Medvedev details plans for post-crisis economy

RBTH presents the basic theses of Medvedev’s article, which was originally published in the business edition of Vedomosti on Sept. 27.

How did Russia struggle with the financial crisis?

The Bank of Russia moderately reduced the rate of its national currency and greatly expanded the tools for refinancing commercial banks. This allowed it to preserve the confidence in the ruble and to prevent a sharp outflow of deposits from the banking system.

The government has substantially changed the structure of fiscal expenditure, increasing its funding priorities. Economic recovery and prevention of a sharp drop in domestic demand were directly dependent on them.

Large companies were provided extra credit and warranty support. As a result, they were able to restructure the old debts for a longer period and avoid mass bankruptcies.

Active programs have been implemented in order to support employment and small businesses, including those in single-industry towns.

In parallel with the implementation of the anti-crisis policy, we continued to implement the national projects of priority: We began the updating of school systems, as well as primary and high-tech medical care.

We have maintained and indexed the payment of the maternity capital. All this helped to keep the birth rate up and prevent depopulation.

What is the government's forecast for GDP growth?

Next year, we will have to have a total reduction of expenses amounting to up to five percent from the previously expected levels. However, a balanced budget and an absence of sharp fluctuations are more important.

The growth rate of GDP in the current year is not likely to exceed two percent. Note, for the first time since 2009, it is lower than in the global economy as a whole.

What allows the economy to develop?

The increase in production is supported almost entirely by the implementation of major investment projects involving the state and its controlled companies, the increase of incomes of public sector employees, and the expansion of subsidies to agriculture and other industries, given high oil prices.

Why is there little investment in Russia?

Investors maintain their irrational fears of working in a strange and sometimes unpredictable Russia. The distrust in public institutions is also quite understandable.

The saddest thing is that this includes the judiciary system and the law enforcement agencies. As Fyodor Dostoevsky wrote, “Capital likes external and internal tranquility; otherwise, it hides.”

One reason for this is that many officials, judges, police officers (though, of course, not all) still believe that public ownership (and hence the state-owned companies) has the special rights to defense, incomparably greater than the individuals.

What determines the growth of the Russian regions?

The rate of development of the regions is essentially independent of the stock of natural resources. The main factor is the ability of regional and local elite leaders to promote their territory without waiting for any assistance and to seek support for their initiatives—both in society and within the framework of the federal stimulus program.

What is needed in order to improve the efficiency of the Russian economy?

1. It is necessary to improve the efficiency of labor in the public sector and to stimulate late retirement of skilled workers.

2. Entrepreneurial freedom and a healthy competitive environment are essential for modernization and innovative development.

3. We need to lead our education system to a new level of basic and applied science, return it to a leading position, and eliminate the digital divide.

4. We need a system of reproduction for commercially sought new technologies that increase productivity and improve environmental safety and convenience for consumers. The main obstacle is the quality of our regulatory environment. In the coming months, we will complete the formation of the necessary legal framework.

5. The duty on scientific equipment and materials should be zeroed.

6. Our large companies and investors need to be investing in science more actively, creating their own high schools. Gazprom, Lukoil, Rusal and Rosneft should run their own universities, or, at least, departments.

How will small business be supported?

1. There will be an adjustment to the decision to increase the immediate and mandatory insurance payments significantly. Rates will increase gradually.

2. Benefits to small businesses in the field of information technology will be extended. Starting from 2014, they will be given to companies employing at least seven people; previously, it had been at least 30 people.

3. It is appropriate to allow the regions and local authorities to introduce tax breaks for new small businesses in certain areas of activity, especially in manufacturing.

4. Financial support for small and medium businesses will be expanded. Vnesheconombank will begin funding investment loans to small and medium-sized companies from the National Welfare Fund’s deposit. The Bank of Russia will be refinancing these securitized loans.

5. As part of the procurement of large, state-owned companies, quotas for the purchase of goods and services from small and medium-sized businesses should be defined.

This is abridged version of the article first published in Russian in Vedomosti.

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