Kremlin Economist Unfolds Russia's Roadmap

What happens when a global financial crunch forces a country to spend foreign reserves to pay bills, or when flames of a petroleum- and minerals-based economy start to flicker? Russia knows: Its government spent reserves to survive the financial crisis, and today it's busy preparing for the latter scenario by seeking alternatives to natural resource exports.

At the center of looming challenges, economic options and policy hurdles is the Russian government's leading economist, Deputy Premier Igor Shuvalov. He's deeply involved in the government's far-reaching "modernization" project, which embraces all sorts of programs from industrial upgrades to improving education. He's also busy bettering the nation's business climate and attracting foreign investment.

At the top of the agenda, Shuvalov said in an interview with Caixin in Moscow, is an effort to improve Russia's fiscal policies. One goal, he said, calls for reducing the percentage of government revenues generated by the energy sector to no more than 10 percent of expenditures, down from the current 40 percent. Another target is to promote Moscow as a global financial hub.

Reflecting a pragmatic defense of his resource-rich country, Shuvalov called for a "wise trade" approach to dealings with China. He said he wants two-way business relations rather than a draining of Russia's minerals and energy in exchange for foreign cash. Yet he spoke well of relations between Beijing and Moscow, calling the current tone "truly friendly."

The interview follows:

On Modernization

Caixin: President Dmitry Medvedev discussed at great length "Russia's modernization cause" in September 2009. How do you define Russia's ongoing modernization strategy?

Igor Shuvalov: When he became president, President Medvedev immediately announced a new development agenda for Russia. He realized the country's whole life should change, including its political life, social life, economy, and so on. He published an article called Go Russia because, you know, we had a very difficult period for 15 years after the Soviet Union collapsed. There were times when we had to survive, and there were times when we built something new, but it was a period when Russia was appreciating its old, global place in the world.

Many assets created during the Soviet era had become pretty old. Old industries became non-competitive. Science and education had to be changed and modernized. The fiscal system and economy needed new approaches for governance, and a new climate for business development needed to be introduced. So all these spheres surrounding us had to be changed.

Now, everybody talks about modernization. People think sometimes the government should have a precise agenda. Maybe you heard about a commission and five directions outlined by President Medvedev. These five directions are closely related to the modernization of Russia, including pharmaceutical, nuclear industries, etc. But in reality, modernization means everything – people's behavior, education, science. It involves everything in life.

For example, a lot of Russian scientists were able to create new technologies, but they were not able to make any business sense out of it. In Israel or the United States, Russian researchers are very popular, and quite a number of them therefore became rich. However in Russia, there's no such infrastructure. Another example is when people drive their own cars in Russia, they do not fasten their seatbelts because it was not the Soviet behavior to wear seatbelts.