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Dmitry Medvedev: We are going to solve the external factor problem for Russia’s economy

September 20, 2014, 2:51 UTC+3
Prime Minister Dmitry Medvedev on Russia’s economic development amid sanctions
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© ITAR TASS / Александр Астафьев

Russia is going through a period of hard trial: internal problems and special external factors mix up. How fast will the country’s economy develop under these circumstances? How will the state react to sanctions and what vector - European or Asian – will be given a priority? Russian Prime Minister Dmitry Medvedev answered these questions in an exclusive interview with ITAR-TASS.

- Mr. Medvedev, you are attending a third Sochi Investment Forum in your capacity as prime minister. All the forums have been different. This one is absolutely different from the previous forums due to external conditions in the first place. That was mentioned at the first plenary meeting. What do you expect from the forum and what are your first impressions? Will investment become the most urgent problem?

- Let’s talk about the forum a bit later. Your news agency is 110 years old. Therefore, I would like to congratulate you and the entire work collective of your oldest news agency on this jubilee. I would also like to congratulate those who use your information. I hope that it will continue being prompt and trustworthy.

Now I am going to speak about the forum, its atmosphere and my expectations. I will tell you at once that the atmosphere is very good despite the rain that has started in Sochi.  It seems that in recent years it has gained momentum and received a new lease of life. Look at all the new premises we have.  Thank God, we have got lots of things here now.   Now, we have conditions to host quality forums.  The heads of Russian regions, the federal government and the business community consider the forum to be a good floor for discussions and communication.

As for expectations…I am going to be quite frank: some very hard times have come. It is true. I already said that today and I am going to repeat it to you.

Had anybody told me quite recently, about eight months ago so to speak, that we are going to face such complicated problems, I would have simply refused to believe them.  It was also hard to believe in the 2008 global economic crisis that had hit the world’s leading nations. The same thing happened this year.

Investments are a very subtle matter. They flow well in conditions of stability. In our circumstances, stability is determined by two factors.  Internal factors come first. If we take political stability, we have no problems with it at all. Macroeconomic stability is not a problem, either.   But we have structural problems. It is true. We have failed to overcome them over the past 20 years.  I mean roads, communications and construction of networks. We need to pay attention to it.  We would like to see normal full-fledged private and private-public investments flowing into Russia.

External conditions are another vital factor. We can say with full authority that we are really capable of living through much harder conditions.  The question is: what quality of life are we going to have? No one is going to deny that external effects are important, but we would not want such a scenario to unfold. It may not necessarily have any direct impact on the lives of the majority of people because no fundamental changes have occurred in their lives.   Their incomes, payments and prices have remained unchanged even despite the decisions that were taken. Though separate regions are facing difficulties and there are problems with prices for some foods.

I hope that this problem is going to be solved sooner or later. It is bad for the general investment climate. That, if you wish, destroys the foundations of the world economy.

- Could you please tell us when Russia’s economic growth is going to pick up? How will it take place? Will Russian regions become the locomotives of economic growth as many have expected?

- We have the forecasts which we have made. They are very optimistic. Honestly, our economy is growing badly. But the world economy is not fast-growing either, and that is definitely reflected on our economy. The European economy is growing at the same rate as ours; the American economy is growing a bit faster; the Chinese economy sees a more serious growth of 7%-7.5%. But, honestly, this is a Chinese factor.

This year is certainly going to be difficult with growth predicted at 0.5%. We assume that the growth will stand at 1% or slightly more than 1% next year.  These are approximately the rates that exist in the European economy. We are not better than they are but we are not worse, either.

In 2016-2017, we hope to establish a more stable trend of growth – approximately at 2%-2.3%. Of course, we wish it to be higher, but we understand that this task is hard to attain.

The problems I have mentioned include an internal factor, namely, our infrastructure, such as lack of communications and roads. We should eliminate these bottlenecks. External effects are what experts call external shocks. If we manage to compensate for the first two factors, it is clear that the situation will look much better.

And lastly, we understand that we have quite significantly increased the volumes of our economy. It is many times different from the one we used to have 10 or 12 years ago. Naturally, the economy which we used to have could have grown at a higher rate, because smaller economies usually grow faster. In this sense, we are unlikely to expect the growth to be as high as 10% or 15%, though some of our neighbors are showing this growth. But their economies are incomparably smaller than ours.

- Much is being said about import substitution. Don’t you think that in a situation we are facing now, when relations with the global economy are limited, there is a risk that the quality of products on our market would be inferior to that on the global market? Will there be a risk of technological lagging? We had it in the period of the Soviet Union, we’ve been there. Is there a way of preventing it?

- Let me tell you this – such risks do exist. The more closed a situation is, the less competition the economy has. It’s natural. It is not right to create sterile conditions even under the slogans of import substitution. This is the rule the world lives by: when there is no competition, quality is degrading. It was applicable to the Soviet Union, and it is applicable to Russia and to any other country. When the market is closed, competition goes down.

Why do they fight against protectionism across the globe? Precisely for these reasons. We did not start this, this is not our idea. All these restrictions imposed against us have forced us to resort to, maybe, not very good countermeasures. But once it has happened, we must derive advantage from it and take efforts to boost those sectors of our economy where we can ensure high quality. It is a realistic task. But, I would like to repeat it once again: the markets should not be closed, if possible.

As for the food market, the situation is a bit easier here. Because the market is not closed completely. When European products go, Asian and Latin American products start pouring in. They will always be in competition with our products in terms of quality-price ratio.

As far as machines and mechanisms are concerned, the situation is more difficult. But we still hope we will be able to be in command of the situation and give money to sponsor such import substitution technologies that would be competitive. This is a task for the government to address.

- It took us very long to join the World Trade Organization (WTO) – you must know it better than anyone else how much time and effort it took. But now that a relatively short time elapsed it has turned out that all the WTO principle we were ready to use and have even begun to use have ceased to work under the regime of sanctions. How important is it for Russia to go on following these principles now? Or, maybe, our domestic priorities are more important than the WTO principles?

- You know, the WTO is not a cure-all, nor is it an evil, as some tend to presented it. Even some of my colleagues, addressing the State Council meeting yesterday, said they were against the WTO.

The WTO is a set of rules. If these rules are obeyed, it is good, since global trade and global finances must comply with some general rules. It is important for the development of all countries.

How smooth do these rules work? Well, here we already have some questions. The WTO, as a code of rules, as a set of procedures, should not be used as a political instrument. But a range of decisions taken in respect of our country can be seen as politically-motivated.

That is why we plan to challenge the actions of many of our partners, including those actions that are targeted to exert pressure on our economy, to wreck a number of our companies or the so-called sectoral restrictions, with a WTO jurisdictional body – relevant documents are being prepared now. I think a comprehensive “post-flight analysis” is needed.

I know that similar claims are being prepared against us too. This is our partners’ right. And I think this is a civilized way.

The decisions that will be made will show whether issues are resolved in the World Trade Organization in an unbiased manner.

- Tell us, from your viewpoint, is it right the money from the National Welfare Fund is used to support energy sector companies that came under sanctions, and how big could that assistance be?

- We agreed that the funds from the National Welfare Fund, and still more so, the Reserve Fund that was created for different aims, should be spent in a very economical way. I said this at the Forum today. It doesn’t matter what we are speaking about. We admit the possibility of using these funds for a number of large projects. Some decisions have already been made, and some decisions may be made. But I stress once again, regarding the National Welfare Fund, the approach will be the most conservative.

- Today you said that the very name of the plenary session “Russia between Europe and Asia: new regional policy in modern conditions” is provocative. It is clear that we do not set Europe and Asia against each other. We are such a state that can’t do that by definition. But tactically, there is a certain feeling that we start prioritizing our Asian partners. Is it just a feeling or?..

- No, it’s not a feeling, of course, it’s an absolutely just statement for two reasons. First, because we are significantly advanced in Europe but poorly advanced in Asia. And beyond the context of sanctions and deteriorating relations with the West, it is right to do so for Russia to be a full-fledged Euro-Asian power, an economy oriented both to the West and to East. Another reason is really tactical. If we are shown the door somewhere, it means we will enter a different door.

- There are fears in the West regarding gas supplies, because we are opening for ourselves new markets on the Asian track…

- We will fulfill all obligations – both European and Asian. There should be no doubts here. Both on the European track, which is so important for us, and on the new Asian track that the Gazprom CEO mentioned today, where prospects are great.

- Do our Asian partners insist on easing restrictions that we have regarding investment in strategic spheres?

- They don’t insist on anything, because they can’t insist on anything. They are our partners, aren’t they? We never insist on anything. It’s a matter of agreement. We have special rules regulating investment in strategic sectors, there is a special commission led by the head of government. Decisions there are made individually and depend on our understanding of Russia’s national interests. We will keep acting this way in the future.

Mikhail Kalmykov, Gleb Bryansky (ITAR-TASS, Sochi)

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