Russian govt will not influence Central Bank independence in order to speed up econ growth

Igor Shuvalov file photo

(Interfax – MOSCOW, April 3, 2013) The Russian government will not influence the Central Bank’s independence in decision-making in order to accelerate economic growth, First Deputy Prime Minister Igor Shuvalov said at a conference entitled ‘Economic and Social Modernization’ at the Higher School of Economics on Wednesday.

“The key principles behind the Central Bank’s work will continue and, eventually, they will probably be modified somehow in connection with changes in our economic situation. But this policy will be determined exclusively by the Central Bank board and its chairman. The government will, of course, ask and recommend, we will debate, but the bank’s independent status exists at the moment, and we will not do anything to influence that status or to achieve momentary acceleration in economic growth rates. We won’t do that,” Shuvalov said.

Shuvalov said there was active debate over whether economic growth should be stimulated by other approaches to monetary policy. Credits are too costly to develop new projects and create new hi-tech enterprises, it has been argued. “Money costs a lot, but we need to decide where cheaper money can be found, and there’s no answer to that question yet,” he said.

It has been widely said that liquidity should be provided either free of charge or at very low cost. “This money could come partly from the National Welfare Fund, the Reserve Fund, but this has to be discussed. The government is not yet ready for these measures. But we understand that loans are very costly and that it they stay that costly then we are unlikely achieve qualitative changes in the emergence of new businesses,” Shuvalov said.

Even Vnesheconombank (VEB), the Russian Direct Investment Fund and other development institutes, including Rusnano, try and secure the best possible returns for themselves. “And then investors, including outside ones, start to ask why should they come to Russia given that the terms for obtaining credits are not competitive here? Why should new enterprises be set up here? There’s no answer to that question,” Shuvalov said. If our institutions are not fully developed and credits are very costly into the bargain, then they might decide against it altogether, and all our plans will be illusory.”

“Can we influence the Central Bank in these conditions? We are always being told that everything is in place in the country, you can work with the Central Bank and persuade them to tackle inflation or the exchange rate a little differently. I think this is all illusion, a load of rubbish,” Shuvalov said.

Shuvalov said the Central Bank had behaved “totally independently of the government in the last few years.” “We discuss various issues together, including economic development and budgeting, they should be included in these discussions. But as soon as the conversation turns to specific things related to the bank’s responsibility, and this is monetary policy, the stability of the national currency and stability of the banking sector, then the Bank of Russia often says ‘no’. And not only at my own meetings, the bank can say no to the president and prime minister too,” he said.