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ST. PETERSBURG, June 16. /TASS/. The Russian economy needs to beef up its muscles after the fall of its supporting oil frame, former Finance Minister and Head of the Center for Strategic Developments Alexei Kudrin said at the St. Petersburg International Economic Forum (SPEF-2016) on Thursday.
"Generally speaking, we have a different task today: we need to beef up muscles and develop institutions that create the economy’s new productivity," Kudrin said.
"In recent years, we have had a sort of an oil frame supporting the economy. We have grown out of it and it impedes us and has stopped to support the economy. That is, the framework has collapsed and our muscles have turned out to be untrained. So, I would compare institutions with beefing up muscles," the ex-finance minister said, adding he would compare the inflation and budget deficit targets with the heart and vessels that should be in a good condition.
"A hypertension sufferer can’t compete in an Olympic 100 m sprint. You can’t compete with China and the United States by the quality of investment or long-term money when you have 7-8% inflation. You simply can’t do that," Kudrin said.
In Kudrin’s opinion, Russia’s GDP should be composed of sectors alternative to the oil industry.
According to Kudrin, Russia can switch to economic growth amid Western sanctions.
"In these conditions, we can even achieve economic growth. As far as the sanctions remain, we should build up growth through other factors," he said in an interview with RBC TV Channel.
"Certain restructuring [of the economy] has taken place. Where we can’t take out loans, we’re looking for other steps and ways of resolving this problem. This does not mean that it is comfortable for us to work and this does not mean that we have overcome all the consequences," the ex-finance minister said.
In 2014, the European Union imposed sanctions against Russia over developments in Ukraine and Crimea’s reunification with Russia.
The EU suspended talks on the visa-free regime and a new basic cooperation agreement, imposed a ban on blacklisted Russian officials for their entry into the European Union and froze their assets, and also introduced other restrictions in the trade, financial and military spheres.
Overall, the EU blacklisted 151 Russian officials and 37 corporate entities. The EU’s sectoral sanctions were imposed against 20 Russian financial, oil producing and defense structures.
In August 2014, Russia imposed a package of counter-measures to the sanctions of the European Union, the United States, Australia, Canada and Norway.
Russia’s counter-measures involved a ban on imports of fruits, vegetables, dairy and meat products from these countries.
The ex-minister has pointed out that the Central Bank would not slash its key interest rate within the next two years, adding that the key rate may be cut to 8.5-9% by the end of 2017 at the utmost.
"Within the next two years there won’t be a lot of rate cuts. If the Finance Ministry spends 2.5 trillion rubles ($37.9 bln) worth of Reserve Fund’s finances each year in 2016 and 2017 the rate will not go down below 8.5-9% within the next two years," Kudrin said, adding that "the boldest forecast for the rate is 8.5% for end-2017."
The budget deficit will be the main reason behind the regulator’s conservative policy, Kudrin said. "The Russian Central Bank will not be freely cutting the key rate within the next two years due to a considerable budget deficit, which is covered using the Reserve Fund. In essence, the government sells its foreign exchange resources to the Central Bank while the Central Bank prints currency worth of this sum," he said, adding that "this year at least 2.5 trillion rubles will be printed through the mechanism of spending the funds from the Reserve Fund, which is emission in its essence."
"In this respect the Central Bank responsible for regulating money flows in the economy will reduce lending via other channels and even issue bonds, which will take part of this money from the market. That is why the rate, being the target for the Central Bank’s loans, will remain high. It may be reduced but very conservatively," he added.