24 Nov 2010 14:29

Russia has yet to rectify key economic imbalances - Kudrin

MOSCOW. Nov 24 (Interfax) - Russia still has to correct some key imbalances in its economy, Deputy Prime Minister Alexei Kudrin, who is also the country's finance minister, has said.

"Russia has not yet resolved key imbalances in the economy," Kudrin said at a financial conference organized by the Vedomosti business daily.

The main danger for Russia now, he said, "is to become complacent after we had such a large deficit and [yet] were able to ease the crisis and get used to a new level of dependence on oil, and to expect that growth will come about when we maintain such a great dependence."

Those economic growth factors in effect before the crisis - high oil prices, the inflow of short-term capital - are in effect now and will not be for the next few years, Kudrin said. "And we would not want to rely on them," he said.

Russia now "finds itself in a situation where key disproportions are not rectified, dependence on oil has strengthened - budgetary-system revenues and spending are based on oil more than ever before," Kudrin said. This dependence is linked to currently strong oil prices and to unprecedented spending out of the accumulated Reserve Fund to finance the country's budget deficit. "Where before the crisis-year of 2008 we spent 6.5%-7% of oil and gas revenues on budget-system spending, now it's 13%-14%," he said.

This means that Russia has yet to correct this imbalance, Kudrin said. "This is a very great dependence, and we have to address it somehow." Even though industrial output has generally returned to a pre-crisis level, a few sectors still have yet to regain that level, he said. "Machinery-building is at 20% less than the pre-crisis level, agriculture is a little better than before the crisis, construction has not yet reached the pre-crisis level, and metallurgy is 8% lower than before the crisis.

A negative demographic trend is also gaining steam, Kudrin said. In line with this, the Pension Fund deficit is now handled "not only by optimizing social spending, but mostly by increasing taxes at this point," he said. This puts an additional strain on business and reduces opportunities for the private sector, he argued. However, the government, president, and parliament have decided that maintaining the pre-crisis level of social support is a must, he said. "This is a political choice, and we think it is a balanced choice," he said, adding that it is still a matter of discussion, nonetheless.