The Cabinet has discussed the steps necessary to stop inflation in Russia. Finance ministry believes growing wages and funds attracted by state-owned companies are to blame. Experts disagree. State companies’ loans can’t affect consumer market anymore. The real reason of inflation is investment shortage. But none of the experts we talked to could provide a recipe to overcome the situation
Today, Russia’s government demonstrated they are concerned with growing inflation. And there are reasons to be: prices rose by 2.2 – 2.4 percent in January (compared to 1.7 January last year). It is clear that if the trend continues, Finance ministry’s prognosis for 2008 (8.5 percent inflation), will be exceeded.
So, what is the Cabinet going to do? Nothing significant, in fact. Their first step – prices on some food stuffs will be ‘frozen’ for a longer term – until May. The earlier decision to freeze basic product pricing does not seem to have had any real effect. There were fewer ‘socially significant’ products in stores, but all other goods went up in price.
At today’s Cabinet meeting, the ministry Economic Development presented other steps to be taken: ‘stimulating effective agricultural producers’, ‘developing trading infrastructure and production networks’, development of stock exchange oil product trade, etc.
Finance ministry and Central Bank listed the reasons they believes had caused inflation, singling out the monetary factor. They cited the trend of big companies, especially state-owned ones, borrowing more and more money abroad. As of July, last year, international debt of both state and private sector totaled 384.4 bln. dollars, with total amount of Gazprom, Transneft, VTB and other state companied comprising 40 bln. as of today. The share of people’s savings decreases, wager rise while labor efficiency remains rather low.
PM Viktor Zubkov harshly criticized the ministries, saying none of them had come up with clear initiatives that would help keep the inflation in the promised margins.
Experts agree with his criticism. Government finance specialists’ main point is that the fight should be for increased production, not against increasing consumption. “The history has proved that there should be balance between money and product offer. Many European and American leaders have tried to fight inflation by restricting money supply, but the result was always the same: a drop in production, said Elena Matrosova, director of BDO Unicon economic research center. Then, the leaned in an opposite direction, stimulating production by supporting customer demand, which resulted very positively in America”.
It is still necessary to consider the monetary factor of inflation in Russia, Dmitry Belousov, an expert of Macroeconomics Analysis Center, believes. He thinks the state needs to stimulate citizens’ activities in terms of savings. “This may be raising deposit interest rates, increased deposit insurance margin, and even insurance of group investment, Oleg Solntsev, an expert from the same center thinks. Clearly, in current situation, savings activities decrease, as people have to pay their bills”.
As for ministers’ laments about biggest Russian companies increasing borrowing, Solntsev believes this trend has nothing to do with inflation. “It’s quite opposite – middle-range business experiences shortage of funds, and the government should instead think of how they could stimulate the flow of investment”, the expert said.
Food stuffs producers cite shortage of personnel, investment and the untamed growth of energy costs as reasons for price acceleration. “The price of our production is directly influenced by the price of energy supplies, said chair of Pomidorprom holding Maksim Protasov. Personnel shortage is another problem. We have to buy cucumbers abroad because there are not enough people to grow and harvest them in sufficient quantities”. Pavel Isaev of Unimilk company complains about shortage of supplies. “There is not enough quality milk, and that is why prices of dairy products rise. And that is all because we have shortage of long-term investment in dairy industry.
Currently, the state provides only partial subsidies for some producers, covering the interest fees they pay for their loans. Tax cuts for agricultural producers could help, making the industry more attractive for investors.
But it seems that the cabinet cannot even think of such a step. The recently divided Stabilization Fund is growing, state investment funds remain untouched year after year, while ministers point their fingers and shift responsibility from one to another.
Yekaterina Shokhina
Photo: Comstock complete / Fotolink
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