PM warns Russia faces 'abyss' without economic reform

27th September 2013, Comments 0 comments

Russia's economy is at a crossroads and the country risks falling into the "abyss" if it does not make serious reforms to boost long-term growth, Prime Minister Dmitry Medvedev warned on Friday.

In a major article for the economic daily Vedomosti, Medvedev sought to reclaim the mantle of a champion of economic reform that he sought when he held the presidency from 2008 to 2012.

He painted a dark picture of the potential consequences of failing to improve the investment climate, labour productivity and legal system in Russia and indicated the country faced historic choices.

"The moment for simple decisions has passed," he wrote. "We cannot underestimate the economic challenges that stand in front of us today."

Medvedev said the current economic forecasts for Russia were "quite pessimistic" and weighed down both by external circumstances and "the burden of unsolved problems" at home.

He said Russia's economic growth was unlikely to exceed two percent in 2013, which will be the first year since 2009 that the country has grown slower than the global economy as a whole.

"We are at a crossroads," he said.

"Russia can continue its very slow movement with close to zero economic growth. Or it can make a serious step forwards. The second path is fraught with risks -- but following the first path... is even more dangerous.

"It's the way to the abyss," he added.

Medvedev said Russia needed to encourage private business, especially in innovation, radically improve labour productivity and ensure "quality state management".

In the two-page article, he did not once mention his mentor Vladimir Putin, who preceded and succeeded him as president, and who many analysts say missed the chance to implement serious economic reform.

In a keynote speech to an economic forum in the southern city of Sochi, Medvedev reaffirmed several ideas from the article and acknowledged it was urgent for Russia to reduce the number of inefficient jobs.

Russian officials are fond of boasting the country has one of the lowest unemployment rates of any major economy but Medvedev said the country had to "move away from the politics of (work) occupation at any price," news agencies reported.

Russia remains hugely dependent on its oil and gas resources and economists say it risks stagnating with low growth rates in the medium term if it fails to diversify its economy.

Standard and Poor's ratings agency warned in a report this week that Russia's growth was softening not just in line with weak global conditions "but also because the economy is reaching the limits of its capacity."

"Insufficient investment in new capacity and an unattractive business climate are also dragging on growth," it said.

It said Russia had failed to invest in new industrial capacity and its fast growth from 1998-2008 had largely been due to resuming use of old facilities constructed before the fall of the Soviet Union.

Investment as a proportion of GDP in Russia was well behind its main counterparts in the BRICS emerging market group China and India, Standard and Poor's noted.

Medvedev made noises about seeking radical change while president. But he disappointed many supporters by agreeing to hand the presidency back to Putin with the reform agenda largely untouched.

Medvedev said in the Vedomosti article that investors still have "irrational fears about working in incomprehensible and sometimes unpredictable Russia."

He said that investors had a "completely understandable" lack of trust in public institutions, the legal system as well as the police.

"We must make a serious step forwards... and create a strong Russia which allows for a high quality of life," he wrote in the article.

© 2013 AFP

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