Economic Growth Picking Up Speed
// Macroeconomics
Yesterday at the Kremlin, Vice Premier Aleksandr Zhukov announced to President Vladimir Putin that economic growth for 2004 would hit 6.9%. Last Thursday, economic growth was forecast at 6.7% at a session of the administration. Thus, economic growth increased by 0.2% in the president's absence.
The Market Is the Standard
Predictions for 2004 began with 6.4% economic growth. Then the Ministry of Economic Growth and Trade (MERT) pushed that figure up to 6.6%. It was openly said that that increase in the GDP was the direct result of unexpectedly high oil prices. MERT planned for a price of $29 for a barrel of Urals oil, but that price was exceeded before the first half of the year was over. Nonetheless, MERT has been tirelessly saying this year that no one can know the real price trend and that the price of Russian oil should fall to $26 per barrel by the end of the year (since no one had recalculated oil price prognoses all this time). High-placed MERT officials, predictably, were not completely confident of the 6.6% figure, pointing out that it was suggested by Western analysts. Russian experts were sticking by their already devised 6.4% number, since a number of industries, such as the auto industry, showed no growth and, as a matter of fact, a noticeable decline. Those same experts also understood that, to double the GDP by 2010, as the President had instructed in this year's state of the nation address, no less than 7-8% annual growth was needed. The forecast took on political overtones.
At the meeting of the administration last Thursday, which Prime Minister Mikhail Fradkov did not attend, since he is on vacation in Sochi, MERT boss German Gref reported to Zhukov that the economic growth rate for the year has been recalculated upward, and not to 6.6%, as the Westerners had predicted, but all the way to 6.7%. Energy Minister Viktor Khristenko sought to cast aspersions on Gref's modesty, and suggested that there was no end in sight to world oil prices' record setting and economic growth for the year could very well come out no lower than last year's prognosticated 7.3-7.4%. All Gref could find to say to that was, “Better to be a little sensible in making forecasts, rather than not fulfill them!”
In the presence of Gref and the president himself, Zhukov decided yesterday to err on the side of caution and bravely upped growth expectations for the GDP this year to 6.9%. For 2005, he was even more modest, predicting just 6.3%, hinting that oil prices could go down again and that the main point was accounting for this year.
Interesting things are going on with forecasts lately. On his return from vacation, Prime Minister Fradkov approved the “Basic Course of Activities for the Government of the Russian Federation until 2008.” It is clear from that document that, from now on, forecasts will be directive rather than indicative. Thus, the numbers unveiled yesterday will have to be reached at any cost to the responsible parties. If the rate of economic growth is raised again before the end of the year, that had better come true too.
Housing for the People
Yesterday at the meeting with the president, another Putin catchphrase was discussed as well: improving living conditions, especially for the military, and most especially providing housing for servicemen. The Duma has already passed the first reading of 27 laws proposed by the government and deputies to facilitate the creation of an affordable housing market in the country. Eight of those laws, concerning reduction of taxes on the housing market, were approved by the Federation Council last Sunday and have been taken into consideration in the federal budget for 2005. It only remains for the president to sign them. Already sure that Putin will sign those laws, Finance Minister Aleksey Kudrin has mentioned that the 2005 budget “contains a number of mechanisms to reduce the cost of operations with the sale of housing, which should save both builders and citizens money.”
Recall that the package of laws to form an accessible housing market is intended to stimulate building and the demand for housing, using mortgages among other mechanisms. Amendments to tax laws will reduce the tax load on citizens buying or selling apartments and on developers. In particular, the size of fees for notarizing mortgage agreements have been reduced from 1.5% of cost to 200 rubles, the sale of lots and housing have been exempted from VAT, citizens selling their apartments may receive a full tax deduction if they have owned them at least three years, instead of five, as is the case now; developers are allowed to lower their tax base to the sum of the capital allowances on the engineering infrastructure used by them.
The president was also told about the solution to the military housing problem. On Sunday, the Federation Council approved the law “On a Savings-Mortgage System for Housing Servicemen.” That law regulates mechanisms for servicemen to save money for housing with government assistance. The first payment and interest on the credit will be paid from the federal budget. Kudrin stated that the 2005 budget includes 2.5 billion rubles of the implementation of the law. Gref added that three more bills must be passed and about 20 presidential decrees issued before the law is ready. “That will be done before January 1,” the Kudrin promised.
Konstantin Smirnov, Irina Granik, Sergey Minaev
All the Article in Russian as of Aug. 10, 2004
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