Economy Development till 2002

In a mid-range view, a turn from decline to economic growth in the country’s economy development may be fixed subject to a complex solution of problems in the spheres of budget and taxes, finance, banking and in the real sector of economy. The further development of market reforms will be combined with rein-forcement of the state’s regulative functions.

According to the first scenario, the GDP growth in 2001 and 2002 will be 4% and 5% respectively, the growth rate of investment into fixed assets from all fi-nancing sources—5 and 7%. The estimated GDP dynamics is mainly related to the extremely low investment activity in the preceding years and immeasurably higher economy’s demand for investments. At the same time, chances are real for investment activation in those years.

According to the first scenario, the annual growth rates of industry output in 2001 and 2002 will be 5% and 6% respectively.

In the course of implementation of the industry policy in 2001–2002, it is ex-pected to intensify the export orientation. Those years will be characterized by development or import substitution processes and preparation for outputting products corresponding the current fifth technological model. The transition of the industry to manufacturing knowledge-intensive and competitive products aimed at industrial countries will be accelerated, as well as modern products designed for export into developing countries.

Most expeditious growth rates in the forecast period will be in development of branches such as chemical and petrochemical industry, engineering and metal processing, light industry (about 120% and higher in 2001–2002). The share of these branches in the total volume of industrial output (when calculating by a sum of branches) will be about 32% in 2002 against 28.3% in 1998.

The development dynamics of the group of branches including woodworking, timber, pulp and paper, oil processing industry, production of building materials and food industry will be from 112% to 118% during the two years. Their share in the total industrial output won’t actually change and will amount to about 23% in 2002.

The development of coal industry, ferrous and non-ferrous metallurgy, electric power production, oil extraction and gas industry will be influenced by structural shifts in the country’s economy, demand and price limitations corresponding to that period, and measures taken to reduce the energy intensity of the GDP. The development rate of these branches if estimated in the range from 104% to 110% during the two years. The specific weight of this group will reduce and amount to 40% in 2002 against 43.6% in 1998.

In general, the structure of industry production will improve due to the increase of processing branches’ share. This will be determined by increase of invest-ment product output and expansion of nonfood consumer goods output.

The reinforcement of positive processes in the economy will be contributed by an enterprise reform ensuring that the property is transferred to efficient owners interested in long-term development of the enterprises and in possession of necessary investment resources.

The agricultural growth rate in 2001–2002 will reach (according to the first sce-nario) 3% and 4% respectively.

Important measures in development of the agricultural complex may be: 

• beginning of realization of the Program of Optimization of Price Relations between the Products of Agriculture and Other Economy Branches start-ing from the 2nd semester of 1999; 
• efficiency improvement of utilization of budget funds applied for leasing operations performed by leasing companies in which the controlling stock is under state management; 
• introduction of protection measures in the foreign trade and customs tariff policy of state regulation of oil stock export; 
• practice of supporting stock-raising complexes and poultry plants bringing payoff within the annual production cycle by increasing the assignments to reinforce the fodder supplies in order to reduce meat import. 

In 2001–2002, the reduction of the “inflation background” will take place in the economy of Russia, yet rather slowly. Even according to the first scenario, the inflation rate will be in 2001–2002 12% and 10% respectively, which in fact cor-responds to the inflation rate in 1997. This is connected with the necessity in in-dex the populations incomes, to finance investments into the fixed assets, also partially from emission sources, by structural shifts in the economy characteristic for the economic growth. In the mid-range prospect in the average, it will be ex-pedient to pursue a rather moderate fiscal policy, which on the one hand wouldn’t suppress investment into the real sector of economy, and support structural processes on the other hand.

By 2001, the restructuring of the banking system will be mainly completed.

In the banking sphere, high presence of the state will remain. It is connected with the fact that the Russian economy will signficantly lack financial resources for adequate restructuring and recapitalization of the banking sector.

It is worth noting that in the period before the 1998 August crisis Russian com-mercial banks were de facto oligopolist and—at the same time—rather expen-sive and inefficient mediators on the domestic finance market.

The detachment of many credit institution s from the real sector of economy, dim-sighted credit policy, unwillingness to grant credits to retail borrowers, in-cluding small businesses, couldn’t but impact both the economic situation in general and the liquidity of assets of the banking system. Involving money from the population in order to fill the working assets of enter-prises, first of all agriculture, food and light industry, is a task that can’t be solved without strengthening the institutional structure of Russia’s credit system.

The mid-range forecast of Russia’s economy development (according to the first scenario) presumes that in 1999–2000 the restructuring of Russian foreign debt will be made, the budget’s burden of foreign debt service won’t exceed US$7 billion annually. Along with an active positive foreign-trade balance of Russia, it will allow to solve some most important problems: 

• to form large enough gold and currency reserves of the Bank of Russia and, on that basis, to pursue an efficient policy of exchange rate regula-tion; 
• to concentrate currency assets for financing priority economy branches via the Development Budget; 
• to create prerequisites for transfer of currency savings into organized ru-ble savings in safest banks. Also by means of guarantees of Agency of Credit and Investment Risk Insurance being now organized, authorized foreign banks, etc.; 
• to partially solve the problem of steady capital outflow from Russia (estimated US$19–20 billion annually). The repatriation may be per-formed through partial capital amnesty, other measures of legislation modification. 

Preserving product efficiency and competitiveness of export-oriented branches will require that a balanced policy in respect to the ruble exchange rate in order to preserve acceptable operation conditions in such branches. This would allow: 

• to preserve monetary efficiency of export; 
• to stabilize efficiency of import to Russia and, under conditions of using selective tax preferences for import, to purposefully regulate import vol-umes of both production and consumer designation. 

In 2001–2002, moderate growth of foreign trade volume of Russia and gradual improvement of its structure is forecast.

Taking into account the typology of foreign markets, there will be acceleration in the transition of the industry to the production of mainly knowledge-intensive products oriented at markets of developed industrial countries, as well as up-to-date products designed for export into developing countries.

The main place in purchase in non CIS countries will be occupied by engineer-ing products, a substantial share of foodstuffs, medicine and medicaments will remain.

The export growth rates in 2001–2002 will (according to the first forecast sce-nario) amount to 3.5% and 4% respectively against 2% in 2000 and reach the volume of US$ 77.5 billion. The import dynamics is forecast to reach 4% and 5% in 2001 and 2002 respectively against 2% in 2000. Its absolute volume will be US$51.7 billion in 2002. The positive foreign trade balance due to moderate im-port dynamics will grow, and its annual volumes in 2000–2002 will be US$24.4, 25 and 25.8 billion respectively.

The parameters of the second forecast scenario for 2001–2002 are more modest than those of the first scenario (see Table 2). The GDP growth rates in 2001 and 2002 according to this scenario will be 3% and 4% respectively, indus-try output 3% and 4%, agriculture 1% and 2%.

According to the second scenario, the inflation rates are higher: 20% in 2001 and 15% in 2002.

Under conditions of a higher “inflation background” and higher interest rates, investing into the real sector will go with some lower dynamics. The amount of investments into the fixed assets according to this variant are forecast to be 3% and 5% in 2001 and 2002 respectively.