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@Russia:Economy
Overview: 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.
National product: GDP - purchasing power parity - $721.2 billion (1994 estimate as extrapolated from World Bank estimate for 1992)
National product real growth rate: -15% (1994 est.)
National product per capita: $4,820 (1994 est.)
Inflation rate (consumer prices): 10% per month (average 1994)
Unemployment rate: 7.1% (December 1994) with considerable additional underemployment
Budget: revenues: $NA expenditures: $NA, including capital expenditures of $NA
Exports: $48 billion (f.o.b., 1994)
commodities: petroleum and petroleum products, natural gas, wood and
wood products, metals, chemicals, and a wide variety of civilian and
military manufactures
partners: Europe, North America, Japan, Third World countries, Cuba