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. Last Updated: 07/27/2016

OECD Cautious on Russia's Economy

Top officials from the Organization for Economic Cooperation and Development wrapped up two days of talks in Moscow on Tuesday sounding a cautious note on the Russian economy, but indicated membership in the exclusive club of rich nations remains a distant prospect.

OECD Secretary General Donald Johnston, on his first visit to Russia, announced a series of policy recommendations that were presented to Prime Minister Viktor Chernomyrdin as part of a review of the economy to be published later this year.

"The conclusions of the review show the extraordinary progress that has been made," Johnston said at a new conference. "It is also clear that much work remains to be done in Russia."

He stressed that adoption of the government's 1998 budget plan and draft tax code currently before the State Duma are key to putting the economy back on its feet.

Johnston declined to give a timetable for Russia to begin membership negotiations with the 29-member OECD. "It depends upon the capacity of Russia to undertake the necessary reforms and meet the necessary standards of the OECD," he said.

But Johnston noted that the OECD devotes one-third of its resources for nonmember countries to Russia, a sign that its membership bid is taken seriously.

Russia formally applied to join the OECD last year, but the list of countries knocking at the Paris-based organization's door is long. The OECD has brought Hungary, Poland and the Czech Republic into its ranks, but it is facing the growing pains of expansion, including pressure to cut costs.

Based on a summary of the OECD's review of the Russian economy released Tuesday, membership is several years away. It says that, despite achieving relative macroeconomic stability through strict monetary policies, the Russian government needs to tackle structural reforms, slash subsidies, and establish a firmer legal basis for bankruptcy and tax collection.

"Tax reform is among the utmost of priorities," a summary of the review said. "Current measures that often force insolvent enterprises to pay tax arrears before wages represent a clear violation of federal law and should be discontinued." And after two years of predicting that economic growth is around the corner, OECD officials are couching their forecasts in more cautious terms.

"Mea culpa. ... We got it wrong," said Val Koromzay, deputy director of the OECD's country studies division. "It is reasonable to think one has reached the bottom," he said, referring to statistics showing Russia's gross domestic product bottoming out in the first half of 1997.

Koromzay said the government's forecast of 2 percent growth in 1998 is realistic, but acknowledged there are still doubts about the reliability of Goskomstat's statistics. "We are sure the numbers are wrong," he said. "But it is not clear there is a systematic bias."