The topic of this discussion might be the most important in defining Russia's future in the following years. It is well known that Russia's economy in the last decade was pretty much dependent on exports of oil and gas (about 50% of total exports), petroleum products, metals and timber. It's not that Russia does not produce anything else - well, Russian arms are pretty popular around the world - but other products of Russian industry are mostly consumed on the domestic market, for example the production of multiple car plants built in Russia by Ford, Toyota, Nissan etc. Indeed, there has been lots of foreign investment in Russia in automobile industry, while many other economic sectors - such as metallurgy, petroleum processing and chemistry - enjoyed significant domestic investment. Yet much of this industrial growth and modernization depended on incoming petrodollars and cheap loans from western banks, which allowed to buy machines and industrial equipment (50% of Russian imports) and to finance major projects. In 2008-2009, during the first wave of the world financial crisis, the flow of cheap loans ceased and the oil price plummeted, which resulted in about 8% downfall of the Russian GDP in 2009. However the economy recovered fairly quickly thanks to large financial reserves, active governmental action, and then also relative recovering of the EU's economy (Russia's main trading partner) and return of the oil price to pre-crisis high levels. Yet the pace of Russia's economic growth slowed from typical 6-8% before the crisis to 3-3.5% in the last couple of years. The first three months of 2013 saw a slowdown of the Russian economy. The reasons are obvious: currently the oil prices remain flat and the EU's economy is projected to have close to zero or negative growth, so exports to EU are declining. But there are also domestic reasons: despite the crisis, salaries in budget sector (army, police, healthcare, education) and pensions in Russia significantly grew in the past few years (that was a part of Putin's strategy which allowed him to get re-elected so easily). This is good for many ordinary Russians but, according to many experts, the more expensive labour force also makes the economy less competitive. Also, Russian ruble grew 25% stronger to USD from 2008, in effect again making the domestic labor force more expensive. At the same time inflation in the early 2010s hit about 6-7% a year, which is significantly lower than typical double digit figures in the 2000s. But while inflation rate fell, the banks' interest rates remained high as before - typically 15-20% - which means that in effect domestic loans became more expensive. Foreign loans are not as lucrative as before as well. Currently the Russian government has ambitious plans, including the $1trillion-worth programme of the army rearmament, the modernization of healthcare, the restoration of aircraft industry and multiple infrastructure projects - and it wants of course to reduce the dependence on oil and gas and diversify the economy. But how to get trillions of dollars needed for this given the present financial situation? One possible answer is found in the article of Sergei Glaziev (Сергей Глазьев), an influential Russian academician economist and a close advisor of president Vladimir Putin. Recently Glaziev published a long expected programme article in the Russian journal Expert, called Жребий брошен. http://expert.ru/expert/2013/18/zhrebij-broshen/ (for the translation of the title look up http://en.wikipedia.org/wiki/Alea_iacta_est) I'll make a short summary of the key points of Glaziev's article (with few additions from myself in brackets). 1) The key to Russia's economic development is extensive public-private partnership. 2) A kind of new social contract is needed between the state and the private businesses. 3) Within this contract, the state is expected to reduce corruption, to provide cheaper loans and lower energy tariffs. The business is expected to start acting more responsibly, following the state-set goals. 4) In the area of capital market, the state applies one-time tax amnesty to the capitals returned from off-shores (such as Cyprus - it's banking collapse already resulted in billions of Russian money returned to Russia; since Europe started anti-offshore campaign, more Russian money are expected to return home). The state provides more affordable long term loans to businesses (in summer Putin's ally Elvira Nabiullina is due to become a new head of Russian Central Bank, she is widely expected to finally lower the Central Bank's interest rate). The business in turn should de-offshorize its capitals and use the domestic sources of finance. Return of Russian properties into the Russian jurisdiction is essential to provide pledges for loans and to strengthen the domestic financial system. 5) In the area of taxing, the state significantly lowers or even cancels the value added tax (currently 18%) and cancels taxes on research and development. The business stops illegally or semi-legally flowing capitals abroad (in attempt to pay less taxes) and makes its financial transactions more transparent. 6) In the area of pricing policy and monopolies, the state reduces the growth of energy and transportation tariffs (the state currently controls energy market and railways), makes the access to the state monopolies' goods and services more equal and open. The business makes pricing more transparent. 7) In customs area, the state modernizes the customs administration and gives special trading status to responsible businesses. The business stops using grey imports scheme. ---- In addition to this programme presented by Glaziev, it seems that the state also might want to boost economic growth via major infrastructural projects, such as building new high-speed roadways or, possibly, high speed railways. There is extensive talk in the government that the infrastructural projects should be financed by the money from pension funds, which is deemed the best allocation of pensioners' accumulated capitals. All this means that the Russian government seems to have an aim to create a strong domestic financial system able to provide credits and investment for economic development using domestic (de-offshorized), rather than foreign financial resources. This means a new economic model in Russia, compared to the model which has existed in 1999-2012. ---- Do you believe Russia could succeed in this? Which other means Russia could apply to reduce dependence on petroleum exports, to boost economic growth and to converge more thoroughly with the Western levels of life and economic efficiency?