Russian economy hitting 'dead end': Medvedev

MOSCOW: The Russian economy risks hitting "a dead end" unless it sees rapid reform, President Dmitry Medvedev said on Monday, in his most damning assessment yet of the country's economic prospects.

Speaking amid a severe economic crisis that has plunged the country into a deep slowdown, Medvedev did not spare his words in admitting Russia was largely to blame for its woes.

He told Russian political party leaders in the southern city of Sochi that Russia was "treading water" by not implementing reform and needed to urgently change the structure of its export-dependent economy.

"We cannot develop any longer like this. This is a dead end. And the crisis has put us under such conditions that we will have to take decisions about changing the structure of our economy.

"Otherwise our economy has no future," he said in comments broadcast on Russian television.

Many economists have already argued Russia failed to use the good times of strong growth over the last five years to lessen state ownership of the economy, halt corruption and reduce dependence on oil and gas exports.

Medvedev's stark analysis of the crisis contrasts with that of his mentor and strongman Prime Minister Vladimir Putin, who has repeatedly blamed the global slowdown rather than domestic shortcomings for the Russian crisis.

The government is forecasting a contraction of up to 8.5 percent in GDP in 2009 as lower oil prices hit the energy sector and industry battles a sharp decline in orders from abroad.

The problems are a far cry from the hectic growth of the last years which saw Russian GDP grow 7.7 and 8.1 percent in 2006 and 2007, almost exclusively due to high energy prices.

"As soon as the crisis took place, (the economy) crumbled. And worse than in many other countries," Medvedev said.

"Why? Because we did not change the structure of our economy. Our economy is based on hydrocarbons, natural resources and their sale for export."

Since coming to power in May 2008, Medvedev has made the need for economic reform one of the main themes of his presidency. But this is the first time he has described Russia's economic failures so starkly.

According to International Monetary Fund (IMF) data, 171.3 billion dollars (121.0 billion euros) of Russia's estimated 278.4 billion dollars of exports in 2009 will come from the energy sector.

"The depth of the crisis is in part due to the failure to advance reforms aimed at improving the investment climate and promoting diversification of the economy," the IMF said in its latest staff report on Russia in July.

It said that in the boom years "little progress" was made in advancing reforms to reduce government interference in the economy and increase competition.

And while economists are expecting Russia to start showing signs of recovery in the second half as the oil price swells, the economy has little chance of returning to pre-crisis growth rates without serious reform.

According to analysts at Bank of America Merrill Lynch, Russia will grow at an average of only 3.5 percent per year in 2011-2020, significantly below the 6.8 percent average of the previous decade.

Finance Minister Alexei Kudrin said Monday Russian growth would be only 1.0 percent in 2010 and it would take Russia between four and five years to reach previous levels of growth, the Interfax news agency reported.

Anders Aslund, a senior fellow at the Peterson Institute, said last month in an article in the Moscow Times that Russia's economy was in far worse shape than Brazil, China and India, its partners in the so-called BRIC group.

"Nothing has been done about the country?s profound structural problems... No forthcoming disaster is evident, but no country can be ruled so poorly for so long."