Expert: Economy Poised for Growth

Russia's battered economy has hit bottom and is poised to enter a long period of sustained development, outpacing even the government's own forecasts for growth, a senior Western economist said Tuesday.


"Russia has now reached the end of a long fall in production," Richard Layard of the London School of Economics told reporters. "It is now ready to begin a long period of growth."


Layard, who heads the Moscow-based Center for Economic Performance, pointed to a 9.5 percent growth in industrial production in October and a 15 percent increase in consumption over the past 12 months as evidence of the start of a turnaround in the economy.


"Industry figures may start falling again, but there is enough strength in the rest of the economy to make sure that GDP will grow from now on," he said.


Layard's prediction is significantly more optimistic than the Economics Ministry's forecast of a 6 to 8 percent decline in gross domestic product next year, which the government has included in its 1995 budget plans.


"There is a chance that the budget will turn out better than it looks at the moment because the forecast of a fall of 6 percent is now no longer likely," he said.


Layard stressed, however, that the fight against inflation was the key factor in achieving a period of sustained economic growth.


"How smooth it will be depends very much on whether Russia can finally beat inflation," he said. "If Russia can achieve financial stability, investments and know-how will flood in from all over the world and there will be 10 years or more of rapid economic growth."


Russia's new Economics Minister Yevgeny Yasin said in a newspaper interview Tuesday that inflation is set to fall to a monthly rate of around 7 to 8 percent in November and December from October's 10-month high of 15 percent.


Yasin, appointed last week after the resignation of predecessor Alexander Shokhin, told the newspaper Trud that inflation should reach 5 percent in the first quarter of next year, and decline to 1 percent by the end of 1995. "If, of course, we manage to keep to our chosen course," Yasin warned.


Alexander Livshits, a top economics aide to President Boris Yeltsin, said last week that the consequences of such a sharp reduction in inflation would be too damaging for the economy.


But Layard said that a European level of inflation of 7 to 8 percent per year was a reasonable target for Russia.


"If you were to aim at 30 percent per annum, you would probably end up with 60 to 70 percent," he said.


The government is seeking to stem inflation next year by refusing to draw cheap credits from the Central Bank to finance its projected budget deficit of 7.8 percent of GDP. Instead, the difference between revenues and expenditure is expected to be plugged by $13 billion worth of foreign loans and 40 trillion rubles ($13 billion) worth of domestic bond issues.


But the acting head of the Central Bank, Tatyana Paramonova, joined the chorus of doubt Monday over whether Russia can sell as much in securities as the budget envisages, saying the plan appeared "strained," Interfax reported.


Layard was also skeptical of the government's ability to raise taxes worth 14.5 percent of GDP, compared with around 11.7 percent actually collected in 1993 and 1994 to date.


"There has to be either very much better tax collection or there will have to be some new taxes," he said, though he noted that GDP growth would nonetheless provide the budget with a huge boost.