Kudrin, Nabiullina and Siluanov argued about policies of economic reforms

On the first day of the St. Petersburg economic forum session titled “Macroeconomic policy: a strategy for action” brought together former and current Ministers of Finance Alexey Kudrin Anton Siluanov and Central Bank Chairman Elvira Nabiullina. They agreed that, although the economy and has adapted to the sanctions and international isolation, without structural reforms and sustainable alignment of budgetary imbalances the transition from the inertial growth in the 1-2% rate is not below average is impossible.

Fiscal policies need to adapt to new challenges, the current structure of costs and methods of financing the deficit can not continue — too many risks, recognized all three of them. Deficit financing Reserve Fund and the current uncertainty of the budget strategy (for example, now is not a fiscal rule) are contrary to the purposes of the Central Bank and leave no chances of growth of private investment in the economy — important for them to consistently low inflation, said Nabiullina. Silvanus agreed that the imbalance between revenues and expenditures of the budget, which this year is expected to reach 3-3,5% of GDP within three years the need to “minimize”. But this year will still have to spend up to 2.5 trillion in reserves — and therefore, the Central Bank will be forced to print rubles, Kudrin said. Too generous commitments budget scored not now, but when oil was $100 per barrel, Siluanov retorted. And while the Finance Ministry has repeatedly warned that sooner or later the price will fall.

Present in the hall were asked to vote for what, in their opinion, should be a priority solution to correct the fiscal imbalances, and the majority chose reducing expenditure commitments. To this end, the authorities would have to take unpopular measures (e.g. raising the retirement age, as proposed by Kudrin), but a deep willingness to change is still there — including the fact that “you can be afraid to lose political rating, to quarrel with some social group,” explained Kudrin. As an alternative to increasing the national debt or the idea of reducing only “inefficient” costs and both don’t work: national debt is a future tax,” involves a risk of unwinding the debt spiral, as in the 1990s, agreed Nabiullina and Siluanov, and inefficient spending permeate the entire budget, with a smile, said Kudrin.

Nabiullina reiterated that the key “tactical” problem of the Central Bank is to fulfill the promise to lower inflation to 4% by the end of 2017. But if financing the budget deficit will continue to be the Reserve Fund (despite the fact that liquidity in the banking sector is now so abundant), the Bank of Russia will have to hold higher interest rates. The larger the budget deficit, the harder monetary policy, Nabiullina explained. Siluanov had previously agreed that the failure to reduce the budget deficit is the main limiting factor in the reduction of the key rate of the Central Bank. In General the budgetary policy must be predictable, have called on Nabiullina to avoid the risk of uncontrolled growth of the national debt, tax increases, monetary financing. “Nobody will invest in assets for a long time, if the investment will be eaten up by the prices”, — she explained a direct relationship between the purpose of the Central Bank on inflation and domestic investment.

Kudrin more focused on the need for institutional reforms. Development of the institutions he likened to a “muscle pump”. In 2000, when Kudrin was the Minister of Finance, the government, he said, was “ready to reform”. “We had oil in the frame. We grew out of it, it prevents us. The price [of oil] have fallen and the muscles were nanochannel”, — Kudrin said. In his opinion, there is no single solution to put the economy on a new track. “Neither the provision of investment incentives or adding some money into the economy in order to destabilize the inflation, nor the creation of ten “SKOLKOVO” — one solution, one direction of the economy is not removed from this state,” he said. Among the problems hindering the development, Kudrin called “high stake of the state in the economy, lack of competition, the dominance of state-owned companies and close to the state companies over the rest of the private independent sector” and the role of courts and law enforcement agencies, “providing an excessive burden on business”.