Putin’s Economic Dilemma
Despite Western sanctions and oil-price volatility, Russia is currently on sturdier economic footing than most of its critics ever could have imagined just a few years ago. But while prudent fiscal and monetary policies have laid the groundwork for long-term sustainable growth, the government must resist the temptation of short-term stimulus.
MOSCOW – Russia has a way of illustrating universal problems. Consider the goal of economic development. Political leaders have an interest in delivering economic prosperity very quickly, and yet the policies needed to enable sustainable long-term growth can take quite a while to bear fruit. The political and policy clocks are rarely synchronized.
We saw this first-hand while advising the first post-Soviet Russian government on its macroeconomic policies in the 1990s. At the time, there was much heated debate about whether the priority should be to control inflation, or to reverse the economy’s sharp decline in output. But by the end of that tumultuous decade, it was clear to everyone that monetary and fiscal stabilization were preconditions for a return to economic growth.
Today, a similar tension is visible once again. At a time when the Russian economy faces significant challenges, President Vladimir Putin, having secured another six-year term in March, wants to achieve an annual growth rate that outpaces the average for the global economy.