OECD: Russia needs aggressive stimulus, overhaul

MOSCOW (AP) - Russia must use fast and decisive stimulus to pull its economy out of an unexpectedly deep hole, but also prepare difficult reforms to ensure longer-term prosperity, the Organization for Economic Cooperation and Development said Wednesday.

The recommendations from the influential group came as officials announced Russia's economy had shrunk by 10.1 percent in the first half of the year. That's in line with its forecasts of a decline in gross domestic product this year of 8 percent to 8.5 percent.

Russia's government responded swiftly and aggressively when the global financial crisis hit last fall, the Paris-based OECD said, but more action is needed to tackle the stubborn economic troubles. “It has become increasingly clear that Russia is facing a deeper and longer downturn than was imagined a few months ago,” it said.

The downturn hit Russia hard after a decade of unprecedented oil-fueled growth, which had bolstered then-President Vladimir Putin's power at home and supported an increasingly assertive stance on the world stage.

In the short term, the OECD said, Moscow should encourage growth by cutting lending rates and allowing the ruble to depreciate. At the same time, it should shore up its shaky banking sector and control government spending.

As the crisis eases, the OECD said, “Russia will face the challenge of putting in place a healthier model for sustained catch-up growth.”

It urged adoption of long-awaited reforms to an economy hobbled by “the legacy of the Soviet era as well as the backlash after the chaotic early years of transition to a new system.”

The government should encourage innovation, foster competition and reduce barriers to foreign investment, the report said. Moscow should also tackle the problems of overreliance on energy exports, excessive state involvement and inadequate enforcement of the law, according to the OECD.

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