Press Release: Statement by John Lipsky, First Deputy Managing Director of the International Monetary Fund
June 11, 2007
Mr. John Lipsky, First Deputy Managing Director of the International Monetary Fund (IMF), made the following statement on June 9, 2007 after his participation at the XI International Economic Forum in St. Petersburg:
"It has been a privilege for me to participate in the XI St. Petersburg International Economic Forum and to visit Russia for the first time as the First Deputy Managing Director of the International Monetary Fund. The Forum has provided me with a welcome opportunity to meet with senior policymakers and leading members of the business community to discuss the lessons from Russia's many achievements and the challenges that lie ahead.
"Russia's macroeconomic performance in recent years has been impressive. High oil prices and large capital inflows have contributed importantly to this success, but a principal factor has been the combination of strong growth in productivity, real wages, and consumption. The strong performance has also reflected good macroeconomic management. In particular, the Stabilization Fund has served Russia well, as it has prevented the exceptionally large oil revenue windfalls from causing the economy to overheat at a time when private demand has been very buoyant and growth has been close to potential. Without this mechanism, the real appreciation of the ruble would have been much faster, and the output recovery possibly less robust and durable.
"With the global outlook likely to remain favorable, and with domestic demand expected to remain strong, the use of oil revenues to finance spending should remain cautious and prudent. Excessive spending in these circumstances would risk setting off new instabilities. Apart from such cyclical considerations, some of the most important and costly structural reforms remain incomplete. Using the current oil windfall to help finance these eventual needs makes sense from both economic and social perspectives. As regards monetary policy, the Central Bank of Russia's principal responsibility is to keep inflation on a declining path; increased exchange rate flexibility could be helpful in ensuring that this goal is attained.
"The strong productivity growth so far mainly has reflected the reallocation of existing resources—labor and capital—to more dynamic sectors. However, the scope for such productivity catch up eventually will begin to diminish, at which point economic growth will become increasingly dependent on raising the investment rate. As a result, improving the investment climate for both domestic and foreign investors will be critical for sustaining strong growth. Renewed progress in structural reforms also will contribute significantly to this goal, as will efforts to strengthen the role of markets in guiding resource allocation. In this regard, further development of a strong and dynamic financial sector will be indispensable in mobilizing resources for high-productivity investment.
"Russia's position is enviable, considering its rich resource base and well-educated population. With the right economic policies in place, the economic outlook will be exceptional."