Russian Minister of Finance: ‘We Can’t Live Lavishly in Difficult Times’
Anton Siluanov, Minister of Finance of the Russian Federation, spoke at opening of the XV April International Academic Conference on Economic and Social Development.
‘The risks of instability have grown’ admitted Anton Siluanov as he opened his speech. Sanctions against Russian officials and companies have only added to everyone’s nervousness. The volume of investments has decreased by 5% over the last two months, and loans for Russian companies have risen in price. Investors are ‘waiting for what will happen next’. The situation has been made worse by considerable capital drain, which means both direct capital outflow abroad and a transfer of rouble-based savings into other foreign currencies. ‘We must be ready for any scenarios’, the minister warned.
According to Siluanov, many experts have suggested a rescue measure such as stimulating internal demand through increased budget spending, as was done during the 2008-2009 crisis. But the situation today is different; while that crisis was sharp and quick, it was replaced with a rather fast recovery. Today we are seeing a prolonged decrease in growth and investment. In this situation, the state would have to constantly support internal demand.
Russia has a ‘difficult’ budget even given the high price of oil. An oil and gas deficit makes up 10% of GDP, and it will grow more if state spending grows. ‘We don’t have the opportunity to finance such deficits’, Siluanov continued. ‘In order to borrow 1% from the internal market, we’ll have to increase rates in the economy’.
The Ministry of Finance’s position is that ‘during difficult times we should cut down expenses, not live lavishly, - and probably, for a long time: a year, two years, or even three years’. What can and has to be done is to facilitate business activities and improve the business climate. After that, it will be necessary to engage natural monopolies, which have huge opportunities to invest in the national economy.
Another reserve lies in releasing budget funds. We cannot avoid increasing the retirement age, which is necessary to motivate citizens to accumulate a greater length of service. Without this increase, the pension system will never be self-reliant.
‘These things are difficult, but important, and we should work with them. Only when investors see that we are not wasting resources but are carrying out a strict financial policy, they will invest in Russia’s economy’, said Siluanov.
Responding to a question by HSE Rector Yaroslav Kuzminov about the consequences of a weakening rouble, the minister mentioned that the government has never weakened the rouble to increase fiscal revenues. Rouble weakening, while profitable for Russian exporters, also has negative effects, and transfers from rouble assets into foreign currencies is one of the most serious among them. It may become especially dangerous if the general public begins participating in this process. ‘Then we will lose trust in the national currency and won’t be able to talk about stimulating economic growth’, Siluanov concluded.
Oleg Seregin, HSE News Service