Russia should stimulate supply, not demand – IMF

MOSCOW. Feb 20 (Interfax) – Russia should not boost domestic demand more quickly than it increases the economy’s productive potential, Senior Resident Representative of the International Monetary Fund (IMF) in Russia Odd Per Brekk told reporters in Moscow on Wednesday.

On the basis of its latest research, the IMF has arrived at the conclusion that the Russian growth model of the last decade, which provided for decent average annual figures of 5%-5.5%, may have exhausted itself, he said.

Brekk attributed this possibility to the fact that the key drivers of economic growth in previous years have been increased capacity utilization and somewhat of a rise in efficiency, not investments in new productive capacities.

Furthermore, growing oil prices supported growth. In light of these factors, it can be concluded that Russia is now faced with the problem of insufficient capacities, he said.

In the IMF’s view, Russia cannot possibly achieve sustainable, long-term growth by only stimulating domestic demand via budget or monetary policy methods. Such attempts might put pressure on domestic prices and the balance of payments, which in the end will require that these steps be cancelled, which in turn could be destructive, Brekk said.

Russia’s economic policy should be aimed at stimulating industrial investments in new capacities and oriented towards supply measures, he said.