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Anti-crisis plan: what can Russia do to prop up its economy and survive?

January 27, 2016, 18:37 UTC+3 Zamyatina Tamara
© AP Photo/Ivan Sekretarev

MOSCOW, January 27. /TASS/. An economic crisis is a time when development should begin at last. It is not enough to watch and wait for the turmoil to end, or just devise a way of living through it somehow. It is time for making long-awaited decisions, polled experts told TASS about the anti-crisis trouble-shooting plan for 2016 the Russian government is working on at the moment.

The finishing touches to the action plan are to be put by February 5. The preliminary draft which the Ministry of Economic Development has pieced together by now "costs" some 500 billion rubles. Support for individual regions and industries tops the agenda. Budget loans to regions are set at 310 billion rubles. Another 200 billion rubles are to be spent to support machine-building and automotive industries, as well as building and light industries. The resources for these measures are to be taken from the federal budget’s part that will remain after its sequestration.

A large chapter of the plan is devoted to liberalizing the investment climate and to promoting competition, as well as a variety of measures to support small and medium businesses. As anti-crisis measures will be considered, a vigorous discussion is due over social issues, such as the indexing of pensions and the retirement age rise.

The deputy director of the Russian Academy of Sciences’ institute of the world economy and international relations IMEMO, Yevgeny Gontmakher, agrees that the budget loans to machine-building, the automotive industry and agriculture will certainly come in handy. "But these financial infusions will not bring about any radical change in the mode these industries operate. The counter-measures are purely defensive, meant to last no more than one year," Gontmakher said.

"As far as the anti-crisis spending plans are concerned it’s all clear, more or less. Budget incomes are a far trickier issue, though. The government urges closer attention to tax administration. For instance, it plans to pool customs and revenue services. More taxes both businesses and individuals will have to pay are being considered. But the effects of this will be tiny, paling into insignificance next to the oil and gas income shortfalls. The reserve funds that are to be drawn into the budget will last a year or two at the most. No other sources of replenishing the treasury are in sight," Gontmakher told TASS.

To put real muscle into the Russian economy basic institutional reforms will be required and the investment climate is to be improved in reality and not just verbally. Figuratively speaking, the soil is to be prepared first before planting the seeds. For the time being the soil leaves much to be desired," Gontmakher warns.

The current situation as it is, the focus of attention should be not so much on anti-crisis measures as on the key features of a fundamentally new economic and social model. "Today one can see that small businesses and individuals are involved in the shadow sector of the economy and prefer to evade taxes. This is not an economic issue, but a political one. It is about confidence in the government. Resolving this problem will be possible only through the adoption of new laws and the establishment of an independent judicial system. As far back as I can remember myself the authorities have never stopped talking about that. But what is really needed is not fine words or pinpoint measures, but fundamental political decisions," Gontmakher said.

The head of the VTB bank’s observer council, former Central Bank governor Sergey Dubinin, agrees. The government is now focused on identifying extra sources of budget revenues. At the proposal of the Labor Ministry the possibility is being discussed of shifting to a progressive taxation for individuals with high incomes.

"But tax collection is no strength of ours. Besides, there is the risk large wages will begin to be paid in shadow cash again and concealed from taxation. Far from everybody is in the habit of filing income declarations," Dubinin said.

"My idea as to how to increase revenues is this. The government may issue federal loan bonds to be acquired by individuals, financial institutions and insurance companies. Businesses will be able to use these securities for taking loans from government-run banks. As far as the possibility of replenishing budget revenues by privatizing government-owned corporations is concerned, there remains a big question whether this measure can be effective enough in a situation where the market is unable to pay a fair enough price. Besides, this procedure is time-consuming. Some may say need is above the law, but I don’t see any urgent need for privatizing state-owned corporations. It will be far more important to support Russia’s oil and gas corporations and Rostec with effective investment," Dubinin said.

"By and large any crisis is a time when the economy is to be given a powerful boost. It is important to not just devise ways of surviving until the crisis is over, but to take long-awaited decisions. For instance, small and medium businesses are to be relieved of administrative pressures. Each entrepreneur should have a free hand in running one’s business the way he deems right. This is precisely what keeps economies around the world going and growing," Dubinin told TASS.

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