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Russia Economy 1996
Russia, a vast country with a wealth of natural resources, a well-educated
population, and a diverse industrial base, continues to experience
formidable difficulties in moving from its old centrally planned economy to
a modern market economy. President YEL'TSIN's government has made
substantial strides in converting to a market economy since launching its
economic reform program in January 1992 by freeing nearly all prices,
slashing defense spending, eliminating the old centralized distribution
system, completing an ambitious voucher privatization program, establishing
private financial institutions, and decentralizing foreign trade. Russia,
however, has made little progress in a number of key areas that are needed
to provide a solid foundation for the transition to a market economy.
Financial stabilization has remained elusive, with wide swings in monthly
inflation rates. Only limited restructuring of industry has occurred so far
because of a scarcity of investment funds and the failure of enterprise
managers to make hard cost-cutting decisions. In addition, Moscow has yet to
develop a social safety net that would allow faster restructuring by
relieving enterprises of the burden of providing social benefits for their
workers and has been slow to develop the legal framework necessary to fully
support a market economy and to encourage foreign investment. As a result,
output has continued to fall. According to Russian official data, which
probably overstate the fall, GDP declined by 15% in 1994 compared with a 12%
decline in 1993. Industrial output in 1994 fell 21% with all major sectors
taking a hit. Agricultural production in 1994 was down 9%. The grain harvest
totaled 81 million tons, some 15 million tons less than in 1993.
Unemployment climbed to an estimated 6.6 million or about 7% of the work
force by yearend 1994. Floundering Russian firms have already had to put
another 4.8 million workers on involuntary, unpaid leave or shortened
workweeks. Government fears of large-scale unemployment continued to hamper
industrial restructuring efforts. According to official Russian data, real
per capita income was up nearly 18% in 1994 compared with 1993, in part
because many Russians are working second jobs. Most Russians perceive that
they are worse off now because of growing crime and health problems and
mounting wage arrears. Russia has made significant headway in privatizing
state assets, completing its voucher privatization program at midyear 1994.
At least a portion of about 110,000 state enterprises were transferred to
private hands by the end of 1994. Including partially privatized firms, the
private sector accounted for roughly half of GDP in 1994. Financial
stabilization continued to remain a challenge for the government. Moscow
tightened financial policies in late 1993 and early 1994, including
postponing planned budget spending, and succeeded in reducing monthly
inflation from 18% in January to about 5% in July and August. At midyear,
however, the government relaxed austerity measures in the face of mounting
pressure from industry and agriculture, sparking a new round of inflation;
the monthly inflation rate jumped to roughly 15% per month during the fourth
quarter. In response, Moscow announced a fairly tight government budget for
1995 designed to bring monthly inflation down to around 1% by the end of
1995. According to official statistics, Russia's 1994 trade with nations
outside the former Soviet Union produced a $12.3 billion surplus, up from
$11.3 billion in 1993. Foreign sales - comprised largely of oil, natural
gas, and other raw materials - grew more than 8%. Imports also were up 8% as
demand for food and other consumer goods surged. Russian trade with other
former Soviet republics continued to decline. At the same time, Russia paid
only a fraction of the roughly $20 billion in debt that came due in 1994,
and by the end of the year, Russia's hard currency foreign debt had risen to
nearly $100 billion. Moscow reached agreement to restructure debts with
Paris Club official creditors in mid-1994 and concluded a preliminary deal
with its commercial bank creditors late in the year to reschedule debts owed
them in early 1995. Capital flight continued to be a serious problem in
1994, with billions of additional dollars in assets being moved abroad,
primarily to bank accounts in Europe. Russia's physical plant continues to
deteriorate because of insufficient maintenance and new construction. Plant
and equipment on average are twice the age of the West's. Many years will
pass before Russia can take full advantage of its natural resources and its
human assets.
GDP - purchasing power parity - $721.2 billion (1994 estimate as
extrapolated from World Bank estimate for 1992)
-
National product real growth rate:
-
National product per capita:
-
Inflation rate (consumer prices):
10% per month (average 1994)
7.1% (December 1994) with considerable additional underemployment
$NA, including capital expenditures of $NA
$48 billion (f.o.b., 1994)
petroleum and petroleum products, natural gas, wood and wood products,
metals, chemicals, and a wide variety of civilian and military manufactures
Europe, North America, Japan, Third World countries, Cuba
$35.7 billion (f.o.b., 1994)
machinery and equipment, consumer goods, medicines, meat, grain, sugar,
semifinished metal products
Europe, North America, Japan, Third World countries, Cuba
$95 billion-$100 billion (yearend 1994)
complete range of mining and extractive industries producing coal, oil, gas,
chemicals, and metals; all forms of machine building from rolling mills to
high-performance aircraft and space vehicles; ship- building; road and rail
transportation equipment; communications equipment; agricultural machinery,
tractors, and construction equipment; electric power generating and
transmitting equipment; medical and scientific instruments; consumer
durables
grain, sugar beets, sunflower seeds, meat, milk, vegetables, fruits; because
of its northern location does not grow citrus, cotton, tea, and other warm
climate products
illicit cultivator of cannabis and opium poppy; mostly for domestic
consumption; government has active eradication program; used as
transshipment point for Asian and Latin American illicit drugs to Western
Europe and Latin America
US commitments, including Ex-Im (1990-94), $15 billion; other countries, ODA
and OOF bilateral commitments (1990-93), $120 billion
rubles per US$1 - 3,550 (29 December 1994), 1,247 (27 December 1993);
nominal exchange rate still deteriorating but real exchange rate holding
steady
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