Russian central banker rebuffs fiscal deficit calls
Russia's central bank chairman on Tuesday criticized calls from a panel of experts appointed by Prime Minister Vladimir Putin for the government to run fiscal deficits in the coming decade and increase debt.
The panel, tasked with reworking Russia's strategy for economic development through 2020, reported to Putin for the first time and questioned the goal of eliminating the budget deficit in 2015 announced by Finance Minister Alexei Kudrin.
"This is an illusion, self-deception," central bank chairman Sergei Ignatyev said of the panel's position. "Some think that the state will have more resources (as a result of such policy). In fact it will result in diminished resources."
The warning from Ignatyev, a staunch ally of Kudrin, signals heated debates ahead as the government begins to draft the 2012 budget. Critics say Kudrin's fiscal prudence has worked against the goal of modernizing Russia's oil-dependent economy.
Addressing Putin, the panel's co-chairman Vladimir Mau said Russia could run a deficit equal to 2-4 percent of GDP in the next ten years and increase sovereign debt to 30 percent of GDP from the current 10 percent but no further.
"The debt quickly becomes unmanageable if you do not have an economy as diversified as in Germany," he said, adding that tax hikes were no alternative to borrowing since they would bring no more than 1-2 percent of GDP into the budget.
The idea is in line with an economy ministry scenario which sees Russia running a budget deficit until 2025.
Ignatyev argued that borrowing on such a scale would ultimately lead to higher domestic interest rates, stifling economic growth. He said that a deficit of 2-4 percent was acceptable for no more than two years.
"State borrowing will squeeze out private investment, which as a rule is more efficient," Ignatyev said. "We need to be more conservative and more responsible. If we want to spend more, it is better to raise taxes."
Pressuire on Putin?
Mau told Putin that it was realistic to slash inflation rates to 3-5 percent in the short term through a more aggressive central bank policy, but added that inflation of 8-12 percent was "not catastrophic."
Ignatyev said that Russia could achieve 3-5 percent inflation in the short term, but that the effort would be complicated by distorted prices that would have to increase, such as the artificially low domestic price for natural gas.
Mau warned that an aggressive anti-inflationary policy could have political consequences for Putin, who has hinted he may seek to return to the presidency in a March 2012 vote.
"This is the question for you, Vladimir Vladimirovich. As soon as inflation falls and the exchange rate strengthens, you will become a victim of those who benefit from the weak exchange rate," Mau said.
"By calling me a victim you probably exaggerate, but I will be subjected to pressure for sure," Putin said.
[Source: By Gleb Bryanski, Reuters, Moscow, 29Mar11]
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