When we got back, however, we found that the Russian authorities and many economists saw nothing all that alarming in what was happening. For several weeks after the start of the crisis, the predominant narrative was that Russia had little to fear and would even be something of an island of stability, a ‘safe haven’ during the storm. That was the view expressed by Prime Minister Putin at a meeting of the Valdai Club of foreign experts.
I wanted to gain a clearer understanding of the situation and how great a threat it posed. On 29 October, jointly with the National Investment Council, we convened a round table at the Moscow School of Economics. The discussants included influential economists, financial analysts, parliamentarians and journalists, all of whom were agreed that there was going to be no safe haven. Academician Alexander Nekipelov said the crisis had resulted from a huge market failure in assessing and managing risk. The authorities did recognize, if not immediately, that doing nothing was not an option and set to work to deal with the crisis. But how appropriate were their actions? Those at the round table proposed a variety of measures, from supporting the liquidity of the banking system and refinancing mortgages to assisting small and medium businesses and taking social security measures. The general mood can be summarized as a recognition that testing times were ahead.
Economic indicators for the last months of 2008 wholly confirmed that view. In mid-December, the Ministry of the Economy acknowledged that production in Russia was in a decline that would last for, at best, six months. That was, by definition, a recession. ‘I fear that two quarters will not see the end of it’, the deputy minister said in an interview. Talk of a safe haven increasingly gave way to talk of falling off a cliff.
A group of economists and public figures invited me to participate in an anti-crisis initiative. We expressed our concern in a memorandum released at a press conference at the Interfax agency.
There is a grave danger that in the very near future the financial crisis will lead to even greater social stratification, a substantial increase in the risk of poverty for the majority of the population, and a significant weakening of the middle class.
The measures currently being taken are only the beginning of a vast effort needed to surmount the crisis, create more effective models of development and prevent similar situations recurring. Statements issued initially to the effect that Russia would ride out the crisis as a safe haven have proved unfounded. Reference to external factors cannot be used to avoid a critical analysis of the state’s economic policy and of recently taken decisions.
Just as the most important decisions of recent years have been taken with virtually no public debate, so the policies currently being adopted to deal with the crisis are not being subjected to public scrutiny and are essentially being formulated outside the democratic process. Increasingly, the impression is that the authorities have no strategy for overcoming the crisis. ‘Firefighting’ measures are having no effect and financial resources allocated not infrequently disappear into the sand or into someone’s very specific pocket. It is plain that Russia has no modern crisis management capacity or open and effective decision-making methods.
Fifty billion dollars are being used to repay the foreign debts of corporations belonging to Russia’s richest citizens, many of whom are continuing to make active use of tax avoidance schemes on their profits earned in Russia. This is money that could be invested in Russia to have an economic and social impact.
More than a trillion roubles has been transferred on deposit to the three largest state-owned banks, and a short time later a further 950 billion roubles was issued as a loan.
Access to these funds is, however, restricted to a small number of beneficiaries. There is no answer to the question of what has happened to the first tranche, for the simple reason that the government has not publicly asked it. There is every reason to suppose that the financial resources issued to the banks have not been passed on to businesses, but are being exploited for speculative refinancing, buying up dollars and the export of currency abroad.
There has also been no system to decisions about protecting the public from the crisis and its repercussions.
It was not enough to confine ourselves to criticism, and the memorandum contained specific proposals.
The first serious anti-crisis measure should be a comprehensive analysis of the domestic causes of the crisis, and public discussion of a draft national anti-crisis programme on an alternative, democratic basis.
This programme could stipulate a set of urgent economic and social measures, of which the following are top priority:
• devising a set of urgent measures to support socially vulnerable segments of the population;
• a change of policy on foreign borrowings;
• support for the rouble and a fight against inflation using all available measures;
• increased support of exports and damping down of imports;
• a freeze on the prices charged by natural monopolies;
• introduction of anti-monopoly policies;
• reduction of state administrative expenditure;
• establishment of a reliable system of national insurance against redundancy;
• urgent measures to reduce levels of corruption.
We proposed uniting the efforts of professional economists and representatives of various civil society initiatives to analyse the situation and formulate the policies needed by the economy and society as a whole. We hoped our initiative would lead to the emergence at all levels of other independent public initiative groups to combat the crisis, because, ‘a government cut off from society is incapable of finding optimal policies on its own; it is impossible to come through the crisis without active public involvement and increased confidence’.
Decisions were needed that provided answers to the most acute problems of the present day, and at the same time laid a foundation for the development of Russia for years into the future. Such decisions, the supporters of the Public Anti-Crisis Initiative argued, could not be arrived at in private by a narrow circle of ‘officially approved experts’.
That approach still seems correct to me. It may be asked what use such public initiatives are, since the government did ultimately deal with the crisis, Russia avoided major social disturbances, and now economic growth has, after a fashion, resumed. Perhaps that is how it should be and outsiders should not importune busy people with their unwanted advice.
I cannot agree. Take a look at the price Russia paid for getting out of the crisis. In terms of the decline in production and expenditure of accumulated reserves, Russia was one of the most severely affected countries. Brazil, India and China, our partners in BRIC, and most developed countries of the West avoided any similarly severe contraction of GDP. The worst of it was that the opportunity was missed of combining the firefighting and other measures needed to overcome the crisis with resolving the larger issue of developing and modernizing the economy, enabling it to move from dependence on natural resource exports to something more innovation-based.
Some of our recommendations the government did take on board. Vladimir Putin later several times repeated that a very important aspect had been adopting measures to support the population through the crisis. That, of course, was totally absent from the original announcement of the government’s plans and was something we urged on them. Unfortunately, many of our other proposals were ignored, and in particular the recommendation of a price freeze for the ‘natural monopolies’ (privatized utilities and the like), and intensifying the fight against corruption. That was a pity. Yet again, the addressing of issues vital for developing the Russian economy was put on hold.