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. Last Updated: 07/27/2016

World Bank Now Cautiously Upbeat

The World Bank's chief economist for Russia said he was cautiously optimistic about the outlook for the country, but banking reform and economic diversification were key tasks ahead.

Christof Ruehl said his forecast for 2001 inflation was slightly above that of the government, but he saw inflation coming down next year.

Gross domestic product growth this year would be around 5 percent and slightly less in 2002, he added.

"We are cautiously optimistic, with the accent on optimistic," he said in an interview Thursday.

"A good start has been made on the reform agenda. Now what we do is enter the stage of implemention. These are reforms which are difficult to do in all circumstances."

But Ruehl said Russia was still very dependent on exports of oil, gas and metals, a dependence that needed to be reduced.

"In the medium term, we are cautiously optimistic, but in the longer term, a lot will depend on whether a diversified economic structure can develop, or whether the economy will continue to be carried by these large extractive industries."

He said the World Bank would aim to help the reforms with a number of programs to improve the business environment, strengthen the capacity of the government to deliver and administer reform and to address various social problems, such as the spread of HIV-AIDS and tuberculosis.

Another plank in the creation of long-term economic health was a properly functioning banking sector.

"It is important because without financial intermediation, funds cannot flow from these few large companies where they have accumulated now to the many small would-be investors who need those funds," he said.

But such bank reform would be a huge task, as it would have to include a restructuring of state-owned Sberbank, which is crowding out private banks.

Ruehl said many Russian banks were also not acting as real banks as they were not taking deposits and making loans but were linked to large industrial groups, for whom they were basically acting as finance departments.