Russian President Vladimir Putin (left) and South African President Thabo Mbeki (right) attend a session of the Russian-South African Business Forum in Cape Town, South Africa on September 6, 2006.
Photo: Dmitry Azarov
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This is Africa
// IMF and World Bank Newly Dissatisfied with Governmental Administration in Russia
According to three studies published last week by the World Bank, the IFC, and the Cato Institute, the business climate and the level of economic freedom in Russia have deteriorated to levels found among African governments. In only five years, Russia has swung from enjoying almost complete approval from the international organizations for its economic policies to drawing concern from them. Yesterday, during the annual summit of the International Monetary Fund (IMF) and the World Bank, IMF Chairman Rodrigo de Rato expressed concern at the quality of economic management in Russia.
The three reports from influential international institutes published last week contain assessments concluding that several key quality indicators that relate to economic policies in Russia have deteriorated in the last year. The reports are independent of each other: the World Bank, the IFC, and the Cato Institute often hold differing economic opinions.
The survey published yesterday by the World Bank, "Management has Meaning – 2006," compares the quality of governmental administration in 213 countries around the world. The survey evaluates the link between the quality of key political, social, and governmental institutions and economic successes in each country. The researchers claim that, contrary to widespread notions, the quality of governmental administration in several countries, including some in Africa, is growing fast: in Botswana and Estonia, for example, it is already higher than in Greece and Italy. By the majority of the indicators, Russia lags behind not only developed countries but also behind many of its neighbors in the CIS, such as Ukraine, Georgia, and even Moldova.
The results from the World Bank were more pessimistic than those published recently by the Bank's counterpart, the International Financial Corporation (IFC), in a study entitled "Doing Business – 2007" that focuses on the business climate. However, Simeon Dyankov, one of the study's authors, emphasizes that "Russia is losing out to other large developing countries, especially China."
According to the World Bank's study, our closest neighbors by many indicators are not only Kyrgyzstan and Mongolia but also, for example, Albania and the Central African Republic.
No less pessimistic is the study from the Cato Institute: in its annual report on levels of economic freedom, which was published this week, Russia ranks 102nd out of 130 countries. This position shows some progress – a year ago Russia was 114th in the rankings, next to Rwanda.
The IMF, which five years ago had almost no complaints against Russia, officially announced yesterday that the Russian government's administration of the economy is problematic. At a press conference in Singapore, Rodrigo de Rato, the chairman of the IMF, announced "the softening of Russian budgetary policies is becoming more and more pro-cyclical." This is how economists describe the situation in which government expenditures grow quickly together with the economy – correspondingly, declines in expenditures when the economy falls or slows can be extremely damaging. Mr. de Rato explained that the IMF has already warned the Russian authorities of the "moderately urgent danger" of such policies.
Many Russian experts do not believe the Western studies: it seems to them that the situation in Russia is going better than it appears to foreign eyes. In that vein, the chief of the laboratory of structural-investment policies at the Institute of Transition Economics, Olga Izryadnova, is certain that "it is hardly likely that the quality of economic policies has deteriorated."
However, experts from the World Bank, the IFC, and the Cato Institute are accustomed to accusations of bias: this year, the publication of each of the reports was accompanied by unprecedented openness concerning data and methodology, as well as by appendices that contained responses to some of the more common complaints brought against the researchers.
One of the co-authors of the World Bank's report, Aart Kraai, stresses that, although "the quality of management is difficult to measure," the researchers "tried to give a full account of the level of their inaccuracies." However, most do not doubt the fairness of the evaluations. For example, according to the rector of the Academy of National Management, Vladimir Mau, there is "nothing strange" in the reports' conclusions; he adds, "the quality of economic policies is directly proportional to the price of oil."
It is not only Western experts who are convinced that the situation in the Russian economy is far from satisfactory. Russian Prime Minister Mikhail Fradkov, at a session of the government last Thursday, gave an impromptu speech focusing on the necessity of diversifying the economy, increasing investment, and implementing more active industrial policies. In some places, Mr. Fradkov's ideas coincided surprisingly well with those of IMF Chairman de Rato. They both say that it is necessary to use revenues from the sale of energy resources increase manufacturing in other areas.
But the differences between the ideas of the two economists are stronger than their similarities. Practically the only thing that Mr. Fradkov can currently really offer the economy is a broadening of government expenditures and government investment, as well as administration of government interference in different sectors of the economy according to a "market" regime. The IMF, in contrast, warns of the dangers of this path. But then again, nothing is keeping Russia from following the recommendations of the IMF – Russia's independence from the IMF and the World Bank has dwindled to practically nil.
Maksim Shishkin and Aleksey Shapovalov
All the Article in Russian as of Sep. 16, 2006
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