Putin Wants Structural Change
World Economy

Putin Wants Structural Change

Two days after Bank of Russia Governor Elvira Nabiullina urged reforms and warned against the “big illusion” of using inflation to propel growth, President Vladimir Putin said that he won’t turn on the taps to pump the economy with cash even as a recession drags on.
The president is channeling his central banker in what’s now standard fare for Russia after the worst oil crash in a generation jolted the world’s biggest energy exporter, Bloomberg reported.
“Russia faces economic challenges that require close cooperation between the central bank and the government,” said Piotr Matys, a strategist for emerging-market currencies at Rabobank in London. “The Russian central bank has already eased the burden on the economy by cutting rates substantially and providing local banks with liquidity. It would be beneficial if such measures were accompanied by efforts from the government to significantly accelerate the pace of structural reforms.”
The message is getting through. After deploying a stimulus package estimated as the largest among Group of 20 nations during the crisis in 2009-2010, Putin has held back this time, letting the economy adjust through a weaker exchange rate and spending cuts.
That’s left Russia with a mix of fiscal and monetary policy deemed by Morgan Stanley to be among the “most orthodox” in a region stretching from eastern Europe to Africa, an assessment based on factors from the dynamics of public debt to the outlook for real interest rates.
 Spending Cutbacks
Putin said for the first time that spending cutbacks will extend to defense and security, which together with social outlays account for almost 60% of this year’s expenditure. The central bank has repeatedly warned that the budget presents risks to its inflation outlook.
What’s “most important is not to print money but to change our economy’s structure,” Putin said. “The main issues are how to attract investment, make our economy more efficient, and ensure demand—in other words, how to raise people’s incomes.”
Long vulnerable to swings in commodity prices, Russia is adapting. The share of oil and gas revenue in budget income plunged to 34% in the first quarter, compared with more than half in 2014. Russia has surged by 61 spots in the World Bank’s Ease of Doing Business Index since 2013 to 51st this year.
The Bank of Russia believes it’s doing its part by focusing on inflation. First Deputy Governor Ksenia Yudaeva last week called the shift to slower price growth one of the “most important structural reforms” for the country because it’s a “basic condition to create long money.”

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