RUSSIAN ECONOMY FACES A YEAR OF GLOBAL LIBERALISM

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MOSCOW. (RIA Novosti political commentator Dmitry Kosyrev).

Among end-of-year figures cascading on observers in Russia (as anywhere else), one can occasionally glimpse something like 30%. This is the recommended figure for indexing public sector wages in 2005.

In the complex workings of Russian budgeting, this will mean, as Deputy Prime Minister Alexander Zhukov explained, increasing the minimum wage and much else. It looks as if many less prosperous regions will find it hard to comply with. But the upshot is evident all the same. First, traditionally low-paid public sector employees - teachers, the police, doctors and medical nurses in state-run clinics - will be paid more. Second, this will more or less compensate them for no small upheavals expected in 2005: increased housing rent, higher transport expenses, etc. The country is making great strides to become self-sufficient in these areas. Third, people in general will have more money to spend on the consumer market. On the one hand, the country can afford this - with expected economic growth of 5.8% to 6% in 2005, such an injection of budget money, according to Economic Development and Trade Minister German Gref, is achievable. But extra money means inflation, which is already running in double digits - "going beyond reasonable limits", as Arkady Volsky, head of the Russian Union of Industrialists and Entrepreneurs, said the other day.

Without inflation, however, the economy will find itself trapped by the strengthening ruble and weakening dollar. Throughout the whole of 2004, Russians were buying more and more imported goods at relatively lower prices from the dollar zone. Given present oil prices, this does not pose any threat to the foreign trade budget. But it does to the Russian producer, which responded in the past year with slowing growth in assorted industries.

To judge by Mr. Zhukov's 30% and other plans occasionally mentioned in ministries' annual reports, the answer to thesituation is to monetize the economy, i.e., to expand the domestic consumer market, preferably with the emphasis on incentives for Russian enterprises with money and, true, inflation.

The consumer market is today's recognized economic driving force. According to economists, it has eclipsed such formerly respected instruments of development as exports. Some four to five years ago, also on New Years' Eve, the Japanese government, it may be remembered, attempted to reactivate the stagnant economy by distributing vouchers to the population entitling them to considerable sums - up to a thousand dollars per person. In this way it tried to create a consumer boom: for the producer to start producing, people should buy goods more readily. Once set in motion, the process gathers momentum on its own. And the trick worked - now the Japanese economy is indeed more active. The other day, Robert Samuelson from The Washington Post, raised the same problem as he discussed the future of the American economy. He regrets the "fading power of forces that have shaped American prosperity for decades" - above all, strong and pervasive demand of the American consumer at home.

Mr. Samuelson cites results of the American economic year, which Russia cannot but envy. For example, the average per capita income is $40,000- exactly four times the record just set by Russia, which has reached the figure of $4,000. But he warns at the same time that Americans no longer can live on credit, because their debt is growing faster than incomes and that shares cannot yield ever greater returns and the "welfare state is growing costlier".

But, Mr. Samuelson offers some comfort by saying China, India and former Soviet republics are changing the world economy. Millions of people there are rising from rags to riches, and this offers America a new chance - "exports (and manufacturing) could become the US economy's next great growth sector". No one resents American prosperity, but as regards Russia's role in this process, it is necessary that another series of Putin-initiated reforms falling precisely in this year should succeed. However, they are running into no small snags, which are by no means concealed in New Year's Eve comments from ministers and economists. One is a gap between affluent regions like Moscow and the surrounding region (where, according to Mayor Yuri Luzhkov, real sector growth was 8.7%, and even 20% in some branches), and beleaguered republics of the North Caucasus and their likes.

The authorities also fear, and correctly, 2005 changes in education and medical care, which are switching from budget money to a more complex system of financing. As they do the above-mentioned increased costs of housing maintenance, and much else. The ideas are in general sensible, but their implementation may discourage many, at least in the first year or two. Incidentally, Vladimir Putin has before his eyes the example of his friend German Chancellor Gerhard Schroeder, who in principle pursues the same kind of reforms and is devastatingly criticized.

But Russia is a country apart, as everybody knows. The voters hated the disastrous reforms attempted by Boris Yeltsin's first governments. The dislike of Russian oligarchs, like Khodorkovsky, is fueled from the same sources. If one looks at the cultural and political preferences of Vladimir Putin's many voters, these are all concerned with "old" values promising stability and order - including values of the Soviet era and imperial Russia. No one hastens to explain to these voters that under cover of the conservative style sported by the Putin team, Russia is carrying out liberal reforms of unprecedented scope. Let us hope that 2005 is not only the key to their implementation, but also sees no political upheavals.

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