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REFILE-UPDATE 1-Reuters Summit-Don't write off Russia from BRIC

Published 09/15/2009, 01:37 AM
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(Refiles to correct 'says' to 'say' in first paragraph and insert 'the' in paragraph two)

(For other news from the Reuters Russia Investment Summit, click on http://www.reuters.com/summit/RussiaInvestment09?PID=500)

* Kudrin says Russia to grow to 2050

* State needs to boost efficiency, cut real economy presence

* Bank crisis not a risk, key threat could come from abroad

* Russia had much worse crisis in 1990s

By Dmitry Zhdannikov and Darya Korsunskaya

MOSCOW, Sept 14 (Reuters) - Sceptics who say the BRIC idea is dead because the Russian economy has fallen much sharper than its emerging market peers will be proved wrong as Russia will show solid growth in the long-term, Russia's Finance Minister said on Monday.

"The whole BRIC idea emerged as a result of an analysis of long-term trends... If you analyse long-term trends, Russia remains a country with a solid growth due to many factors... and will rise to the sixth place among top world economies," Alexei Kudrin told the Reuters Russia Investment Summit.

"Therefore the BRIC countries will remain the main locomotives of the global economy in the coming decades."

Russia's GDP shrank by a tenth in the first half of 2009 as commodities prices collapsed and capital outflows skyrocketed.

The sharp fall came in deep contrast with the performance of the other BRIC nations - Brazil, China and India - a term invented by Goldman Sachs earlier this decade for a club of top emerging market countries.

Although Russian officials expect modest growth to resume in 2010, the economy is unlikely to return to pre-crisis levels before 2012, which prompted many analysts to say Russia does not deserve a place among the elite club anymore.

Kudrin said the oil price collapse and extreme overheating of the economy before the crisis were the key reasons for the economic contraction, but added he believed the economy would resume growth with an average of around 3.5 percent a year until 2050.

"Even 3.5 percent makes Russia a major locomotive of the world's economy," Kudrin said.

"This should be achievable," he said. "Russia has shown its vulnerability. The factors are clear to us and if we have good post-crisis policies and restructure our economy, then Russia's positions will not change much in long-term forecasts," he said.

He said to avoid another crisis authorities needed to manage state spending carefully, encourage efficiency, reduce state presence in the real economy and increase its regulatory role.

Budget spending could be cut as much as 20 percent through increased efficiency, and only if Russia fails to do that in the next three years would it be forced to raise taxes

The much feared second wave of the crisis would be more likely to come from abroad, not from the domestic banking sector, where bad loan portfolios are seen as one of the main risks.

"We expect that the main risks won't come from the Russia economy but from the global one, and in particular from the United States," he said. "If the U.S. financial sector's struck by a second wave of the crisis, it could also reach us."

Another big risk would be a sharp fall in energy prices, as Russia needs oil at $50 per barrel to make its budget balanced. But even if that happens, it would not be the end of Russia, he said.

"Russia had a more serious crisis in the 1990s than the global economy right now. During the 1990s, Russia lost 50 percent of its GDP -- something unimaginable for a big country or developed economy," he said.

"Now (we have lost) 10 percent. So for some countries - the United States or Great Britain - it probably happens for the first time since the Great Depression. In Russia we, in general, sailed well through the crisis... We were ready for it".

(For summit blog: http://summitnotebook.reuters.com/) (Writing by Dmitry Zhdannikov; editing by Simon Jessop)

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