Economic policy in the era of stagnation

Prof. Yakov Mirkin, economist and Head of the Department of International Capital Markets at the Institute of World Economy and International Relations of the Russian Academy of Sciences, shared with Invest Foresight his views on the prospects of Russia’s economy amidst its current near-zero growth.

Credit: Vitaliy Belousov | RIAN

Efforts should be taken to pursue a policy aimed at stimulating growth and developing the domestic market amidst plummeting foreign investments. Financial expansion could be a prompt and fast option – similar to that implemented in China, where the share of loans in the economy currently amounts to over 200% of the GDP. This has proved to be a real and comprehensive instrument for stimulating the growth used by the Chinese authorities to retain a low inflation.

In Asian countries, the monetization indicators – which stand at over 100% of the GDP – have become a standard, while in Russia this indicator is traditionally low and accounts for only about 50%.

The measures to adapt to the zero or near-zero growth are rather simple. First, they should include cheapening of national currency. Second, strong fiscal incentives for growth and normalization of the interest of credit are required, which will increase credit availability and monetization of economy while retaining a low inflation. This is a standard global method utilized very carefully together with other measures such as denationalization, combating monopolies and privatization to the benefit of the middle class; it will help support the economy in the conditions of near-zero growth and further lead it out of it.

However, it is harder to implement these measures now than 3 or 5 years ago due to the sanctions regime, which is aimed at impeding investments and inflow of new advanced technologies in our country.

There are various assessments of the near-zero economic growth situation, but Russia has hardly any benefits from this dynamics. First, this is leading to a gap between development dynamics of Russia and other countries, which have this indicator different from zero, and the gap means losing the competition. The country’s financial and economic development and assimilation of new technologies are sluggish. Second, the developed countries indeed have a near-zero growth – yet, there is a constant process of disrupting old development vectors and creating new ones, with a much more substantial economic foundation. Any country and economy in the world is competing with others – primarily, for their citizens’ living standards and well-being. In this regard, Russia is still lagging behind.

By Taras Fomchenkov

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