Russian government to undertake efficiency, economic reforms

125px-Flag_of_Russia.svgThe Russian government said recently that it is in the process of implementing a number of delayed and politically controversial reforms aimed at increasing efficiency.

The move is part of an effort to address the longest period of economic stagnation in Russian President Vladimir Putin’s 13-year tenure, The Wall Street Journal reports.

Pro-market economists and Western groups like the International Monetary Fund have urged the Russian government for years to shore up its financial system, encourage private firms to shut down inefficient enterprises and reduce the government’s role in markets.

Russia has reduced its growth forecast four times this year, even with relatively high oil prices. Past efforts to introduce the reforms were blocked by political opposition amid high oil prices, which provided a boost to the economy even without reforms, according to The Wall Street Journal.

The Russian Finance Ministry warned last week that the budget could fall significantly short of revenue to meet the government’s proposed spending over the course of 10 years, leading the government to boost labor productivity by cutting excess workers and spending.

The country’s central bank has let the ruble exchange rate slide and is taking action against weak banks. Pension changes will encourage younger workers to continue working beyond the current retirement ages of 55 for women and 60 for men.

“It’s not as harsh as it was in 2008, when everything collapsed at once and we had to support it, but we can’t be relaxed and not do anything,” First Deputy Prime Minister Igor Shuvalov said, The Wall Street Journal reports.

Over the next two years, the government plans to push through the controversial changes before the next election cycle, which Shuvalov said will be difficult, though President Putin supports the initiative.

The key element of the reforms is a plan to force state monopolies such as national railways and government-owned gas giant Gazprom to reduce spending after years of increases. The government has frozen 2014 rates for the first time, which will cost the firms $5.3 billion in lost revenue.

“We need to start with the natural monopolies, to force them to be more efficient with spending and labor productivity,” Shuvalov said, according to The Wall Street Journal.

Unemployment, which had shown consistent declines, has begun to increase again and is expected to reach 5.8 percent this year. Shuvalov said the government does not expect the reforms to affect the rate because people will be able to find other jobs.

“We’ve reached the middle-income trap where the motivation to work harder to earn more fades,” Shuvalov said, The Wall Street Journal reports. “This isn’t just an economic problem, it’s one of mentality.”

Comments are closed.