Paul
Goble
Staunton, July 10 – Moscow’s newly
announced plans to freeze spending for three years at a level below even that
of this year will drive the country’s regions into debt, increase social
tensions, and points to the collapse of the economy over the course of a long
period of stagnation, according to Russian economists.
One, Mikhail Khazin, who is
president of Moscow’s Neocon consulting firm, tells Rosbalt’s Dmitry Remizov,
that the policy the finance ministry has successfully insisted upon means “the
banal ‘eating away’ of reserves and will lead the Russian economy to a
catastrophe” (rosbalt.ru/russia/2016/07/08/1530383.html).
Apparently, he says, officials haven’t
thought through the consequences of what they are doing: “They think only about
one thing: we will support the current level of consumption as low as it is,
but we will support it [even] by the liquidation of the economy as a whole. It
seems to me,” Khazin continued, “this is a catastrophic decision.”
The finance ministry appears to
believe that by balancing the budget, Moscow can reduce inflation and thus
attract foreign investment. But in the current situation, such investment is
not going to be forthcoming. Moreover,
for obvious reasons, what the finance ministry is doing will in fact lead to
more inflation, not less.
Pavel Kudyukin, an economist at
Moscow’s Higher School of Economics, agrees and says that the government’s
plans will not only make the situation in the Russian economy worse but will
have the effect of increasing social tensions around the country. At best,
there will be stagnation; more likely, there will be a further decline.
He argues that “under crisis
conditions, it would be more logical possibly even to increase the budget
deficit” so as to stimulate domestic demand and thus the development of the
economy, given the declining role of foreign trade in the Russian economy
overall and the problems in many of Russian regions.
Regional governments are already in
debt not only to Moscow but to commercial banks, and with no new money from the
center, Kudyukin says, they will borrow more, thus siphoning off money that
might otherwise be used for economic expansion and possibly putting some of the
banks themselves at risk.
Valery Gartung, first deputy
chairman of the Duma’s industrial affairs committee, also believes, according
to the Rosbalt journalist, that “freezing budget spending will lead to the
further decline in the standard of living” in Russia. Indeed, the government’s decision will have “murderous
consequences for the national economy” and won’t lead to its recovery.
The average standard of living in
Russia has been falling for three years, he says, and “it is continuing. Budgetary spending on social needs is
contracting,” spending on education and health care is being cut, and as a
result, freezing the budget at levels even below this year’s is going to hurt
many Russians. The government should seek new revenue sources rather than make
more cuts.
Sergey Smirnov, an economist at the
Academy of Sciences INION center, says that the government is not only making a
mistake by its decisions but is taking actions that may in fact lead to more
government spending not less. That is because the economic decline it is
promoting will lead to more unemployment and more government payments to those
without jobs.
He says that he “suspects that the
finance ministry has not considered the coefficient of elasticity: how the
labor market will react to the contraction or stabilization of spending on the
federal budget” and thus is assuming it can make these cuts without incurring
more spending obligations, something that is almost certainly untrue.
But as Rosbalt’s Remizov concludes, Moscow
is “hardly likely to listen to the advice of experts. More likely, the
bureaucrats will continue to freeze pay and benefits and thus the economy as a
whole. As a result, entire cities and regions will be pushed to the edge of
survival” – and by implication even beyond that.
No comments:
Post a Comment