Russia’s economic crisis cannot be dismissed as “an infection” brought on by the West, according to an expert study issued today by the Institute of Contemporary Development (INSOR).

“Fundamental flaws in the structure of Russia's economy and its underdeveloped financial system” are the most important causes of today's "full-scale market crisis," according to the report, which culminates three months of study and analysis by leading Russian economists.

While praising aspects of the government response to the crisis to date, the experts say that the state’s emergency measures “lack long-term vision” as well as a core commitment to competitiveness and balance in Russia’s market economy.  

“Ballooning state involvement in the economy, the propping up of ineffective businesses and atrophy of market institutions present major risks both now and in the future,” said Igor Yurgens, the report’s editor-in-chief and Chairman of INSOR.

In their assessment of possible crisis response measures, the experts emphasize, “No matter what path is taken, there is in fact no alternative to private business taking the center stage in overcoming the recession… Accentuated measures to boost competition and protect private property are of paramount importance.”

Underlining the urgency of the situation, the experts warn, “Together with the national reserves, which have already dropped by one third, the country is running out of time to retune the economy to take on a new quality of post-crisis growth.”

“Already we need to prepare a route out of the current situation towards the new economic paradigm that will arise at the end of this crisis,” Yurgens said. “Above all else this means transforming the Russian economy into a balanced market economy.”

“The crisis is not just a challenge, a major disruption and a cause of heavy losses, it also presents new opportunities. With the breakdown of the current system, room is made for a new system, the architecture of which still needs to be created,” Yurgens added.

The experts noted the need to maintain both the liquidity and capitalization of the banking sector, for strict limits on state guarantees and for extra assistance to small business.  The report calls for substantial and targeted support of the real economy.

The social fallout from the crisis should also be a top priority of the state, and first and foremost it is crucial that “resources allocated for professional re-training be put to a radically more efficient use.”

The experts say the crisis is impacting Russia’s regions unevenly.   “Communication between the federal center and the regions is developing into a key problem of the system of state governance, in addition to other specific side-effects of the crisis.  The central government is better prepared for the crisis than local governments, and this is becoming ever more apparent in the hardest hit regions.”

Concluding his presentation of the report, Igor Yurgens said, “During this crisis it is imperative to have a full-fledged public dialog between the state, business and society at large, particularly as living standards decline. This dialog cannot be limited to anti-crisis measures; it must also focus on post-crisis conditions, including the fate of the political system and financial-economic institutions of Russia.

The report was developed under the collective authorship of the following experts:  Anna Belova, Director for Strategy and Corporate Development, SUEK; Evgeny Gontmakher, Management Board Member, Institute of Contemporary Development, and Head of the Social Policy Center at the Institute of Economy; Andrei Blokhin, Advisor to the Institute of Contemporary Development; Leonid Grigoriev, President of the Institute of Energy and Finance; Nikita Maslennikov, Advisor to the Institute of Contemporary Development; Oleg Pertsovsky, Adviser to RAO "UES of Russia"; and, Sergei Plaksin, Expert of the Institute of State and Municipal Administration Issues; and, edited by Professor Igor Yurgens, Chairman of the Management Board of the Institute of Contemporary Development.

The complete report can be downloaded from the INSOR website: http://insor-russia.ru/files/INSOR_Economic_Report_Eng.pdf