RUSSIA DOES NOT FIT THE G20

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THE WORLD BANK ADVISES VLADIMIR PUTIN’S CABINET TO ASSIST THE POOR

The World Bank recognized policy of the Russian authorities as anti-social.


As a matter of fact, WB experts anticipate a fall of the GDP more considerable than what the Russian official forecasts allow for (4.5% against 2.2%). It is attributed to their discovery that the Russian powers-that-be do little to help the least protected strata of the population.

In the meantime, reduction of social costs is one of the anti-crisis measures the WB traditionally recommends countries in economic trouble. The Russian authorities actually mobilized all PR resources to convince the population that it was interests of society they were promoting as opposed to those of financiers and oligarchs.

“We expect a colossal fall of domestic demand and a dramatic deterioration of the economic and social situation. Unfortunately, there is even the risk of an even worse deterioration of the situation,” to quote Zeljko Bogetic, Lead Economist and Country Sector Coordinator for Russia. WB experts expect nothing good for Russia in 2009-2010. They put Russia to the lowest position among all G20 countries from the standpoint of economic decline. Annual fall of the GDP in Russia in 2008-2010 will be five times the G20 average.

Most G20 countries will report their GDP down 1% at the worst.

According to WB analysts, the Russian economy will be down 4.5% in 2009 even with the Urals average annual price amounting to $45 per barrel.

Forecasts of the drain of capitals from Russia differ too, depending on their origin (WB and the Russian government). According to Bogetic, $170 billion worth of capitals will flee Russia in 2009 and $90-100 billion worth in 2010. The Russian Finance Ministry meanwhile expects the drain of capitals from Russia in 2009 to amount to only $83 billion.

The WB views meteoritic rise of unemployment and impoverishment as a dangerous corollary of the dramatic fall of economy. Its specialists expect the rise of unemployment in Russia this year to amount to 12% (against 6.3% in 2008) and that of impoverishment to 15.5% (2.8% more than before the crisis). “Social effects of the crisis take hold, and that’s a process whose importance had better be recognized,” Bogetic said.

WB’s Director for Russia Klaus Roland said anti-crisis program of the Russian government should be amplified by a social package worth 1% of the GDP. The WB is convinced that the Russian budget can well afford the additional expense (higher child benefits, doles, and pensions). “These social expenses are unlikely to end up in the hard currency market. The will back the domestic demand instead, and that’s important,” Bogetic explained. He suggested downsizing other, less effective expenses in the name of the social package that would assist approximately 4.1 million Russians to remain above the official poverty line.

As far as Bogetic is concerned, direct budget expenditures are even better than a reduction of taxes.

Russian economists more or less agree with their WB colleagues on the necessity to expand the social part of the anti-crisis action plan.

“Unprecedented rate of economic deterioration is a direct corollary of the economic policy Russia has been pursuing. Russia depends on the external markets of capitals, it depends on external demand for hydrocarbons. It even depends on consumer goods import. As for the domestic factors, it is necessary to mention monopolism, corruption, and low effectiveness of economy in general,” Alexander Verkhov of Interkom-Audit said. “Anti-crisis social package for the population is long overdue. Social consequences of the crisis defy prediction and fulfillment of its social obligations by the state will abate tension in society.”

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