Crimea Worsens Economic Crisis
Published: April 30, 2014 (Issue # 1808)
It is no simple task foráeconomists toácalculate theácosts ofáRussiaĺs current foreign policy course, theálosses resulting fromáfrightened investors andácreditors andáthe damage that sanctions will cause. Some claim that any lack ofáenthusiasm foráthe economyáŚ however justifiableáŚ is patently unpatriotic. Others hold just theáopposite view, condemning any attempt toápropose this or that economic policy given theáposition ináwhich Russia now finds itself.
Before seizing Crimea, theágovernment should have done more toáreduce corruption andáimprove theáclimate forábusinesses andáforeign investors. Theáevents ináCrimea andáeastern Ukraine make both foreign andádomestic investors even more skittish. They also lower Russiansĺ faith ináthe ruble andáin Russian banks.
There is now anáeven greater need toáimprove theáenvironment forábusiness andáinvestors. Theáquestions Russiaĺs leaders need toáask themselves are: How can we give businesspeople more investment opportunities? How can we facilitate technology transfer given theáworsening situation?
Under theácurrent circumstances, Russia must focus onáachieving aáradical reduction ináthe bureaucracy forábusinesses byásimplifying all procedures. Forástarters, Moscow could simplify theárules foráobtaining aáRussian visa andáwaive theáneed forácertification if imported products have already been certified ináthe U.S. or theáEuropean Union.
Instead, it seems that authorities are competing with each other toásee who can do theámost harm toáthe economy. One top Russian official proposed selling off theácountryĺs dollar andáeuro reserves without explaining how they would be replaced. Perhaps he would prefer theáyen andáyuan. But aáquick look atáthe currencies preferred byáthe central banks ofáother countries is enough toáshow that they are far less reliable. Maybe he feels Russia should keep its money inágold.
Foráevery difficult andácomplex situation, leaders should respond with better andámore responsible economic policyáŚ andánot just make matters worse.
Konstantin Sonin, aácolumnist foráVedomosti, is Professor ofáEconomics andáVice Rector atáthe Higher School ofáEconomics ináMoscow.