I really couldn’t wait for this publication to be released, and I’ve been checking the OECD site every day to see if they accidentally posted it before the scheduled July 15 release. The OECD’s conclusions and recommendations in such reports are important because Russia is currently moving towards membership negotiations. Thus, issues identified in the report will likely recur in negotiations. And though I haven’t had time to read it cover to cover, so far I have to say I’m a little disappointed based on how great the previous report was.
The Nov. 2006 OECD Report
The last OECD Economic Survey of the Russian Federation was released in November 2006. Back then, the OECD rightly noted that, while Russia’s economic growth was certainly impressive, it was largely a product of a few discrete factors. More important, the OECD wrote that some of these factors (e.g., the underutilized capacity from the Soviet era) were factually incapable of continuing to sustain economic growth, while others (e.g., high prices for extractive resources) were both unreliable and do not clearly yield a net benefit to Russia. The report ultimately recommended (i) improving public administration, (ii) encouraging innovation, and (iii) reforming health care.
So I was fully expecting a new report that would not only revisit Russia’s progress in the areas raised by the last report, but also amplify on how these issues exacerbated the effects of the crisis in Russia. But the new report is somewhat disappointing.
The three impacts of the crisis that the new report focuses one are (1) collapsing oil prices, (2) drying up of international sources of credit, and (3) exchange rate volatility related to the oil price fluctuations. The OECD’s proposed remedies include (1) reforming the tax structure for the energy sector to ‘enhance economic efficiency’, (2) a ‘switch to inflation targeting’ monetary policy that would complement Russia’s fiscal policy and [purportedly] ward off Dutch disease, (3) making the banking system ‘more efficient and less crisis-prone’, and (4) reduce regulation/state involvement in the economy.
I think the OECD kind of dropped the ball with this report. First, we all know that Russia is overreliant on oil, and that when prices fall it messes up their growth, exchange rate, etc. Second, Russia’s major problem over this last boom period was not specifically the failures of its banking system, but rather its overreliance on a Western banking system that collapsed without warning. What model should the Russians follow?
But the most disappointing part of this Survey is that it abandons the structural critique from the last report in favor of an IMF-like approach that is limited to fiscal, monetary, and tax policy. Russia has already expressed its desire to implement the policies that the 2006 Survey recommended, and I think the OECD is the best-suited institution for assessing and encouraging their progress. Perhaps the OECD decided to declaw its report due to the imminent negotiations with the Russians. Still, even if this is the case, it is a mistake to divert attention from the structural issues that are what most distinguish Russia from OECD member countries.