RUSSIA’S LABOR FORCE COULD DROP 500,000

[Anonymous]

Russia’s Labor Force Could Drop by 500,000

MOSCOW (MARCH 05) – Russia’s labor force could drop by more
than half a million workers in the next three years and inflation may hit a 3.9
percent in January and February, the government’s top economic official said
Thursday.

German Gref, economic trade and development minister, also
said that Russian goods today are as uncompetitive as they were before the 1998
financial crisis, the ITAR-Tass new agency reported. The ruble devaluation that
followed the collapse gave domestic producers a shot in the arm as the cost of
imports soared.

Russia’s economy, which hit an estimated 5.9 percent growth
in gross domestic product last year, has been buoyed largely in recent years by
high oil prices. Many economists have warned that the Kremlin needs to do more
to diversify the economy, as well as the source of revenues for government
coffers.

The government had a record budget surplus last year and
hard currency reserves reached $124 billion at the end of the year – exceeding
Russia’s foreign debt.

Speaking at a Cabinet meeting, Gref said the work force
will decrease by 538,000 workers by 2008, according to ITAR-Tass.

Beginning in 2006, Russia will enter a stage of a
“significant decrease in the able-bodied population,” Gref was quoted as saying
by ITAR-Tass.

There was no explanation as to the expected drop, although
Russia has for many years seen its overall population decline due to migration,
rising death rates, dropping birth rates and deteriorating standards of
living.

Vladimir Sokolin, head of the federal statistics service,
said the work force will continue to decrease until 2026.

Gref also called for legislative changes to restrictive
migration laws which he said hamper the flow of cheap labor into Russia.

He also warned that inflation in January and February could
hit 3.9 percent and he said that the investment climate has not improved.
Russia’s benchmark RTS index showed virtually no growth last year, as the
business community remains suspicious of state bodies, he said, according to
ITAR-Tass.

Many investors have been spooked by the government’s
assault on the Yukos oil giant, which culminated in December with the sale of
the company’s biggest subsidiary to pay off billions in back taxes. The case
against the company’s jailed ex-CEO Mikhail Khodorkovsky has been criticized as
Kremlin-orchestrated punishment for Khodorkovsky’s political activities, and is
often cited as a reason for flagging investments.

Also Thursday, Prime Minister Mikhail Fradkov criticized
ministers for not coordinating their work and he demanded that Gref’s ministry
draw up a plan for the Cabinet within the next three months.

“The government, in effect has no plan of action,” Fradkov
said.

Gref told the Cabinet that all government ministries and
agencies had approved a plan to cut import duties on automotive parts, and that
it now only needs Fradkov’s signature.

The Interfax news agency, meanwhile, quoted Gref as saying
that both his ministry and the Finance Ministry opposed plans to cut the Value
Added Tax to 13 percent from the current 18 percent. Fradkov has reportedly
pressed for such a move.

“The most optimal way is not to reduce the VAT rate to 13
percent but to resolve problems in administering it,” Gref said, according to
Interfax. He singled out the need for businesses to receive immediate VAT
rebates on capital investments.

[Author]

March 6, 2005 at 10:10 AM