Financial system and economic development (Tacis project of Ass

Targets of financial reform in emerging economy may be formulated in a different way; therefore, conclusions and recommendations of the Paper may depend both on actual material – macroeconomic (institutional) scenario and analysis of sectors and instruments – and on objectives of reformer. It is clear that there exists considerably developed discussion about bank reform, many materials about other sectors, especially about pension reform and development of insurance sector. However, common approach and target of development of financial sector eludes observation and is sufficiently expressed neither in scientific works nor in government documents. Discussing of private financial sphere takes place with regard to separate instruments and laws and not in the general context of country development and a role of financial sector. Let’s formulate two possible approaches to development of financial sector in Russia which might influence both understanding of the Paper and its usage. The first approach doesn’t require actions assuming that Russia undergoes in a natural way all phases of industrial development and development of financial sector without any considerable interference of the state as a reformer. The state concentrates on formulation of common laws, and, as far as possible in emerging economy, supports ownership rights, financial control over enterprises belonging to financial sector, avoids budget deficit. Naturally, filling “gaps” in legislation takes place. However, complex reforming of the sector and its adequacy to the needs of development of country economy are not under consideration. State gives to private business (and its organizations, if possible) full initiative in credit development, choice of financial servicing in bank sector and on financial markets (home and abroad), in working out new instruments, while applying, if possible, common international norms for ensuring necessary (according to standards) level of capitalization and financial indicators. This approach is coherent and implies maximal liberalization of currency control and capital flow, all parts of financial sector both in control and ownership and in operations. This policy carried out to certain extent at present resulted in 1998 default which focused efforts of Government on solving budget and debt problems and practically excluded possibility of scale intervention by government into savings process, intermediation of financial sector and savings. At some moment government had insufficient financial and organizational resources for large scale reforms in this sphere. Apparently private interests also played its role, for example, in the situation that large scale restructuring of bank sector had not been carried out. Reforms in conditions of budget-debt crisis have to bear structural and institutional character, being at the most cost saving for the budget and convenient for those players who have stable position on existing economic stage. Having such approach, no ambitious targets on capitalization, volume of operations or parameters of financial sector can be formulated. If we are satisfied with existing financial sector or we are expecting its independent accelerated development, there is always possibility to revert to this approach.