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. Last Updated: 07/27/2016

Illarionov: GDP Can Double in 8 Years

VedomostiIllarionov, left, speaking on a panel with his colleagues Thursday at a session of the World Economic Forum conference in Moscow.
A top Kremlin economist said Thursday that Russia was on target to double gross domestic product in the next 10 years despite the economy's sensitivity to oil price fluctuations.

Andrei Illarionov, President Vladimir Putin's chief economic adviser, said that doubling gross domestic product in a decade was "completely realistic."

"Ten years is too long," he said at the opening of the World Economic Forum conference in Moscow. "It can be done sooner, maybe in only eight years."

Russia's economy began to grow at the end of the 1990s after a long slide that followed the Soviet collapse of 1991. According to official statistics, GDP rose by 4.3 percent in 2002, marking the fourth straight year of growth. However, it also marked a slowdown from 9 percent growth in 2000 and 5 percent in 2001.

Deputy Economic Development and Trade Minister Arkady Dvorkovich said the target of doubling GDP -- which would require yearly growth of about 7.2 percent -- was a good incentive for the government to push through much needed administrative reform. "It's key that the state not intervene in the economy. Markets can take care of themselves."

Critics argue that the target -- declared by Putin earlier this year -- is a political stunt timed to coincide with parliamentary elections in December and presidential elections early next year.

Al Breach, chief economist at the investment house Brunswick UBS, warned that the forecast growth over the next 10 years would not necessarily be steady.

"Expect here in these next years that we might get a nasty recession in the run of that growth," he said. "You can't expect to avoid the credit cycle."

Doubling GDP would require a compound growth rate of 7.2 percent per year for the next ten years. In dollar terms, this is achievable, Breach said, but in ruble terms, the annual rate would need to be closer to 10 percent a year to compensate for real ruble appreciation. For this to be possible, "you'd need productivity gains in government itself and more support for business as a whole," he said, echoing Dvorkovich.

Illarionov said that worldwide, in the last five decades, 70 countries have managed to double their GDP within a ten-year period. "Why can't Russia? Why must it be one of the unlucky half of the world that cannot?"

The economy has been buoyed by the high price of oil, the country's main export commodity. Some analysts have said the strong revenues have allowed the government to shirk much-needed structural economic reforms. They say over-dependence on the natural resources sector leaves Russia vulnerable to oil price fluctuations.

Illarionov, however, said there was "nothing bad" about the economy's sensitivity to commodity prices -- particularly oil -- because high prices meant high demand for a commodity which Russia has in abundance. "It would not be smart not to reap the benefit of these high prices."

He added, however, that the Russian economy was not only sensitive to market forces but also to the oil pricing policies of other governments -- namely member countries of the oil cartel OPEC -- which "distort" the market.

He said that intervention by OPEC into the global oil markets is responsible for "oil shocks" and makes Russia's sensitivity to oil prices problematic.

OPEC has been lobbying for closer cooperation with Russia -- the world's second largest oil exporter -- in order to stabilize volatile global oil markets following the U.S.-led war in Iraq. Illarionov dismissed the prospect of closer ties with the cartel.

"If you have a disease caused by intervention ... would you collaborate with the same institution that caused the disease?" he asked.

(AP, MT)