Putin's economic plan: 'great leap' into the unknown

Newly-inaugurated President Vladimir Putin has set hugely ambitious targets to catapult the Russian economy into the modern era but their realism remains in doubt despite a benign short-term outlook. Russia is looking with a degree of superiority on the crisis engulfing the debt-ridden eurozone states, predicting only a narrow budget deficit of just 0.3 percent of GDP this year and buoyed by robust first quarter growth. But Putin is also acutely aware that a major eurozone crisis would severely wound Russian exporters and limit its receipts of petro-dollars. Moreover, the country's economy has yet to fully modernize 20 years after the collapse of the Soviet Union and its vulnerability to external shocks is an acute worry for Putin as he faces the first serious street protests against his rule. Russian Deputy Prime Minister Igor Shuvalov, pointman on the economy in the outgoing government, this week gave an unusually frank assessment of Russia's failings, admitting "we cannot say now that Russia is a modern country". "We have big social spending, large-scale innovation-based industry is absent, we have underdeveloped institutions and a legal system which needs almost to be created from scratch." "We need to bring the economy and the social sphere to modern standards. This is not an empty slogan but the fulfillment of plans on modernization," he told the Vedomosti business daily. Hours after taking office on May 7 for his third term as president after his four year stint as prime minister, Putin signed a decree on economic policy apparently aimed at ending Russia's shortcomings once and for all. The lofty aims sounded familiar but, if implemented, they would have a truly revolutionary impact on the Russian economy and society. Putin ordered the government to take measures: -- To create and modernize 25 million high-productivity jobs by 2020. -- To increase investment to no less than 25 percent of GDP by 2015. -- To boost labour productivity to a level one-and-half times greater than that of 2011. -- To lift Russia's position in the World Bank's Doing Business Index from 120 in 2011 to 50 in 2015 and 20 in 2018. -- To raise average life expectancy by 2018 to 74 years from the current 70. Russia's current ranking on the ease of Doing Business index places it nine places below Ethiopia and two places above Bangladesh. The goals are spectacularly ambitious, particularly as they are supposed to be released within the period of his six year presidential term. "The goals are reminiscent of the Great Leap Forward in China," the Institute of Development at Moscow's Higher School of Economics (HSE) wrote in a report, referring to the radical modernisation plan of Chinese leader Mao Zedong. "Some of the goals -- which in Russian conditions would be realistic to reach within 10-15 years -- have been squeezed into the six-year period, against the laws of nature and economic development," said the Institute's director Natalya Akindinova. The institute noted that statistics agency Rosstat only expects the 74 years life expectancy figure to be reached in 2023 and that in a best-case scenario. As for the vault up the Doing Business table "there is no example in the history of these tables of a major country making such a jump", Akindinova said. In an early boost for Putin, Russia's first quarter growth in 2012 surprised everyone by coming in at robust 4.9 percent at a time of almost unremittingly depressing global economic news especially from the eurozone. "The better than expected first quarter GDP growth number shows that Russia, so far, remains relatively well protected from the crisis in Europe," said Chris Weafer, chief strategist at Troika Dialog in Moscow. The head of the Russian Central Bank Sergei Ignatiyev this week said he was optimistic, even though a second wave of the economic crisis in Europe could not be ruled out that would see most European states go into recession. "But we are better prepared for a future economic crisis than in 2008. We have the experience, the instruments which we can use at practically any moment," he told parliament. However Russia still remains vulnerable to a prolonged eurozone crisis and analysts are still skeptical that the country's long term growth will be anything near the levels the government wants to see. According to a survey of 30 top economists by the HSE, annual growth in Russia is expected to bump along at 3.5-4.0 percent between now and 2018. Most troubling for the government is possibly the prolonged and substantial net capital outflow from the country, which was $84 billion in 2011 and no better this year with capital flight of $35.1 billion in the first quarter.