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Russia Needs Thaw With West To Achieve Strong Growth, Putin Adviser Says

Russian former Finance Minister Aleksei Kudrin speaking at the St. Petersburg Economic Forum
Russian former Finance Minister Aleksei Kudrin speaking at the St. Petersburg Economic Forum

Russia will not be able to achieve strong economic growth unless ties with the West which have been frozen by economic sanctions begin to thaw, a top Kremlin economic adviser said on June 30.

"Domestic demand will not push our economic growth to 3 percent to 4 percent," said Aleksei Kudrin, a former Kremlin economic minister who now heads the Center for Strategic Research in Moscow and informally advises the Kremlin.

Speaking before the Primakov Reading Forum, Kudrin said Russia must develop export markets for goods other than oil and gas if it hopes to emerge from what he calls a "lost decade" of economic growth and return to the world's list of top 10 economies.

"These tasks cannot be solved without an improvement of relations with the Western countries," which have the technology and financial resources that Russia needs to succeed, he said.

"It is necessary to find steps towards each other from both sides and put one's ambitions and insults aside. I am sure this is possible," he said.

Kudrin is credited with having helped engineer robust growth of over 7 percent a year during Russian President Vladimir Putin's first two terms in office. But growth has averaged only 1 percent in the past decade, and the deep recession in 2015 and 2016 caused Russia to drop off the list of 10 largest economies, World Bank data show.

While Putin recently asked Kudrin to help devise a new economic plan to achieve growth of around 3 percent which he delivered at the St. Petersburg Economic Forum last month, so far the president has not heeded Kudrin's advice.

A report released by Kudrin's research center this week said Russia is losing from its confrontation with the West, which will continue to be the main engine for world economic growth in the near future.

"The conflict [between Russia and the United States] serves to marginalize the Russian Federation in international institutionsand projects, and is causing a serious shortfall in economic benefits," the report said.

Moscow's recent focus on building up military strength is distracting from the economic reform and modernization efforts needed to improve the economy's performance, the report said.

The Kudrin think-tank said Russia should try to minimize the risks of armed conflicts, work to secure a step-by-step settlement to conflicts in former Soviet states, particularly in eastern Ukraine, and seek a gradual lifting of reciprocal sanctions with the West, returning to full-fledged economic cooperation.

While Putin has not seized on any of Kudrin's proposals, he has conceded recently that the economic sanctions imposed by the European Union and United States after Russia illegally seized Ukraine's Crimea peninsula in 2014 have been holding down Russia's economy.

Moreover, Bloomberg reported that Kudrin has privately told Putin that Russia's economic slide puts at risk the geopolitical heft that the president values.

“Russia, catastrophically, is losing time,” Kudrin said last month at the St. Petersburg Forum. “Unfortunately, authorities are only slowly understanding that structural changes are necessary.”

Yevgeny Yasin, a former economy minister and one of the driving forces behind Russia’s transition from communism to capitalism, told Bloomberg that he doubts the Kremlin will embrace Kudrin's plan for a stonger economy.

Some of the pressure for change is off because the economy is now recovering modestly from the recession thanks to the rise in oil prices in the past year.

“The authorities won’t risk fundamental changes now because there are too many people around Putin who have no interest in them,” Yasin said. “Reforms would deprive the ruling elites of all the privileges and benefits they currently enjoy.”

With reporting by Bloomberg, TASS, and Interfax