Russia

The Economic Outlook

In the first half-decade after the end of the Soviet Union, Russia made significant strides in restructuring its economy and providing an environment for the operation of market forces rather than state control as the fundamental principle of the economic system. By 1995 more than half of the recorded GDP came from the private sector, with considerable unreported private activity also contributing to the vitality of the economy. Almost all prices are now market determined. Most of Russia's state enterprises have been placed under some degree of private control, although many continue to operate in much the same way as before privatization. By making the ruble convertible in foreign trade and other current-account transactions, Russia has accelerated the integration of its economy with those of the rest of the world.

These strides have come at a cost, however. The Russian economy has endured a severe contraction that experts predict will not end before late 1996 or 1997. Many Russians are experiencing the new and disillusioning phenomenon of unemployment as the growing private sector slowly absorbs an increasingly large labor pool jettisoned in the restructuring of the state sector. Many, particularly those of middle age, are finding it difficult to adjust to the loss of the cradle-to-grave social safety net of the Soviet system. The gap between Russia's "haves" and "have-nots," which is determined by the possession of skills, audacity, and connections needed to be successful under the new economic system, widened alarmingly in the mid-1990s.

Despite major problems, Russia is not likely to turn back the clock on economic reform, although periodic slowdowns are likely to recur. Western experts consider the results of the June-July 1996 presidential elections an encouraging sign that the government will not leave the path of conversion upon which Yeltsin embarked in 1990. But Russia's market economy remains partially formed, with some parts far advanced and others lagging behind. Critical, unfilled needs include the following: substantial improvement in the taxation system, which is poorly enforced and fails to encourage private initiative or foreign investment; a comprehensive rather than a piecemeal set of commercial laws to establish consistent business conditions; continued reform of the banking system, including removal of corrupt elements and ineffectual commercial banks; continuation of meaningful privatization, including reform of voucher distribution, expansion of the entrepreneurial class, and restoration of public confidence in privatization as more than redistribution of wealth among the entrepreneurial elite; continued government spending discipline (something forsaken completely during Yeltsin's 1996 campaign) to keep exchange rates, budget deficits, and inflation under control; establishment of agencies to promote trade and distribute information; and wage reform to ensure timely payment and gradually relieve the intense social pressure caused by the increase of the have-not part of Russia's population.

Yeltsin's appointment of reform economist Anatoliy Chubays as his chief of staff in July 1996 was a signal that the advocates of strong reform might overcome the factions that had blocked or weakened reform legislation in the State Duma. But political battles will continue over the speed and wisdom of market-oriented reform because strong vested interests continue to advocate state control of remaining economic assets, or even reassumption of state control of privatized assets. As the first five years have demonstrated, the road to economic reform in Russia is not straight or short, but, given continued outside assistance and political stability, the chances of further progress seem reasonably good.

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A number of recent studies provide in-depth coverage of various aspects of the Russian economy. The PlanEcon series Review and Outlook for the Former Soviet Republics offers short summaries of most aspects of the economy, with forecasts of trends for the near future. The Economist Intelligence Unit's quarterly Country Report: Russia analyzes key economic indicators against the background of political and international conditions, with statistical information. The Congressional Research Service of the Library of Congress and the World Bank have issued series of useful studies on individual aspects of the economy and the reform program, with the latter concentrating on conditions for investment and business activity. The Organisation for Economic Co-operation and Development (OECD) offers its 1995 economic survey on the Russian Federation, a detailed analysis of the entire domestic economic structure and its supporting elements. Energy Policies of the Russian Federation: 1995 Survey , from the OECD's International Energy Agency, analyzes the status and potential of Russia's energy sector. Anders Aslund's How Russia Became a Market Economy describes the reform process from the 1980s through 1995. The World Bank's Statistical Handbook 1995: States of the Former USSR provides indicative statistics on various economic categories. The Foreign Broadcast Information Service's Daily Report: Central Eurasia includes periodic economic reviews devoted to statistical and textual analysis of economic trends in Russia and elsewhere in the CIS. Russian Federation: Report on the National Accounts is an in-depth 1995 report on Russia's financial status by a team from the World Bank and Russia's State Committee for Statistics (Gosudarstvennyy komitet po statistike). (For further information and complete citations, see Bibliography.)