Russia in 2012: The Challenge of Reforming the Economy without A - PowerPoint PPT Presentation

Russia in 2012: The Challenge of Reforming the Economy without A Political Reform Konstantin Sonin New Economic School CEEI 2012

Road Map  Short-term  How good are Russian institutions today?  Some politics  Moving forward Russia 2012 Konstantin Sonin (NES) 2

Short-term Outlook

Short-term Looks OK  Russian economy is recovering in 2010-12:  4% GDP growth in 2010 and 2011  Consensus forecast for 2012 and afterwards: 3-4%  Unless there is a major global financial crisis, Russia will be able to cope Russia 2012 Konstantin Sonin (NES) 4

Russia vs. “Neighbors” 140 130 Real GDP levels, Q1 2008 = 100 Central Asia 120 Kazakhstan Turkey 110 EE+Caucasus Emerging Europe 100 Russia Russia 90 Baltics 80 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 EBRD Transition Report 2011 Russia 2012 Konstantin Sonin (NES) 5

Russia vs. Emerging Economies 15 Brazil 10 China 5 India 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Korea -5 Russia -10 Growth of GDP in constant prices, % per year. Source: IMF (World Economic Outlook, April 2011). Russia 2012 Konstantin Sonin (NES) 6

Unemployment Source: Goskomstat, CEFIR Russia 2012 Konstantin Sonin (NES) 7

I nflation Source: Goskomstat, CEFIR Russia 2012 Konstantin Sonin (NES) 8

Access to Credit Average interest rates on bank loans for industrial firms Source: Gaidar Institute Firm Survey. Russia 2012 Konstantin Sonin (NES) 9

Normal Access to Credit Average interest rates on bank loans for industrial firms Source: Gaidar Institute Firm Survey. Russia 2012 Konstantin Sonin (NES) 10

EBRD 2011 Transition Report  Consequences for households: huge  Reduction in staple food consumption  Russia – 35% of households  Transition countries – 39%  Central Asia – 27%  Western Europe – 11% Russia 2012 Konstantin Sonin (NES) 11

Consumption Change Western Europe Share of households reporting consumption response to crisis 50 Transition region 45 Russia 40 35 30 25 20 15 10 5 0 Reduced staple Reduced Reduced Postponed or Delayed food consumption of consumption of skipped visits to payments of consumption luxury goods alcohol and doctor after utilities smoking becoming ill Data Source: EBRD Survey, Fall 2011 Russia 2012 Konstantin Sonin (NES) 12

Long-term and Politics

Next South Korea? [2-years-old slide] Inc ncom ome pe per c capi pita, pur purcha hasing pow ng power pa parity. Sour ource of e of dat data and f a and for orec ecas ast: W Wor orld E d Econom onomic O Out utlook ook O October ober 2 2009, I IMF. Russia Korea 11 years earlier $25,000 $20,000 PPP a, P apita, $15,000 cap er c per $10,000 GDP p $5,000 $- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Guriev and Zhuravskaya, 2010 Russia 2012 Konstantin Sonin (NES) 14

Growth in Emerging Economies  Emerging economies may grow faster than developed ones  accumulation of capital on path to steady state (Solow)  ‘advantage of backwardness’: technology adoption on path to technology frontier (Gershenkron)  Obstacles to fast growth  weak institutions that increase cost of investment (North, Acemoglu-Robinson) Russia 2012 Konstantin Sonin (NES) 15

Good I nstitutions  politically independent courts  efficient law enforcement  non-corrupt regulators Russia 2012 Konstantin Sonin (NES) 16

I nstitutions Worse in Russia Korea, % rank in 1997 Russia, % rank in 2008 Control of corruption Rule of law Regulatory quality Government Effectiveness Political stability and absence of violence/terrorism Voice and Accountability 0 25 50 75 10 Russia 2012 Konstantin Sonin (NES) 17

Corruption SWE NLD NOR LUX DNK NZL FIN ISL CHE CAN IRL BEL AUS AUT DEU GBR LCA FRA MLT PRT BRB BHS KNA ESP USA VCT DMA EST CZE SVN URY HUN CRI CYP CHL ITA CPV JPN GRD SVK MUS GRC LVA POL LTU BLZ KIR TWN ISR ZAF VUT JAM BGR PAN KOR NAM SUR ATG BWA TTO BRA GHA HRV HKG IND BEN ARG Control of corruption MLI STP MNG SLB GUY MKD ALB DOM PNG MEX SLV LSO PER BIH BOL MOZ UKR SYC TON TZA ZMB NIC IDN MDG KEN SEN MWI TUR PHL ECU GEO GTM COL MDA SLE LBR HND BFA PRY MDV LBN NER SGP COM LKA UGA KWT THA MYS BGD NGA VEN FJI BDI ARM MAR HTI KGZ JOR BTN QAT GNB NPL BHR GAB MRT KHM GMB RUS ARE CAF BRN CMR PAK KAZ DZA AGO OMN DJI TGO COG YEM EGY SWZ RWA CIV AZE IRQ TUN AFG ETH GIN TJK TCD IRN BLR VNM LAO CHN SAU SYR SDN GNQ UZB LBY TKM ERI MMR Logarithm, GDP per capita, purchasing power parity Russia 2012 Konstantin Sonin (NES) 18

Start-Up Opportunities % of respondents who successfully set up a business 20 18 16 14 12 10 8 6 4 2 0 Mongolia Albania Czech Republic Slovak Republic FYR Macedonia Slovenia Serbia Hungary Bulgaria Croatia Montenegro Turkey Estonia Poland Romania Georgia Kazakhstan Uzbekistan Kyrgyz Republic Moldova Latvia Lithuania Russia Bosnia and Herz. Ukraine Belarus Tajikistan Azerbaijan Armenia Russia 2012 Konstantin Sonin (NES) 19

I ndex of Economic Freedom 2011 Category Name Rank Estonia, Lithuania, Czech Rep., Mostly free 14 - 29 Georgia Armenia, Slovakia, Hungary, Macedonia, Latvia, Bulgaria, Moderately free Romania, Slovenia, Poland, 36 - 83 Albania, Montenegro, Kazakhstan, Croatia, Kyrgyzstan Azerbaijan, Serbia, Bosnia & 92 - 128 Mostly unfree Herzegovina, Moldova, Tajikistan Russia 143 Belarus, Uzbekistan, Ukraine, Repressed 155 - 169 Turkmenistan Hermitage Foundation, 2011 Russia 2012 Konstantin Sonin (NES) 20

Doing Business Doing business ranking 2011-2012 164166 180 152 147 150 106 111 120 97 87 90 70 67 58 60 47 30 0 Kazakhstan Kyrgyz Rep Mongolia Russia Tajikistan Uzbekistan 2011 2012 Source: World Bank Doing Business Reports 2011 - 2012 Russia 2012 Konstantin Sonin (NES) 21

I nstitutions

Where Do I nstitutions Come From?  Economic institutions are designed and put in practice within a political process  Good institutions might be based, politically  on mature democratic institutions  on something else [strong central leadership] Russia 2012 Konstantin Sonin (NES) 23

Alternative Model  Institutions that rely on strong, yet non-democratic political authority  “Institutionalized ruling party”  Mexico, 1930-2000  communist regimes  China  Personalistic non-democratic regimes  Russia  Kazakhstan  Belorussia Russia 2012 Konstantin Sonin (NES) 24

Russia, 2012  Personalized weakly autocratic regime  Leader in power for a long-time, since 1999  ‘Real’ popularity of leaders is not known  United Russia, December 2011: 25-35% in Moscow, 35-45% country-wise (49% official tally)  Putin, March 2012: 50+% ?  No well-organized opposition  large (by Russian standards) protests  no succession path Russia 2012 Konstantin Sonin (NES) 25