Medvedev calls for overhauling Russia's 'primitive economy'

McClatchy NewspapersNovember 12, 2009 

MOSCOW — Russian President Dmitry Medvedev called Thursday for a bold overhaul of his nation's economy, saying that Russia must remedy its "primitive economy" and "humiliating dependence on raw materials."

Medvedev ticked off a long list of changes that Russia should undergo to diversify beyond oil and gas, such as funding high-tech companies, combating corruption and making Russian goods more competitive on the world market.

Left largely unsaid was how he intends to enact such major changes. Most of the measures that Medvedev spelled out in his annual address to parliament, under the bright glow of heavy chandeliers in a Kremlin meeting hall, were similar to those that Russian leaders have proposed for years.

While there's wide agreement that the economy needs to be revamped, it's not clear how an opaque government burdened by a Soviet-legacy bureaucracy and rampant corruption can modernize a country with an outdated and often crumbling infrastructure.

"Russia is stuck," said Vladimir Pribylovsky, the head of the liberal Panorama research center in Moscow. "In his speech today, Medvedev admitted that nothing material had been created in Russia after the collapse of the Soviet Union."

Instead of investing in its own development, Russia has relied mostly on black gold.

With oil prices moving back up recently — from $34 a barrel last winter to about $80 now — and with them the ruble and Russian stock markets, some worry about a drift back to a situation like that of the past decade, in which nothing serious was done about economic change.

"When oil prices kept growing, many people, I might as well admit almost everyone, was under an illusion that structural reforms can wait," Medvedev said, wearing a dark suit and red tie.

That, he said, can no longer be the case.

Alexei Pushkov, a prominent Russian TV commentator with extensive contacts in Moscow political circles, said the president would have his work cut out for him. Medvedev's two predecessors also said they wanted to modernize the economy but, Pushkov said, they too had to grapple with "a certain inertia that exists in the country."

Kremlin critics say that inertia is fueled by a long-standing tradition of officially sanctioned corruption, along with the consolidation of power under Vladimir Putin, the current prime minister and previous president.

Thursday's state of the nation speech was the latest in a series of reform declarations by Medvedev that have included a talk with political leadership in August and an open letter in September.

"He's sort of positioning himself as the president of modernization," Pushkov said. "If he doesn't deliver on this, what will his presidency be about?"

In the September essay, Medvedev asked: "Should a primitive economy based on raw materials and endemic corruption accompany us into the future?"

The rhetoric has left many Russian experts pondering whether Medvedev is trying to move away from Putin, who's widely seen as the real ruler of Russia, or whether the two are playing a sort of good cop-bad cop routine.

There were no answers Thursday. With Putin watching, Medvedev said the government should loosen its control of industry; a reversal of Putin's approach during his eight years as president.

Putin's office wouldn't say where he stood on the reform issue, but it advised the public to tune in to a televised question-and-answer session that the prime minister will hold later this month.

A World Bank report this month made it clear that complacency in the face of resurgent commodity prices would be a mistake.

The report forecast that Russia's gross domestic product, the sum of its goods and services, would contract by 8.7 percent this year, better than the 10.9 percent drop in the second quarter but far worse than China's or India's economic performance. The bank said industrial production fell by 10.8 percent in July compared with a year earlier, and by 9.5 percent in September.

"It may be time to consider a new growth model based more on increases in productivity and know-how," the report said.

An analyst at a leading investment bank in Moscow said this week that despite official statements to the contrary, he hadn't seen "any very clearly fleshed-out initiatives from the government on how they're going to reform."

Tom Mundy of Renaissance Capital added: "We've had 20 years of depreciation. ... It's quite startling how little Russia has added to its infrastructure during the past 20 years."

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McClatchy Newspapers 2009

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