competition — the share of the state in the economy only grows. According to the estimate of our anti-monopoly service, it has risen from 35% to 70% in the last 10-15 years. However, it is well known that the state isn’t the most effective owner, it isn’t the best entrepreneur. And due to this competition, the economy’s effectiveness decreases, and, of course, the population’s income fall. Of course, it is necessary to fight this sad picture, but I think that there is only one way of fighting it — it is necessary to create a two-party system, which will allow the State Duma to make an efficacious parliament, while competition in politics will bring to both competition in the economy and so on.

Photo: duma.gov.ru
Economic competition can’t appear without political competition, while in Russia, in fact, we went back to a one-party system again, it is known that the Duma doesn’t have room for discussions — all is fine there, everybody votes “for”

If we are talking about measures reviving the economy, why doesn’t the government raise salaries and pensions as it did during the crisis in 2008-2009 when it gave a stimulus to the economy because consumer demand increased?

Pumping money into the economy is a very tempting way but it will provide just a short-term effect: if the given money isn’t provided with production growth, all this will lead to inflation quite fast. And inflation is the most painful process not only for the economy in general but also a painful process for the poorest population. If the rich have savings in case inflation is high, as we know, there is a possibility of surviving on loans, inflation will hit people living on salary only. This is why pumping the economy with money is a very dangerous way.

“It is good to say point-blank that inflation is low, I am not ready

Russia is ending the year with record-low inflation — a bit more than 3%. How can this benefit the economy?

It is a very delicate matter. The lower inflation the better. But there is the other side of the coin. Why does the whole world including the European economic community and the US Federal Reserve System carefully regulate inflation? Look, inflation can be strangled, but it can turn out that the economy won’t have enough money for investment and development. This is why one should have a balanced approach here. Yes, it is necessary to lower inflation because this improves the situation in the economy and reduces the rate for loans. On the other hand, stagnation will begin in the economy. This is why lowering inflation, it is necessary to look at how other parameters of the economy behave. First of all, it is necessary to see if there is enough money in the economy for long-term investing, for current expenses. It is good to say point-blank that inflation is low, I am not ready, but inflation from 2% to 5% is really fine for the economy. It is hard for me to say how many percentages are needed, but I think that in this respect the Central Bank follows a very balanced policy accurately treating the interest rate.

Head of the Central Bank Elvira Nabiullina claimed in autumn that the regulator would keep lowering the refinancing rate. Is it correct?

There is no point in lowering it in the next six months because 6,25% is a good rate, which means that loans have cheapened, and here businesses can live well, not only oligarchs can.

But we often read and hear that loans are offered, but a handful takes them out.

Of course, most of the investors are afraid of investing, people at the moment don’t understand what will happen to their business in a year, in two, while investments pay back only in a few years.

Aren’t people confident in certain political game rules? Is this why they don’t invest?

No, they don’t see stability — politics and economics are intertwined, and when people don’t see clear and precise political prospects, they are afraid of the economic situation too.

Imports and exports (I don’t mean military products) must be a matter of choice of businesses, while it is very dangerous to influence it. A private business will determine better than the state what is more profitable for the country and what is less

The policy of import substitution has been five years in 2019 — the lion’s share of important substitution affected agriculture. Yes, there has been more produce of local farmers, but we can’t say that prices have been very attractive for Russians’ pockets. Has the idea failed?

I don’t understand in general why import substation was necessary — if imports are cheaper than domestic production, they must develop, and if imports are unprofitable, they don’t have to be stimulated artificially. All this must be determined by both exporters and importers. When the state assumes a lot of functions regulation exports and imports, this won’t lead to anything good in any economy, any trade. Imports and exports (I don’t mean military production) must be a matter of choice of businesses, while it is very dangerous to influence it. A private business will determine better than the state what is more profitable for the country and what is less, while the state must regulate only sensitive exports and imports, that’s to say exports and imports of natural resources, weapons, etc. As for the rest, a business should play a role in insensitive exports and imports, which isn’t happening today.

“When there are no imports of high technologies and equipment for the same oil industry, it is a catastrophe”

Can we say that the anti-sanctions have turned out harmful to us?

They are. The share of Russia in the world economy is less than 2%, and who has suffered from these Russian anti-sanctions? European countries can sell their produce to another place, they don’t have problems because of the anti-sanctions, while for us the anti-sanctions are a problem, especially in technology imports. The people will go through anti-sanctions on food, but when there are no imports of high technologies and equipment for the same oil industry, it is bad and it is a catastrophe. If northern fields don’t receive these technologies, we won’t be able to master them, and we will unlikely make up our own technologies for a short time and launch their production. Yes, sanctions were imposed abroad, but we should have coped with it somehow, we should have tried to stop it, for instance, we shouldn’t have sent soldiers where we did not need have to. But if we impose anti-sanctions in response, we harm ourselves very much.

Should the current oil price at $65-55 per barrel inspire calmness to the authorities?

One can be super calm with such a price. I left the government in August 1998 when oil cost about $8 per barrel, and I know those calculations that Yegor Gaidar, Andrey Nechayev and other specialists made. They concluded that any price over $40 per barrel was comfortable for our economy then. And $60-70 per barrel is a very good price for our budget: it can meet all our domestic and external needs. I consider that with the current oil prices, with favourable prices for gas, metals and gigantic gold reserves, structural reforms, which our economy needs so much, can already be made. It is hard, painful, requires responsibility, but these reforms take place here only when a big crisis happens. Yes, there are serious people and very qualified specialists in the government, it is Siluanov, Nabiullina. And they understand the necessity of these reforms, but nobody makes them risk their post, their reputation.

Same Nabiullina and Siluanov say that we need to create room for the future, a safe cushion when the situation of the world oil market is unfavourable, and we will have to spend all gold reserves. But one can’t go too far with the safe cushion

Can we say that the economic policy won’t have serious changes in the next years as well?

Same Nabiullina and Siluanov say that we need to create room for the future, a safe cushion when the situation of the world oil market is unfavourable, and we will have to spend all gold reserves. But one can’t go too far with the safe cushion — it sometimes turns into something pointless. Of course, God forbid, if the next crisis comes, and we don’t have the possibilities to react to it because there is no money for it, such a situation isn’t foreseen in the world economy today. Yes, of course, oil price can go down, but it won’t go down to 10, while it will likely go down from 66 to 40, but I don’t see anything scary here. It means that today the government can go for serious costs to increase the stability of the economy, structural reforms and so on, but a political will is needed for it.

There have been talks about an upcoming new world economic crisis since 2017-2018, and the government will unlikely to start the reforms.

If we expect a crisis, get ready for it — prepare reserves, but it is necessary to get ready for a crisis without conserving today’s economy but, on the contrary, it is necessary to shift from the resource-based economy, in which everything depends on oil prices, to an economy of novelties, economy of innovations thanks to which leading countries develop. These countries invest money in science, education, health care. Yes, the effect takes time, but for this purpose, there are possibilities of the budget, and the world situation allows doing it. If you start doing it, you will approach the next crisis not with today’s economy, which depends on the world oil price, but with the economy that feels good. Slovakia is a good example here: the strictest economy regime was imposed in the 90s, there were a lot of poor, unemployed people, the country didn’t have serious industrial sectors. But 10 years later the country became leading in European in many indicators, and people even from Germany go to the country to work — salaries are very high there.

But it was easier for European countries — they have a small territory, it much easier to rule.

Yes, Russia is a big country, it is hard to rule it because of a lot of troubled territories, but at the same time, we have huge natural resources. What’s the solution here? It is necessary to create a real federation, not the one existing now and creating problems at many management levels. Local self-government that we, in fact, don’t have is very important on a huge territory. And Russia developed faster when she had strong local self-government, for instance, after the emancipation reform in 1861. Development of local self-government is the foundation of the country’s development: precisely people must decide on the site what they should build — a bridge, houses or markets — and they should have more resources than they have now, and it is one of the most complicated tasks of our set-up.

Photo: Maksim Platonov
Precisely people must decide on the site what they should build — a bridge, houses or markets — and they should have more resources than they have now

We could agree with such an idea, but will people who will go to local self-government bodies be honest, responsible, transparent, decent?

Such people will never be ideal, but if we start this process, we will never understand how people will rule. There will be tests, there will be mistakes, there will be petty theft, but it is necessary to reform the judiciary system as well so that it will seriously take violations in power. And here we probably need second Witte to put the system in order.

Interviewed by Sergey Kochnev