The key issue for Russia is not even so much the level of oil prices, but the ability to attract capital inflows that would finance inevitable deficits that in the long term will emerge in Russia.

       World’s leading experts in economics and world politics gathered recently in St. Petersburg to find new ways for Russia’s economic development. Yaroslav Lisovolik, Head of Research and Member of the Management Board, Deutsche Bank Russia, shared his views on these matters with Valdai Discussion Club .

       The main topic of this conference is Russia's economic development until the year 2030. In your assessment, what is the optimal scenario for Russia's economic development during this term?

       I think the optimal scenario consists of Russia conducting reforms regardless of the level of oil prices. I do not believe that the only possible scenario for reforms to unfold in Russia is a scenario of very low oil prices leading to a crisis, and thus triggering some kind of constructive change. The key optimality for Russia is to find a way to reform the system, even in good times, if oil prices are relatively high. We are seeing that, in terms of long-term development, Russia faces significant challenges in terms of piling up input such as capital, such as labor – i.e., growing through perspiration, as they say. The key to Russia's growth is inspiration through a growth in productivity. And that growth in productivity requires significant reforms and capital influence.

       One of the important messages that I had for the conference was that even with relatively high oil prices, with time, Russia's fiscal surplus, current account surplus, will evaporate, because of the growth in fiscal outlays and because of the growth in imports. So the key issue for Russia is not even so much the level of oil prices, but the ability to attract capital inflows that would finance these inevitable deficits that in the long term will emerge in Russia.

       And then we come to the question of what it takes to attract this capital that would finance these deficits, but also boost productivity growth. And the key for that are institutional reforms. It’s important to have institutions that are capable of withstanding these fluctuations in oil prices, and constantly generating reforms.

       Now I personally differ from a lot of those who criticized Russia on its virtually complete lack of progress on the institutional front. Clearly there's still a lot to be done. In terms of the macro policies, for example, fiscal rules, and in terms of corporate governance, we are seeing certain changes, even though the level there is still quite low. Progress from year to year is there, in terms of dividend payments, in terms of more companies becoming responsible vis-a-vis minority shareholders. So, some of these rules are there.

       Another rule, and another anchor, is Russia's WTO accession. That was certainly a major achievement. And with the monetary policies here, we can see a more flexible exchange rate, we can see a central bank that is becoming more independent. It's not fully independent right now, but there is progress on that front as well.

       The issue with Russia is that there is change in the right direction, but it's incremental, and probably not at the speed that a lot of the observers want to see. This is understandable, but I think inevitably, Russia operates under a certain set of constraints that at times is very different compared to other countries.

       What is the primary institutional reform that Russia needs to undertake?

       One of the key reforms there is legal reform. That's one issue that hasn't been pursued as actively in the past decades, and something that I think will be facilitated to some degree by Russia's WTO accession, because to me, WTO accession is associated with the importation by Russia of legal norms from international institutions and organizations. Another key reform is corporate governance. There has been some progress, but a lot has to be done, especially in terms of transparency of Russia's corporates. And it seems to me that administrative reform is absolutely crucial, in terms of cutting red tape, also at the regional level. There is a tremendous amount of work that still needs to be done.

       Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.