Magazine article Russian Life

After the Crisis

Magazine article Russian Life

After the Crisis

Article excerpt

THE THEME OF THIS YEAR'S World Economic Forum in Davos was "Shaping the Post-Crisis World." Since Russia has been among the hardest hit by the crisis so far, it is a subject to which it should be giving some urgent thought.

The Russian government--along with most oil market analysts--is certain that oil will eventually return to its "right" price. Not $140 per barrel perhaps, and surely not the $200 those same analysts predicted only a few months ago, but at least to $70-80.

When this happens--ushering in, at least for Russia, the wonderful post-crisis world--many people believe that Russia should try to avoid the errors of the past, when it exported energy, metals and other commodities, while importing consumer goods and food. The government should be building up domestic manufacturing, which would make Russia less reliant on foreign producers and therefore more stable.

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The communist economy produced at home pretty much everything it consumed, but nobody wants to go back to the Soviet model, of course. However, even under a state capitalist model favored by the Russian government, it would be difficult to develop world-class domestic industry.

The natural way to do so would be to improve the investment climate and encourage direct foreign investment. But, just as in the past five years, if oil prices recover, the ruble will once more come under upward pressure. With the currency trading at last summer's 23.5 rubles per dollar, importing finished products from China, Turkey and even Germany became considerably cheaper than making the same products in Russia.

Another way would be to set up national champions and create some form of state-oligarch partnership. To be fair, such steps were already taken in recent years, for instance to modernize Russian automakers. That experience has shown that, without foreign technological and managerial know-how, domestic producers will be at a disadvantage. Moreover, it requires massive investments, which will have to be borrowed abroad. Domestic producers will then end up with hard currency debts and ruble sales--a typical recipe for financial disaster.

And, if the government curbs imports to protect domestic producers, high prices and poor quality will inevitably result.

But even if Russia does become more self-sufficient, it won't be safe from a global crisis. …

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