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Russia: OECD Praises Growth, But Says Reforms Needed

The Organization for Economic Cooperation and Development released its twice-yearly economic forecast this week, including positive remarks about progress in Russia. But the OECD hedges its praise for Russia with a call for more economic reforms by Moscow.

Prague, 22 November 2000 (RFE/RL) -- The latest economic forecast by the Organization for Economic Cooperation and Development, or OECD, says Russia's short-term outlook is favorable. But the Paris-based organization says Russia needs to make long- overdue structural reforms in order to keep growth on track.

The OECD's twice-a-year Economic Outlook report, released this week, concludes that the political and economic climate in Russia presents an opportunity for progress on reforms that can bring long-term stability and growth.

One key area that the OECD says will affect Russian economic growth in the next five years is tax reform -- especially in the way taxes are collected by the federal government from Russia's regions.

OECD Economist Douglas Sutherland tells RFE/RL that fiscal relations between Russia's federal government and its regions also are important in terms how Moscow distributes funds to the regions.

"What we'd like to see are better incentives for local government officials to conduct more rational policies in Russia. At present, they have very little autonomy to operate outside of the formal budget."

Sutherland says the outcome of such policy changes would be an increase in Russia's overall tax collection as well as a better investment and business climate in Russia's regions.

Another key recommendation by the OECD is for the government to improve corporate governance and federal laws on competition.

The OECD has sent a team of experts to Moscow to work with the Russian Anti-Monopoly Ministry. The team is making recommendations for adjustments to Russia's current competition law.

Meanwhile, another team of OECD experts is meeting with officials in Russia's State Statistical Committee. They are making recommendations for more accurate assessments on the size of Russia's shadow economy. Based on statistics provided by Moscow, the OECD estimates that the shadow economy accounts for up to a quarter of Russia's overall economy.

Sutherland admits that some academic studies may calculate the shadow economy to be larger than official Russian estimates. He said the OECD team in Moscow hopes that new ways to measure this sector of Russian economic activity will lead to a better understanding of it. He also said the size of the shadow economy could be reduced by reforms to the tax system and by creating a better business and investment climate across the country.

Overall, the OECD says Russia has done well to recover from a near economic meltdown during the financial crisis of August 1998. The organization predicts a doubling of real economic growth this year to 6.5 percent. It also says the size of the economy could expand by 4 percent during each of the next two years. And it says inflation could fall from a projected 35 percent this year to less than 18 percent for next year.

But the latest report confirms findings by researchers for other international institutions who say much of Russia's growth is the result of two temporary factors: the high price of oil and the depreciation of the ruble, which has discouraged purchase of imported goods.

The OECD says these factors will not last in the long term. It says that without on-going reforms, the positive economic news from Russia could also turn out to be temporary.