Russian Federation - Investment policy in Russia
Le Houerou, Philippe H.
Since 1991 there has been an enormous decline in the real amount of capital formation in Russia, especially in the production sectors. At the same time, a large part of the stock of capital accumulated under central planning has become useless. The overall decline has been accompanied by large and generally favorable shifts in the sectoral and ownership composition of investment flows. In parallel, there has been considerable decentralization of investment decision making from the government to enterprises and, within the government, from the central to the regional and local governments. It is also the case, however, that the level of capital accumulation in the commercial sectors is still artifically high in that most of it is directly or indirectly financed by the government rather than by private economic agents. Enterprises and the commercial financial sector are committing very little of their own resources to investment. This report argues that continued government involvement in commercial investment is not the answer. Rather than trying to increase the level of commercial investment artifically, by pumping more public resources into the commercial sectors, the government can have a greater impact through unwaveringly pursuing its efforts to make the economic, financial, and political environment conducive to market-directed private investment. That means, above all, prudent fiscal and monetary policies to achieve financial stability.
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