The Kremlin Plans to Modernize Russia, Again — Stephen F. Cohen

With all this “living history” in mind, Putin’s plan for such large-scale (and rapid) investment has generated the controversy in Moscow and resulted in three positions within the policy class. One fully supports the decision on the essentially Keynesian grounds that it will spur Russia’s annual economic growth, which has lagged below the global average for several years. Another opposes such massive expenditures, arguing that the funds must remain in state hands as a safeguard against the US-led “sanctions war” (and perhaps worse) against Russia. And, as usual in politics, there is a compromise position that less should be invested in civilian infrastructure and less quickly....

The Nation
The Kremlin Plans to Modernize Russia, Again
Stephen F. Cohen | Professor Emeritus of Russian Studies, History, and Politics at New York University and Princeton University

National Projects: Russia’s New Development Paradigm — Yaroslav Lissovolik

Russia’s new initiatives associated with sizeable increases in social spending and outlays on national projects as outlined by President Putin in his address to the Federal Assembly in the beginning of this year mark a new beginning in Russia’s economic policy. After extended periods of prioritizing the accumulation of savings and building of reserves, Russia’s economy is switching into spending mode, with greater weight accorded to economic growth compared to an overarching emphasis on securing macroeconomic stability in the past. In effect Russia’s economic model becomes more open and more geared towards development as compared to a defensive mode of economic policy, which sought to minimize external shocks and prioritize self-sufficiency and import-substitution.

Summary: The Russian leadership believes to have beaten back the sanctions and is now striking out on new path to build the domestic economy while also increasing exports....

Ultimately, within the new paradigm of Russia’s economic policy, which may be likened to a “Big Push” modernization effort (see Russia’s “Big Push paradigm”, Valdai discussion club, October 8, 2019) fiscal policy is likely to take precedence over monetary policy in delivering the growth stimulus. After amply showing that Russia is capable of notably increasing fiscal revenues and tax compliance the key goal is now to demonstrate the capability to attain modernization via significant increases in the efficiency of fiscal spending. In a way with fiscal policy shifting into spending gear, monetary policy is likely to be relatively more conservative with continued emphasis accorded to macroeconomic stability. The CBR is likely to closely follow the implications of fiscal loosening with respect to inflation and may limit the scope for further reductions in the key rate if inflation risks start to increase.
An important element of Russia’s “Big Push” to increase fiscal spending will need to be the maintenance of the fiscal rule and a rules-based framework more generally. This implies conservatism in allowing the change in the cut-off oil price for the budget’s fiscal rule operation as well as the existence of clear targets on the evolution of the overall fiscal balance and the non-oil budget deficit. The maintenance of the fiscal rule together with the relatively more conservative stance of the CBR are likely to be sufficient in ensuring the maintenance of the bulk of macroeconomic stability secured in the preceding years....

Analytics Valdai
National Projects: Russia’s New Development Paradigm

Yaroslav Lissovolik

Awara — Russia Passes Law Raising VAT to 20%

Yesterday the State Duma in the third and final reading passed a bill increasing the rate of Value Added Tax from 18% to 20%. The increase will be effective starting from January 1, 2019. At the same time, Russian government is planning to keep the current reduced VAT rates (10% and 0%) for socially important goods and services.

Thus, by the end of 2019 the budget will receive an additional RUB 620 bln, which will be used to implement President Putin’s spending plan....

Awara
Russia Passes Law Raising VAT to 20%

Awara Group

Sputnik — Putin Names Key Task for Russian Government in Coming Years

"In general, our key task for the next few years is a significant raise of the citizens' real income. And there is a good foundation for that now. The economy has grown more stable, it has handled the sharp fall of oil prices, attempts to put pressure via sanctions, the changes of the global political settings," the president said, as quoted in the press release of the Kremlin, issued Monday.

Sputnik International

Putin Names Key Task for Russian Government in Coming Years

Sputnik International — Putin's Meeting With Russian Business to Focus on 2025 Economic Development Plan

The meeting between the representatives of Russian business with President Vladimir Putin to be held on Monday will be devoted to the discussions on the plan to jump-start the country's economy, a source familiar with the agenda of the talks told RIA Novosti on Monday.

"In a nutshell, they are going to discuss how business and the government will develop the plan of the economic growth that should reach a faster rate than the world average by 2020, as well as the medium term program until 2025,” the source told the agency. President Vladimir Putin in his address to the Federal Assembly charged the government with the task to prepare and adopt a complex plan of actions for 2017-2025 that would provide measures allowing to reach national economy growth rates outrunning world rates no later than 2019-2020....

The crisis due to the falling oil price and imposition of sanctions was a wake-up call to modernize and streamline the Russian economy.

Sputnik International
Putin's Meeting With Russian Business to Focus on 2025 Economic Development Plan

Interfax — Russia’s Medvedev agrees with ex-minister on need for reform

Medvedev backs neoliberal former finance minister Alexei Kudrin. Kudrin is a walking disaster. See Business Insider, Putin's former finance minister says the Russian government is running out of money, by Ben Moshinsky, Dec. 8, 2015, whereas his rival Sergei Glaziev understand the fiscal space available to a sovereign currency issuer.

Kudrin also wants closer ties with the West on Western terms. Putin rebuked him saying that Russia's national sovereignty is not a bargaining chip.

Johnson's List
Russia’s Medvedev agrees with ex-minister on need for reform

Interfax

From the Saker’s inbox — caution about the Glaziev report

Dear friends,
I got the following email this morning and I want to share it with you:

“I see that you’ve posted a translation of the report attributed to Sergei Glazyev. While parts of it “ring true” because of SG’s similar formulations in the past, you might want to make your readers aware that this is a leaked text. My information is that it is, at best, a rough draft of what he may have reported before the Security Council. Some suspect that elements were doctored, to make it easier for the liberal financial press to attack it, as they have been doing for the past couple of weeks. See, for example: http://www.zavtra.ru/content/view/glazev-i-plan-revolyutsii-sverhu/ (not that everything in that article is right; the point about the corporate foreign debt is not so strange, for example, and is one that Yevgeni Primakov often made). Academician Glazyev did, however, present the entire, genuine article at today’s MEF session“.

Therefore, dear friends, caveat emptor (as always!).
Cheers,
The Saker

The Vineyard of the Saker
From the Saker’s inbox: caution about the Glaziev report
The Saker

Chris Weafer — Investors Are Cautiously Optimistic About Russia

But another reason why investors have become somewhat more optimistic about Russia risk is the better response from the Russian government since the start of the year and, with it, a better understanding of the country's real financial position.

For much of last year it seemed as if government agencies were doing no more than knee-jerk reacting to unfolding events and with more than a hint of a shell shock overlay. There was no evidence of a coordinated response to the worsening crisis and that added to the loss of investor confidence. 

It seemed as if the only state strategy was to dismiss the sanctions and ignore the weakening indicators because oil revenues would save the day. The quick collapse in the oil price from early September came as a shock to the system. The spike in the benchmark interest rate at 2 a.m. on Dec. 16 smacked of panic and directly contributed to the 30 percent session volatility in the ruble market later that day. 

At the end of last year there was a real concern that the banking sector was heading for a crisis, which could then lead to a more serious collapse in the economy. There was also widespread reporting in the Western media that Russia was running short of money and might not be able to service its foreign debt obligations much beyond the end of this year.
All of which went largely unchallenged by the government, which has long since become notorious for not paying enough attention to basic public relations and image management. That consistent negative message reverberated though 2014 and was a major factor in the collapse in equities and debt prices. 

But the long New Year's break seems to have had a positive effect on policymakers. They appear to have gotten their act together since the return to work in mid-January. It helps that the government does actually have the data to support a stronger message.The Moscow Times

Investors Are Cautiously Optimistic About Russia
Chris Weafer | senior partner with Macro Advisory, a consultancy advising macro hedge funds and foreign companies looking at investment opportunities in Russia

Chris Weafer — Putin stays

Although not saying so publicly, the Kremlin has adopted a deliberate strategy –to let the rouble continue falling and accept the painful economic consequences over the medium term as the 'lesser of two evils.' The weak rouble protects the country’s budget revenues and provides a soft stimulus for domestic manufacturers. It allows the country to survive the crisis but at the expense of growth and investment flows, both of which are being sacrificed over the medium term in order to try and remain in a relatively better shape to recover after the crisis and also to ensure that any loss of public support for the government is contained. As the Kremlin sees it, trying to limit the decline in financial reserves in order to protect the budget, and to preserve the investment grade rating, is a better strategy than burning though the money while oil remains weak.…

Open Democracy
Putin stays

Chris Weafer, co-founder of Macro Advisory, and former Chief Strategist at Sberbank CIB

Martin Sieff — Putin Just Spelled Out a Radical New Economic Policy, And Nobody Noticed

He presented it in his recent State of the Union speech, and it went un-reported in western media accounts

• Strong elements of economic liberalism, and European social state approaches
• Increase trade with most of the globe
• Liberalize domestic economy
• Launch large projects to revitalize manufacturing

Russia Insider
Putin Just Spelled Out a Radical New Economic Policy, And Nobody Noticed

Martin Sieff

See also, Mikhail Khazin, Liberals [neoliberals] Are About to Become an Extinct Species in Russia

They still have considerable presence in the corridors of power, but in Russia, the word 'liberal' is the same as 'thief'

Blowback.