04 November 2001
While the rest of the world is experiencing an economic downturn, the Russian economy is going strong. Some of Russia's top business leaders met in Moscow recently for the annual meeting of the World Economic Forum. They praised the Russian economy and the man who is leading it, President Vladimir Putin.
Putin may not be a businessman, but he is trying to sell something - a new image for his country, which has been known more for economic upheaval than stability. In his address to a recent economic forum on Russia, Mr. Putin sought to portray the country as a good place to do business. Mr. Putin said Russia has stopped looking at the international community only for financial help, and is becoming a reliable business partner.
He has reason to be optimistic about the economy. During a visit to Russia earlier this month, officials from the International Monetary Fund said Russia was one of a handful of countries that are in the best position to weather the global economic slowdown unscathed.
The country's gross domestic product (GDP), its total output of goods and services, is estimated to grow by 5.5 percent by the end of 2001. In the last three years it has grown an average of 6.4 percent each year, according to government statistics.
These indicators are surprising for an economy that almost collapsed in 1998. After years of borrowing money and bad business practices, the Russian government defaulted on its loans in August of 1998. The government was also forced to devalue its currency. These days, Russia doesn't miss a loan payment and is not asking for more.
Andrei Illarionov, an advisor to President Putin, said the crisis of 1998 forced Russia to make hard decisions about reforming the economy. "I think the Russian economic crisis which has culminated in August 1998, has contributed a lot to clarification of minds of authorities," he said, "both legislative and executive authorities as well as public opinion in the whole country. What is right, what is wrong, what is to be done and what is not to be done. What is right policy, what is wrong policy. What we see during these last three years, it is some kind of lessons learned by the Russian political and economic elite."
In the wake of the crisis in 1998, foreign investors left Russia in droves, complaining it was too risky to do business here. But at the economic forum, many credited President Putin's government with making needed economic reforms, such as a new law allowing people to buy land for the first time since the creation of the Soviet Union. Mr. Putin has also begun to tackle the extremely complicated tax system and largely corrupt legal system.
The Russian government has also been pushing companies to be more accountable and transparent in their business dealings. In the past, many investors were critical of Russia, saying there was no way to protect their investments.
Brigitte Granville is the Director of International Economics at the Royal Institute of International Affairs in London. She says all of these factors have helped Russia improve its image, and she credits Mr. Putin, who became president nearly two years ago. "They had a president who came to office who understood the agenda," she said, "understood that he had to reform the economy, and he's started doing it."
Jack Barbanel is the president of the Moscow-based Strategic Investment Group, which invests in Russia. He says Russia's oil supply has provided a bonus. "Of course the higher oil prices and commodity prices helped tremendously in terms of tax collections and budgets," he added.
About 50 percent of Russia's exports are oil and gas related. With the world's oil prices hovering around $20 a barrel, Russia is flush with cash. But the Russian economy is still vulnerable. Should the economic slowdown happening around the world continue, and the demand for oil drop, Russia would suffer because it is so dependent on oil.
That is why, said Ms. Granville, Russia must keep moving forward with reforms, so in the future, it won't be so dependent on oil. "It's never good, when the Russians have too much money," she explained, "It's a metaphor, but they start relaxing and they stop the process of reform. The reality is that they are still very far from achieving the whole agenda of what they have to do." Ms. Granville, like many economic analysts, praises the progress made so far.
Mr. Putin says he wants to continue on this course. But there are many people in the country, such as pensioners and the military, who oppose reforms. The Russian president also faces resistance from many in Russia's economic elite, who made their fortunes during the first decade of capitalism through personal connections and backdoor deals, instead of the type of fair business practices the international community would like to see.