Publication: Monitor Volume: 8 Issue: 94

In response to President Vladimir Putin’s repeated complaints that the government’s economic growth forecasts for the next four to five years are insufficiently ambitious, the Ministry of Trade and Economic Development has apparently raised its projected gross domestic product numbers. The business newspaper Vedomosti reported yesterday that the ministry, headed by German Gref, is now projecting 2.4-4.4 percent growth for 2003, given oil prices of US$21.5-22 dollars per barrel, 4.2-5.1 percent growth for 2004 at the same prices, and 4.7-5.6 percent growth for 2005 at US$23 per barrel. In March the government was predicting 3.2-4 percent growth for 2003 and 3.5-4 percent growth in the ensuing years given an US$18.5 per barrel oil price, or a 4-4.5 percent growth if oil costs reach $23 per barrel.

Putin upbraided the government for the growth projections during a cabinet meeting in early April. A short time later he gave a rather gloomy annual State of the Nation address, charging that the inefficiency and corruption of the state apparatus was hindering the country’s economic development. Both Putin and his economic adviser, Andrei Illarionov, have noted that it would take Russia’s economy years to reach the size of Portugal’s even if it consistently posted an 8-percent-plus annual growth rate, as it did in 2000. Last week the Russian president showed he was still annoyed about the situation, saying he had been waiting for a month to see revised growth forecasts (see the Monitor, May 7). Vedomosti, citing an unnamed source in the Kremlin administration, reported yesterday that Gref had asked Putin not to put the government in a difficult situation by criticizing it publicly. But while the cabinet has apparently decided to try and appease the president by correcting its forecasts upward, it is not clear whether this will satisfy him.

Meanwhile, Finance Minister Aleksei Kudrin, who also holds the rank of deputy prime minister, told journalists yesterday that the government would forecast only realistic economic growth figures, emphasizing that Russia’s growth rate remained one of the world’s highest. He said it was important to discuss not so much the specific growth indicators, but rather the means to achieve growth (Polit.ru, May 13). One of Kudrin’s allies outside the government also accentuated the positive. Yevgeny Yasin, former economics minister and now director of the Expert Institute (a Moscow-based thinktank), noted yesterday that Russia’s economy had demonstrated “vital growth” over the last three years, and that its growth rate for last year, 5.1 percent, was one of the world’s best. According to Yasin, Russia’s hard currency reserves grew from US$11 billion in 1998 to US$36.5 billion last year. The share of barter operations in overall domestic trade went from 60 percent in 1998 to 13 percent last year and the country’s total state debt during the same period went from US$158 billion (some 60 percent of GDP) to US$137.8 billion. Meanwhile, foreign investment reached US$9.7 billion in the third quarter of 2001, US$2 billion of which was direct foreign investment, up from less than US$2 billion in 1998. Yasin predicted that Russia’s GDP would grow anywhere from 2 percent to 4 percent this year, and that inflation this year would be 16 percent (Regions.ru, May 13).