Any “Government Is Evil To A Certain Extent” – Russian Deputy Prime Minister Shuvalov About The Troubled Economy

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Global investors, whose money Russia needs to develop its economy, are staying away in droves. They have lots of reasons to just say no, including political risks, judicial nightmares, legal bogs, corruption, and now an economy spiraling into a steep slowdown. But there was a solution. To attract investors, Russia would simply have to show them “very responsible macroeconomic policies for 2014,” First Deputy Prime Minister Igor Shuvalov told Reuters in an interview.

And it’s getting tough in Russia. The new three-year budget plan, predicted that growth would be mired down at 3% over the next few years, rather than 4.3% to 4.5%, as previously forecast. Tax revenues, heavily dependent on oil and gas exports, would be much lower. Borrowing would have to increase sharply to fund the election giveaways that President Vladimir Putin had promised last year to pave the way for his return to the presidential throne. Now turning those promises in to reality is going to be a tricky job.

Last year, the budget was balanced. This year, the deficit is likely to be 0.5% of GDP, though the previous forecast had predicted a balanced budget. By 2015, the deficit is going to grow to 1% of GDP. If oil and gas revenues were stripped out of the budget, the so-called non-oil deficit would be 10.3% of GDP. That’s how dependent Russia, the world’s largest oil producer, is on oil and gas exports. And now exports and prices are under pressure.

But Shuvalov had a plan: keep spending in line with last year, run up a deficit, but distribute the money in a different way, he said. Hence, they’d cut spending “in certain areas” but would make sure that “all investment programs are completed in their entirety.”

He described the global economy as “very difficult.” In the US, it’s “somewhat better” than in the EU, where he could see “only the first signs” of improvement. China was still growing, but more slowly. “When people look at Russia’s dependency on commodities, and see that commodity prices are falling, there are questions about the future stability of the Russian economy.”

So, he wasn’t exactly confidence inspiring. But his somewhat twisted straightforwardness had made waves before. During the bail-in debacle of Cyprus in April, he’d promised to let Russians whose funds were sinking into the cesspool of Cypriot banks twist in the wind. The government has been trying to “de-offshore” Russian funds to stem the debilitating capital outflow. And Cyprus would teach Russians a lesson. It would be “a terrible shame” if Russians lost money in Cyprus, he gloated, “but the Russian government will not take any action in such a situation.”

That was six months ago. Now the Russian economy was slowing down. He tried to explain the phenomenon. “Demand for our metals, demand for our oil and oil products, is what it is,” he said. There were other export products, and there were “quite decent,” he said, but “we haven’t yet entered the global market with them.” Then there were also “good projects, like building nuclear power stations,” but there weren’t enough of them yet “to get us out of that noose, that over-dependence on oil and gas.”

So wasn’t the government to blame in part for the slowdown of the economy? Now way, he said. “In any country, the government is evil to a certain extent, but this evil needs to be as small as possible for ordinary people,” he said, his lips morphing from an expression of utter seriousness into a slight, but devilish grin. “I think the Russian government is currently in a phase where we understand that the current situation should bring as little evil as possible to the business community.”

An irresistible encouragement – “as little evil as possible!” – for international investors to invest in Russia, and for Russian oligarchs contemplating the idea of de-offshoring some of their money.

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