Russia needs economic 'perestroika' to end reliance on energy exports - cenbank chief

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Russia needs economic 'perestroika' to end reliance on energy exports - cenbank chief
Credit: © Reuters.

LONDON (Reuters) - Russia must reduce its decades-old reliance on exports of raw materials and stimulate private enterprise to avoid slipping back towards a Soviet-style technological lag with the West, the governor of the central bank said on Thursday.

After the West imposed the most crippling sanctions in modern history to punish President Vladimir Putin for the war in Ukraine, Russia's economy is facing its biggest contraction since the years following the 1991 fall of the Soviet Union.

Elvira Nabiullina, feted as one of the last economic liberals left at the top table of Russian policy-making, has been left with the job of steering the $1.8 trillion economy through the challenges of war and sanctions.

Speaking at Russia's annual economic conference in the former imperial capital of St. Petersburg, Nabiullina called for a structural "perestroika", or reconstruction, of the economy.

In essence, she criticised the assumptions that have underpinned Russia's economy since Soviet geologists found oil and gas in the swamps of Siberia in the decades following World War Two.

"We export at a discount, import at a premium. And in these conditions, of course, in my opinion, it is necessary to rethink the benefits of exports," Nabiullina, 58, said. "A significant part of production should work for the domestic market."

But in a tacit acknowledgement of how difficult the transition would be, she added: "Everyone is worried that this structural perestroika, in conditions when we lose access to usual sources of technology, will really lead to degradation."

PAINFUL MEMORIES

The reference to "perestroika" evokes painful memories in Russia of Soviet leader Mikhail Gorbachev's efforts to open up the moribund economy of the 1980s to some free enterprise and competition while fostering greater political freedoms - an ambitious strategy that led to economic collapse.

"The task is modernisation - but how? In order not to return to the Soviet Union, we need to look at private initiative in a different way. The deterioration of external economic conditions will remain for a long time, if not forever," she said.

Putin has said that Russia, the world's second largest oil exporter after Saudi Arabia and its largest exporter of natural gas , will thrive despite Western sanctions, which he says amount to a declaration of war against Russia.

He has vowed that no new Iron Curtain will fall over Russia's economy but he has also quipped about being glad some foreign companies had left the country because home-grown businesses could take their place.

Nabiullina, who has run the central bank since 2013, was once mentored by one of Russia's most prominent free-market economists, Yevgeny Yasin, and is by no means the first Russian policymaker to call for measures to diversify the economy.

But that need has become more urgent due to the sanctions. And Russia's new economic isolation was highlighted by the lack of members of the Western financial elite at the very forum - long dubbed the "Russian Davos" - Nabiullina was addressing.

© Reuters. Elvira Nabiullina, Governor of Russian Central Bank, attends a session of the St. Petersburg International Economic Forum (SPIEF) in Saint Petersburg, Russia June 16, 2022. REUTERS/Anton Vaganov

She called for the scrapping of most capital controls introduced by Russia in response to the sanctions, though added that those affecting citizens of countries deemed "unfriendly" by Moscow could only be lifted in a reciprocal manner.

Nabiullina said there would be no ban on Russians holding bank accounts in U.S. dollars or other foreign currencies.

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