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. Last Updated: 07/27/2016

Economists: 'Election Disease' Stunts Growth

2003 Economic Outlook
GDP Growth, %Oil Price, $
Source: Association of Independent Centers for Economic Analysis
The government is pushing the country in the wrong direction by slowing down the pace of reforms ahead of parliamentary and presidential elections, leading independent economists warned Monday.

"The economy performed better [this year] than most people expected, but the quality of growth has significantly deteriorated," said Andrei Klepach, director of the Center of Development, one of 15 think tanks in the newly created Association of Independent Centers for Economic Analysis.

The association, which members said they formed to better get their message out, said it doesn't expect any significant progress on reforms or any structural changes in the economy until 2005.

That message, Klepach said, is that "the so-called Dutch disease, which is a problem of oil-dependent countries, is spreading across the economy."

The economy is expected to grow from 4.1 percent to 4.2 percent this year, slightly better than the government had forecast. But Klepach and other economists from the association said this growth is driven by petrodollars and consumption while many industrial sectors are on the verge of collapse.

In the absence of further reforms, the economy won't grow by more than 2.4 percent next year if the price of oil averages $15 a barrel and only 4.4 percent if it averages $21.50, said Evsey Gurvich, head of research at the Economic Expert Group, an association member.

In relative terms, the economy is performing well. In its world outlook report for 2003, the World Bank downgraded its original forecast from 3.6 percent to 2.5 percent, but sees Russia growing 4.3 percent, higher than the government's own forecast of 4 percent.

But economists say such growth over the long term is only possible if Russia switches its focus from natural resources to manufacturing, attracts more direct investment, and the government strikes a better balance between growing expenditures and lower revenues.

According to Andrei Neshadin, executive director of the Expert Institute, the overall tax burden on companies is expected to decline from 45 percent of GDP in 2002 to 39.5 percent next year, while government expenditures are expected to grow 15 percent this year and maybe even more next year.

"This might have a negative effect on growth in the future," Neshadin said.

Neshadin said businesses do not expect any progress on key reforms -- communal housing, the national power monopoly, currency controls, the banking sector -- until after the elections at the end of 2003 and beginning of 2004.

"The government wants to keep the instruments it can use to influence businesses and regional administrations in the coming elections," Neshadin said. "Which means that the pace of reforms won't be as fast as many people would like to see."

Leonid Grigoriev, who is chairing the association, said this also means that Russian is unlikely to join the World Trade Organization until 2005 or even 2007. However, he said, this delay could be positive if officials don't get lazy.

"A transition period is necessary to adjust to severe competition and not to sit idle and do nothing," he said.