Zee Beam News

12.05.2005 12:08 MSK - MosNews - Paul M. Thomsen, the IMF's senior resident representative in Moscow, said on Thursday, May 12, that the rate of economic growth in Russia will amount to six percent this year. Thomsen was speaking at the third annual banking conference "Stake on Russia" organized in London by The Banker magazine. "We expect this year's increase roughly at six percent. Though it is much less than last year, the capital inflow will start reviving," Thomsen was quoted by RIA Novosti. The IMF expert added that in his opinion Russia has no need for a rate of economic growth higher than five or six percent, because otherwise it will suffer from additional inflationary pressures. Thomsen also said that the Russian government has to make a choice between 5-6 percent economic growth, with inflation under control, and quicker progress with galloping inflation. The IMF representative also admitted that the long-awaited reforms in the housing and public utilities sector, as well as in the natural resources sector and the administrative reform would create certain socio-political problems, but stressed that reforms had to be tackled while the government can make use of high world oil prices. High oil prices promote the overall growth of the Russian economy and also fuel public consumption as well as an increase of the population's real incomes and labor efficiency. Economic growth will continue even if oil prices fall, he noted. Not all IMF experts are so optimistic about Russia's prospects, however. Michael Deppler, the director of the IMF's European Department which oversees Russia, told the Russian daily Time of News (Vremya Novostei) that inflation in Russia will exceed 10.5-11 percent this year. "According to our forecast the current policy [of the Russian government] will lead to 10.5-11 percent inflation in 2005, but we are afraid that even this considerable deviation from the earlier government forecast may be exceeded," Deppler said. As MosNews reported earlier, the original inflation forecast for 2005 amounted to 8.5 percent, but in April the Russian government was forced to increase it to 10 percent. Deppler said that in his opinion the major reason for the growing inflation in Russia is a failure of the budgetary policies of the government. The government is unable to counteract the growing consumer demand fueled by profits from high world oil prices. "In order to decrease inflation, a tougher budgetary policy is needed," he said. Another problem is the Russian Central Bank which tries to prevent the domestic currency, the ruble, from appreciating too much and as a result pours large amounts of rubles into the economy. The IMF official said that a more flexible currency exchange policy would allow a decrease in inflation.