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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 433,491 346,520 310,000 16
         
GNI per capita
 US $ 2,610 2,140 1,750 97
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 360  (24/12/10)

The Churchillian panache
Winston Churchill, who was a great statesman whatever else one might say against him ( he got various things wrong – but who hasn't?), said many quotable things about world affairs.

He said of the US: “One can always guarantee on the US doing the right thing – after exhausting all the alternatives.”

Could one not say that this is the truth of Russia? It tried autocracy under the Tsars. It tried communism under the Bolsheviks. It tried neo-classical economics, under Yeltsin and the misguided advice of the West at the time, actually the Russians themselves insisted over IMF advice, to do things ‘the western way’.

Is it finally getting it right at last under Putin?

Not likely.

A climacteric
As the world enters a new decade, Russia is about to celebrate the twentieth anniversary of its emergence from the Soviet Union in August 1991. Was this a deliverance or a disaster?

Before answering this question it would be appropriate to put this extraordinary event in context. It led straight to the liberation of the constituent republics of the USSR. Who can ever forget their successive declarations of independence in that most memorable summer and autumn, although apart from the Baltic states none of the others had anything approaching an independence movement

This most massive moment had been preceded of course by the extraordinary events of 1989, the emancipation of Central Europe from the clutches of Moscow and communism; the Red army returning to the east. We should never forget that there was a great man who made this bloodless liberation possible - Mikhail Gorbachev.

The gargantuan event
His advent in March 1985 to the first secretaryship of the Soviet Communist Party is in retrospect clearly a decisive turning-point in history (when appropriately enough in the same month Enver Hohxa, long-time Stalinist dictator of Albania, pegged out). His stance and policies could not have been more different than those of his predecessors. Glasnost and perestroika were not their style at all.

Gorbachev had been traumatised by the suppression of the Prague Spring. So was his wife, Raisa. They regarded this as the best chance to regenerate socialism, snuffed out by bureaucrats in Moscow.

Andropov, one such it might be thought, the head of the KGB at the time, was an an intelligent man and knew that things had gone profoundly wrong. He was not sure what it was, far from it.

But he was immensely impressed by Gorbachev, whom he thought might have the key. In a certain sort of way he did. But it was like unlocking Pandora's box!

Gorbachev was determined to give the communist world a new chance. Hence glasnost and perestroika. He gave the world glasnost, openness to democracy and new ideas, before perestroika, restructuring of the economy and society, doubtless in the light of those ideas.

But what ideas?
At first these were naturally tentative and rather tepid. One cannot overthrow a vast totalitarian system in a day. It is singularly interesting that the great revolutionary Gorbachev turned out to be, was at first a moderate, definitely not an incendiary- it was never his intention to destroy the Soviet Union and the project of communism , but to reform them. He proposed several reforms.

He realised that the country (if one can so call a prison of nationalities) needed an open market economy, which it already had in shadowy form in the black economy of the USSR. But this led straight to capitalism, the ultimate pariah, the worst idea of all.

Gorbachev, and this should be eternally to his credit, had set his face resolutely against violence as the solution. There was a moment where the Baltic states were concerned, where localised violence occurred, but he allowed the upheavals and sequence of events that followed each one, to take place in Central Europe, fully aware that this impended immense developments for the USSR. He had chosen freedom. We should be grateful to him forever for that.

One inconvenient consequence of this for him was the rise of Boris Yeltsin, a boisterous and populist character, determined to do Gorbachev down. He is now dead. He at least established the independence of Russia, definitely in June 1991, from the USSR and allowed the dissolution of the Soviet Union to happen, without it could be claimed, a shot being fired in anger. It should never be forgotten that this same man shut down the communist party, stared down a rather feeble attempted coup and presided rather chaotically to be sure, over Russia’s early attempts at normalisation with the rest of the world.

The roller-coaster economy
The past decade has been a roller-coaster ride for the Russian economy. From the depths of its 1998 financial crisis, which tested the proverbial patience of the Russian people, to the credit-fed boom of 2007 to the seeming meltdown of the economy just a year ago, to its still seemingly unbelievable rebound as we start the new year, one learns to expect the unexpected when it comes to Russia. This zigzag pattern was not a spontaneous occurrence, nor does it necessarily have to continue.

The key has been and will continue to be government policy. And for all the criticism that can be heaped on the authorities who could have done more or could have acted sooner, they do deserve some credit for reasonably good economic management. It didn’t have to turn out as well as it has.

In economics, it is rare to be able to conduct a controlled experiment in order to explore alternative hypotheses. But we do have history as a guide even if no two cases are exactly alike. In the run-up to the crisis, Russia, relative to spendthrift countries like Spain, Ireland or Ukraine, was running huge budget surpluses — thus, withdrawing stimulus that would have otherwise amplified the private sector’s euphoria with a veritable explosion of aggregate demand. It also saved the oil windfall for the most part so that it had a comfortable cushion to soften the blow when the global crisis erupted in late 2008. Other countries like Bulgaria, Hungary and Serbia that had no choice but to turn to the International Monetary Fund for support surely wished that they might have had Russia’s self-insured financial mattress, to help survive the crisis.

Moreover, once the crisis emanating from the United States hit Russia, the policy response was adequate. Although too much public money was no doubt wasted on undeserving corporate bailouts, the brave decision was to devalue the ruble. This was not inevitable nor politically palatable. The ministeps to depreciate the currency between Nov. 11, 2008, and Jan. 22, 2009, took courage in view of both public opinion and powerful vested interests that owed considerable foreign currency denominated debt. The cushion of reserves meant that Russia had the luxury to soften the blow through a gradual adjustment that allowed time for worried residents and companies to switch into dollars and preserve their nest eggs or repay debt. Contrast this to poor Latvia, which hangs on to the overvalued lat while the real economy is ravaged with deflation.

The Economy is coming back
At the outset of the new decade, Russia’s economy is coming back. Even after what was spent to soften the impact of the devaluation, the country still has roughly $450 billion in reserves — the third highest in the world after China and Japan. The RTS rose by almost 129 percent last year, more than markets in Brazil or China. For the first time in more than a generation, the population did not decline last year, and the inflation rate fell to 8.8 percent, the lowest since the emergence of Russia as an independent country in 1992. Despite the additional emergency crisis spending and revenue decline, the budget deficit was maintained at an estimated 6 percent of gross domestic product, which was readily financed without borrowing, by drawing on the oil stabilization fund. And after its initial plunge in the first quarter of 2009, real GDP and industrial production have subsequently grown on a month-on-month basis. Year-on-year numbers will soon turn positive, and GDP is likely to grow by 5 percent or more in 2010.

Russia to recover
Such results did not happen of their own accord. Whatever the faults of the Russian government in many areas, its handling of macroeconomic policy has been laudable. The international environment is filled with traps that have ensnared the sophisticated, such as Britain and Denmark, and the incautious, such as Iceland. Monetary and fiscal policies have been executed with alacrity, at least relative to many others.

The outcome is that Russia is well poised to recover even in the context of a feeble global economy and should be able to display impressive performance among the emerging market economies over the next couple of years. Good luck is not the main explanation. Of course, Russia is a country richly endowed with natural resources, but so are Venezuela and Nigeria.

Indeed, the critical point is that Russia — perhaps having learned the hard way about the folly of unmanageable debt in 1998 and guided by an economic team led by Finance Minister Alexei Kudrin and Central Bank Chairman Sergei Ignatyev seasoned by that ordeal — has avoided the pitfall of debt that has engulfed countries from the United States to the United Arab Emirates in a colossal balance sheet crisis. Highly indebted countries could face years of stagnation while paying down their debt burdens. It is likely that the future will be all about balance sheet deleveraging in the advanced economies, whereas most of the emerging market world will be largely unscathed by the scourge of debt — with the exception of a number of smaller, more distressed economies such as some of those on the fringe of Europe.

For Russia, as one of the larger, low-debt, resource-rich emerging market countries, its time may be at hand. Whether this opportunity is seized or squandered will depend on two key elements: government policy and the external environment. As in the past, Russia — unlike China — is too small to have a major impact on the global economy. Oil prices may well not remain in the current $80 per barrel range, and the dollar is subject to contradictory pressures as are the global markets in which Russia is enmeshed. Whatever it is, the external situation will be a given.

So the real issue is whether government policy can continue its reasonable job in riding herd on the crisis and confront what may lie ahead. Prospects are promising. With interest rates set to decline further and money supply and deposit growth in banks continuing to recover, banks are likely to start expanding credit in a “normal” economy where real interest rates are positive for the first time in years.

Large speculative capital inflows, as in many emerging markets, could present a challenge to avoid a monetary and credit surge. Lower nominal interest rates could help, and with stronger banks, the Central Bank could use other steps to make foreign borrowing more expensive for Russian banks and companies. A tighter budget will also contribute to macroeconomic stability.
Post-Soviet Russia is not even a generation old. Some lessons have been learned the hard way since Yegor Gaidar launched Russia onto the path of a globalized market economy. Hopefully, those lessons will not be readily forgotten. A future fraught with uncertainty and volatility would be a challenge to any government, but in this new decade, where debt burdens could well be the decisive issue in determining the well-being of countries, Russia is well-placed.

The biggest deal in the world?
The two largest energy companies in the world (although the Chinese are edging in to that exclusive club), Anglo-Dutch Shell and Gazprom, have decided to settle old scores and do a deal – a veritable mega-deal.

In 2006, Shell was forced to halve its controlling stake in Sakhalin II and hand control to Gazprom following intense pressure from the Kremlin. Almost four years after Shell was forced to cede control of a $20bn (£12.8bn) gas project to its Russian rival Gazprom, the two companies have signed a new agreement on "global co-operation".

The pact will make it easier for Shell to access Russia's vast oil and gas reserves in Siberia and the far east. In return, state-controlled Gazprom will become a partner on as yet unspecified Shell projects outside Russia.

Analysts said that the arrangement would allow Gazprom to reduce its dependence on selling gas via pipeline to Europe – where demand for gas is falling – and help it to tap growing markets such as Asia. Gazprom, which does not currently produce significant quantities of gas outside Russia, will also be able to develop its technical expertise, particularly on projects producing liquified natural gas LNG, which is shipped around the world by tanker.

Gazprom's influence – and financial clout – have been weakened recently because of an unexpected global "gas glut" as new techniques make less conventional projects like shale oil and gas, possibilities.

Shell, like most non-state controlled international oil companies, is finding it increasingly hard to access new reserves. More of the world's oil is now controlled by state-owned companies.

Peter Hitchens, analyst from stockbroker Panmure Gordon, said it was "slightly ironic" that the company was forging such a pact with Gazprom given the pair's history. But he added that the experience demonstrated that foreign companies partnered with Gazprom do better than those operating independently in Russia. The project began production last year and both companies are now discussing the possibility of expanding Sakhalin II so it can export more liquified natural gas.

Shell has also found itself partnered with Gazprom on the Salym oil and gas field in western Siberia. Its original partner, the UK-based Sibir Energy, was taken over by Gazprom last year.

Alexei Miller, chairman of Gazprom's management committee, said: "This agreement is a vivid example of the mutually beneficial development of strategic partnership between the world's largest energy companies. Ahead of us, we have new large-scale projects and growing joint presence in new markets."

Shell's chief executive, Peter Voser, said: "Russia is an important area for new energy development for Shell and I expect it will play a big role in meeting the world's growing demand for oil and gas in the years ahead." Of which there can be little doubt!

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