‘We will respond just like during the last crisis’
RT: Thank you very much for joining me, Mr. Kudrin.
Aleksey Kudrin: Hello.
RT: Prime Minister Vladimir Putin said Russia has sustained the head of the crisis and that in fact the level of unemployment in Russia now is lower than it was before the crisis. We know very well that you deserve credit for Russia actually being able to withstand a very severe financial crisis several years ago. We are talking about the stabilization fund that you developed and other measures. But here we see a new wave of problems in the world economy, probably another global crisis around the corner. Can Russia withstand it using the same methods or do the methods have to change?
AK: The new wave is not yet called a “crisis”. There are some manifestations of a crisis – a harbinger. However, most economists are inclined to think there will be not a new recession, but slower rates of development for a lengthy period of several years or perhaps even decades.
This will certainly have an impact on Russia as demand for our goods – oil, gas, metals – will be lower. At the same time, we are expecting higher growth rates in Russia, as Western experts predict, too. Our growth rate of about three to four per cent is not that bad, and we are not expecting a fall in the economy like it was in 2009, when the GDP literally fell by 5.9 per cent.
There is a more pessimistic scenario though, but most analysts tend to think there won’t be a second wave of such a scale. Under these conditions we still have to remain vigilant and must be ready, in case of the worst scenario, to apply the same methods. We still have considerable reserves, although smaller, but as a whole, enough like we needed last time.
If this does not last too long, we will be able to resolve the problem and get out of the crisis. Should it be longer than necessary, we will have to adjust our policy. So far, all has been not bad.
RT: We have elections coming up in Russia. You said you were going to stay in the government if reforms are carried out. What reforms were you talking about and what reforms can we expect if Dmitry Medvedev becomes the next Prime Minister?
AK: I would like to say my future is not yet known. I said I was ready to work in any capacity if it helps promoting reforms – those can be quite different, and not only in government. Concerning reforms, it’s first and foremost about restructuring, ranging from the pension system, privatization, expanding competition in our economy, regulating the tariffs and liberalization of quite a number of industries where the state still prevails in price regulation.
The reform of housing and communal services has not yet been completed. This sector affects literally every citizen and there is much to be done yet.
It is also about giving more independent power to the regions. The financial sector needs more transparency and stability, as well as more monitoring of private deposits.
Such reforms need to be carried out. Pension reform, as I mentioned, is a priority. In some cases we spend too much public money without proper effect – in health care and education where higher standards are required, and the money spent should be properly commensurate with the quality expected. We may not always do this properly.
All these sectors should show more benefits, be it better education or medical treatment or providing better services, as a result of such reforms. Consequently, it is necessary that the need for such new services does not mean more taxes. There should be proper balance.
RT: Let’s talk about the debt crisis that advanced economies face now. Russia keeps a large part of its savings in foreign banks. Nevertheless, Russia has reportedly cut in half its investment in the US treasury bonds. Are there concerns that the US might announce default on its debt?
AK: You know we have checked this information that appeared in the press and it is not complete and accurate. It was based on the questioning of several market players.
As of now we are not decreasing our exposure to US securities. Around 45 per cent of our reserves are kept in those obligations – US bonds at the moment are the most secure on the market and we are not afraid to invest in them. Yes their prices may fluctuate, but there are no big risks in investing in US debt. There are enough of those papers on the market, they have high market liquidity and we are sure of the capability of the US to pay for its obligations in years to come. So we are not worried.
I think if the US government takes steps to consolidate its budget and cut spending, then its stability would rise and we would have no concerns over the reliability of dollar assets. So of course we are waiting on the US government to take such steps. So they could raise taxes or cut spending, but over the years we would like to see the US deficit shrink, over several years.
RT: The debt crisis Europe is threatening Italy, Spain, Portugal. Do you think Europe will be able to withstand this severe financial crisis without letting the eurozone collapse? And in what way could the potential downfall of the euro affect Russia?
AK: European powers have enough resources to save Greece so we are hoping they will show the will to do that, and by that stop the spread of this contagion. Nonetheless, these risks remain.
We have discussed this here at the G20 summits and at the meeting of the IMF board of governors. And we have called on our European partners to take all necessary measures. I think this is just what will happen, because they can do it.
At the same time if the debt crisis does spread – it does not affect us too much, at least directly, because our banks do not hold any Greek debt. French and German banks on the other hand will suffer greatly, because they will have bonds on their hands that would not be cleared. This will cause problems within these banks: problems with these banks’ credits and overall problems on these markets because banks are, after all, the leading players. And this in turn may affect growth. And this could have circumstantial effects on us. But I would like to stress that we will respond just like during the latest crisis, but this time the crisis will have a much smaller effect.
RT: Just recently there were heated debates in the media about the possibility that the world’s leading emerging economies, the BRICS nations – that is Brazil, Russia, India, China, and South Africa – could throw a lifeline to Europe by possibly buying their debt bonds. Russia already has 45 per cent of its reserves in euro-dominated assets. Can it actually afford buying more of Europe’s debt bonds?
AK: Our reserves are slowly growing. We are buying something in addition all the time. But in this case we are not going to buy bonds of risky countries, mostly we are going to invest in the bonds of the European Union, the European Financial Stability Facility. Therefore our money could come in support – through the guarantees for the eurozone. And in this case we are not taking the risk on the "bad" countries, because we invest in the eurozone countries as a whole.
This mechanism will allow us to mobilize our resources, we are ready to participate. Basically, it is an enlargement of our investment instruments, and it is quite secure. We are also ready to provide additional resources for the IMF and through the IMF, help in supporting those countries. So we can provide resources through the multilateral instruments, the IMF or the European Financial Stability Facility, it is profitable for us, it is the investment of our finances.
RT: I was listening to Robert Zoelic’s speech recently, the head of the World Bank. And he was talking about how the world must change, essentially about the hypocrisy in the attitude of advanced economies towards emerging economies.
And this is how he put it: “When countries with large fiscal deficits preach fiscal discipline to poor countries – what are they really saying? ‘Do as I say, not as I do.’ When countries pay homage to free trade and hold back developing countries with barriers, what are they really saying? ‘Do as I say, not as I do.’ A ‘do as I say, not as I do’ world economy will fracture, to the detriment of all. The old ways can and must change.”
Do you think that is the approach that led to the crisis that advanced economies face now, that threatens to affect everyone else?
AK: The way Western countries have acted has become somewhat outdated, as huge consumption and little investments and savings have provoked this crisis.
At this point, most Western countries are not ready to reduce their consumption and preserve the pre-crisis development pattern. This does not let them emerge from crisis, and their consumption is not substantiated with real economic results. This consumption is putting them into debt. So Western countries have this issue and they are trying to resolve it by printing money, which only delays the solution.
We can’t yet predict, from the economic point of view, if this printing of money and supporting of artificial demand will help kick-start the engine of the Western economy. So far, this has not yet happened after all what the Federal Reserve System has done.
Now we see the situation has become worse as those measures have not been enough, and one can expect the printing of money to resume.
I repeat, this model of economic development is not perfect. And it is the emerging markets in China, Russia and even Brazil, as well as a number of other countries with gold-and-currency reserves that lend money.
This unjust pattern should be changed. It is this pattern that led to the crisis, as a matter of fact.
RT: Everyone knows that Russia’s economy is very much dependent on oil prices. You said you expected oil prices to drop to US$60 a barrel in three to four years from now. Will Russia be able to withstand such a downfall in oil prices?
AK: We expect this fall will certainly cause a decrease in our economic growth down to nearly zero or below zero, but in terms of the budget policy we’ll be able to cope with this within a year, after which we’ll have to adjust the policy and reduce the expenditure. As a whole, however, we are ready to provide stability for a year or two and fulfill all our duties.
RT: Thank you very much for your time!
AK: Thank you!