Russia: Deepening Crisis or Road to Recovery?

It is difficult to get a clear picture of the outlook for the Russian economy, as Russian government officials have been coming out with varied economic projections ranging from nascent recovery to prolonged stagnation. But there is certainly no coordinated message as to how the economy will develop.

On the one hand, Russian Finance Minister Alexei Kudrin has been notably optimistic. In early September, he stated that Russia would be on its way to recovery as early as the third quarter of 2009. Later in the month, he said that the new forecast allowed him to predict a 1.6% GDP increase in 2010, with 3% in 2011 and 4.5% in 2012. He went so far as to estimate that Russia’s GDP will reach its pre-crisis level in the third quarter of 2012, although he did admit that adverse developments in the world economy would have a negative impact.

More in the middle of the spectrum, President Dmitry Medvedev has shown signs of optimism but has been more cautious than Kudrin. In discussing the results of anti-crisis efforts over the past year, he spoke of a slight GDP increase in the third quarter of 2009, as “just the first sign of recovery,” admitting that “it is too early to speak of a steady growth.”

On the more pessimistic side is Medvedev’s top economic advisor, Arkady Dvorkovich. In a September 17 statement he said, “There are no grounds to say that we have rebounded and are now growing stably. So far all the growth we are seeing comes from the injection of state funds.”

First Deputy Prime Minister Igor Shuvalov, who heads up Russia’s anti-crisis commission, shares these concerns - at the end of September he announced that the Russian government would begin privatizing strategic assets in order to raise capital in the face of a mounting budget deficit caused by falling energy prices and spending commitments.

And in discussing the draft 2010 budget, Prime Minister Putin bluntly cautioned against viewing the situation with rose-colored glasses - “I want to say it again,” he emphasized, “We can’t afford unjustified optimism.”

With the economic situation far from certain, indicators changing continually and a statistic to support virtually all viewpoints, it is not surprising that there are diverse assessments within the Russian leadership. What remains to be seen, however, is which viewpoint will dominate future fiscal and monetary policy.

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4. Fighting the Crisis by Rebuilding Confidence
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