Russia CPI may exceed '07 target: Kremlin aide

By Gleb Bryanski

MOSCOW (Reuters) - Russian consumer price growth may slightly exceed the official target this year, a Kremlin economic aide told Reuters on Tuesday, becoming the first top official to acknowledge the 8 percent target may be missed.

"I think the government and the central bank have every chance of keeping inflation within the target, but even if it overshoots, it will do so only slightly," Arkady Dvorkovich said at the Reuters Russia Investment Summit.

Consumer prices grew by 6.7 percent in the first eight months of the year, and economists polled by Reuters see annual inflation at 8.5 percent for the full year. Officials have until now insisted the target was still within reach.

Dvorkovich, a soft spoken Western-educated economist, said that given billions of dollars in net private capital inflows and higher-than-expected prices for oil, Russia's main commodity, current inflation levels could be seen a success.

"If it exceeds 9 percent, which at the moment is unlikely, it will be a failure," he said. Russia had 9 percent inflation in 2006, after raising the target and introducing tough anti-inflation measures, including the rouble appreciation.

Dvorkovich said economic growth will remain strong and forecast no less than 7.5 percent gross domestic product growth in 2007. He said investment growth will be in double-digits, even stripping out acquisitions in the energy sector.

AN INTEGRATED WORLD

Dvorkovich said Russia has the potential to grow even faster in the medium term if it increases labor productivity and energy efficiency to compensate for rising domestic prices for natural gas and electricity.

"We had 7.9 percent economic growth in January-August, even with our low energy efficiency and labor productivity. It means we can grow much faster with new technologies," he said.

Dvorkovich said even in a worst-case scenario the economy would not grow at a rate lower than 3-4 percent a year. He warned that a further strengthening of the state sector's role in the economy may slow growth.

Dvorkovich said public companies such as No.1 oil firm Rosneft (ROSN.MM: Quote, Profile, Research, Stock Buzz) and gas export monopoly Gazprom (GAZP.MM: Quote, Profile, Research, Stock Buzz) made about half of all investment decisions, many of them not efficient and leading to wasteful expenditure.

"If the share of such expenditure rises, our economic growth rates will fall," he said. "Given that we are living in an integrated world, we may lose competition in many sectors to our neighbors."

BEGINNING OF THE ROAD

Dvorkovich said the government was planning to remove state officials from boards of directors of most state-owned companies -- a widespread practice in Russia -- within the next two to three years and replace them with independent directors.

Many top officials, including Dvorkovich himself, sit on the boards of state-owned firms. First Deputy Prime Minister Dmitry Medvedev chairs Gazprom's board, while Deputy Head of the President's administration Igor Sechin chairs Rosneft.

"This practice has outlived itself, and we should appoint independent directors instead. We are only at the beginning of this road, but I think we will make this road in most companies in two to three years," Dvorkovich said.