Kremlin Think Tank Paints a Dark Picture

An influential government think tank criticized key aspects of the state's response to the crisis Monday and said small business could lead the way to reviving the economy.

The Institute of Contemporary Development, which advises the Kremlin on economic policy, issued a report underlining the seriousness of the economic downturn and rejecting the government's assertions that the crisis has been brought about largely by Western financial mismanagement.

"The economic crisis cannot be dismissed as an infection contracted from the West," said Igor Yurgens, the report's lead editor and the head of the think tank, at a news conference.

The report names "fundamental flaws in the structure of the country's economy and its underdeveloped financial system" as the cause of the "full-scale market crisis."

The report calls for the state to boost its support of private enterprises and take a long-term view on crisis-relief measures. "No matter what path is taken, there is no alternative to private business taking center stage in overcoming the recession," the report says. "The country is running out of time to retune the economy to take a new quality of post-crisis growth."

Social fallout from the crisis should be a top priority of the state, and "resources allocated for professional retraining should be put to radically more efficient use," the report says.

Last month, the government announced a series of measures to stimulate private business, among them giving 60,000 rubles ($1,700) to unemployed Russians as startup capital to open small businesses, as well as subsidies to companies to put employees facing imminent layoffs through re-education and training programs.

The report's authors said at the news conference that the middle class would not face serious consequences from recession if inflation were kept in check. Other segments, however, like the small percentage of the country's population who had invested in the stock market, have not been so lucky.

"Those who have been playing the stock markets, the 'button pushers,' they lost big," said report co-author Leonid Grigoriyev, the president of the Energy and Finance Institute Foundation. "Now they're back to playing Tetris."

The study gives high marks to some government tactics to date but says many measures "lacked long-term vision" and a commitment to the competitiveness and balance of the economy.

"Ballooning state involvement in the economy, the propping up of ineffective businesses and the atrophy of market institutions present major risks, both now and in the future," Yurgens said.

The state has spent hundreds of billions of rubles in recent months to bail out struggling companies and inject money into the economy. Billions more have been earmarked for the state owners of a wide variety of companies, including floundering carmaker GAZ.

Anna Belova, director for strategy and corporate development at SUEK and one of the authors of the report, said at the news conference that the crisis was more serious than initially thought and that an end was not yet in sight.

"This appears to be a structural crisis, one that could go on for as long as three years and bring about fundamental changes," Belova said.

Grigoriyev said economic numbers would likely continue getting worse until the summer. "We are not near the end," he said. "This is only the acute phase. By summer, the sharp drop in production should stabilize.

"The financial system has not been reconstructed since 1998, and we're paying the price for that."

Measures to stem the impact of the crisis in the Russian regions were also criticized.

"Communication between the federal center and the regions is developing into a key problem," the report said. "The central government is better prepared for the crisis than local governments, and this is becoming ever more apparent in the hardest-hit regions."