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. Last Updated: 07/27/2016

Economist Finds No Grounds for Excess Optimism

Despite a stabilizing ruble and a steadily declining inflation rate, Russia's economic policy has been less than successful so far this year, a top government economist said Thursday, as output and living standards continue to stagnate.


Sergei Pavlenko, director of the government's Working Center for Economic Reform, said officials have little to boast about by way of overall economic stabilization.


"With the exception, say, of two accomplishments -- such as stabilization of the situation with the exchange rate and the steady decline of inflation -- the government has nothing else really to boast about," Pavlenko told reporters.


He said industrial production continued to decline -- though more slowly than expected -- in the first half of this year, while real incomes are growing at 2 percent to 2.5 percent a month, a rate which is normally considered "zero growth."


"There are no grounds for excessive optimism there," he said.


Pavlenko said although it is falling, inflation remains higher than expected. Prices rose by 6.7 percent in June, down from a monthly inflation rate of 17.8 percent in January.


"One can say that success in coping with inflation has at best been moderate because for a number of objective reasons the implicit targets of inflation of 4 to 4.5 percent have not been achieved at the current time," he said.


But Pavlenko said inflation should clock in at about 5 percent at the end of July, and continue falling in coming months.


"There are grounds for expecting inflation to continue at a fairly low level for the next two or 2 1/2 months and this will make for a more stable and predictable situation for agents in the real economy," he said.


According to Charles Wyplosz, an economics professor at international business school INSEAD who works for the Russian European Center for Economic Analysis, inflation continues to persist because of rapid ruble devaluation earlier in the year.


"Inflation is what it is now because the ruble has been depreciating very much during the first quarter," he said. "Now that the ruble is in the corridor there should be a quick stabilization of inflation."


The government and the Central Bank announced last week that the ruble will be pegged to the dollar at a rate between 4,900 and 4,300 rubles until Oct. 1. The bank says it has $10 million in reserves with which to defend the Russian currency.


On Thursday, the ruble fell 20 points to close at 4,565 to the dollar, firming later on the interbank market at 4,573 to 4,576 due to Central Bank intervention after falling as low as 4,587 earlier in the day, Reuters reported.


A number of government and Western economists have praised the ruble corridor, but some -- including outspoken government critic Andrei Ilarionov -- have voiced opposition. The influential Wall Street Journal blasted the policy Tuesday


"President Boris Yeltsin and First Deputy Prime Minister Anatoly Chubais, two of the main actors here, are focusing on the wrong policy lever," the editorial said. "They must first address the issue of creating broader economic stability."


The paper argued that Russia must first attack other macroeconomic issues -- like controlling money supply and speeding up privatization -- before turning to currency controls.