- The Washington Times - Saturday, April 25, 2009

The Russian recession is much deeper than the Kremlin anticipated and recovery will take longer than the nation’s leaders would like, Russia’s finance minister said Thursday.

The government announced Thursday that Russia’s gross domestic product in the first quarter fell 9.5 percent compared to its year-earlier level, and the economy is expected to contract as much as 10 percent in the second quarter.

“The first-quarter outcome was worse than expected,” said Finance Minister Alexei L. Kudrin, who also serves as a deputy prime minister. Russian officials expected industrial output to fall 10.5 percent, but it shrank 14.3 percent. Investment plunged by 17 percent.

“The increase in unemployment is causing us to reconsider prospects for the remainder of the year,” Mr. Kudrin told a gathering at the Peterson Institute for International Economics. During the first quarter, the unemployment rate jumped to 9.5 percent from 7.1 percent in the previous period.

Mr. Kudrin cited “alarming indicators,” including a high level of unused capacity in industrial production and the fact that Russia’s financial sector, like many others around the world, was not stable.

“In Russia, we now assume a long-term siege of negative factors,” Mr. Kudrin said.

While the government previously expected the economy to decline by 2.2 percent this year, Mr. Kudrin said the International Monetary Fund’s forecast of a 6 percent drop in GDP was close to Russia’s revised assessment. Next year, the IMF expects Russia’s economy to grow just 0.5 percent.

To counter the collapse of private demand, the Russian government has put together a fiscal stimulus package totaling 6 percent of GDP, the finance minister said.

Mr. Kudrin said Russia’s budget deficit would decline from 7.5 percent of GDP in 2009 to 5 percent in 2010 and 3 percent in 2011.

The Russian recession marks the end of a nine-year period of extraordinary growth. Russian GDP per person in 2008 was nine times its 1999 level, rising from $1,328 to $11,807, according to IMF data. “Russia moved from bankruptcy in 1998 to $600 billion in international reserves last August, No. 3 in the world,” noted C. Fred Bergsten, director of the Peterson Institute.

Mr. Kudrin attributed that amazing growth spurt to several oil-related factors that are unlikely to repeat themselves. As world oil prices jumped for nine years in a row to their historic peak in July 2008, annual Russian oil output increased an average of 10 percent since 2000, Mr. Kudrin said.

Mr. Kudrin acknowledged a great need for the Russian economy to diversify. Becoming a member of the World Trade Organization would help in that regard, he said. But negotiations with the United States to gain entry to the WTO have faltered in recent years.

Mr. Kudrin contended that a U.S. complaint about the role of state-owned enterprises in Russia was seriously outdated. “The number of state-owned enterprises is growing in the United States,” he noted.

“We are ready to compromise” on the issue of meat imports, he added, “even though the European Union and the U.S. cannot agree among themselves.”

Addressing the role of the dollar in the valuation of Russia’s massive energy resources, Mr. Kudrin urged the United States to maintain sound financial policies.

Russia and the United States “can achieve things we cannot even dream about now,” he said, but first the United States must begin treating Russia as an equal. “We don’t want to be just the pupil graded by the teacher.”

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