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Can the Russian Far East Open to the Pacific?

Can the Russian Far East Open to the Pacific?. What Can Be Done About the Growing Gap Between Economic Potential and Performance in Asian Russia? Judith Thornton Department of Economics University of Washington. Why Do We Care About the RFE?.

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Can the Russian Far East Open to the Pacific?

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  1. Can the Russian Far East Open to the Pacific? What Can Be Done About the Growing Gap Between Economic Potential and Performance in Asian Russia? Judith Thornton Department of Economics University of Washington

  2. Why Do We Care About the RFE? Due to its size, resource wealth, and strategic location in North East Asia Its proximity to prosperous and rapidly growing Asian markets could afford potential for growth and integration into the Asian economy It serves as a barometer of the storm winds ahead for federal government policy-makers in Russia

  3. Evidence of Growing Regional Problems • Large inflow of funds for infrastructure from Moscow • Investment by Gazprom and Rosneft in energy • Rising per capita income of the employed • Yet, weak total investment • Little private foreign investment • Slow growth of labor productivity

  4. Is Russian Systema a Barrier? Alena Ledeneva’s “Can Russia Modernize?” says Russian government institutions create incentives for evasion, corruption, kickbacks, informal activity and capital flight. Investment lags.

  5. On the Eve of Transition Everyone Was in the Wrong Place and Doing the Wrong Thing Siberia’s mono-cities were placed in remote, hostile environments with ten times more people above the Arctic Circle in Russia than in Canada. Large sectors of RFE economy and capital stock were unprofitable at world prices, including fishing and logging. Repressed inflation, capital flight, and institutional collapse; Goods disappeared from shops. GDP fell 15 percent. Government deficit rose to 16.5 percent of GDP. Exports fell 40 percent, imports fell 84 percent. Closure of military bases, cuts in production of military hardware, and loss of central subsidies led to unemployment and a collapse in incomes.

  6. RFE Enjoyed Steady Recovery of GRP After 1996, Notably in Sakhalin

  7. Real Income Fell to 60 Percent of 1994 but Grew Steadily after 2000

  8. Population Outflow Largest in the Far Eastern Federal District

  9. RFE Population Fell 22 % between 1990 and 2011, Including 30% on Sakhalin

  10. Murder Rates Remain High,But Infant Mortality Rates Fell

  11. Industry Employs a Small Share of the Population

  12. Investment in the RFE Shows Little Increase

  13. Investment Focuses on Energy in Sakhalinand Sakha, Gold Mining in Chukotka

  14. China is Russia’s Largest Trading Partner

  15. Russian Deliveries of Oil to China Grow • The first phase of the $23 billion ESPO pipeline opened in 2009, bringing crude from fields in east Siberia to Skovorodino near the Chinese border. The second phase, which doubled capacity and extended the line to Kozmino. • Crude oil supplies to China via the ESPO pipeline began in 2011. According to the agreement concluded in 2009, Rosneft and Transneft pledged to supply 15 million tons of oil to China for 20 years in exchange for Chinese loans totaling $25 billion. • Transneft expects ESPO to operate at maximum capacity of 30 million metric tons a year, or 600,000 barrels a day, by 2015.

  16. Chinese President Xi Jinping Visits Moscow in April 2013 • State-owned Rosneft will triple supplies to China to a million barrels per day, making China Russia's single biggest oil customer. Total exports to rise from 34 million tons to 50 million tons by 2018. • The Chinese offer Rosneft $30 billion in loans, which Rosneft will use to finance its purchase of the British-Russian TNK-BP at a cost of $55 billion. • Rosneft promises China National Petroleum Corporation (CNPC) a share in eight upstream projects including a deal to explore and exploit Russia's Arctic reserves. • Gazprom and CNPC agree that Russia will deliver 38 billion cubic meters of gas a year to China from 2018, although Russia and China remain far apart on prices. • China's Shenhua Group and Russia's EN Group agree to develop coal resources and RFE to expand Russian coal exports to China.

  17. Expanded Oil Pipeline Network

  18. What Can Be Done About the Gap Between Economic Potential and Performance in Russia? • Excerpts from Medvedev’s Report on the Government's performance in 2012, April 2013. • “First, as part of the National Entrepreneurial Initiative, procedures have been identified that cause the biggest problems for business. ..We are making good progress in some areas, for example, tax administration, and not such good progress in other areas.” • “Speaking of capital outflow, it is still very large. In countries with comparable economies this kind of outflow doesn't exist and it means something is amiss in our country.” • “Last year Russia became a full member of the WTO. The accession talks, I wish to remind you, lasted 17 years.” (Yet, Russia has imposed a “scrapping fee” on import of foreign automobiles.)

  19. Reducing the Gap Between Potential and Performance • Washington Post May 31, 2013: “Sergei Guriev, Russian economist critical of Putin flees to France, escaping ‘bogus’ legal pressure” • Modernization is threatened by lack of security of person, civil rights, and property rights.

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