Russia

• Author: Nikola Spatafora
• Pages: 8-9

Page 8

IMF involvement in Russia has centered on supporting the transition to a market economy through the adoption of appropriate macroeconomic and structural policies, and the creation of necessary institutions. While the IMF has concentrated on those areas critical to macroeconomic stability, sustained growth will remain elusive in the absence of continued, broadbased reforms. As a result, IMF staff research has dealt with a wide range of topics including: sources of output growth, strengthening public finances, developing financial markets and monetary-policy instruments, and key external-sector issues such as contagion and capital flight.

Focusing on output, several IMF studies, using a growth- accounting framework, found that the 40 percent contraction during 1992-97 reflected both falling investment and employment, and sharp declines in productivity, with productivity levels closely related to the pace of enterprise restructuring.¹ Survey data from the 1998 crisis suggest the adverse impact on income and consumption was mitigated through mechanisms such as intrafamily transfers and subsistence farming.²

For much of the 1990s, weak growth was accompanied by increasing nonmonetary transactions, including barter and offsets. Such transactions reflected firm-level liquidity problems, including arrears in particular, but also the govern- ment's use of tax and utility offsets to channel implicit subsidies to enterprises. The government's inability to change the culture of nonpayment (including its own expenditure policies) aggravated arrears in the utilities sector and inhibited enterprise restructuring.³ A key to solving this problem lay in the improvement of the government's own finances, including the cessation of federal government nonmonetary operations such as arrears and offsets.⁴

Other research on growth includes a discussion in Buckberg (1997) of the importance of broad structural reforms to medium-term growth, focusing on the tax system, judicial system, capital-market infrastructure, and red tape.⁵ Roaf (2000) documented the extent of corruption, its implications for growth, and necessary reforms, while Alexander and others (2000) discussed the banking crisis, the results of banking- sector restructuring efforts to date, and the remaining reform agenda.⁶ Meanwhile, survey data suggests that whether individuals will indeed support continued reforms depends on personal circumstances, such as their economic well-being, education, and age, but also regional circumstances including the prevailing wage-arrears and crime levels.⁷

A second focus of IMF research has been the reorientation of public finances. Studies have analyzed the post-transition changes in revenues, as well as the current structure of and key issues in tax policy and tax administration.⁸ For instance, revenues from the energy sector were found to be half the level predicted using international comparisons, reflecting an inappropriate tax structure, weak tax administration, infrastructure constraints on oil exports, and low statutory tax rates on gas.⁹As regards expenditure, studies have addressed: the appropriateness of the expenditure level and composition; weaknesses in the social-welfare system, including pensions; and the adequacy of fiscal management, including how to improve the budget process and eliminate noncash...