To BRIC or not to BRIC

Anders Aslund thinks Russia’s economy isn’t up to the ranks of its famed acronym partners.  He’s not the first to say it.  Although Aslund has been saying this for a long time, most observers agree that some tough times are ahead – and I don’t happen to think that bodes well for the small civil society movement.  From the Moscow Times:

The state-dominated banking system remains a morass. The five dominant state banks are in poor shape. The government pours more and more money into them, but it helps little as the banks lose it in short order on politically motivated, nonperforming loans. The state banks pose a threat of nationalizing big Russian companies, while they provide little credit. In effect, the Kremlin maintains a detrimental liquidity squeeze.

Senior officials interfere arbitrarily in big enterprises, asking them to hire more workers, to reduce prices and to expand production under threat of confiscation, further undermining the country’s weak property rights. This is the worst possible policy.

Gazprom appears to be the greatest management failure of them all.It is difficult to fathom how it has succeeded in scaring so manycustomers away in half a year that it has been forced to cut its outputby 35 percent. In any other country, save Congo, such a harmfulmanagement would be ousted without delay. There is no reason to expectany significant improvement as long as the managers remain the same.

Russia’s ultimate shortcoming is its pervasive top-level corruption.Remember that it has failed to extend its road network since 2000. Acountry that cannot build roads cannot develop much more.

Undoubtedly, Russia will recover somewhat because of higher oilprices, the global recovery and recovering exports, but nothing hasbeen done about the country’s profound structural problems, which haveonly been aggravated during a year of financial crisis. Worse, Russia’seconomic policy is in such flux that nothing is being done. Gradually,the question is moving from complaints about how Russia is beinggoverned to criticism that it is not being properly managed. Noforthcoming disaster is evident, but no country can be ruled so poorlyfor so long.