Nobel Laureate Sees Japan-Like Malaise for ‘Third-World’ Russia

  • Pissarides says top risk is that Russia ‘gets stuck’ for years
  • Government hasn’t used crisis to reform economy, institutions

Russia is on its way to becoming like Japan, but in all the wrong ways, according to Nobel economics laureate Christopher Pissarides.

“The main risk is that Russia gets stuck where it is, sort of Japan-like,” Pissarides said in an interview in St. Petersburg, Russia. “But Japan got to a very high level and the risk is that Russia gets stuck at a lower level.”

The prospect of decades of anemic growth won’t sit well with President Vladimir Putin, who set the goal of reaching annual economic gains of 4 percent in the years ahead. Even that is a far cry from a boom period during Putin’s first two presidential terms from 2000 to 2008, when the economy grew an average of 7 percent annually. Russia’s recession is in its second year after gross domestic product shrank 3.7 percent in 2015.

Russia is “behaving like a third-world country that extracts resources from the ground, sells them and then uses the revenue to buy goods from abroad mainly,” Pissarides said. “It is a temptation. When the wealth is there, ready, then why make the effort? Take it out, sell it, take the money.”

The outlook sets out the challenges facing the economy of the world’s biggest energy exporter as it veers from its longest recession in two decades to the first signs of stabilization. The International Monetary Fund puts the nation’s medium-term economic growth at 1.5 percent a year. Even the benefits of an early end of sanctions imposed over Ukraine would wear off after next year, the World Bank said in April.

Nothing Major

“We don’t see anything very major done,” Pissarides said. “There should be more effort in Russia toward becoming more flexible, more business friendly, investment friendly.”

Russia ranks alongside Azerbaijan, Guyana and Sierra Leone at 119th, out of 168 countries, in Transparency International’s index of perceived levels of corruption, down from 82nd in 2000. Its property rights were rated 122nd and the availability of latest technologies 100th of 140 nations in the World Economic Forum’s 2015-2016 Global Competitiveness Report.

Even so, as crude prices stabilize, investors have flocked to Russian assets. The ruble is the second-best performer in emerging markets this year with a gain of about 15 percent against the dollar. The Micex stock index is up more than 8 percent in 2016.

The collapse in oil has forced authorities to embark on austerity and allow the ruble to trade freely. Still, the government has dawdled when it comes to overhauling institutions, tackling corruption or raising the retirement age.

“It’s probably a blessing that the price of oil has come down, because it will kick the economy in the direction that it should go to become a major industrial and modern economy,” Pissarides said.

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