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The forecast for other regions shows that the 2007 price situation there will be analogous to that in Moscow: they should likewise expect their increment price rates to go down to zero, while stagnation (except for Moscow oblast and St. Pe tersburg) is going to start a bit later. The price rise should renew since spring and by results of the year should account for 90 95% in Perm and Tver, 85 90% in Moscow oblast, N. Novgorod and Novosibirsk, 60 70% in Ekaterinburg and Rostov on Don, and 55 60% in St. Petersburg Such dynamics would emerge under the impact of numerous groups of fac tors, including both those that drive prices upwards and the ones that block the rise (Table 28). The factors can be consolidated into two groups external (relative to the real estate market) factors (political, macroeconomic, and factors associ ated with the interaction between the real estate market and the supplier/consumer markets) and internal ones (progress with the National Program Affordable hous ing, rise in the populations spatial mobility, interaction with the respective seg ments of the real estate market).

As concerns the factors enumerated in Table 28, one should particularly focus on the political factor associated with the upcoming 2007 08electoral cycle and the price situation on the market for energy sources, as a rise in oil prices should con tribute to the contraction of the length of the period of stabilization of housing prices, while their fall would contribute to the opposite tendency.

Hence, the analysis of the development of the national market for housing al lows the following conclusions:

Last year witnessed a notable price rise for housing in numerous cities (par ticularly in St. Petersburg, Moscow oblast, N. Novgorod and Ekaterinburg). The outcomes of the first year of implementation of the national project on housing ap peared fairly positive, however, there emerged some factors which in the future might seriously inhibit it (the advanced price rise vis vis growth of the populations incomes, complexities associated with granting access to sites, constraints with respect to development of the public utilities infrastructure and the construction sector, fiscal challenges facing regional and local budgets, lack of confidence be tween market agents caused by some real estate developers fraudulent acts).

RUSSIAN ECONOMY IN trends and outlooks Table The Balance of Factors Which Determine the Medium Term Dynamics of prices for Housing Impact of factors on prices Catego Groups of fac ries of tors Rise Decline factors External Political Election campaign: additional funding of regional, Election campaign: possible destabilization of factors Duma and presidential campaigns, effective de political situation, intensification of a conflict be mand on the rise fueled by fees payable to political tween power and business, federal, regional and technologists, media and show biz. municipal authorities, which decreases the country and regions investment attractiveness Macroeco Maintenance of high world prices forr energy Downfall in the world prices for energy sources nomic sources, which entails the capital inflow. The results in a decline in the capital inflow. Decline (in growth in budget revenues, a 1.5 2 fold wage rise the conditions of a lesser inflow of foreign ex to budgetary employees and rise of pensions to change and appreciation of the RUR) of growth pensioners over the upcoming two years. rates and (even a drop) of the volume of money Continuation (albeit at a slower pace) of growth in supply, resulting in a lower capacity of the banking GDP and the populations real disposable incomes. system with regard to disbursement of loans to real Russias accession to WTO which would boost up estate developers and the population.

the inflow of foreign corporations, funds and Fall in the GDP growth rates which limits the gov banks capital ernments possibilities for solving socio economic challenges and maintaining the populations in come growth rates.

Continuation of the rise in volumes of Russian investments overseas and foreign ones in Russia.

Decline in the inflow of speculative capital in the conditions of a growing attractiveness of financial instruments in the US and Europe Factors of Advancement of the national stock market, expan Advancement of the national stock market, the rise interaction with sion of the IPO practices, as well as those associ of diverse highly profitable financial instruments, the respective ated with receipt of bonded loans and use of other which results in the capital flow out of the real markets means of external and domestic borrowing that estate market to supplier/consumer ones (partly help boost the investment inflow into the real es return of the capital via the real estate based mu tate market tual investment funds).

Continuation of the consumer boom, which helps reduce the volume of the populations savings, which are spent on buying housing.

Internal Progress with Rising volumes of government support and dis Growing volumes of house building in regions and factors the National bursement of mortgage loans, while maintaining offer of housing on the primary market Program Af the already existing high volume of offer on the fordable Hous secondary market. Maintenance of volumes of ing placement of housing in operation in Moscow in 2007 at the level 4.7 4.8m sq.m., given that roughly a half of that would be re assigned to the municipal programs, thus lowering the volume of offer on the primary market Rise in the f Outflow of the population with low and medium populations level incomes from Moscow to the market of the spatial mobility nearest to Moscow towns of Moscow oblast, which results in a lower level of effective demand in Mos cow.

Interaction with Continuation of the advanced growth in investment Investment flow to the market for commercial real the respective in retail and construction of commercial real estate estate (trade, office facilities, entertainment and segments of objects, transport and social infrastructure, which recreational objects, logistics complexes, tech the real estate increases attractiveness of the housing market in noparks, etc.) in the conditions of the declined market particular regions, cities and municipalities. profitability rates of house building, and govern ment regulation of town planning policies, as well as the policy of allocation of sites on the federal, regional and municipal levels.

Today, the national housing market has found itself at the second stage of its development, which started in mid 2000. Its main characteristic is a constant price rise, with no clear collapses and crises. Since early 2007 the market has stabilized after the period of its boom. Forecasts show that 2007 should become a year of stability in Moscow, Moscow oblast and main regional centers (with possible price Section Institutional Problems adjustments at +10/ 5% in some of them). In 2008 (in the aftermath of the presi dential election) the stagnation should be replaced by a new stage of acceleration of the price rise rates, thus driving the annual increment up to between 60 and 100%. This does not discredit a longer term forecast (for the period of 10 years), namely a sustained annual rise (in nominal USD denominated prices) at 25%, with its rates fluctuating between zero and 80 100%.

5.6. The Defense Economy and the Military Security of Russia 5.6.1. The Major Results of the Military Economic Activity in the Military Social Sphere The year 2006 was more successful as regards the achievements in the de fense sphere than the preceding years, notwithstanding certain setbacks that oc curred in implementing military reform, solving the social problems of the military and equipping the armed forces with modern weapons, which will be dwelt upon later in this paper. The RF President had every reason to positively characterize the level of the States level of security and the efforts of the RF military establishment aimed at maintaining this level. Such an assessment was given by him at a confer ence held at the Ministry of Defense in November 2006. Judging from what one could find in the mass media, this opinion was shared by the majority of experts.

Such views are well substantiated. Russia did not get involved in any military adventures, was performing its peace keeping functions on the territory of the post Soviet space, was completing the withdrawal of its forces from Georgia as demanded by this countrys leadership, and sent its military bridge builders to help Lebanon in restoring its transport communications destroyed by Israeli bombing.

From the point of view of the strategic nuclear deterrent of potential aggression (it should be noted that a convincing demonstration of combat readiness is essential within the framework of this strategy) the launches of land based and airborne bal listic missiles, and also the launches of high precision airborne non nuclear mis siles were quite important. Apart from this, as a result of successful testing, the serviceable life of some strategic missiles was prolonged. Although their number was small, some new and modernized missile complexes did, indeed, find their way to the armed forces. A considerable number (by comparison with previous years) of exercises involving ground and airborne forces, as well as a lot of exercising aimed at achieving cooperation between the RF Armed Forces and the armed forces of other states, so as to prepare them for the conduct of anti terrorist op erations, were conducted. Combat training was improved, though military special ists can still discern some elements of show, especially when the RF minister of de fense personally participates in the exercises.

The guarding of the countrys frontiers and coastal waters is continued to be strengthened, and sterner measures are being taken in order to stop smuggling.

The personnel of the Internal Forces and the Federal Security Service succeeded in preventing, in 2006, a number of actions planned by the terrorists, and most impor RUSSIAN ECONOMY IN trends and outlooks tantly, a number of the most notorious representatives of the terrorist under ground, including Shamil Basaev, were liquidated. The remnants of the bands are being dealt with exclusively by the military personnel serving under contracts.

Russia has found the necessary resources to finance all these activities.

Moreover, we can observe a certain strengthening of Russias defense economy and a successful cooperation in the sphere of military technology, which has brought significant revenues to the budget.

The personnel policy of the RF military establishment became more co herent in 2006. Some major parameters, such as the general numerical strength of the Ministry of Defense, were clarified (the current nominal numbers are 1,130,000 to be reduced, in the future, to 1 million), and it was announced that only 1% of offi cer assignments should be held by top ranking officers. It was announced that henceforth officer assignments should be held mainly by graduates of military edu cational establishments, and that the number of military chairs at civil educational establishments was to be drastically reduced. Since September 2006 they have remained only at 31 of Russias high educational establishments. Some civil higher educational establishments have already started, since the beginning of this year, to prepare specialists for the military establishment. This means that it will be pos sible to avoid replication in preparing specialists qualified in certain types of dual purpose technologies. The RF Ministry of Defense has introduced additional grants for the students wishing to obtain an additional military education, on condition that they would take an obligation to serve, afterwards, no less than three years on offi cer assignments, under a contract. It is very important for such decisions to be taken voluntarily.

At the same time, some deferments were abolished, including those for the students who have started military education at military chairs but have not com pleted it because of the closure of the military chairs. According to the top brass, this will make it possible to improve the quality of the draftees, including those who will serve as soldiers (or sailors). However, these persons will be drafted on an obligatory basis, which can cause some negative effects.

The traditional autumn draft of last year was the last one to entail a two year service. In the aggregate, the two drafts of the year 2006 have embraced less per sons than those of the previous years. This fact is positive. But, bearing in mind the adoption of the amendments introducing the reduction of military service for draft ees to one and a half year in 2007 and to one year in 2008, it has become clear that this countrys citizens under question should prepare themselves for the volume of the draft to be increased. Moreover, the year 2008 will mark the beginning of a de cline in the numbers of youths entering the enlistment age.

Thus, many of the old problems of personnel policy have remained unsolved.

Also, there have emerged new problems causing the actions of protest on the part of the young which are not totally unjustified. If it is to be considered, as the RF President has said in one of his messages, that the draftees will spend half a year in training units and the second half of their term of service in regular units, what will be the good of such a service Is it, indeed, advantageous for society and the State Section Institutional Problems to impose this service, which does not require high qualification and does not result in any rise in combat readiness, on the young specialists who have obtained higher education The situation can be further aggravated by the fact that the sergeants and warrant officers placed in charge of the graduates of higher educational estab lishments will be persons serving under contracts, and having no higher education.

What kind of relations will evolve between them during the period of service Also, there is no absolute clarity as regards the staffing of military posts with the present day personnel serving under contracts. In the military units of perma nent readiness the number of such persons was on the rise, while in other military units it was decreasing. This situation was quite predictable, because the causes of it were of a socio economic nature, as it was repeatedly pointed out in the IETs previous reviews.

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