On March 21, 2011, Vladimir Putin, the Prime Minister of Russian Federation made an official announcement concerning the economical situation in the country so far (Novosti @ Mail.Ru). According to his words, the world’s financial crisis was leaving Russia, and the years 2011 and 2012 would determine the recreation of Russian economy as the main trend.
During the hard period of economic stagnation, many factors witnessed about the uncertainty of the political course aimed at reviving the economy, however, they proved to be successful on a long run. According to the official website of the Government of the Russian Federation (Government of the Russian Federation "The Anti-Crisis Guidelines"), the country has almost overcome the financial crisis but the economic situation cannot be still considered stable. At the moment, the government is oriented at the course of recreational growth but there are several factors that can slow the process: internal risks on a short run, restructuring of the world economy and incorrect orientation on the pre-crisis economic model. “A recovery from the crisis for Russia means the emergence of a different economy, not the one the country was before”, the director of Social Policy Institute Mr. Gontmakher said (The Voice of Russia).
The program of anti-crisis measures has been adopted twice – in April 2009 (Latuhina; The Ministry of Economic Development of the Russian Federation) and December 2009 (Government of the Russian Federation «The Anti-Crisis Guidelines»). The latter is considered to be the continuation of its first part based on the results of the original one.
Program of the Year 2009
Origin and appropriation
By the middle of 2008, Russia was not among the countries hit by the world economic crisis. The actions aimed at giving the advanced notice of the crisis showed their preliminary effectiveness at the first stages when the economy of the USA has been failing but were considered finally inefficient because of choosing the wrong direction of stabilization. According to The Market Oracle, Russia should better choose stimulating the domestic demand rather than supporting financial organization in the real economic sector. Government of the Russian Federation (“Russian Government’s Anti-Crisis Programme for 2009”) claims that a decade of successful growth in the economic aspects were crossed out because of the negative effects on the global financial downturn causing the decline in many aspects of economic and social life in the country. The primary anti-crisis measures were taken in autumn 2008 but were not formalized as a standalone program of actions.
The program finally released at the beginning of summer 2009 was presented as a guideline to “ensure a macroeconomic balance and pursue the policy of stabilising the national currency and gradually lowering the inflation rate” (Government of the Russian Federation “Russian Government’s Anti-Crisis Programme for 2009”). Therefore, Latuhina comments the words of Russia’s Prime Minister Vladimir Putin stating that the program of anti-crisis activity for the year 2009 could not be considered an official document because it represented just a number of planned measures structured within the industries and financial sources.
The budget for 2009 was adopted and followed the main positions and priorities of the anti-crisis program, Government of the Russian Federation (“Russian Government’s Anti-Crisis Programme for 2009”) informs.
Main domestic priorities
Around two years ago, The Ministry of Economic Development of Russian Federation (The Ministry of Economic Development of the Russian Federation) informed that the program aimed at stabilizing the economy in terms of financial crisis has been prepared and would officially come into effect on April 9, 2009. It took a couple of months more to launch the program and introduce the following seven priorities. The Ministry of Economic Development concluded that the given set of actions was as strict as those implemented in the countries like UK and USA: 1. Accomplishment of social and civil obligations which included the development of human potential, support of public and medical services, fighting unemployment, restructuring of the pension system and promotion of housing facilities for the people; 2. Retention and improvement of industrial and technical potential of the country by assisting manufacturing enterprises in terms of financial and technical support as well as investing in specific industries to make them grow and prosper; 3. Increase of demand on Russian products as the basis of economy restoration, namely the protection of domestic markets, accurate treatment of producers and issuing loans to businesses; 4. Stimulation of innovations and structural reconstruction of economy issuing grants to the enterprises with perspective business models and investing in high-tech industries; 5. Creation of favourable conditions for economic growth and development of entrepreneurships, both for small and medium-sized businesses, developing competition and designing effective legislation against monopoly; 6. Formation of powerful financial system as a basis for the development of national economy to attract foreign investments and make bank services more affordable; 7. Provision of macroeconomic stability by the means of preserving national and international investors’ trust, pursuing 13-14% of inflation and decreasing deficit.
The budget of the program was designed in a way that insisted on savings and postponing certain expenditures for the later terms as well as keeping the deficit within 7.4%. The budget expenditures were cut by $24 billion and the expenditures for the program were increased by $35 billion (Government of the Russian Federation “Russian Government’s Anti-Crisis Programme for 2009”).
The Russian Government was planning to spend $53.33 billion on overcoming the crisis in the country in 2009. The sum assigned to the anti crisis program was equal to almost 30% of the federal budget for the year taking into consideration the fact that the budget itself was enlarged by $14 billion, Reuters reports.
Even though the situation in Russia could not be called stable back in 2009, the Government of the Russian Federation has been conducting financial activities within its foreign policy by issuing loans to the smaller needy countries like Belarus or Armenia (Arka). All in all, the Russian government was responsible for issuing $50 million aimed at the development of the poorest countries in terms of the World Bank program (News.Rin.Ru). Once again, this witnessed about the financial potential of the country even in terms of crisis and deficit of economy.
Progress of works
In order to control the accomplishment of the program, the system of monthly reports was established. The Ministry of Economic Development was also assigned to report quarterly on the situation within the financial market, banking system, labour market, social security and monitor economic industries (The Ministry of Economic Development of the Russian Federation).
When introducing the program, the opinions and decisions made at the summit of the Group of 20 in London in April 2009 were taken into consideration.
The program showed its effectiveness after the third quarter of 2009. The increase in GDP in the second half of 2009 was estimated as 1.1-1.9% with the overall annual drop of not more than 8.5%. Inflation rates decelerated and Russian export improved. In social sphere, the unemployment rate was decreased by 1% for the year period – from 9.1% to 8.1% (see table 1). However, the situation did not appear to be stable in all industries so far.
With the help of 14% GDP issued to the businesses and banks, by the end of the year 2009 “Russia’s economy emerged from recession” (Schweitzer).
Observing the weaknesses and gaps of the program, one could mention low internal demand, inability to satisfy it with the local production facilities and weak financial system.
In simpler terms, during this half-year period of new program functioning, Russia started fighting the most relevant economic problems most of which were the weaknesses of the social and financial spheres in the country for years. The outcomes which were obtained are not worth of analyzing as standalone results but only in comparison to the previous years for that Russia is still considered to be a developing country. Therefore, not many new objectives were introduced but the emphasis on the most important ones appeared. This impact continued in the next year with the introduction of a better customized program to overcome the crisis.
Program of the Year 2010
Origin and appropriation
According to Schweitzer, with the rise of prices on oil in 2009, the Russian economy obviously improved by the end of the year. This cannot be considered as the main reason for the stabilization, although it is a clear fact that natural resources of the country play an important role in sustaining its positions in the global economy.
By December 30, 2009, the updated program for the year 2010 was designed and approved at the meeting of the Government. The main distinction between the programs for 2009 and 2010 is the switch from focusing on stabilization activity to emphasizing on the improvement and modernization of social economy, The Ministry of Economic Development of the Russian Federation reports. As the Voice of Russia and AllBusiness point out, the primary objective in the development was building up the new potential and introducing smart solutions. For this, Russia’s Government was planning to spend $1.21 billion restructuring the job market, introducing social security, adjusting credit issuance and paying out debts (Schweitzer; Trend).
Under financing in some certain expression has always been a noticeable deficiency in the economical system of Russia. That’s why one of the aspects that helps to overcome the financial crisis in the country was the creation of two separate reserve funds which were operating for the last five to seven years: the Fund of national welfare aimed primarily at the support of pension system and the Reserve fund which was supposed to be used in terms of intensification of the economical situation in the world. According to the President of Russia (RiaNovosti “Talks with the President”) and the Prime Minister of Russia (Novosti @ Mail.Ru), this was very helpful in maintaining the stability of the country’s economy through the crisis years.
The most attention in 2010 was paid to the three aspects of modernization and improvement which were the following: 1. Support of social stability and provision of social security for the population; 2. Maintenance in the improvement of economy and following its positive trends; 3. Activation of agenda for modernization which incorporated coming up with the problem solutions, building up a new regulatory models and attracting new investments and human capital.
Each aspect is formed of a series of actions which together make up a synergistic approach to the reconstruction of Russian economy and assist in overcoming the financial crisis effects (Government of the Russian Federation "The Anti-Crisis Guidelines").
By the support of social stability the Russian government meant the provision of effective social security and improvement of employment rates throughout the country. Besides, the pensioners were supposed to get the improved benefits in the form of an excess fare in order to make sure that the pension payments are higher than the minimum living wage. Finally, the system of social contracts was established to identify the needy individuals and the bodies responsible for assisting them on a local level. The government was also planning to develop the funds of child support involving the non-commercial organizations, concludes the Government of the Russian Federation (Government of the Russian Federation "The Anti-Crisis Guidelines").
The labour market has always been full of tension in Russia that’s why the creation of new work places has always been of high importance in any region of the country. In 2010, around one billion Euro was issued to stabilize the situation in the sector by opening 1.4 million additional work places, coordinating the launch of 169,000 entrepreneurships and upgrading the qualifications of 230 specialists and students.
Another position in the social security aspect of program which appears to be relevant since 2009 is certainly the fight against unemployment, both registered and hidden. One of the most common problems in any country hit by crisis is the insufficiency of work places, lay-offs and complications in finding or changing a job. Dmitriy Medvedev, the President of the Russian Federation, has been emphasizing on the program of sustaining the activeness of the country’s work force for a couple of years already (RiaNovosti “Talks with the President”). On a short run, this includes the possibility of issuing the improved unemployment benefits. On a long run, the job substitution is supposed to be a solution. If an enterprise becomes bankrupt or stops functioning, the new one should be able to provide the work places to balance the level of overall employment in the country. Besides, new work places are about to be created by the government itself involving specialists in construction of roads, building of insfrastructure or launching of new enterprises. Finally, the possibilities for the requalification will be encouraged to help people find the job in the sectors not of their main specialization.
In addition, the Russian Government introduced the assistance to unemployed citizens, specialists risking to fall under the lay-offs and people willing to relocate for the reason of job opportunities. Disabled persons can now also expect an aid from the government in terms of employment (The Government of the Russian Federation «The Anti-Crisis Guidelines»).
As a result, the layer of population that hardly ever make the both ends meet decreased by 9% in December 2010. Social financing, expenditures of prestigious governmental projects and credits for the large corporations possess tangible and psychological effect drastically decreasing people’s protesting moods (Gudkov).
Improvement of economy
The sum of almost six billion Euro was issued to implement the program of anti-crisis action in 2010. However, these expenditures could only finance the most effective types of activities which proved their efficiency already in 2009. The following trends are considered to be prevailing in the formation of the anti-crisis program principles in the economy of the country:
Credit policies which were not of primary emphasis in the program for 2009 now predetermine the assistance for the large corporations as the potential users of credits and loans. Within these policies, mechanisms and instruments of turning the assets of banks into liquid and modify the governmental regulations to implement refinancing of the National Bank of Russia are established.
In order to stimulate domestic demand, the government was planning to promote the local production facilities and encourage the citizens buy the domestically produced goods. Primarily this concerns automotive, construction and pharmaceutical industries. The first reflection of this plan was originally seen in the program of anti-crisis actions for 2009. The next year, the Russian Government continued pursuing this aspect of strategy because it is supposed to be one of the most efficient ways to overcome the economic difficulties in the country.
The Government has also been planning to support the development of small business in the country by the means of issuing credits and involving the entrepreneurs in the projects of increasing energetic efficiency as well as in energetic audit of the enterprise. Obtaining a license for the legal operations within small and middle business was about to be simplified and the system of control over these types of organizations had to be upgraded. The Government also planned to realize financial support in starting new business by maintaining regional programs of assistance to the entrepreneurs. In the previous year, a separate lending program was launched to issue the loans for the businesses. According to the overall program guidelines, the emphasis would be on “modernization, industrial production and innovation” (Government of the Russian Federation «The Anti-Crisis Guidelines»).
It is a known fact that a certain part of conglomerates in Russia have negative revenues and this reflects on the economy of the whole regions and industries in the outlined geographical areas. In a list of areas, the recreational programs would be introduced attracting the overall financing of around $650 million in subsidies and credits. The main emphasis would be on the inactive and non-effective enterprises which could become the centers of work force recruiting and diversification of the regional economics as a result. These firms could expect the participation in special programs including the investing in techno parks and business concentration knots.
Measures of modernization
Within modernization, the Russian Government observes the possibility of improving the economic activity and introducing innovative processes in the industries subjected to upgrading and renewing. This strategy pursues several main positions to be accomplished with:
Here it is important to mention that most of the aforementioned actions intersect with the already existing strategies implemented in the anti-crisis program of 2009 and other section of the 2010 action plan.
Economic diversification was supposed to help in reducing the market prices of the raw materials, while renovations and simplifying the legal procedures should bring foreign capital to the country creating new jobs, maintaining new technologies and bringing qualified personnel to the country.
New systems of supporting innovations had to be created. They incorporated programs mostly in research and development and designing supported by the secondary activities associated with them: tax legislation, intellectual property registration, capital allocation and many other aspects.
In the last years, the Russian Government is highly concerned with the development of nanotechnologies and hi-tech products. Besides, Russia is known for the numerous inventions in industrial, military and consumer sectors. That’s why R&D also became a vital part of the program and is ready to provide heavy spending which is not affordable to the most enterprises with their own financing. This time it reminds the programs of financial development which have been functioning in the European Union for years supporting commercial enterprises and governmental organizations. $800 million were assigned to the re-equipment of laboratories and invention centers as well as their privatization for the sake of financial injections in their operating. As mentioned by the Government, legislation will “promote innovation and modernization through a system of governmental contracts” (Government of the Russian Federation «The Anti-Crisis Guidelines»).
All budget spending in the sphere of modernization is based on the principle of lowering costs and increasing efficiency. However, the practice shows that it is not always possible to obtain the profound results without significant expenditures, and heavy spending would not probably be appropriate for Russia in the following couple of years. Therefore, it is quite arguable whether the ambitions in developing hi-tech sector correspond to reality in a sufficient way.
Maintaining the international policies, Russia is negotiating about issuing a one billion dollar loan to Belarus in the first half of 2011. The Prime Minister of Russia Vladimir Putin approved the request with the only condition – the Government of Belarus should provide the agenda for the nearest future concerning the financing that the country is supposed to obtain (Belarus.by). This is certainly a positive step in the relationships between the two neighboring countries which discloses Russia as a powerful and confident state holding a firm position on the international arena. Besides, the cooperation of these two countries has been discussed for a few years and already brought the simplification of procedures at the customs border, which is called the harmonization of views between the Russian Federation and Belarus (Belta). In 2009, Russia approved the issuing of anti-crisis loan for Belarus for the term of 15 years. The sum of the package was equal to $2 billion and transferred in parts. In return, Russia pursued own economic and financial benefits in terms of common economic space, investments and developing of several industrial sectors (RiaNovosti “Russia-Belarus Anti-Crisis Package”). By the end of 2009, the two countries maintained the free exchange of goods and manufacturer access to the neighboring market. Besides, the question of Sberbank’s expansion into the Belarusian market was also discussed (Belteleradiocompany). According to the news agency ITAR-TASS, “Russia’s largest retail savings bank Sberbank has been recognized as the most expensive brand [in Russia] more than 12 billion dollars worth”.
The rise of investments for 2010 was measured at the level of 2.9-2.9% growth along with the increase in prices for oil and raw materials and decrease in prices for the grain harvest. The manufacturing was evaluated as 3.5% more profitable compared to 2009. Inflation rate would keep falling (see table 2), incomes and consumer demand would slightly increase throughout the current and next years as well as the GDP. Its rate in Russia in 2010 should grow by more than three percent and the number of unemployed population should decrease by 100,000 people (Trend).
Government of the Russian Federation («The Anti-Crisis Guidelines») concludes that the overall forecast is the growth of economy by 5-6%.
The reserve fund for the year 2011 was raised by more than three times in comparison to the governmental expectations and comprised around $18,5 billion against $6,25 billion previously forecasted.
From the one point of view, the citizens of Russia can be proud of how the country’s current leaders manage to maintain control over all aspects of life in the country. Russia proves to be better organized, structured and powerful than before, which certainly strengthens its image in the international arena and makes it more attractive in terms of investments, partnership and trust.
However, it is somewhat complicated to compile the objective results of the anti-crisis program of the Russian Federation for the year 2010. Most of the results obtained so far may not fully reflect the precise economic situation in the country, although a list of forecasts and approximate outcome data is already available to the public. Besides, Russia has never been said to have the complete freedom of speech, that’s why the national Mass Media usually use the statistics obtained from the governmental informational sources and have to rely on them.
What concerns the anti-crisis programs, I suppose they are both based on the governmental strategic plan which extends for a long run rather than a year or two. Therefore, one may not see a significant difference in the anti-crisis program and the program of normal development of the country in the stable conditions for that Russia is still a developing state which has to take actions no matter what the trends of the global economy are. Except for a couple of emergency actions, the action plan of Russia for the previous years has most probably looked similar.
Because of the strong dependency on the oil market, Russia as a big player in this market can experience recurring economic misbalances and deficits if the industry of natural resource mining gets unstable (Schweitzer). This means that there are several variables which have to be taken into consideration when adjusting a program to overcome the financial crisis. Russia as a powerful state can manipulate its resources, and this can probably help it in a short run but will not bring sustainable benefits in future. Most of the precious natural resources that Russia possesses are non-renewable, and this means that after they are depleted, the country will lose a number of partners and buyers. The programs of 2009 and 2010 do not incorporate special actions on how to overcome this switch in the future, and this witnesses only about the fact that some global and long-terms issues are ignored by the government. Nothing is also stated about the ecological concerns in the programs, and even though they do not have direct connection to economics, they are a big part of budget in any country nowadays.