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AFP, June 17, 2003

Russian government under fire despite brisk growth

Russia's parliamentary opposition Wednesday will table a motion of no confidence in a government it accuses of following a failed economic plan even as the country goes through a rare phase of brisk growth. United in an unusual alliance, Communist deputies and their colleagues from the pro-market reform Yabloko party accuse Prime Minister Mikhail Kasyanov's cabinet of being "unable to ensure economic growth."

The government, they further charge, is carrying out an "anti-social policy" and is defending "the interests of large monopolies and of oligarchic structures," a reference to Russia's powerful business tycoons.

Most believe the vote of no confidence will fail, not because Kasyanov has actually overseen economic growth, but because the opposition has little support on any major issue in parliament.

But economic factors are actually weighing in Kasyanov's favor.

Russia's Gross Domestic Production (GDP) grew by 6.6 percent over the first four months of this year as compared with the same period in 2002, making the country the world's best economic performer after China.

This makes up for "a rather better (record) than had been hoped for," said Peter Westin, chief economist with the Moscow-based investment bank Aton.

Westin quickly added, however, that this was partly explained by a somewhat disappointing GDP growth of 4.3 percent in 2002.

Western economists seem even more upbeat about this year than the Russian government, which forecast an annual growth figure of 4.6 percent.

The World Bank estimates that Russia's GDP should grow by 5.5 percent this year, while Moscow's investment bank, the United Financial Group, is staking its bets on a six percent figure or more.

However, analysts caution that much of this has to do with external factors -- like global energy prices -- than Russia's commitment to economic reforms.

"There is no problem with the figures, but the main problem is that growth is mostly due to external factors, particularly oil prices," said Alfa Bank analyst Natalya Orlova.

Since the beginning of this year, Russian oil has been priced at an average 27.1 dollars (22.9 euros), as opposed to 21.7 dollars (18.3 euros) over the same period last year.

And, Orlova warned, "only the implementation of reforms" in the administration and state monopolies will ensure long term growth.

Other glowing reports about the Russian economy should also be taken with a measure of caution, analysts said.

While Kasyanov recently patted himself on the back for slowing down inflation, Westin said the government's objective of a 12 percent figure this year was unlikely to be achieved.

Kasyanov also said that the flight of Russian capitals abroad had slowed down and that foreign business had invested 6.3 billion dollars (5.3 billion euros) in Russia since the beginning of the year.

However, Russia has the lowest level of foreign investment among developing countries, Westin noted.

The main explanation for the current low level of investments in Russia is a general lack of confidence, said Christof Ruehl, chief economist in Russia at the World Bank.

Russian money made on raw material exports which had been invested abroad "is starting to come back, but it is not being transferred to the sectors that need it," Ruehl said.

"The (Russian) banking system is failing to fulfill" its function, thus crippling the development of the manufacturing and food processing sectors, he added.

Russia's economy has been performing well since the beginning of the year, but these good results are due "partly to the government, and partly to luck," Aton's Westin said.

Russia's population, 24 percent of which lives under the poverty line defined by Moscow, also seems increasingly dissatisfied with the economy and "is increasingly anxious to see its living standard rise," Ruehl said.


See also:

No-Confidence Vote

AFP, June 17, 2003

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