Russia must not ignore oil price risk - ex-deputy PM Gaidar

Other News Materials 16 June 2006 10:46

(RIA Novosti) - Russia must learn from mistakes of the Soviet Union and be wary of a possible slump in global oil prices, a former acting prime minister said Thursday.

Yegor Gaidar, who introduced "shock therapy" for the Russian economy under President Boris Yeltsin and is now the director of the Institute of Transitional Economy, said that the unpredictability of oil prices was a major risk for an economy heavily dependent on raw materials, reports Trend.

"The main point is that nobody can predict oil price [fluctuations]," Gaidar said. "If we want to avoid another economic disaster, we should not repeat mistakes of the Soviet Union."

Gaidar said at the launch of his new book, Death of the Empire. Lessons for Contemporary Russia, that he did not consider the economy's dependence on raw material production a disadvantage, but cautioned that the government should avoid relying on high oil prices while making economic policy.

"[The government] should take into account oil price unpredictability in its economic policy and draft plans as if there were no such super profits," he said.

Gaidar praised the government's efforts to repay Soviet-era debt ahead of schedule and create large gold and currency reserves.

"In my opinion, Russia's current government is much more competent than its Soviet predecessor," he said, adding that for the time being Russia's economy would much easier address a possible fall in oil price than in early 1990s.

However, he said Russia now had become more vulnerable to the oil price risk, compared with 2004, citing survey results that suggested the economy would have been seriously hurt if oil price fell under $25 a barrel in 2005, whereas Russia would have been able to cope with a price of $19.5 a barrel in 2004.

Gaidar said Russia's Stabilization Fund, established to accumulate surplus revenues from high world oil prices, and should account for a higher share of the country's gross domestic product. He added that a stabilization fund in Norway, which also largely depends on oil exports, accounted for 70% of the GDP, while the figure for Russia stood at 5.3% at the end of last year.

He said money from the Stabilization Fund should be used for projects to improve country's profile rather than to form state-run companies. Such projects might focus on effective pension reform, education, "properly functioning courts" and protection of owner's rights, he said.