Transparency is the key to efficiency in spending Russia’s oil windfall, economic development minister German Gref said in Kazan yesterday, while seeking to assuage concerns that public investment programmes could fuel inflation.
“The money will be spent by a variety of ministries. We want to put in place spending schemes that will be transparent. Transparency is the way to ensure efficiency,” Gref said, speaking exclusively to Emerging Markets. His comments come in response to concern expressed by a variety of observers that Russia’s ambitious spending plans may be upset by poor governance and corruption. President Vladimir Putin last week also warned “bureaucracy” could damage the country’s investment plan.
Gref insisted, though, that government’s investment plan would have no significant inflationary impact on the economy as a whole, as current spending carries a three times greater danger in that regard than capital investment.
During a press conference, Gref repeated several times that he saw “no serious danger at the moment” of inflation going beyond the limits projected by the finance ministry. This year, inflation is 1.5% lower than last year, lower still than analyst’s projections, and within government forecasts, he said.
Gref was asked about finance minister Alexei Kudrin’s warning that Russia’s investment boom would elevate inflationary pressure.
“In government there are always optimists and pessimists. It is [Kudrin’s] job to be a pessimist and scare everybody. In a transition period, inflation is always a worry. And it is a worry for us today.” But Greff insisted that it is well within bounds.
With regard to the conduits for public investment, Gref said that the government is planning to contribute $2 billion to the capital of the Russian Bank for Development (RBD) and to raise this to $10 billion in the comings years. The government would lay down “strict” conditions for the bank to work only in sectors not served by the banking market.
“There is no way we are going to start up a non-market institution in the market sector”, he said.
Jean Lemierre, president of the EBRD, said he welcomed the capitalization of RBD. He said he had spoken with Gref about a shift in the EBRD’s work in Russia towards the regions and infrastructure projects.
Earlier, Gref told the opening session of the Russian Regions Investment Forum that the country had now “made a colossal turn” and entered a period of investment growth. Russia has successfully started to diversify: last year, Russia’s GDP grew by 6.2%, while the oil and gas sector grew by only 1.2%.
A consumer boom is underway, he said, pointing to Tatarstan as an example of its extent: average earnings in the republic have grown from Eur75 per month in 2000 to Eur280 per month today.