Alexei Kudrin: We are fighting for every cent long-term growth

Alexei Kudrin: We are fighting for every cent long-term growth

Moscow. 7 Aug. The centre for strategic developments (TSSR) Alexei Kudrin should submit to President Vladimir Putin his version of the country’s development strategy by the spring of next year. Ex-Finance Minister refused to answer the question, will be whether these proposals are the basis of the economic programme of Vladimir Putin, if he decides to participate in presidential election in 2018, and does it in this case as Prime Minister. However, the Chairman of the Board recognizes that the document will meet the views of the President. Alternative program – report on “growth Strategy”, which develop the members of the “Stolypin club” under the guidance of the business Ombudsman Boris Titov, the speaker considers a political project, and discuss its tabulating the results of elections to the state Duma refuses. Why Kudrin hopes for success in developing CSR programs, he told the reviewers Alexei Uvarov and Andrei Novikov.

– Alexey Leonidovich, today the concept of economic development of the country develop several expert groups, in particular, it is your Centre for strategic research and “Stolypin club”. Why so many programs?

– The “Stolypin club” called the “growth Strategy”. It became the basis of the program of the “Party of growth” led by business Ombudsman Boris Titov. This party goes on elections to the State Duma. The programme is therefore considered as a political project, and would now like to discuss the document. I heard that was instructed for it to be revised, I think that we can talk about it after the election and after the revision.

– Is it possible the formation of a compromise document?

– I don’t want to comment on this question, because it is highly politicized. “Party of growth” is a bold step: make a program to voters, they let her and appreciate.

– You expect that the President will support your program?

– I assume our program will be used to a significant extent. The President agreed on a plan of our work, gave instructions on the organization of interaction with ministries and agencies in the development of the document. We also have the agreement with the Prime Minister. The formation mechanism of the program envisages meetings with the President, where we will gradually clarify the tasks and by the end of the training by the spring of next year – we pretty much have to reflect the position of the head of state.

Your suggestions may become part of the economic program of presidential candidate Vladimir Putin, if he decides to run in 2018? And then maybe Putin will offer you the post of Prime Minister?

– All decisions are decisions of the President.

– German Gref, who wrote the program in 2000, and then implemented it in the rank of Minister of economic development. Are you ready to ensure that your strategy, if approved, will realize other people, and you will remain in the status of expert?

Anything is possible. It is too early to talk about it, I work as an expert. After that, we’ll see.

– If the President rejects your program and you fail, you will go into opposition?

In this case I speak as an expert, so this is not a scenario for me.

– The President instructed you to prepare the development strategy of the country after 2018. Let’s go back to 2011, when a similar task was set Kuzminov and Mau, and there was “Strategy-2020”. She also suggested a set of structural reforms in various sectors, and a budget maneuver, and support of health and education and pension reform, etc. In your opinion, to what extent this strategy has been implemented and what is the fundamental difference of your program?

– In 2011 has done much work involving a wide range of experts, the best experts of our country, which has prescribed reforms in many areas. But the final document, to encompass sectoral policies, was not prepared. Most importantly, the President and the government then approved the program as a guide to action, so she remained a working draft. This is the main reason why the strategy had not been fulfilled. Of course, in practice, individual ministries still have used many insights from it, however it was only a small fraction of the reforms spelled out in the program.

And what your program will differ from its predecessor? Why not just take the basis of that strategy?

We are in the active phase of work on the program, and I’m not ready to talk about the key proposals. In draft form it will be ready by the end of this or early next year. Compared with the strategy 2020, we are definitely much more prescribe mechanisms to implement and achieve a balance for needed resources. Today, more obviously than in 2011, the structural imbalances of the economy and the weakness of the institutions that do not provide growth. Under such structural problems and weak institutions Russia is doomed to weak growth. In his thesis, which I submitted to the Presidium of the economic Council under the President, I have shown that overall productivity of labor and capital decreases since 2005. It would seem that investments grew at 10 percent per year, and in 2007 to 20 per cent, but their performance became less and less. This means that they were not linked to GDP growth and increase the productivity of the entire economy. Thus, investment does not always mean economic growth. This situation needs to change. As a rule, are more focused on improving the performance of private investment, and therefore encourage such investment would be much better to encourage growth.

I can say that our document will be the template set, it will reply and the old, chronic, and new challenges. Its main objective – a significant increase in the level of life, which, incidentally, declining for the third consecutive year.

– Usually structural reforms lead in the short term, the decline in the growth rate of the economy, which, however, are not. What is more important: to achieve an acceptable growth rate in the short term or structural reforms?

– Indeed, some reforms might reduce short-term growth, while some increase. The reallocation of resources from unproductive to productive spending provides growth immediately. This is structural reform. Spending cuts for a balanced budget could slow down growth in the short term, but it will provide the basis for further growth, as it will allow to avoid raising taxes and competition state and the private sector for loans. When the President issued a Directive approving the working groups of the economic Council under my supervision, he called it “Priorities for structural reforms and sustainable economic growth.” We need growth for a longer period of 4-5 percent per year.

– Can you call a set of priority structural reforms?

We are now conducting an inventory of all previously developed, but the pent-up ideas and looking for new solutions. Part of the research work already started in full swing. The final set of solutions will become clear when it’s ready the draft version of the program. At this stage I would not get ahead of ourselves.

– Your program will affect the area of political institutions or will you focus solely on the economic sphere?

She will touch on some of the political institutions. The program involves the analysis of functioning of system of public administration, the powers of the various authorities, it will affect the judicial and law enforcement, civil society. But, of course, it is aimed at socio-economic development, growth and living standards.

– Recent appointments in the Governor’s case, in particular, the coming to power of the siloviki, from your point of view, will increase the efficiency of the public administration system?

Now I would not like to comment on this issue because it is not associated directly with our strategy. Current solutions, current measures taken by the government and the President, the President, are not within the purview of the CSR.

– To achieve growth rates of 3-4 percent a year, you proposed to reallocate funds within the budget, and in particular, to increase funding for education and healthcare at the expense of other expenditures. What volumes and what terms can be discussed?

– The Council for strategic development and priority projects, I said that one of the most important structural solution is to maneuver public resources. Need for 3-4 years at least 1% of GDP to increase spending on three areas: education, health and infrastructure. And to achieve the target rate of growth – and at 3% of GDP. It would seem that these investments have deliberately delayed the result, but they are a demonstration of the correct policy and immediately will work to improve confidence in the economy.

– And on what sectors to cut costs? Military?

– I said, ” other branches, I call them. I don’t want to clarify. But we are fighting for something that the average growth was 4 percent per year in the long term.

And when, in your opinion, it is possible to reach a sustainable growth rate of 4%?

– They can be achieved in 4-5 years. 4 years already, in principle, realistic. But only as a result of reform.

– One of the most discussed reforms in recent years is retirement. You are a known supporter of raising the retirement age. The Russian presidential aide Andrei Belousov has formulated a question – how to employ 10 million people, which will appear on the market while raising the age of retirement and the planned growth of labor productivity?

– Belousov rightly said that first you need to develop this reform. Today we have the final version, even in terms of raising the retirement age, and, of course, all the consequences you need to consider, to think. We are talking about a gradual, over many years, raise the retirement age: for example, in the range of 6 to 16 years.

– You mean that to raise the age of retirement need to 63 years for both men and women, and to do it in six months, a year?

– Approximately, Yes. Of course, during this time, the situation on the labour market will change. From the point of view of the demographic trend, we will decrease the number of employees.

All countries passed this way, including our neighbors Ukraine and Belarus, I’m not talking about Eastern or Central Europe, we are the last.

– You mean raising the retirement age?

– Yes, the retirement age. They all passed this way, coped with these challenges. An important circumstance is that generally in the modern world to improve the performance of the economy, the people of all ages should receive additional training and education. It is very important that competence is maintained and updated because of changes in the economy. Of course, we must support these people, help them to improve their profession or make new ones.

There is another circumstance: in the next 10 years will retire the last generation that received the bulk of engineering education in the Soviet Union, are specialists who know the industry, know how to work in the factories. Here without them, by the way, it will be very difficult. In my estimation, they are very much in demand.

But the alternative to raising the issue of retirement age has not, in your opinion? You technically already are working on the mechanism of the improvement?

– From the point of view of prospects for the country, then Yes, it will happen. And what will be the scenario selected, what will the selected rate of increase, it depends on political leaders.

Now continues the debate about the preservation of the mandatory funded pension system. Who you support?

– Of course, necessarily must be funded. Without saving it will dramatically fall as savings and security for future pensions. Because of the mandatory funded need, first, to provide a decent pension.

We see that the government is not always able to index pensions and mandatory funded has the prospect, at least, to increase, not decrease.

– In 2009, you proposed to increase the minimum capital of banks to 1 billion roubles in 5 years. Now the Central Bank has prepared a bill to raise the minimum capital to 1 billion rubles for the Federal banks. We know that CSR met with representatives of the banking community and in particular discusses the idea of changing the regulation of the industry. Which can be offers in this area?

– The banking system is now facing much more serious challenges than those that existed 10 years ago. So the first thing we need to solve other problems. The issue of increasing the minimum capital is likely to be minor. At the same time, I want to note that now the license is revoked mainly small banks. I think the proposals on the consolidation of banks, and increase minimum capital to 1 billion rubles will provide a more predictable policy of redevelopment of the banks in the merger and acquisitions. This will reduce the risk of a permanent revocation of licenses. Customers will feel more confident.

– What are the main tasks will be in banking?

We see that even today the provision of financial services goes to the Internet. There are mechanisms of obtaining all services from the comfort of home. And it already means the transformation of banks in a modern high-tech IT company. That is, the banking system will change dramatically. In this sense, we are talking about more serious challenges, the changes of controlled parameters and indicators of stability. While we live within the rules of Basel II and future Basel III, which we must fulfill. But, again, the challenges to the banking system is increasing.

– How you consider, the Central Bank reduces key interest rate is not too slow?

– No, I believe that the Central Bank is acting correctly. The basis of this position, the Central Bank is the high budget deficit, which is covered by the Reserve Fund. The reserve Fund is kept in foreign currency accounts with the Central Bank and sold to the Central Bank. Central Bank to buy prints the money, it is monetary financing. That is why the Central Bank is forced to limit the influx of money into the economy through other channels. This is the rationale of deterrence of an interest rate cut.

– As for predictions according to the contingency Fund – do you agree with the expectations that the Reserve Fund the end of 2017 might dry up?

– Now representatives of the government consider the Reserve Fund as a joint – and as a proper Reserve Fund and as the Fund of national prosperity in that part in which he is not placed in securities or in some infrastructure projects.

In this sense, its preservation is still possible in the next two to three years, but with a significant increase in government borrowing or an increase in privatization. Will have to use all three mechanisms to a more or less stable financial situation. This increase in borrowing, and the continued use of the Reserve Fund, but at a slower pace than now, and privatization. Just adding all three components to repay the deficit, you can maintain a generally stable situation on the financial markets. But we understand that borrowing States are always competing for money with private sector borrowing, which could be directed to investment. It’s always competing borrowers.

– With regard to privatization. There is much debate around whether “Rosneft” to participate in the privatization of “Bashneft”, is a state-owned not state-owned. As an expert, whose side you are on in this debate?

– I think that still the state has a goal to privatize assets. And participation in another company which is mainly in state ownership, is undesirable. I heard the government is this position.

– They seem to take the position, but do not exclude such a possibility. You do not think it strange?

I repeat, in this case, of course, is undesirable.

– In your opinion, at what point is now the Russian economy? On the threshold of a new revival or she is in deep stagnation, and the lights in the tunnel?

– I assume that next year will be minimal positive growth. Unfortunately, with such a minimum positive growth we will possesthe in the next few years, provided that the failure of the reforms.

– The minimum positive growth it one or two percent?

– In the range from zero to one and a half.

– And will you offer some measures that in the short term to accelerate economic growth in a year-two to three or four percent?

– It would have prevented long-term growth. Any such measures, which are short term in nature, can be compared to doping for athletes. Make the doping in the best case to win once. But then to lose everything.

– What happens to oil prices? It is a little grown up to $50, and now again down to $40. What are your expectations?

I once made the statement that we for about two to three years will be in the phase of formation of the balance of supply and demand, which then will be fixed at some longer period. And in the next two to three years time we will be in a state of volatility – from $40 to $60 average for the year. At that time the price may be reduced and stronger.

Since then, it took a year and a half. So after a year and a half we will see what the price will be established. We do not know her, nobody in the world knows. It develops under the influence of a variety of factors: mining in US, mining in the middle East, consumption and China’s economic growth, alternative and renewable sources, energy efficiency, liquefied natural gas market. Each of these factors today contributing to this emerging new equilibrium price.

I think and think, we are now in a state where we can’t assume what the price will be in the next five to seven years.

– And the ruble to the dollar, in your opinion, now corresponds to the equilibrium value?

Yes. The ruble match.

– Sometimes one can hear statements from some officials and businessmen that excessive strengthening of national currency carries risks for the budget and the economy from the point of view of exports. Do I need somehow specially the ruble to weaken, if he will strengthen much with the budget point of view or from the point of view of export support?

No, from the point of view of Economics and long-term economic growth, the ruble should be free swimming. Therefore, the Central Bank should be independent. And since we all agreed that we are moving to a free floating, better, this policy is not to leave.

From the point of view of world practice, free floating is the most effective long-term policies. But Russia, unlike many other countries, is more based on balance of payments from oil prices. So this free swimming it is high volatility that hurts business. But to compensate for this factor should not the policy of artificial adjustment of the exchange rate of the Central Bank and the policy of the government in implementing its own measures, which would make the economy more stable. In this sense, I see more opportunities to stabilize the situation in the economy on the government side than on the side of the Central Bank.

That is, it is on the government today depends primarily on the market’s confidence, the confidence of Russian investors confidence in the financial system. And if this confidence will increase, and the ruble is more stable. But it’s more complicated steps that are more fundamental.

If the Central Bank did (especially weakened the ruble – Interfax], everyone would understand that the rate depends not on the market, and is in the hands of any administrative body. And on the contrary, it creates for investors greater risks than even the current volatility. Not in the short and in the long term. But we are fighting for long-term growth.

– Do you think that in the current economic and budget realities, the government retains the option not to resort to tax increases after 2018?

– This opportunity is. But only in the case of the adoption and implementation of a range of structural solutions.

“Like what?

Don’t want to get ahead of myself. Right now we are working on it and by the end of the year to prepare the first iteration of our proposals.