Russia at the crossroads for selecting new economic model - Kudrin
MOSCOW. Feb 21 (Interfax) - Russia is currently at a crossroads where it will select a model for economic growth, Deputy Prime Minister and Finance Minister Alexei Kudrin said.
"We are at an historic moment: will we be able to break that dependence [on oil and gas] in the coming five-ten years, kick the habit, or won't we? That is the question," Kudrin said at a meeting of Federal Tax Service officials on Monday.
Kudrin said Russia is currently selecting a new economic model. "We have to decide now on the model we will live by. We must answer the question: is this the pre-crisis model? Does it suit? Are we going to live by it? A model with high inflation and very high dependence on the price of oil. Or do we need to make a more stable economy, one less dependent on the price of oil," he said.
"We could see shocks to the economy and budget system resulting from crises," Kudrin said. Oil soared to $139 a barrel in July 2008, but had plummeted to $32 in December that year. It averaged at $41 in Q1 2009, but central banks poured in liquidity, which found its way into the commodity markets, where oil started to go up in price at a time when the global economy and demand for oil were not growing. "Prices ran counter to the drop in demand," he said.
Crude fell to $61 on average in 2009, from $94 in 2008 - a moderate drop. "We were worried it would drop even further," Kudrin said. But even the $33 drop reduced oil and gas revenue for Russia's budget by 3% in the space of a year. Other revenue fell by 0.7% of GDP. But Russia did not decide against increasing budget spending, and a surplus of 4.1% of GDP in 2008 turned into a deficit of 5.9% in 2009. The budget was able to withstand that change thanks to the Reserve Fund and its low public debt.
The question is whether Russia can "withstand such changes and shocks next time," Kudrin said.
