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Russia Plans Reform To Spur Recovery From Crisis


Finance Minister Aleksei Kudrin

Finance Minister Aleksei Kudrin

MOSCOW (Reuters) -- Russia plans to launch fiscal and regulatory reforms over the next year to ensure a lasting recovery from the global economic crisis, Finance Minister Alexei Kudrin has said.

In an interview at the Reuters Russia Investment Summit of officials and businessmen in Moscow on September 14, Kudrin said the economy, which shrank 10.1 percent in the first half of this year, had probably passed its worst period.

But he added that instability in the global economy meant it was vital for Russia to take advantage of any improvement in the business climate to introduce reforms.

Russia fears the U.S. credit crunch could last another two years. And when a stronger world economy eventually causes global interest rates to rise, probably towards the end of 2010, emerging market economies such as Russia may be among the first to suffer from tighter funding conditions, Kudrin said.

"We expect that the main risks won't come from the Russian economy but from the global one and in particular from the United States," he said. "If the U.S. financial sectors are struck by a second wave of the crisis it could also reach us."

Fiscal Reform

In an interview at the summit, Russian billionaire Alexander Lebedev, who has seen his wealth cut by at least several hundred million dollars during the slump, said the global crisis had hit the country particularly hard because reforms were not being pushed through.

Corruption, crumbling infrastructure, and poor administration were stifling investment and innovation, he said.

But Kudrin said the government had learned lessons during the crisis and was preparing reforms that would reduce the state's stake in the economy while increasing its role as an impartial regulator.

"Of course we need to reduce the state's role in the economy...to come out of business. As a regulator the state should on the contrary increase its work," Kudrin said.

He promised a crackdown on corruption, which is a massive source of state interference in the economy, and an expansion of Russia's privatization program next year.

Instead of raising taxes the government would bring its budget deficit under control by making state spending more efficient. Kudrin said the efficiency of public spending could be increased by 10 or 20 percent and a plan for this would be drawn up by February 1 next year.

Regulation of the financial sector will be improved so the sector can become a large source of long-term money for new investment projects, while management at state-owned companies will be pressed to improve their operations, Kudrin said without elaborating.

WTO

In June Russia shocked trading partners by saying it would pull out of talks on unilateral membership in the World Trade Organization and instead seek to join the trade body as part of a customs union with Kazakhstan and Belarus.

But Kudrin said Russia would stick to bilateral trade deals struck before the decision, partly because it was keen to use foreign trade to encourage competition in its economy.

"We have good approaches with many countries which make Russia a comfortable trading partner. We are planning to stick in general to those parameters because they are right and adequate," he said.

Also speaking at the Summit, Ruben Aganbegyan, chief executive officer at leading local investment bank Renaissance Capital, agreed with Kudrin that reforms over the next few years were necessary to make Russia less vulnerable to volatility in global money markets.

He said he detected "a big willingness" in the government to undertake reform but warned that the momentum for change could easily fade as the economy started to recover and funds flowed back into Russia's financial markets.

After freezing during the crisis, Russia's corporate debt market is returning to life, and equities deal-making -- both initial public offers and secondary market deals -- is likely to resume next year, Aganbegyan said.

"If you look at the historical record, it's very difficult for our country to do reform when we're awash with money," he said.
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