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Study Charts Mid-Term Future

If Russia diversifies its economy and capitalizes on its advantages in agriculture, transportation and science, the country could reach Germany's present per capita income by 2020, according to a study published Friday.

While foreign economists have been generous in providing tonics, prescriptions and admonitions for Russia's mid-term development, the report by the Center for Macroeconomic Analysis and Short-Term Forecasts makes interesting reading because Russian experts rarely take a view beyond the next presidential elections.

"So far, Russia's political horizon has been limited to three years," Mikhail Dmitriyev, head of the government-linked Center of Strategic Research said at a conference dedicated to Russia's longer term development.

Dmitriyev said the logic of the country's political establishment evokes the words of British economist John Maynard Keynes, who once said, "In the long run, we're all dead."

Russia could travel four different roads in the next 15 years, said economist Andrei Belousov, author of the report.

"We have a lot of unengaged potential for growth," he said, sketching out his best-case scenario, dubbed "super-industrial modernization."

That model foresees Russia, with 10 percent of the world's arable land, once again becoming the world's breadbasket. It also has Russia turning into a transit hub between Europe and Asia and building on its scientific talent to become a center for research and development.

Such aggressive diversification of the economy would come at the hefty price of $4.2 trillion, including more than $650 billion in foreign direct investment, over the next 15 years.

Andrei Klepach, head of forecasting at the Economic Development and Trade Ministry, said the study was predicated on an influx of foreign capital vastly higher than today's levels.

"The current situation is not viable in the mid-term perspective," Klepach told the conference. Last year, foreign direct investment amounted to $11.7 billion, according to the Organization for Economic Cooperation and Development.

Support from the Group of Seven industrialized nations would be essential, Belousov said, and the creation of a ruble zone uniting Russia, Kazakhstan, Ukraine and Belarus would also be necessary. Under those conditions, per capita gross domestic product could reach $30,000 by 2020, the current level of Germany or France, the report said.

Under Belousov's worst-case scenario, called "energy autism," the country fails to diversify and to develop a middle class and is isolated from the global economy.

The other two scenarios fall somewhere in between.

Whatever path it takes, Belousov said that Russia is likely to face three crisis points in the next 15 years that parallel the electoral cycle: an increase of social problems in 2007-08; the exacerbation of tensions as the country is fully exposed to global competition as a full-fledged WTO member in 2011-12; and the expected exhaustion of current oil fields and a worsening demographic crisis in 2015-17.

Belousov does not put a heavy emphasis on the oil price -- which he predicts will hover around $50 per barrel of Urals, Russia's benchmark.

A recent report by Aton brokerage, which posited an oil price of $50 per barrel, forecast Russia's per capita GDP approaching that of Portugal's in 2015. With oil at $100 per barrel, Russia's per capita GDP would exceed Portugal's by 2012.

Natalya Zubarevich, director for regional programs at the Independent Institute for Social Policy, took issue with Belousov's assumption that President Vladimir Putin's painstakingly crafted "power vertical" would be flexible enough to bend to the demands of the challenges facing the country. "A stick doesn't bend," she said.

Arkady Dvorkovich, head of Putin's expert department, acknowledged the difficulties facing the administration.

"It's obvious to me that we are still at the start of the road," he said. "So far, the most plausible scenario is that aliens will come to us and make everything good."


(The Moscow Times 31.x.05)

 
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