Alexander Zhukov: Russia has serious economic growth potential

While addressing Russian and foreign economists in Moscow Russia's Deputy Prime Minister Alexander Zhukov noted that a normal business environment and investment climate had largely been created in the Russian economy in the last four years.

Indeed, we are posting sufficiently stable annual economic-growth rates to the tune of seven percent, Zhukov told those present. "We have curbed inflation a great deal and created a system whereby a budget surplus is no longer news for anyone," he stressed, before adding, "This is becoming the norm."

Russia has managed to accumulate sizeable gold and hard currency reserves with the help of a rather favourable international economic situation. Russia's credit ratings have also been raised considerably, thus making it possible to attract additional investment.

The whole world recognises Russia's political stability, which according to Zhukov, creates the pre-requisites for this country's accelerated economic growth.

A recent government session examined economic growth prospects for the next three years, Zhukov informed his audience. The cabinet, which remains quite optimistic on this score, predicts annual economic growth at 6-7% and aims to increase popular incomes by 40% within the next three years. True, this is an ambitious objective," Zhukov said. "Nevertheless, it must be accomplished because nearly 30% of all Russian citizens now live below the official poverty line. The government will have to halve this figure in the next three years."

Inflation must be reduced still further to equal no more than 8% next year, while the figure of 6% is stipulated for 2006. Moreover, the cabinet hopes to hit 4% in 2007. Most European countries have a similar inflation level, Zhukov went on to say. "We shall lay a genuine macro-economic foundation for subsequent rapid and sustainable Russian economic growth if we fulfil these targets," the deputy prime minister stated.

It goes without saying that Russian economic growth has largely been mostly facilitated by a favourable foreign economic situation for Russian exports, such as oil, gas and metal exports. However, Zhukov pointed out that the government wanted to end this dependence.

The vice-premier also pointed out that the government was moving to overhaul federal ministries. "We have made great cuts," he said, "But, most importantly, parallelism is being eliminated in all areas of the administrative machinery."

The number of state officials is being cut dramatically. In the long run, we'll make the administrative machinery much more compact and effective, Zhukov told those present. In his opinion, the administrative reform ranks among the most serious instruments for enhancing Russia's economic competitiveness.

The government will examine a tax-reform package this week, Zhukov stressed, which is designed to reduce the single social tax from 36% to 26% because this remains the highest and most harmful tax category (in the context of legalising wages), Zhukov added. According to some estimates, this measure will help retain some $10 billion in the Russian economy, thus making it possible to raise wages and to expand domestic investment volumes.

The deputy prime minister believes that lower single social tax rates can seriously improve the Russian business climate. "I think the cabinet will reduce value-added tax still further in 2006, so in general the tax reform will be completed," Zhukov noted.

At the same time, the government plans to seriously amend national pension legislation, so that prospective Russian retirees can eventually receive decent pensions. Some economic problems would simultaneously be solved because the contributory pension system, more impressive real popular incomes and greater solvent demand would make the Russian economy more competitive.

"We must introduce selective social benefits to facilitate cost-effective budgetary spending," Zhukov said.

Indeed, he also noted that the country had serious potential for improving the situation inside such socially important spheres as healthcare, education, as well as the housing and municipal-utilities sector.

According to the deputy prime minister, the government has largely created favourable legislative conditions for the development of small and medium business all over Russia, because it views freeing this sphere from petty bureaucratic tutelage as its main task.