OECD calls for more reform in Russia

Poverty remains one of the biggest problems in Russia

Russia's economic reforms have received a surprise thumbs-up from the Organisation for Economic Co-operation and Development (OECD).

The OECD - sometimes called the "rich nations' club", since its 30 members are all industrialised countries - noted Russia's economic growth of 15% over the past two years.

The organisation regularly writes reviews of partner and member countries' economies.

The last time it looked at Russia was just after the devastating crisis of 1998, when Russia defaulted on its debts and devalued rouble almost by 75%.

This time, the outlook looks fairly optimistic.

As many other observers pointed out the improvement was caused by three major factors - high oil and gas prices, cheap national currency and important reforms, implemented in the past two years.

Years of growth

Recent growth, the OECD report said, has reversed years of economic decline, pushing Russia' economy almost back to its 1993 year.

Overall, the situation looks better than ever.

"The Russian economy has experienced a number of favorable trends and developments," the report said. "Output, employment, consumption and investment have grown significantly."

Poverty continuing disturbing trends in some demographic and health statistics

OECD

The OECD praised the Russian government's efforts in eliminating chronic budget deficit and political stability that has enabled the Kremlin to push some crucial reforms through parliament.

But while the positive outlook is hardly different from what other bodies and Russia's government itself have said, several problems outlined by the OECD's report cast a shadow on a rosy picture.

Poverty amid growth

The OECD names poverty as one of the main obstacles for the country's progress.

Between a quarter and a third of Russians live below the official poverty line, the OECD says, for structural rather than cyclical reasons which cause "continuing disturbing trends in some demographic and health statistics".

Despite the soaring economy and the booming market, the average household income is still below the pre-crisis level.

Future reforms which requires the government to assume "much greater federal responsibility for financing social policy, particularly in the support of poorer segments of the population" could squeeze the poor, the OECD warns.

Bad business climate

Russians still had little confidence in banks, energy prices were kept too low by subsidies and entrepreneurs still suffered from extortion, the report found.

Small and medium-size businesses are struggling against pressure to give bribes, as well as extortion and harassment from the state.

Russia's energy and gas monopoly are of particular interest for the authors of the reports. The industries, dominated by the state-controlled monopolies, need substantial investment in the next five years due to old equipment.

But a lack of transparency and reliable information at sector giants continued to scare off investors and complicate effective regulation.

The OECD stressed that fundamental regulatory reform of the electricity and gas markets was vital, noting: "Currently, average domestic electricity and gas tariffs are too low, subsidization is too high, and regulation is too politicized and unpredictable."

The report also stresses the need for banking reform, aimed at diversification of the credit market, dominated by a state-controlled mega-bank.

The majority of the reforms OECD pointed out were discussed in Moscow but little more than that has been done so far.