Publication: Monitor Volume: 7 Issue: 149

Russian Prime Minister Mikhail Kasyanov met with his ministers yesterday to discuss the economic results of the first half of 2001 and to set goals for the second half. Various cabinet members, including Economic Development and Trade Minister German Gref and Labor Minister Aleksandr Pochinok presented the official statistics. According to them, the gross domestic product grew by 5.4 percent (considerably higher than the forecast 3.5 percent), industrial production by 5.5 percent and real wages by 18 percent. However, as some observers noted, these impressive figures may have been inflated by changes the State Statistics Committee made in its methodology this past spring, which led it to revise its figure for last year’s GDP growth from 7.6 percent to 8.3 percent. In any case, Kasyanov and Gref accentuated the positive, first noting that the tendency toward recession, which appeared at the end of last year, had disappeared, and then underscoring that the renewed economic growth was the result of both high world oil prices and increasing domestic demand. The machine-building sector, for example, grew by 10.5 percent in the first six months of this year. Gref said that the GDP growth rate for the year might reach 4.8 to 5 percent, as opposed to the targeted 4.5 percent.

At the same, Kasyanov reported that the rate of inflation for the first half of the year was 12.7 percent annualized, and that the government would be unable to meet its inflation target for this year, which it had already raised from the targeted 12 percent to 14 percent. He added, however, that inflation would not reach last year’s level of 20.2 percent. Gref has predicted that it might reach 16-18 percent. He put the blame for rising inflation on regional governments, which, he said, were actively raising prices for monopolized services like those provided by regional housing authorities (, AFP, RosBusinessConsulting, August 2).

Against the backdrop of this generally optimistic picture, some leading economists are much less bullish about the Russian economy’s direction and longer-term prospects. Mikhail Delyagin, director of the Institute for Problems of Globalization, noted in a recent newspaper article that while the industrial growth rate was 5.5 percent during the first six months of this year, that was 2.4 times less than the figure for the first half of last year–13.1 percent. He also pointed out that the trend line was continuing downward, with industrial growth dropping from 7 percent in April-May of this year to 3.7 percent in June. Both investments and real incomes, he said, have been dropping sharply. He argued that even one seemingly positive piece of news–that retail trade turnover increased by 10 percent during the first half of this year, compared with 7.6 percent during the first half of 2000–was in part due to the increased consumption of luxury goods, largely imported by “very well-to-do citizens.” Overall, he claimed, the country’s financial flows are turning away from investment toward “nonproductive consumption,” meaning that petrodollars are being used less and less for investment and modernization and more “inefficiently,” as was the case in the Brezhnev period. The reason for these negative trends, Delyagin wrote, is that the Russian economy remains burdened by “a load of unresolved structural problems,” above all “unprotected property rights and arbitrary rule by monopolies”–factors that act as barriers to investment while benefitting the “new oligarchy.” Along with these and other problems, including looming debt payments and continued capital flight, the “increasing wear of fixed assets” and a possible drop in world oil prices could, he warned, lead to “a large and painful” ruble devalution (Vremya MN, July 28).