tomorrow at 3:00 p.m. eastern to continue work on an energy and water spending bill. there is a procedural vote at 5:30 p.m. the house returns for legislative work on tuesday. they begin the week with a series of bills to help combat opioid abuse. >> monday, on the communicators, republican fcc commissioner michael o'reilly on several key issues racing the fcc like net neutrality. he also comments on the political divide within the fcc. he is joined by the communications daily executive senior editor. aggressivethe most approach to policymaking. when that becomes the first primary goal of the item, when

the policy they want to go in becomes the first goal rather than any consideration of any collegiality or any attempt to develop consensus. you wind up with the scenario we have today. there is little interest in bringing other opinions on board. >> watch the communicators monday night at 8:00 p.m. eastern on c-span two. look at russia's of economy with the world bank economist. she talks about the effect of sanctions on russia and what the country needs to do to strengthen investment and productivity. the johns hopkins school of advanced international studies hosted the discussion. it is one hour and 15 minutes. mr. lipsky: good afternoon

everyone. welcome. to those of you however not members of the community. i am john lipsky. i am senior fellow at the foreign policy institute here. used to hang out at the international monetary fund across the street from our distinguished speaker's homebase. today, it is my honor and pleasure to welcome back birgit the program leader and lead economist for the russian federation, europe and central asia at the world bank. she has been at the world bank for 11 years now. the last three, she has been based in moscow. who are luckyou enough to be here a year ago when she visited, to present the

economicent or new report on russia of the world bank, i think folks found the .eport a little gloomy apparently, she tells me a lot of people were questioning why they were so gloomy. as things worked out, you will get presented a synopsis of the latest world bank's russian economic report. looking back, i am sure she is asked why she was not gloomier and why she was so sunny a year ago. the title probably gives away some of the themes of the presentation. recovery."ourney to as i told her earlier,

unfortunately, the weather is appropriate for the message and for the topic. sure we willi am all benefit from her presentation. she has a powerpoint as you can guess and will go through that. i will then join her here on stage and we will have a discussion. and then, we will open it to the audience. this will be worthwhile. i also highly recommend that you when you not now, but get home or back to your office, pull out your favorite electronic device, connect to the internet and download your own copy of the economic report. it is well worth taking a look at. it is nearly 80 pages long. a serious bit of evidence. it moves a look through. we will hear the highlights now. thank you for coming back. [applause]

ms. hansl: thank you for having me again. is calledhe report "the long journey to recovery"? happenedlated to what about a year ago when we presented our report in april 2015. there was a lot of thought that world crises would quickly rebound and the contraction would not be as we projected. unfortunately, as you know, things turned quite difficult in august when we saw another oil sizable oiland a price shock. thehe end, it dashed

earlier hopes of recovery. we had -3.7% growth. reportlooking at the which will illustrate how the economy in russia adjusted to this oil price shock and to the economic sanctions. and also forward-looking, we newly tried to see what our movements in the economy and the structure of the economy where we could see new opportunities couldowth and how fast these new opportunities come along. also part of the story, it looks like this kind of recovery is thed on a renewable and economy and change in the structure of the economy part it then whatge longer people expected. when we look back at what happened last year in terms of

how deep the recession was and how long it has lasted, you can see it here nicely in the blue the quarter on quarter seasonal adjusted growth. that an economy is in recession. we have two consecutive negative corridors. for russia, this is now turning into quite a long procession of six consecutive quarters. if we take the entire gdp contraction over this time frame, since the third quarter of 2014, we see that it is .lready 5% cumulative or 3.7 last year was just part of the story. we can see, which is perhaps the good news, that the lowest point was reached in the second

quarter of last year and that since then, we have had at least slightly less contraction. about -- how did the adjustment of the economy happen to this bubble shock and how it hit the russian economy in terms of the oil price shock but also in terms of the sanctions shock, we can see that it was mainly leading to a gross to mystic income drop driven by terms of trade losses. you can see what happened in ofms of a adjustments especially domestic demand on the household side. household really reduced consumption quite dramatically devaluationruble lead to double-digit inflation and wages, incomes unfortunately

did not adjust. in line with inflation. that led to this reaction of households. private consumption dropped by over 10% last year. economy, if we have an domestichave very weak demand in terms of consumption, it is very likely that of course investors see little incentive to increase capacity through investment. actions impact by restricting access to economic less flexiblews, with the sanction environment. we see that due to the ruble devaluation, the key policy rate was increased dramatically by the central bank which supports

the ruble. since inflation pressures stayed pretty high throughout last year, the monetary easing cycle especially since august was discontinued and we still have key policy rates of 11%. altogether but mainly driven by this week to this veryed growth in investment. the bright side is the one that is related to the policy response into which i will go a bit later, on the next slide. that is where we had a free float that signaled that hasing power was different. could meant households

not anymore purchase imports like they did before and hence you have a positive contribution of imports because imports adjusted dramatically and dropped significantly. sign is the light blue part in the last quarter where we see for the first time, and -- a significant increase in export volume which could point to the fact that some russian firms now take advantage of the weaker ruble andthe bright sidet is related to the policy response perhaps become exporters. these were the main questions that we tried to explore further in the report. is there now a new opportunity for russian firms to produce for the domestic market? and substitute for imports? and is there an opportunity for them to become exporters? not what could hold them back.

a slide tost illustrate to you the beauty of the free float and what helped, how it helped in russia to really bring imports down nicely. you can see here the oil price and the relative exchange rate ultimatelyicely and imports of adjusting well. this is a great result for a resource exporting country. they still have a positive current account balance even these external shocks hitting the economy. that is thanks to the adherence of the central bank to the free float last year. underestimated is also that the free float did not just have the extra know balances to adjust nicely in

russia but it also helped to preserve very precious foreign exchange reserves and fiscal buffers for russia. on that macroeconomic response side you see a very nice management and we could even call it textbook accor economic management of the crisis. i want to illustrate how well russia fair with the free float -- fared with the free float. the free-floating ruble compared to the currency in neighboring countries in azerbaijan and topics on which still -- and clung ton which still --. they still tried to keep the fixed exchange rates. in the end, how did it affect

their foreign exchange and fiscal reserves compared to russia? russia's foreign exchange rate yearves at the end of last but they still had 13 months of imports. a nice reserve in foreign exchange. the ones for azerbaijan dropped from eight months to four months . o --oeconom macroeconomists get nervous. the fiscal impact, we had a sizable federal deficit for russia of two point 4% last year. zakhstan,pare it to ka they had 7%. that tells you how well russia fared with the free float.

-- where is i think connecting toture the different sectors and different opportunities for russian firms to take advantage of the weaker ruble. this is an interesting story for russia. we spent most of the report on digging in to these kinds of data and trying to find out what is happening. is the structure of the economy changing? are there new firms in the trade sector that should have a relative price advantage? are they emerging more than before? are more firms becoming exporters? when we look at it first in sectorf the tradable taking advantage and producing more, because usually you have to produce before you can export, it is a different -- it

is an interesting story. on the left it is increasing. mining, and extraction are positive. we did see that overall, manufacturing contracted strongly. counterintuitive at first. of course, if we think that it takes time perhaps for firms to , just to this new reality first, you have to see what you want to see as an economist which are the factors of production moving to the new sectors. then, you would first look at ora like investment growth employment growth because they could tell you which sectors have now actually -- are now able to pool more from these factors. you can see when we look at

different sectors that there are a few here on the right that have quite sizable investment growth. these could be the new growth sectors for russia and this is chemical production, mining, rubber and plastic products. if you look at the cover picture coming you can see the balloon that is held up by the bird -- these are perhaps the new growth. economy is moving away from simply the oil sector. it is also interesting that overall, and you factoring investment is still negative. surprising when we see agriculture increase production, an increase of 3% last year, that agricultural investment and food processing investment is deeply negative. if i didn't tell you also that

agricultural exports did not increase last year, we can see that all of this production increase was purely for the domestic market. it was not a sector that is at the moment he coming in export sector. it is also related to the import restrictions that were imposed on food imports. if i look forward, while i say these are the future growth sectors perhaps, this is of course also indicating that agriculture at this point is not looking like a sector that can become a future competitive sector. it simply does not get new capitals, investments, to change products to make them more competitive on the international market. and then come it was interesting broadero look into

export profile, not just the production side what what actually happens with the export profile in russia. but we saw was when we looked at the latest data we had, and the previous years data on the composition of exports and the destination of nonfuel exports. what we want to see at this point is a change in nonfuel exports. unfortunately, up until now, there is little change. most of the export products are nonfuel commodities, metals, would, and some goods like chemicals -- at the same time, we see that most of russia's nonfuel exports still go mainly into the eu and some of the scis countries. there is not a huge expansion of markets yet visible.

the question is why is this the case? traditional exporters that hadian -- that russia had actually fared pretty well last year. they lead at the moment in this large increase in export volume. what we can see is that they were able to take advantage of this relative price adjustment. and simply increase the production of the same goods that they produced before. and push more out into the same market because they now have the goods at much cheaper prices. what we do not see yet is that new firms, or new exporters emerge to. -- emerged.

question as to why investment is not happening in other manufacturing sectors. what is holding back the change in the structure of the product on the left or, as you can see by country here, into new markets. this is of course related to the firm is born and exporter. if you produce something domestically, it is a different competition then you produce for export markets. you have to adjust your production. different quality and standard requirements for your project. you need a different logistics, marketing, packaging approach. some changesneeds in how you produce compared to how you produced before for the domestic market and that needs investment. at the moment, it aims that we

have not many investors in production and exporting firms coming forward to do so. this might be related to many of these so-called structural constraints in the economy that did not change. we have a change in the relative prices but we do not yet have a change in the reality of production for firms in russia. see major structural reforms in the economy, it is unlikely i will see new growth .otential emerging and russia's growth in the medium term being higher than 1% growth potential that we see at the moment. this is reflected in the outlook that we have for russia. at the moment, we can see in our report that oil prices are at a

whichne of $37 per barrel would lead to a contraction of 1.9% this year and next year, at $48 a barrel on average we would get to positive growth of 1.1%. i can tell you already that our oil press fork -- oil price forecast was released last week. new coverage at the world bank, we have a forecast this year, the contraction is slightly smaller. but still over 1%. perhaps, it is not so interesting what is happening here, given the oil price volatility. lower bound oil prices.

the lower bound is assuming on average $30 this year and the other one over $40. given this oil price volatility, given the spectrum of forecast where we are very confident growth will turn out. even with our revised forecast, this is within the band of the forecast. what is more important for russia is what happens in the next year and beyond. thatis the growth path russia is embarking on? one important assumption in the forecast is the sanctions. this is something we asked a lot in the past -- how does the sanction environment impact russian economic growth? was when wehis time

looked backwards it was very difficult to distinguish the sanctions from the oil price shock. they hit the same channels of andstment and consumption exporters. for that reason, it is rather difficult to doesn't tangle these. one can do it roughly. we decided, forward-looking, it was a good opportunity to use the same baseline assumption in monetary fiscal policy and oil prices and have an alternative a sign that assumes for projection purposes only the sanctions would be removed in 2017. to illustrate then what the impact would be, we compare on sanctions -- a sanction environment baseline with an alternative race line where we assume no sections -- no sanctions for 2017.

the main impact would be in the investment growth. we would assume due to the removal of the sanctions, capital flows would increase again, external borrowing is overall and sentiments would improve. for that reason, we could see higher growth in 2017 in investment. improvementtiment as the secondary effect on investment growth. overall, perhaps the impact is rather limited between 1.1% and 2%. especially,t 2018 the short list. just as theare not world bank looking at growth trends. we also want to see how it impacts the welfare of .ouseholds

and most of all poverty trends and also shared prosperity trends which is how it impacts the income growth of the bottom 40% of the population. when we do our forecast and at the same time do our poverty forecast, we can see that we further increase in the poverty rate for 2016 but the largest increase in poverty was really last year where it increased from 11.2% to 14.2 percent. at the international subsistence level. and we talk about shared prosperity and poverty trends, these are usually trends you want to look at over a longer time frame. or two see in one year years, the poverty gains --

reduction gains over the last -- were eradicated. it will be interesting to see what kind of growth the chair realizes over the next two years -- if it could reduce this loss in poverty achievements again. finally, if we think about what our forward-looking policy challenges and risks are, we see that there are some key challenges. when we think about the new inortunities -- we showed our report a relation to the lack of investment and large constraints in economy wide investments and conditions, are these structural constraints? what is important for russia at the moment is that these

structural barriers to growth in utmost ofy are the importance to limiting the positive change in growth potential. that is why they are the base for any higher growth going forward. it is really the most important. the most important issue that has to be in place if russia would like to change its growth path. as i mentioned a few important ones like high transportation and logistics cost which are very important. if you can produce cheaper but it still costs you three times more than in china to ship a container across the border, this advantage is quickly disappearing. the same if there is not enough competition in the markets, then it is less likely that the price adjustment is passed through to

the household who then could also purchase goods at cheaper prices. in thethat actually profit growth that happened last year in the recession year of 3.7% corporate profits increased by 50% last year on average. this is a sign that there is high concentration in the market and not full competition. but, there is a role owing forward for cyclical policy issues. this is the fiscal and on the financial sector side, more stability issues at the moment. first fiscal challenge, we see that after this adjustment of the external balance is the main policy challenge. it has now shifted to the

adjustment of the fiscal balances. this is going to be quite a difficult task for russia because it appears with the oil forecast -- oil price forecast, that oil prices remain around $50 over the next few years. and that means that they will face a permanent reduction in their revenue base. and in the light of decreasing fiscal buffers, that really brings up fiscal adjustment challenges. fundajority of the reserve would be used this year and no fiscal buffer to finance a large orcal deficit like last year that is expected this year. essence, the policy space or the options for the authorities to adjust the fiscal picture with different policy choices

are much more limited compared to last year. in our view, would require much more strategic adjustment of expenditure going forward. different from the general year,iture cuts of last 5% in real terms announced in january. 10%. but not just an adjustment on the expenditure side either. moment,oment -- at the it is an emergency situation. the first adjustment is introduced would be to stop spending or reduce spending. it means also thinking about revenues. if i think my oil revenue base is permanently lowered. and about the financing strategy going forward which is of course also reflected if you have access to external markets are not.

last but not least, it is still isut assuring that there financial sector stability. the measures that the authorities introduced last year to the anticrisis program that program bute bank also the forbearance of the central bank regulations really helped the financial sector to adjust last year. a lot ofe is still reliance on financing from the central bank and increasingly actually by the financial sector. of also, the strategy continued consolidation is of there areuiring that enough resources. investors or creditors. this is an issue where we can

see if another global financial shock or instability happens, it would limit the instruments that the government had last year for securing financial sector stability this year. when we look at all of these different policy challenges, it seems that a lot of open questions are still there. what is ao not know medium-term fiscal strategy of the authorities -- is it one of social policy expenditure reduction? is it one of investment production? continued low corporate and private income taxes? or is there a change in the vision? these are important policy

choices that economic agents and consumers and firms would like to know. the same on the financial sector stability -- we have many things firms that will not be able to make it in the adjustment process. what does it mean for the small and medium at -- enterprises? licensed -- many were delicensed last year. what does it mean in general if we do not have clarity for businesses if something fundamentally changes in the conditions for investment and a doing business? this is becoming the whole package of policy uncertainty. it is becoming key binding itstraint for russia and recovery from this recession.

in our view, we are trying to determine how fast and how big the rebound for the russian economy going forward will be. what you can see here is we have business confidence still very deeply negative but it seems to bottom out. if we asked manufacturing businesses what -- if weonstraint are compare how often these constraints are mentioned this year in the first quarter, the bar, weur -- the orange see that policy uncertainty is the key constraint for businesses. it is interesting because it we do have extremely weak consumer demand, household demand dropped

by 10% last year. it is still a key constraint similar to last year. but what really changed is that now is mrs. see that these uncertainties about what policy choices will be made is holding them back to think about expanding production and it -- in their businesses overall. until these policy uncertainties are not addressed, we don't think that there is an opportunity for higher growth potential for russia. and with that for higher growth into the next year. thank you. [applause] mr. lipsky: well, that was

illuminating but not very encouraging. first of all, did i get it right? some back of the envelope calculations suggest it will be 2020 before they get back to the level of production of 2014? is that right? ms. hansl: yes. mr. lipsky: we will not have a lot of happy russians anytime soon from that score. that is a tough picture. you could say well -- we are now in the eu and now getting back to the levels of production of 2007 which is also true. but in any case -- that seems to be a basic fact. -- there are a number of ways to come at this. one simple way to look at this

is big shortfall in investment. and that both increasing both structural shifts and productivity gains will require an investment and that is exactly what is not happening here. honor of cheering a session in davos three years ago. part of that, i interviewed, or had a conversation with the then president and was told beforehand to please ask -- he wanted tough questions. him when russians would have enough confidence in their economic future that they would start investing in russia and stop shipping monday abroad. it turned out that he did not want that question. i got a not very happy response. it looks like we have not reached that point. is that correct?

when of the big problems is that russians are not investing in russia. ms. hansl: it is certainly correct. it started to happen before the crisis. thate that kind of pattern investors are sitting on the fence already since 2012. we saw that the large state driven or quasi-state driven investment started to finish off and private investment was not coming in to drive investment growth. then, with the crisis or the oil price shock over the last year, we saw that, of course, that due to these new conditions that investors are facing, a lot of uncertainty of what will be the domestic demand, in the country,

there a little willingness to take what we think is really an opportunity for russian arms now to produce more for the domestic market. because households cannot afford imports. or many imports. as they could before. to become an exporter in manufacturing goods which they thed not because partly effect of the dutch disease like in any exporting -- oil exporting countries and the appreciation of the exchange rate. , it dominated the impact of the oil sector in terms of the structure of the economy. mr. lipsky: the picture you have itwn -- i will come back to about the run-up to the current situation. most recently, you have laid out

clearly is that the key policy adjustment mechanism has been to allow the ruble to depreciate. as someone from the imf goes well, the depreciation of a currency is not the way to solve a problem without flanking measures of adjustment in terms of demand management and in terms of structural reform. you did not exactly say it this way but is it fair to interpret that there has been a lack on of an unclear fiscal adjustment and lack of structural reforms. therefore, the positive impacts of the significant exchange rate adjustment are not being felt quickly or clearly. fair, for an be shocky how an external

work its -- works is way through the economy, it first hit the external balances and exchange rate. adjust,llow these to the magic wand of the flexible exchange rate, then, you are in a better position to take advantage of all of the good things that also, with it like for producers domestically and for production for export. it is a bit of a sequence thing. the first step of the macroeconomic adjustment is perfectly balanced. the central bank was very disappointed. decemberntervened in 2014 or in quarter three of 2014 . mainly in october. and then floated the exchange rate. it realized that it has to prop up the ruble by using a lot of

foreign exchange reserves. , perhaps not wisely, not knowing where the oil price would bottom out. so that job of the central bank was done nicely. next is then to look beyond emergency measures on the fiscal side. is such a shock that impacts your revenue base more suddenly, you will cut first on the expenditure side to somehow balance your budget and you run a higher deficit and you have fiscal imbalance. of the reservee fund. to manage higher fiscal deficits in times of commodity price shock. you should time when

use it to balance the budget even if you can't, it depends on the cycle of fiscal balance. it is also done in a nice and measured way. but this is the second year now. of years of fiscal deficit 2%-3% will deplete the reserve fund which was around 7% of gdp. 1-2 yours not just a shock, that means you have to adjust your fiscal picture. ofs is really the question the 2017 budget. first objectthe that should signal clearly what are the strategic policy choices for the authorities. last one, but not least

to come about the structural reforms. it is about the fact that my firm has this responsibility because of the price advantage because my central-bank floated the exchange rate but can they actually take advantage of it. it takes more than a relative price advantage to be able to produce more and export more. therefore, you still need .nvestment, capital, labor you have to hire more people to worried new goods. and then again you have to ship the product to the consumer. it is about transportation costs . and all of these structural constraints. interesting that now these have come to the forefront of these policy challenges. enough which many economists first thought that if

you have a relative price advantage then magically all of the neoclassic approach and all of the factors of production would move to the right. these barriers of the lack of competition and so on that will prevent that and that needs to be addressed. lostere will be a opportunity for russian firms. mr. lipsky: two questions. non-experts from abroad have the impression that in that timeframe running up to the crisis, and oil price shock, there was a process of centralization going on in the russian economy. a reassertion of the role of the state or large enterprises that were associated with the state. in the current context, does that turn out to have left the economy or wrong footed and

needs to be reversed or should these firms be able to be more decisive in moving to take advantage of opportunities? so far, it looks like they have not been but you tell me if that impression is how you see the interaction of the opportunities and this re-central is asian of the economy that preceded the shock. first of all, from an economists point of view, if a company state owned or privately owned, it doesn't really matter. the outcome matters. do i see the firm to be efficient? there's not a monopoly. these are the questions. so in general, if i see in a country that the state footprint, like we call it,

increases, it is not necessarily telling me if this is good or bad for the allocation of resources and productivity growth. of course, we know that state-owned companies in many countries have different goals than profit maximizing, which usually leads to the drive to increase productivity, because that is how you increase your profit margin. incentives of providing employment, or public goods at the price that is centrally regulated. course, then the issues that become a problem if the state economy is growing, because you have a lack of innovation, a lack of productivity growth.

holding them back, of course, growth. there are different ways. you can make state-owned companies more efficient or you can privatize parts of the economy where it's not intuitive why the state should be involved in the production and not just rather doing what the main job of the state is, to regulate the market and provide equal conditions for firms so that they can compete best. john: turning to the budget, one also from abroad has the impression that there has been a turn toward heavier military expenditures, certainly more aggressive stance than one that's perceived here. is that important in terms of the budget or is it more show than reality in terms of

spending? if it's important in terms of a reallocation of spending, does that limit their opportunities for fiscal effective fiscal adjustment in the regard we have been discussing in the next few years? birgit: well, i mean, if you look at the russian budget, you really have three key big budget categories, and one is social policy expenditure, social benefits. one is national defense and security. and the third is spending on the national economy, which is in large part subsidies to the economy. this is not such an unusual structure of the budget, but of course, if your revenue situation dramatically changes, the question is can you just cut one or two of these budget

items? and that has implications, if i decide to just cut social policy spending, it might mean i need to cut pensions or change my pension system. i need to reduce what i promised to my citizens in a social contract for free health care, free education. so these are not trivial decisions that have to be taken. so that's why it is a really strategic exercise for government to think through what are my priorities for spending going forward, where can i change what is now the status quo, and what would be the impact of that. and i think at the moment, there is definitely a lot of internal debate in the government of what should be the priorities. is it that priorities.

-- priorities. is it possible to still run, for instance, this military renewal program that was started already a few years ago? it is a costly program. and what would be then the price that would need to be paid by cutting one of the other two expenditure items, for instance if we were then to cut -- if russia would then cut, for instance, subsidies to the economy, would this mean that some of the state-owned companies have to be more cost efficient and lay off some people? then we have high unemployment, which we don't have yet. so this is not an easy discussion when you look at these three key budget items. and what is most important, though, in our view, is every country does their own decisions on the budget. and this is resonated or based on the electorate and what empowerment authorities have

from its electorate. but in the end, it is about communicating clearly to its citizens what are my policy choices going forward. and this is about the policy on -- uncertainty to really help firms and households to form their expectations about interest rates, about salaries, about prices in the economy, so they can go on with their life and consume again, buy again, durable goods and cost, which we see completely disappearing nearly in the last year. or for firms to return and say, yes, i'm confident this is what i will think is the cost of my capital going forward. these are the conditions i see in the economy. this is what i see as consumer demand. i should go ahead and invest. so this is the importance of policy certainty so that economic agents understand what is most

likely the reality looking like in a year or two and then they can adjust their decisions accordingly. john: i have two quick questions, and then we'll -- it will be your turn, so get ready out there with your own questions. it strikes me, is it fair enough, and i don't want to put words in your mouth or your institution's mouth, but this certainly wouldn't be unusual for politicians in government since the serious difficulties derived from external events, mainly the drop in oil price, that there is a sense of delaying decisions, hoping, i assume, that this will somehow magically go away. and that the really tough

choices will be avoided. is that fair enough? birgit: well, i mean, this is of course the hope that most of this change externally is simply a cyclical nature, right? down trend in oil prices like happened in 2008, for instance. short-term pattern. course, in every government response, you first see it as an emergency short-term management issue. find the best policy choice for that. is if it's not, if it materializing into a medium-term

, so half of it, then i just don't have the space for it. it continues with the same policy stance from before. it is why oil exporting, commodity exporting, has the sovereign wealth funds. it is not just for intergenerational equity to smooth out the benefits from revenues from commodities, but also for crisis times. then you have a little nest day. -- egg. you want to get over this period. it is very difficult for everyone in your come -- country.

it has to get over it. as you can see in the case of russia, which has, by all accounts, sizable reserve on of at a certainp, time, it is just not possible. really think about other policy choices. john: final questions that you may not want to address. impression, once again, you get abroad is that the current russian government is not welcoming to foreign institutions, ngo's and others. how was the working relationship of the world bank and imf with the current russian authorities? what are the goals of the institution? what we see is actually

-- john: do you need to turn this on? that whenat we see is we have our day to day relationship with our , the opposite, probably. there is more need to exchange address how to certain issues in macro economic to increase, or how social expenditure efficiency, which is a much more pressing question. in a limited budget environment. they are making major changes. international monetary fund or the world bank.

corporations.l of this is a good sign, i think, because it speaks of the capacity of the institutions of being, like in any other country, mainly concerned with the management of the economy, and trying to find the best solution that would help the country to move ahead. john: good luck. all right. let's turn to the audience. try first with some student-looking types. we will take a bunch and then come back to birgit. you so much for your talk today. it was really great. i'm curious to see [inaudible]

do you think there will be increased pressure on russians [inaudible] john: if you could press your -- >> [inaudible] john: the gentleman right here. >> yes. a couple questions. maybe i missed the answer about whether there is a real safety, social safety net, in russia for people. inequality. income of course, everybody knows all about the russian oligarchs. they have sucked whatever they could out of the country. russia?what's left in

is also a lot of income inequality? does that have any political effects? john: the gentleman here has been patient. >> thank you. june, we realize there will likely be a debate in the european parliament about renewing or not sanctions. what is [inaudible] john: [laughter] would you like to -- would you like to take one more over here? in the back. this round. we will do answers and then one more round. >> thank you for the great partt, especially the about exports. i hope you are right in that it can help somehow. my question is about your opinion on deficit spending for russia. from what i read, president

putin promised to close the fiscal deficit by 2019, but at the same time, there is still need for government spending. i guess they are doing privatization to increase revenues. assuming they can borrow at a reasonable level, would you advise them to try to close the deficit or to increase deficit spending? thank you. birgit: ok. very good questions. -- i still would like to answer what you said, income drop and speed of recovery. you know, these changes that we expect on the structural side would not, even if they had been implemented yesterday, would not lead to higher growth. it takes quite a while to filter through. this is actually the story of the global recovery that we see, too. the global recovery is still

slower than we expected. -- at a pacevery that is much slower. and this is related to that. it is not just for russia that we have these structure constraints that lead to a slowdown in productivity growth. and is a global phenomenon it takes all countries a lot of effort, difficult effort, to andge this path productivity growth. so, i think it is really that if we to expect would even see all kinds of structural constraint to be addressed by specific reforms are measures, to see a quick turnaround. but of course, i agree. if you don't see that happening, then you know you have a

problem, two or three years down the road. we ares is the story trying to say, yes, there is a lot of emergency measures -- management that was necessary, but we have to focus now again on the structural issues. two questions on the fiscal policy and the fiscal deficit, which are of course andted, in my view, central-bank policy, if it would be induced or pressured to quit monetary easing, i would think that is the question. it could lead to inflation. i think, first on the fiscal side and the deficit spending, the fiscal rule that there was before is not working.

it was based on the average of oil price in the previous years. since we had such a dramatic shift, it is just not applicable at the moment, basically. find -- fineu can tune the old fiscal rule, which is one of the reform agendas, and change the oil price you take as your cutoff price for fiscal savings or deficit financing, but there is so much uncertainty at the moment in the global oil price market. it's hard to know what is the right number. $50 per barrel? $30? it is really hard to say. in that regard, this mixture of having a fiscal rule that is based on the oil price, but also the deficit target, is a very good idea in the short term, especially in the adjustment

period where we see large fiscal deficit. fiscal deficit target of zero fiscal deficit by 2019 is actually a good approach to anchor your fiscal policy and get through this adjustment period step-by-step. course, i mean, fiscal policy, monetary policy, all decisions from the entire government. in no country do you have just one agency unilaterally deciding on policy. it is very similar in russia. that is a bit, also, referring again to the issue, you have a high capacity in the macro institutions. there are discussions in the government on the main fiscal

and monetary policy stance, and the decision is clearly that there is commitment to the free it was inflation targeting. it is the right choice at this stage because what you need to certainty terms of into the economy is stable inflation and interest rates. that's good for households. that's good so they can operate in an environment. huge pressuree a on central bank, actually, to loosen this policy stance. you can see in the track record that the central bank built over the last two years, one and a half years, a clear commitment to that inflation target. this is the credibility of policy, which is also very

important. one is to have clear communication and commitment, but one is to actually, credibly follow through, and with that track record that yes, the central bank said it is inflation-targeting. i believe it as a household. i should orient myself and my expectations on that. tos is a great achievement, have the central bank switch its time, whiche crisis they did, and build in the crisis time a track record that domestic, not just but global, it is serious follow through. in terms of real social safety youand income equality, have a strong legacy in russia

of a very generous social contract, and you had, over the last decade, as i said, a tremendous social mobility. it's something we studied in depth over the last two years. we had a policy reduction from 30% to 10% over one decade. we had an increase in the economically secure population to over 60%. that is an achievement that is very rarely done in any country. if you compare to other countries, it is not comparable, these numbers. russia is the clear leader. so, when you think about who than a fitted from this -- who

benefited from the commodity boom over the last decade, it was really also the population, to a large extent. that is something that is clearly an achievement that needs to be acknowledged. -- yes, inys argue good times, it is easy, but what do you do when times turn more difficult, like now? the price ofep your social contract in tact? or, how do you adjust and change it so you don't increase policy dramatically and also inequality dramatically? a very well functioning social safety net that is evident from these outcomes, and we had improvements in the quality. -- equality. \ the question is now, what

policies do you chse going allard to try to not have of these achievements reversed within a short period of time, and address still remaining inequalities? for instance, regional inequality is quite high. regions have high poverty and are more comparable to low income countries. we have regions with very low poverty. the, again, more domestic questions for russia. on average, it has high social mobility achievements, but to there are still large differences within the huge country of more than 80 regions, each of them as large as many countries. to just make the point again on impact and the

forecast we provide in regard to the next years, all that we provide is an assessment of the economic impact if sanctions stay in place, or get removed. it has nothing to do that we have to see expectations about a sanction removal in terms of time or in terms of who participates in it. it is a simple exercise for me as an economist to understand what, if i have my baseline and the counts are factual, one key assumption in my baseline is changing. i showed you several. oil price. the impact of

economic sanctions. -- we havelutely no absolutely no additional knowledge that other people inld have and no prediction that regard. thank you. john: i'm afraid we are out -- slightly over time. contrary to my promises that we would have another round of questions, i am afraid we will have to call it. appointmentnother to go to night know we have not touched all the topics. by the way, one that we will leave for your next visit, we hope you will be back next year with your new report. perhaps we will start to see some uphill slopes for the economy more clearly. the role of the financial sector, which i think has a lot to do with structural reforms, driving shifts in the mix, economy hereof the

in the financial sector will be deeply involved. that will be an interesting topic for discussion, i think. if you will join me in thanking birgit -- [applause] makingou very much for this stopping your visit to washington. thank you so much. [captions copyright national cable satellite corp. 2014] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] center took a look at the types of benefits soldiers received and how the programs differ from those four civilians. that is live at 4 p.m. eastern on c-span. later in the day, look at the history of the federal reserve and what changes are needed at the agency as it continues to manage u.s. monetary p