We have a backlog enabling in 2016 to shift to the low, but still economic growth
"The Russian economy has adapted. It was a shock, we were able to considerably reduce costs and to improve handling companies," - Minister of Economic Development of the Russian Federation Alexey Ulyukaev says. The country, in his opinion, has a basis which will allow next year shifting to the line of an unstable, but still economic growth. Yesterday, the Minister spoke with the «Mneniye» TV presenter Evelina Zakamskaya.
Interviewer: - Alexey Valentinovich, Hello! Thank you for taking time for us.
Alexey Ulyukaev: Hello!
Interviewer: Every year the Ministry of Economic Development makes predictions on the state of the Russian economy, for its development, what prevents these predictions to come true?
Alexey Ulyukaev: What makes you think that they don't come true? Here, I think that this year we have a forecast with accuracy up to tenths. The inflation forecast is 12.2%, may be two-tenths more – 12.4-12.5%. Economic growth is forecasted at 3.9 percent, that is, to be exact, a decline.
Interviewer: Economic downturn.
Alexey Ulyukaev: …I hope that it will be 3.7%, which is two-tenths better than forecast. I think this is a very small deviation. We had forecast the dollar exchange rate at 61 rubles, now the average annual rate is 60.8 rubles. Therefore, the accuracy is quite high. Another thing is that we have little joy from this precision, because it is the accuracy of negative prediction. Of course, we would like to see other results, would like to see less inflation, more economic growth, would like to see the real incomes of the population, not a slowdown like now.
Interviewer: Oil prices that we see now, were they included in the forecast, are they a surprise to you or do they still affect the economy?
Alexey Ulyukaev: The forecast is 50 dollars per barrel this year, and now the average price is at the level of 51.5 dollar per barrel, or a little more. During the year, the volatility has been high, there were periods when the price was much higher than forecast. There were periods, for example, today, when it's much lower than forecast. But in general, I believe that a deviation of 1.5 dollar per barrel is minimal. Of course, we live in a period of high volatility. Let's see how the world prices for metals, food, oil, gas are moving, the movements are very large and it is good that we have built-in attenuators, such as "free floating of ruble", the existence of reserves, the establishment of special institutions and instruments of state support, which allow mixing risks arising from this high volatility.
Interviewer: But the capabilities of these institutions and reserves are also falling. As it will be considered next year?
Alexey Ulyukaev: Potential reserves may be reduced as they are consumed. And the capacity of institutions, on the contrary, increased because we are establishing an Institute on the principle of one window, the Institute of support of small business, corporation of SMEs, and providing it with necessary resources, such as the Russian export hub, to support non-oil exports. So we, of course, have capabilities. Of course, I would like to see the budget structure built in another way, more focused on productive purposes, that is, spending to support the economy, human capital development, education, health care, and reserve for economic and social development. Here is something to think about and work on to optimize this structure. Overall, I think we have the necessary reserve, which next year will allow us shifting, all the same, to the line of a low, unstable, maybe, but still to the line of economic growth.
Interviewer: The President in his Federal Message drew attention to the poor and tight situation of the main development institutions, I mean Vnesheconombank Group. How can you today support it? Because for many years Vnesheconombank coped with problems, solved national level tasks, which may be unfavorable and uninteresting from the point of view of economy, and in recent times it has been speaking for the need for recapitalization.
Alexey Ulyukaev: Always and everywhere development institutions is the responsibility of the budget. The budget initially capitalizes them, allowing them through further capitalization to solve the problems that it faces. I think that in this sense, Vnesheconombank is no exception. And we anyway will need it against those risks that it took on its balance sheet, including special tasks, such as, for example, hosting the Olympic games, construction of Olympic venues, and some others, support of the stock market, bonds during the crisis of 2008-2009, or the financing of large and backbone enterprises which even in the crisis period was in a situation close to bankruptcy. All these are special tasks, which, of course, if Vnesheconombank was an ordinary commercial institution, it would not be able to take on its balance. However, it was done. And it requires the establishment of reserves, and, therefore, additional capitalization of Vnesheconombank. How all these will be done, and in what form it is a matter of debate. But the fact that it will necessarily be done, I think everybody agrees with this.
Interviewer: - You said that the funds should be in the budget, and the budget is adverse, accordingly, they are not there?
Alexey Ulyukaev: The budget always has funds. The issue is what size of deficit we can afford. This is the first. Secondly, we have a practice of non-monetary capital replenishment, as we have done this year, releasing federal loan bonds. And this is done through these federal loan bonds capitalizing banks to enable them to lend to the economy. Accordingly, the same procedure applies regarding Vnesheconombank.
Interviewer: The budget deficit is three percent and this figure must be observed - that is the position of the Ministry of Finance. And it was, as far as I understood, supported and in the President’s Message. You take up a different position because many experts believe that the budget could be expanded and funds could be released for economic development, don’t you?
Alexey Ulyukaev: I think that we will continue to consider the issues of ultimacy deficit. We believe that 3 percent is the value that allows maintaining macroeconomic stability, so we should stick to that.
Interviewer: And going back to Vnesheconombank. Is the position in which Vnesheconombank found itself a part of objective reality, or is this due to the fact explained today by many persons by the errors in management?
Alexey Ulyukaev: Management always makes mistakes, and it is peculiar both for banking structures, and financial companies. But the point here is, I think, not only and not so much in it. The fact that it was established as an institute of development, but it largely turned out an institution absorbing risks arising in the Russian economy, due to different circumstances, since the crisis of 2008-2009, and to present situation, related to the sanctions regime, the geopolitical risks. But it was assumed that it would have the capital from the budget and then raise funds from the market, having a high rating, almost equal to the sovereign rating, would attract resources from the capital market that it certainly did. However, as since last year, the capital markets because of the sanctions regime have become closed to Russian borrowers, it has become impossible Vnesheconombank to refinance its significant liabilities and debt liabilities denominated in foreign currency, due to which it largely funded its operations through the support of certain sectors of the Russian economy. And here is the main point that has led to a situation where we need to close the gap, including through sanction operations based on budget funds.
Interviewer: How do you assess the capabilities of the Russian industry and its potential in import substitution? Already a year and a half we have almost lived in the concept. How is it implemented?
Alexey Ulyukaev: First, I think that the decline in industry will be slightly lower than the GDP in general. We forecast 3.3%, slightly better in the mining industry, slightly worse in manufacturing. But if to say about import substitution, that is, industries in which it is successful, it is primarily the agricultural sector, the production of raw materials and food products on the basis of this raw material. Here we have not a recession, but a growth, which is extremely important. I think that this situation will continue in future periods. For other industries, such as automotive or production of railway equipment, locomotives, carriages, the situation is very difficult, because the demand has decreased considerably, the production decreases. And we have to resort to special measures of state support - subsidizing of consumer demand or investment demand. We attract for this budget funds, as in the case of the automotive industry, or funds from the National Welfare Fund - in the case of railway equipment. So for each case there is its own decision.
Interviewer: About support of automakers is already clear. What will these decisions?
Alexey Ulyukaev: Yes, okay, we'll save for the next year the mechanism that worked in 2014 - 2015, subsidies and consumer credit interest rates, mechanism of procurement for state needs and the needs of municipalities.
Interviewer: What are the forecasts for the industry you give for next year?
Alexey Ulyukaev: We believe that next year the industry, as well as the economy as a whole, will be able to return to a growth path, which is still a minor one, within one percent, but it is still a growth.
Interviewer: And due to which industries may this occur? Is it again due to the agro-industrial complex?
Alexey Ulyukaev: It agriculture, industries related to production in the extractive industries, i.e. oil industry, chemicals and petrochemicals, and fertilizers.
Interviewer: Your expectations from the oil and gas industry next year? And whether it is fair in conditions of falling oil prices to increase the tax burden on oil, isn’t it? When and in what context can be continued discussion with the oilers about to introduce a tax on financial result?
Alexey Ulyukaev: From my point of view, we need a careful use of fiscal tools, keeping in mind that the additional tax burden here could undermine the investment potential of the companies. They are so arranged, that the production is supported by constant investments, you need to constantly bore wells, equip them, and, thus, to obtain the result. From my point of view, these tax efforts should be primarily aimed at maintaining the production of mature fields that have an appropriate infrastructure and, in budget sense, are the most effective because they do not have such large benefits, such as offshore or so-called hard-to-recover ones. As for the tax financial result, the decision was made to conduct the pilot project: there was selected a certain number – more than a dozen fields – in order for this pilot to work. There are risks here associated with the fact that companies are offered the opportunity of a significant write-off of investment costs, i.e. are the risks on the budget component. We have in this pilot project to see how these risks are indeed serious, and if there is a need to improve the mechanism itself.
Interviewer: But considering all the features of the industry that you voiced at the beginning of your answer, as, in your opinion, do today the oilers have enough assurance that they can play out in the long term, plan their investment projects?
Alexey Ulyukaev: I think so. Based on the fact that our operating cost is among the lowest in the world, if we don’t aggravate the situation in the industry, which is largely determined by global market conditions, these prospects exist. Because the ruble revenues of the oil industry are associated with the ruble and oil prices, which are inversely proportional, with the reduction in prices, the exchange rate rise and the ruble revenue does not fall. This creates a certain reserve for the company. If we using tidy fiscal actions let them this reserve be implemented in the form of investment projects, we will get a good result. By the way, this year we have seen a situation where investment in the oil industry not only has been reduced, but even increased. This means that the oil companies see the prospects for their development, assess the opportunities, perhaps, improving the dynamics of the environment in general, global markets and invest in the expectation of it.
Interviewer: Do you have anti-crisis program for the next year, and what is the price of a barrel of oil is put in it?
Alexey Ulyukaev: We have so-called pessimistic variant of the forecast, which assumes that if the underlying option is $ 50 per barrel, the pessimistic variant is $ 40 per barrel, which assumes, of course, the worst parameters from the point of view of economic growth. That is, with this variant, we are not coming next year to the positive dynamics of the main economic indicators in industry, overall GDP, investment, consumer demand. And all this dynamics, that is, shifts to the right in future periods. But we do not see fundamental risks. For example, risks to macroeconomic balance in general, risk of default of budget or undermining the banking system, i.e. the Russian economy as a whole is adapted. It passed the shock. We were able to considerably reduce costs, to improve the controllability of the companies, and the seam strength, as we understand it, is pretty big.
Interviewer: But the pessimistic scenario is already today’s price of oil. You think it for short while, don’t you?
Alexey Ulyukaev: I think that the price of oil will change. This is also the opinion of many oil analysts who suggest that 2-3 quarter will last such quite a high volatility. Since the second half of next year, with a high degree of probability, oil prices will return to a positive trend with less volatility. And in general, I think that the forecast $ 50 per barrel for the year is quite justified.
Interviewer: Does it mean volatility of the national currency?
Alexey Ulyukaev: There is a high degree of dependence between the exchange rate and market conditions of oil prices. Although we should consider the impact of capital account, the dynamics of the inflow or outflow of capital. We see now that the situation with the real dynamics much better than it was predicted. We and the Central Bank have improved our expectations for capital outflow this year. I think that it will not exceed $ 70 billion. It will be a little less even. And that is interestingly that the overall balance of payments is balanced, i.e. negative balance of capital account is approximately equal to the positive balance of the current account. Overall, this creates quite a comfortable situation for the rate. It is clear that the behavior of market participants is affected not by the average rate per year, or the average situation with the payment balance per year, but by individual variations associated with the geopolitical situation, with the emergence of some risks not figured out in advance. This volatility can be "extinguished" by the neat actions of monetary authorities.
Interviewer: The state has set a goal to increase non-oil exports by 6% per year until 2020, it had such plans. Do they exist now, and how can we support them in the foreseeable future?
Alexey Ulyukaev: These plans are saved. You quote figures from the roadmap to support non-oil exports. It is no coincidence that we have created a special institute for development - Russian Export Center (REC), which combined those developments, which were before in terms of lending, guarantees and insurance of export contracts. Just today we, as the Ministry, have signed with the Russian Export Centre an agreement, that we will create, on the basis of our trade missions, REC special bodies - trading houses. First, we will do it in 10 countries. They will provide maintenance services for Russian actual or potential exporters in the field of logistics, providing warehousing and office space, the organization of exhibitions, exhibitions of goods, negotiation process, legal support and so on. We expect this should really help. I think that non-commodity exports are one of the most complicated sources of our economic growth. Despite the fact that I said that oil prices will stabilize, slightly increase, I hope. But still the level of around 50 dollars per barrel is here to stay, I think. The same applies to the prices of gas and metals – the main products of our commodity exports. So, of course, here we need to balance this situation with the growth of non-oil exports.
Interviewer: A new federal agency, the appearance of which was announced by Vladimir Putin in his message, which should help companies to buy patents and technologies, do you imagine how it should work?
Alexey Ulyukaev: To be honest, I can't describe it in detail. We still have to work together. We have an institution that deals with patent protection of our manufacturers that is Rospatent. There is a mechanism that allows us to provide patent protection through the same single window – Russian Export Center - of our businesses, researches and developments abroad. But the mechanism that would allow such technology transfer, purchase of intellectual property law, and adaption them in Russia, we have not such experience yet. And here we are to work.
Interviewer: But do you understand in principle the feasibility and challenges? Do you have any doubts?
Alexey Ulyukaev: what we need to implement technology transfer - yes, of course. We cannot re-invent, so to speak, various bikes that have already proven that they work all over the world. Many countries that have achieved high rates of economic growth, such as, for example, Korea went this route, ensured technology transfer, and after that they created their own competences.
Interviewer: Which of the multitude of geopolitical factors today has the greatest impact on the Russian economy and our prospects?
Alexey Ulyukaev: I think it's still a geo-economic factor. This is a decrease of demand for the main products of our exports with the countries, primarily, of emerging markets. There have been reducing growth rates in these previously fast-growing economies, which puts very serious pressure on the balance of supply and demand overall in the global market of goods. This, of course, is the most important thing. If you mean some geopolitical factors, such as the preservation of the sanctions regime, we believe that its value is now greatly reducing and approaching zero, because the Russian economy and financial system has adapted to this situation. That for short distances - a few months - was very problematic, for a longer distance is in some sense even stimulating. I mean the same substitution, reduction of costs of enterprises related to the change in exchange rate ratios. So I think that the value of this factor will decrease, but the market conditions will continue to have a very serious impact.
Interviewer: And how it will affect the Turkish issue? A large part of the announced economic measures will be launched early next year, but, nevertheless, Russian companies will suffer from the decline in economic cooperation or even freeze. And is it possible they are really to compensate for these losses?
Alexey Ulyukaev: To some sectors of the economy, of course, it will be sensitive. First of all, for the tourism industry and industry related to air carriers, airport management, etc. But it's still quite a small niche. This is a problem for dozens of companies. This is not a problem for economic growth, not a problem in general for the state of the economy or social sphere. Of course, I believe that this can be considered a force majeure. We need to develop measures of dotty support for these companies. If we are talking about measures to limit, say, food imports, I think that due to the fact that these imports are concentrated in a few areas, mostly the production of vegetables, primarily tomatoes, I think that we will be able to balance this situation through diversification of our import quickly enough. I don't see any very big risks. As for the projects of construction, say that Turkish companies carrying out existing contracts in Russia, and they will be carried out on these patents. And here, I think that these projects are not in danger.
Interviewer: Well, probably, last question. Moody's Rating Agency has announced or rather declared possible increase of the forecast of Russia's rating. Do these ratings, in general, there matter for us?
Alexey Ulyukaev: Yes, they do. Whether they objectively reflect the state of affairs or not, investors rely on them. The investor is not able to undertake the country study and identify the risks that arise from it, if he invests in government securities, or corporate debt, or especially in equities. So he takes his lead from the rating agencies. And the fact that Moody's changed the rating, and the outlook from negative to stable, I think it's a good sign that the rating agencies also recognize the reality that we have. And after all, the obvious reality is a very small debt, especially external, a minimal budget deficit, the availability of reserves and effective mechanisms to support industrial and social spheres. Overall, this means that the risk of default is minimal.
Interviewer: I thank you for this conversation.
Alexey Ulyukaev: Thank you.