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Russian Economic Policy at the Start of the New Administration -- Remarks by Stanley Fischer, Acting Managing Director of the IMF
April 6, 2000
1. It is a great pleasure to be taking part in this timely conference at the Higher School of Economics on the economic policy choices that confront the incoming Putin administration. And it is an extra pleasure to be participating in a conference organized by my friend and widely respected colleague, Professor Yevgeni Yasin, with the participation of so many other leading Russian economists and policy analysts.
2. I will make four main points:
International Experience
3. The experience of the transition economies that started on the process of economic reform at the end of the Cold War has been studied intensively. There has rarely been an occasion when so many countries changed economic policies at the same time; this makes it possible to use econometrics to study the determinants of their growth experience since the start of transition. My IMF colleague, Ratna Sahay, and I have examined this experience, using data from the 25 countries for which it was available.2 We measure the extent of structural reforms using the indices of different elements of structural reform constructed by the EBRD. We conclude that the basic strategy advocated by market-oriented proponents of reform a decade ago is correct: namely that both stabilization policies and structural reforms, particularly privatization, contribute to growth; and that the faster is the speed of reforms, the quicker is the recovery from the inevitable initial recession, and the more rapid is growth.
4. To say that the basic strategy is well understood is not to say that carrying out a reform program is easy, nor to deny that the way the strategy should be applied in each case varies from country to country, nor to deny that policymakers face technically and politically difficult choices every day. That is all true, and we must salute those policymakers who have succeeded through their insights, technical and political skills, and courage, in moving furthest in the transition process.
5. But it is also true that since the basic growth strategy is understood, it is necessary to ask what determines the extent to which a country embraces transition and is effective in undertaking the needed economic reforms. An answer relevant for some countries is that they lack the technical expertize to implement the required policies. That could have been true at some early stages of reform in Russia, but given the technical skills and sophistication of policymakers in this country, it certainly cannot have been true for most of a decade. The answers must lie elsewhere, in the political realm, in a lack of effective political or societal support, and in problems of governance. I will return to some of those issues at the end of my remarks today.
Russia's achievements
6. This seminar is taking place at a time when the public debate in Russia and abroad has been dominated for some time by disappointment about the achievements to date and some cynicism about the future. Much of this skepticism has remained despite the favorable events in the Russian economy over the past year. While there is much to be disappointed about, and many negative developments that need to be reversed, Russia also has had positive achievements during the last decade. I am not talking here only about the great historical achievement of the last decade, the remarkable extent to which democracy is becoming entrenched in Russia. Much has also been achieved in the economic sphere:
7. There has been real progress in these areas, even though these reforms are incomplete or highly imperfect. Nonetheless, the disappointments about the overall progress of the last decade are valid, and the setbacks have been dismaying. One needs only to look at the basic social indicators, with life expectancy declining and the incidence of poverty increasing. And that takes us to the next question:
What needs to be done?
8. In 1996 there was decisive progress in achieving macroeconomic stability in Russia. However fiscal policy and the record of policy implementation in the structural area after that was poor. While the government's medium term program adopted in 1996 constituted a coherent and comprehensive structural agenda, performance in that area during the life of that program was very weak, and was a fundamental factor leading to the Russian financial crisis in 1998. And little has been done to tackle Russia's deep-rooted structural problems since then.
9. Russia's commitment to low inflation and sound fiscal policies is evident in the continuing decline in inflation over the past year, and in the improving fiscal situation. However it will take a broad-based acceleration of structural reforms, not only to increase growth, but also to maintain macroeconomic stability.
10. What should be the focus of the structural reform effort? There are 19 groups in this conference discussing different areas of reform, and the new government will have to make progress in all those areas. Four topics are grouped under the heading "state regulation of the economy: freedom and the rule of law". That is critical. It is part of the pressing need to increase transparency in the economy, in both the public and private sectors. This will be a crucial factor in assuring external support for the Russian economy.
11. Rather than go in detail into the overall program, let me select six priorities:
With progress in these areas, the stage will be set for Russia to begin sustained growth, allowing its people to fulfill their potential.
Program ownership
12. It cannot be overlooked, however, that many if not most of the proposed measures have already been part of government programs in the past--they have just not been implemented. Why? The poor record reflects, fundamentally, a failure to overcome fierce resistance from vested interests in the face of weak government consensus. There are many examples, but let me mention three areas that have been the subject of discussion in this conference--bank restructuring, tax reform, and the rule of law:
13. Why mention these past failures? Because this, the start of a new administration, working with a new Duma, presents a rare opportunity for a second beginning. Many of the problems of the past occurred because there was not sufficient support for the economic reform program within the political system and the society. Some of those problems happened because the policies were badly implemented. Many lessons have been learned about policy in transition economies in general, and in Russia in particular. The question now is whether it will be possible for Russia to develop its own economic reform program, a program worked out by Russians, and effectively supported by the society, a program owned by Russia.
14. We have seen in this conference that there is no shortage of good ideas about what those policies should be. What is needed now is to translate this knowledge and energy into a coherent reform strategy that is backed by strong public consensus and leadership, and that is implemented. If that happens, the IMF--and I am sure also the rest of the international community--will be ready to do what it can to support and strengthen the program and Russia's economy.
Thank you.
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