The Economy Will Be Twice as Big in 2010
Moscow Times
Monday, May, 19, 2003
By Valeria Korchagina, Staff Writer

President Vladimir Putin proved to be the country's biggest optimist Friday by announcing that the economy will double by 2010 and calling for a fully convertible ruble.

"In 10 years, we have to double the country's GDP. This will require a consolidation of all political forces in the country," Putin said in his state of the nation address.

Economic growth of 10 percent in 2000 slumped to 4.3 percent last year, he said. Brisk growth of 6.4 percent in the first quarter has prompted the government to raise its 2003 forecast from 3.5 percent to 4.4 percent to 4.5 percent.

But Putin said that is not enough and criticized the Cabinet for not doing more. "The tempo of economic growth is slowing," he said.

The president said turning the ruble into a fully convertible currency was a priority. He did not give any deadlines. "We also need a fully convertible ruble, not only in current but in capital operations as well," Putin said.

Analysts said Putin's call to double economic growth in seven years was overly ambitious, but they seemed impressed with the tone of his speech.

"Putin sent a clear signal that reforms are to continue," said Roland Nash, head of research at Renaissance Capital.

To double gross domestic product by 2010, Russia would have to achieve an annual growth rate of about 10 percent for the next seven years -- a pace hardly manageable for even the world's fastest-growing economy, China. "Of course, everything is possible, and Russia has managed to deliver quite a few positive surprises over past few years. But this, I think, is rather far-fetched," said Peter Westin, chief economist at Aton.

"It's important to have the wealth of the nation as a goal, and it's also important that it means something to the president and his administration," said James Fenkner, head of research at Troika Dialog. "However, it will take more than a presidential decree to achieve this goal."

Putin's remarks about a convertible ruble seemed out of place given a bill on currency control that is scheduled for a second reading in the State Duma this Friday, said Troika Dialog economist Anton Strouchenevsky. The bill opens the door to a convertible ruble by finally easing controls on currency flows across the border. But it also allows restrictions to be reintroduced through 2007 if there is an emergency or the Central Bank deems the ruble is under threat.

This raises a question of trust and undermines the full convertibility of the ruble, Strouchenevsky said.

Also, while the ruble is effectively a fully convertible currency in CIS countries, there needs to be demand for the currency from abroad, he said.

The ruble has been firming up against the U.S. dollar in recent months, and on Friday it hit a 15-month high of 30.89.

In his speech, Putin also touched on administrative reform -- a streamlining of government bureaucracy that would bolster the economy. Although he has mentioned it in previous addresses, the Cabinet only took its first steps to tackle the reform this spring. "Obviously, there needs to be an additional political impulse and this will be forthcoming," Putin said Friday, without elaborating.

In mentioning the natural monopolies that oversee gas, electricity and the railroads, Putin appeared to contradict himself by calling for a freeze on prices and for speedy reforms at the same time.

Analysts said the comments should be taken as a pre-election campaign slogan rather than the Kremlin's approach toward reforms. "Otherwise it could be an ominous sign for investors who believe it," Westin said.

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