Gov’t accused of interfering with economy

The World Bank believes that the Russian government should reduce its interference in the economy, the bank said in a report. According to the World Bank, a politically charged attack on the YUKOS oil company and the government's apparent indecision over the country's economic course have hampered investment in Russia.

The bank said the tax case against YUKOS and criminal charges against its jailed former CEO Mikhail Khodorkovsky had created unwelcome uncertainty among investors. At the same time, it attributed increased capital flight from the country to changes in the Russian Central Bank's exchange-rate policy.

The government would profit from signaling its intention to continue the active pursuit of promoting private business and investment as the primary engine of growth through better regulation and less unwarranted government interference in the economy, the report said. While admitting a significant increase in investment in Russia over the past few years, the World Bank said the level of investment remained low. Russia could achieve a very high level of investment, John Litwack, chief economist with the bank in Russia, said at the presentation of the report. Investment in the Russian economy is currently at about 20 percent of the GDP, which is low.

The investment climate would certainly profit from a clarification of the government’s role in the economy, the bank said. Improving investment climate is a key task for Russia. Mr. Litwack said uncertainty had a negative impact on the investment climate. He said the impression was that the government might get into your pocket at any time, and the government’s decisions were inconsistent.

According to the report, Russia’s GDP growth was slowing down. In the third quarter, it grew by only 0.4 percent, against 0.9 percent in the second quarter. The GDP growth slowdown could be explained by rising production costs for local manufacturers and uncertainties in the government's economic policies, the bank's report said.

The World Bank also recommended that the Russian government reduce taxes in the oil sector. Mr. Litwack said it was important that taxes and other regulating measures stimulated growth in the oil sector.

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