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Oil Prices Can't Restrain World Economic Growth

High oil prices are not an obstacle but a reason for world economic growth: a Russian expert

High oil prices are not an obstacle but a reason for world economic growth, Oleg Vyugin, the head of the Federal Financial Markets Service and a well-known Russian economic expert, told the Vedomosti business daily in the interview.

However, the Russian economy is gaining nothing from high prices because the sector?s super profits are all appropriated by the budget, he added.

Oil prices are not growing as a result of attempts by suppliers to manipulate the world market or out of a fear of Middle East conflict as was the case in the last century, Vyugin said. Oil is becoming more expensive precisely because the world?s economy is showing robust growth, the expert told the paper.

Production volumes and exports, not prices, power Russia?s economic growth, Vyugin said. But oil prices drive the Russian economy only under certain conditions: when Urals blend oil cost $35-40 per barrel, such a price helped to maintain GDP growth of 4.5-5 percent. But following the review of tax legislation in 2004, as much as 95-99 percent of the oil sector?s super profits are being appropriated by the state.

?The money is redistributed to the budget, and the budget spends it on current consumption, so GDP growth will drop by 0.1-0.2 percent every year,? said Sergei Aleksashenko, president of Antanta Capital brokerage.

Vyugin said that the state could stimulate economic growth by strengthening the ruble. A stronger ruble would increase the value of national assets and investments in branches catering to the domestic market. But the prevailing viewpoint, according to the official, is that ruble appreciation would harm exporters.