Reform in Russia to speed up, says World Bank's expert

Christof Ruhl, chief economist of the World Bank's Russia office, does not expect a crisis in the Russian banking system.

"I do not think that it [the situation in the banking sector] will escalate to a system crisis," he said at a briefing on Wednesday. "The banking sector needs restructuring anyway and the Central Bank's control over unstable banks is one of the measures usually taken during such restructuring".

Russia's banking sector continues growing, so "the longer restructuring is delayed, the more problems it will encounter".

"But the Central Bank has been inefficient controlling these banks, which is the reason for the scandal," Mr. Ruhl pointed out.

Nevertheless he is sure that reforms in Russia will speed up soon.

"They slowed down somewhat after 2002, but now we expect them to speed up and we already see certain signs of that, including the administrative reform," he said.

After many years' observation of the Russian economy it is now possible to say that it is moving in the right direction, the WB representative emphasized.

"Russia has some problems, one of which is to eliminate its dependence on oil and gas," he said.

The country's economic growth remains fairly high, 7.5%, the expert recalled. Also, the share of investment in its GDP continues growing and is gradually approaching the level of developed countries.

"We also see that CIS exports are growing, and this is very positive," Mr. Ruhl said.

In 2003 the Russian economy registered several records, such as growth of the private sector and large emissions of ruble and currency bonds, he said.

At the same time he warned that with the current growth pace Russia's financial sector could get overheated.

Also, the country needs coordination of reform in the state and private sectors, Christof Ruhl pointed out. The reforms should be simultaneous, he believes.

"The state sector is lagging behind the reform in the private sector," he said.

Confrontation between the authorities and large businesses in case of one company can lead to the domino effect in the financial sector on the whole, Mr. Ruhl maintains.

"Relations between the Russian authorities and large businesses are on pages of the world's largest newspapers and must be annoying. But I believe its discussion should go on," he said.

In these relations it is important to observe the market economy rules, the expert underlined.

"When someone does not abide by the rules, stability is disrupted. It is destroyed," he said.

If anyone doubts the fairness of the judicial system, then at first it is necessary to set its rules instead of making hasting decisions, Mr. Ruhl noted.

When talking of renationalization on the Russian market, he said it was unlikely to be the best decision for the Russian economy.

"Now many are talking of renationalization, but the state sector is unlikely to make more efficient use of the property if privatization is to be reconsidered," Christof Ruhl explained.

During his speech the World Bank's economist did not name any specific company or individuals.