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Economy of Russia

Economy - overview: Russia posted gross domestic product growth of 8.3 % in 2000 and most of industrial sector posting double digit growth figures, the GDP grew about 5 % in 2001 and 4,3 % in 2002 It is expected to grow about 6,5 % in 2003 . This is still higher than most of the other countries. However, Russian GDP has contracted an estimated 45% since 1991, despite the country's wealth of natural resources, its well-educated population, and its diverse - although increasingly dilapidated - industrial base. By the end of 1997, Russia had achieved some progress. Inflation had been brought under control, the ruble was stabilized, and an ambitious privatization program had transferred thousands of enterprises to private ownership. Some important market-oriented laws had also been passed, including a commercial code governing business relations and the establishment of an arbitration court for resolving economic disputes. But in 1998, the Asian financial crisis swept through the country, contributing to a sharp decline in Russia's earnings from oil exports and resulting in an exodus of foreign investors. Matters came to a head in August 1998 when the government allowed the ruble to fall precipitously and stopped payment on $40 billion in ruble bonds. In 1999, output increased for only the second time since 1991, by an officially estimated 3.2%, regaining much of the 4.6% drop of 1998. This increase was achieved despite a year of potential turmoil that included the tenure of three premiers and culminated in the New Year's Eve resignation of President Boris Yeltsin. Of great help was the tripling of international oil prices in the second half of 1999, raising the export surplus to $29 billion. On the negative side, inflation rose to an average 86% in 1999, compared with a 28% average in 1998 and a hoped-for 30% average in 2000. Ordinary persons found their wages falling by roughly 30% and their pensions by 45%. The Putin government has given high priority to supplementing low incomes by paying down wage and pension arrears. Many investors, both domestic and international remain on the sidelines, scared off by Russia's long-standing problems with capital flight, reliance on barter transactions, widespread corruption among officials, and endemic organized crime.

Post-Communist Transition: Structural Adjustment Reforms and Macroeconomic Stabilization

To eliminate the distortions of the Soviet Administrative Command System, Yeltsin's shock therapy program, employed days following the dissolution of the Soviet Union, cut subsidies to money-losing farms and industries, decontrolled prices, moved toward convertibility of the ruble, and moved toward restructuring the largely state-owned economy. According to market economists, the dismantlement of the administrative command system in Russia was supposed to raise GDP and living standards by allocating resources more efficiently. It was supposed to create a movement outward towards production possibilities curve by eliminating of central planning, substituted by decentralized market system, eliminating huge distortions through liberalization, providing incentives through privatization.

However, many economists, especially Joseph Stiglitz, winner of the 2001 Nobel Prize for economics and Marshall Goldman, the respected Soviet and Russian specialist, argue that existing institutions were abandoned before the legal structures of a market economy that govern private property, oversee the financial market, and enforce taxation were functional, although the two major components of a macroeconomy are banking system and the state budgetary system.

These economists point out that complicated markets require strong contract enforcement, accepted customs and practices, and financial and regulatory institutions account for the bulk of economic output. Instead, Russia was left with Soviet-era institutions with organization. In the post-Communist years, Russia's process of privatization, combined with capital market liberalization, and failure to establish institutional infrastructure, led to incentives for capital flight, contributing to post-communist economic contraction in Russia.

Three Stages of Privatization

According to most IMF, World Bank, and US Treasury Department economists, however, private ownership would not only propel the strengthening of social, organizational and legal infrastructures and institutions, but is intrinsically more efficient than state ownership because in a competitive environment owners have the incentives to maximize productivity. While this theory is generally valid, many conditions can interfere with the application of this theory to the real world. With emphasis on just transferring ownership to private hands in order to create a lobby for private enterprise in order to prevent a communist comeback and push for creation of institutions to govern the market instead of competition, price controls were lifted without dismantling key Soviet-era monopolies. Prices thus were not able to properly equilibrate according to natural levels dictated by supply and demand since private profit-seeking monopolies lacked the incentives provided by competition to lower prices.

However, reformers faced critical barriers. The Communist-era Central Bank under the Supreme Soviet leading did not fill a role comparable to that of its counterparts in the advanced market economies. Instead, its actually tried to derail reforms by actively printing money during a period of inflation. After all, the Russian government was short of revenue and was forced to print money to finance its debt. As a result, inflation blew up into hyperinflation, and the Russian economy continued in a serious slump.

Following the collapse of the Soviet Union, privatization was initially a broadly popular program. Since structural adjustment or shock therapy—cutting subsidies to money-losing farms and industries, decontrolling prices, and moving toward convertibility of the ruble—led to a period of hyperinflation that eroded the purchasing power of fixed-income wages and wiped out the savings of ordinary Russians accumulated during the Soviet years (as a result of monetary overhang), these reforms were considerably unpopular. Privatization, the transfer of legal title to state enterprises to private owners, however, at least at first, offset the unpopularity of stabilization .

However, privatization programs are very politically sensitive, raising many legitimate political debates. Who decide how to set values on state enterprises? Does the state accept cash or for government-provided coupons? Should the state allow the workers or managers of the enterprise to gain control over their own workplace? Should the state allow foreigners to buy privatized enterprises, thereby which an outside investor would invest the capital needed upgrade and modernize the firm, bringing it up to international standards? Which levels of government can privatize which asset?

In Russia these political disputes would interfere with the application of privatization, leading to a new system of distorted prices, incentives for asset stripping, not wealth creation, the distortions associated with the lack of competition due to the lack of prior restructuring, and employee ownership, which in general keeps wages and employment at levels that were too high. Anticipating a backlash against reform, Yeltsin's government assumed that they had only a short time in which to act; they therefore needed to take steps that would have a large and immediate impact, making the reversal of reform prohibitively costly for their opponents.

After parliament gave Yeltsin and his government the authority to enact privatization by decree in 1991, Russia combined two strategies of privatization, one emphasizing equity and the other emphasizing efficiency. For the sake of equity, fairness, and the interests of social stability the state could have simply given assets to the public, which quickly turns the entire population into property holders and gives them a stake in the reform process . For the sake of efficiency, another method is to require auctions in which bidders compete to offer the state the highest price, which creates real value that can be used as investment capital, which creates real value that can be used as investment capital. Although this strategy would have allowed influential corrupt cliques to capture control of state enterprises, the kinds of conspiratorial cliques that flourished under the command economy, this strategy would have fostered a viable capital market, which is the mechanism for bringing private savings into investment in Russian companies.

Initially, in the first stage of privatization used in 1991 and the first half of 1992, buyers used cash rather than vouchers. But this exasperated the gap between rich and power as Communist (KPRF) opposition to the stabilization increasingly appealed to workers, Yeltsin changed course and decreed that a program of vouchers would begin that combined the ideas of both forms of privatization. Russia concocted a new method of privatization, distributing free state-issued vouchers to all citizens in the forth quarter of 1992, who were had the opportunity to bid for shares of privatized firms at special auctions with these vouchers with a face value of 10,000 rubles. But vouchers were not inflationary because they could not be used as legal tender for other transactions. But neither were they forms of productive capital, as stocks and bonds are in countries with established financial markets. So the vouchers did not expand the pool of resources enterprises could use to increase productivity and efficiency.

Anatolii Chubais, the architect of Yeltsin's privatization policies just as Gaidar was the architect of structural adjustment in 1993, was a pragmatist who sought to co-opt benefit powerful interests, including enterprise directors and regional officials. In the short run, at least, the consent of the directors to the program was essential to maintaining economic and social stability in the country. The managers could ensure that labor did not erupt in a massive wave of strikes. The government, therefore, did not strenuously resist the tendency for voucher privatization to turn into "insider privatization", as it was termed, in which senior enterprise officials acquired the largest proportion of shares in privatized firms. Of the three options, the second, under which employees could acquire majority stakes in the enterprises, proved to be the most widely used. Three-quarters of privatized enterprises opted for this method, most often using vouchers.

After Yeltsin had dissolved parliament and a new parliament was elected, by the summer of 1994, the new parliament still failed to agree to the terms under which the next phase of enterprise privatization would proceed. Thus, Yeltsin put the program into effect by decree instead, allowing him to implement the third phase of privatization—the infamous loans for shares scheme, which allowed a handful of powerful banks to acquire substantial ownership shares over major energy, metallurgical, and telecommunications firms at shockingly low prices. Many have since charged that Yeltsin was allowing the oligarchs to grab state enterprises at a time when he needed their support for is 1996 presidential elections, which appeared to be heading toward a Communist (KPRF) insurgency.

The corruption of the third phase can be linked to the failure to establish proper institutional infrastructure. As mentioned, radical restructuring occurred before property rights, regulatory institutions, institutions for built-in macroeconomic stabilization (such as government programs or policies that will counteract the business cycle with new government action), institutions for social insurance, and institutions for conflict management. Aside from that, protection of property rights not only requires legal guarantees, but the customs and culture of the market. Proponents of shock therapy, however, argued that privatization would itself propel the establishment of strengthening of social, organizational and legal infrastructures and institutions that are essential for an effective market economy.

In hindsight, prominent Soviet specialist Marshall Goldman has argued that Yeltsin should have extending property ownership to land, facilitated the formation of up-start businesses, reformed the currency, decontrolled prices, scraped taxes on wages, brought fiscal policy under control, and moved toward convertibility of the ruble before implementing the process of privatization. Marshall Goldman, Joseph Stiglitz, the winner of the 2001 Nobel Prize in economics Joseph Stiglitz, and other critics of Russia's implementation of privatization generally argue that "insider buyout," which allowed state managers to usually wound up with the controlling share of the stock, argue that it further accounted for Russia's poor implementation of economic restructuring. In Russia a far higher share of state-owned assets were sold to managers and workers, or "insiders," compared to Czechoslovakia, Hungary, Poland. In this sense, it is more precise to describe Russia's privatization as "insider privatization" (the first stage) and "oligarch privatization" and distinct from the general pattern of privatization in other, more successful countries in Eastern Europe. Many have thus argued that it would be more accurate to say that real economic reform was never tried since it was quickly subverted by actors outside the government's control, such as the Central Bank, ministries, regional governments, and industrial managers.

The reasoning behind this claim is that the "insider buyout" induced 'employee dominant ownership', inevitably leading to the tendency for the stockholders, who are managers or employees themselves, to vote for increased wages, reduced investments, and fewer layoffs, which all disfavor the growth of market economy. Aside from the distortions associated with the lack of competition, employee ownership in general keeps wages and employment at levels that were too high. The impact of "insider buyout" in Russia can be seen from the abnormally low unemployment rates and very high underemployment levels in privatized industries. Generally speaking, large-scale privatization of moribund, money-losing state owned enterprises should increase unemployment. Soviet industries, after all, were often not even value adding, with cost of inputs exceeding the cost of outputs. Sixteen percent of the workforce became unemployed in both Eastern Germany and Poland. Even in China where organized, large-scale privatization has not been carried out (although it is said that spontaneous privatization has been under way), the unemployment rate in 1998 was, conservatively counted at 8 to 9%. But in Russia, in the most radical stage of privatization, 1994, only 6.3% of the economically active population was unemployed.

Thus, these industries still lacked incentives to increase productivity or expand even after the transition to market capitalism. According to major surveys of enterprise directions whether they would be willing to sell a majority of the shares of their enterprise to an outside investor who would bring in the capital needed to invest in modernizing the firm, two-thirds said they would not be willing. In other words, they would rather remain majority owners of an unprofitable enterprise than minority owners of a much more profitable one. Very few firms have experienced much management turnover.

According to Stiglitz, the key economic mistakes of the transition were the emphasis on privatization over competition and the emphasis on restructuring existing enterprises over creation of new jobs and enterprises. With emphasis on just transferring ownership to private hands in order to create a lobby for private enterprise in order to prevent a communist comeback and push for creation of institutions to govern the market instead of competition, price controls were lifted without dismantling key Soviet-era monopolies. Prices thus were not able to properly equilibrate according to natural levels dictated by supply and demand since private profit-seeking monopolies lacked the incentives provided by competition to lower prices.

To this day, due to the lack of competition, enterprises do not have enough working capital to pay their wages and taxes on time, and trade with one another using barter. Not able to pay wages, upgrading and modernizing their facilities is out of the question. Ironically, the very goals of privatization were that privatize ownership would lead to incentives to improve productivity of Soviet-era value-losing state enterprises. By 1998, at least half of enterprise output was being "sold" through barter or trade. Barter creates unreal values. The federal government has effectively allowed them to avoid paying much of their federal taxes in return for keeping key customers, such as military bases and major industrial enterprises, supplied with energy and power. Aside from the lack of growth, the conditions induced by the stabilization package provided incentives for huge waves of capital flight, not the foreign investment promised to set Russia on the path to prosperity. Following capital market liberalization, the strategy of privatization, combined with the absence of institutional infrastructure, led to incentives for asset stripping. With inflation at double-digit rates per month as a result of instantaneous price liberalization, macroeconomic stabilization was enacted to curb this trend. This entailed tightening the money supply and raising interest rates. In Russia, privatization paradoxically forced industries to barter, leading to a new system of distorted prices, and led to incentives for asset stripping, not wealth creation.

Stabilization, Capital Market Liberalization, and Capital Flight

According to Marshall Goldman, the focus on macrostabilization, which was necessary to counteract the hyperinflation induced by shock therapy, led to interest rates of 20, 30, 40, 250 percent. Then, the focus on macro-stabilization, which wiped out the savings of most Russians, left non-insiders largely incapable of buying the enterprises. More over, privatized enterprises would be difficult to revitalize, given the high interest rates and lack of financial institutions to provide capital. In this sense, he argues that privatization accompanied by the opening of the capital markets, led not to wealth creation but to asset stripping. Stiglitz contends that insider privatization, under these conditions, provided incentives for asset-stripping and not growth, leading to movements $2 billion to $3 billion of capital per month. According to Stiglitz, "Anyone smart enough to be a winner in the privatization sweepstakes would be smart enough to put their money in the booming US stock market, or into the safe haven of secretive offshore bank accounts. It was not even a close call; and not surprisingly, billions poured out of the country".

Since privatization has yet to bring a viable capital market into being, the government by 1998 fell into an insurmountable debt crisis, not able to pay off the interest on the loans it had taken. Before, the government raised cash through, foreign borrowing, high interest-bearing domestic bonds, privatization, and especially oil revenues. Due to falling world oil demand as a result of the East Asian crisis, by August 1998, the state could not meet its debt obligations, declaring a moratorium on its debts. Now longer able to prop up the value of the ruble at an artificially high exchange rate, the ruble's value collapse against the dollar, losing two-thirds its value overnight. The economy, however, has rebounded since then due to the devaluation, which greatly reduced the costs of production in Russia, but is still in a precarious state, propped up largely by high oil prices for the time being. Another crisis, like the East Asian meltdown, could lead to the collapse of the economy.

After over a decade in transition, roughly half the population in Russia is now impoverished in a country where poverty had been largely non-existent, life expectancy has dropped, and GDP has roughly halved. In stark contrast to these aims, Russia's economic decline is far more severe and more protracted than the Great Depression following 1929, and half as severe as the catastrophic depression caused by the effects of World War I, the collapse of the Czarist regime, the Civil War, and the implementation of "War Communism". Hopes for recovery hinge on foreign investment, lower interest rates and inflation (difficult to achieve together), high oil prices, and reigning in organized crime and corruption in order to transparently govern an advanced market economy.

Economy - in greater depth:
The Russian economy underwent tremendous stress as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid decline in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.

Russia, however, appears to have weathered the crisis relatively well. Real GDP increased by the highest percentage since the fall of the Soviet Union, the ruble stabilized, inflation was moderate, and investment began to increase again. Russia is making progress in meeting its foreign debts obligations. During 2000-01, Russia not only met its external debt services but also made large advance repayments of principal on IMF loans but also built up Central Bank reserves with government budget, trade, and current account surpluses. The FY 2002 Russian Government budget assumes payment of roughly $14 billion in official debt service payments falling due. Large current account surpluses have brought a rapid appreciation of the ruble over the past several years. This has meant that Russia has given back much of the terms-of-trade advantage that it gained when the ruble fell by 60% during the debt crisis. Oil and gas dominate Russian exports, so Russia remains highly dependent upon the price of energy. Loan and deposit rates at or below the inflation rate inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise.

In 2003, the debt will rise to $19 billion due to higher Ministry of Finance and Eurobond payments. However, $1 billion of this has been prepaid, and some of the private sector debt may already have been repurchased. Russia continues to explore debt swap/exchange opportunities.

In the June 2002 G8 Summit, leaders of the eight nations signed a statement agreeing to explore cancellation of some of Russia's old Soviet debt to use the savings for safeguarding materials in Russia that could be used by terrorists. Under the proposed deal, $10 billion would come from the United States and $10 billion from other G-8 countries over 10 years.

Gross Domestic Product
Russia's GDP, estimated at $287.9 billion at 2002 exchange rates, increased by 4.9% in 2001 compared to 2000. However, this rate slowed compared to the phenomenal 8% growth in 2000. Continued low inflation and strict government budget led to the growth, while lower oil prices and ruble appreciation slowed it. At the end of 2001, the unemployment rate was 9.0%, down from 10.4% at the end of 2000. Combined unemployment and underemployment may exceed those figures. Industrial output in 2001 grew by 4.9% compared to 2000, driven by private consumption demand. The contribution of fixed capital investment, an important contributor to growth in 1999, lost its importance in industrial growth.

Monetary Policy
The exchange rate stabilized in 1999; after falling from 6.5 rubles/dollar in August 1998 to about 25 rubles/dollar by April 1999, one year later it had further depreciated only to about 28.5 rubles/dollar. As of June 2002, the exchange rate was 31.4 rubles/dollar, down from 29.2 rubles/dollar the year before. After some large spikes in inflation following the August 1998 economic crisis, inflation has declined steadily. Cumulative consumer price inflation for 2001 was 18.6% slightly below the 20.2% inflation rate of the previous year but above the inflation target set in the 2001 budget. The Central Bank's accumulation of foreign reserves drove inflation higher and that trend is expected to continue. The 2002 budget estimates an inflation rate of 12%, but the World Bank predicts inflation will stay above 15% in 2002.

Government Spending/Taxation
Central and local government expenditures are about equal. Combined they come to about 38% of GDP. Fiscal policy has been very disciplined since the 1998 debt crisis. The overall budget surplus for 2001 was 2.4% of GDP, allowing for the first time in history for the next year's budget to be calculated with a surplus (1.63% of GDP). Much of this growth, which exceeded most expectations for the third consecutive year, was driven by consumption demand. Analysts remain skeptical that high rates of economic growth will continue, particularly since Russia's planned budgets through 2005 assume that oil prices will steadily increase. Low oil prices would mean that the Russian economy would not achieve its projected growth. However, high oil prices also would have negative economic effects, as they would cause the ruble to continue to appreciate and make Russian exports less competitive.

Lack of legislation and, where there is legislation, lack of effective law enforcement, in many areas of economic activity is a pressing issue. During 2000 and 2001, changes in government administration increased the power of the central government to compel localities to enforce laws. Progress has been made on pension reform and reform of the electricity sector. Nonetheless, taxation and business regulations are unpredictable, and legal enforcement of private business agreements is weak. Attitudes left over from the Soviet period will take many years to overcome. Government decisions affecting business have often been arbitrary and inconsistent. Crime has increased costs for both local and foreign businesses. On the positive side, Russian businesses are increasingly turning to the courts to resolve disputes. The passage of an improved bankruptcy code in January 1998 was one of the first steps. In 2001, the Duma passed legislation for positive changes within the business and investment sector; the most critical legislation was a deregulation package. This trend in legislation is continued through 2002, with the new corporate tax code going into effect.

Natural Resources
The mineral-packed Ural Mountains and the vast oil, gas, coal, and timber reserves of Siberia and the Russian Far East make Russia rich in natural resources. However, most such resources are located in remote and climactically unfavorable areas that are difficult to develop and far from Russian ports. Oil and gas exports continue to be the main source of hard currency, but declining energy prices have hit Russia hard. Russia is a leading producer and exporter of minerals, gold, and all major fuels. The Russian fishing industry is the world's fourth-largest, behind Japan, the United States, and China. Russia accounts for one-quarter of the world's production of fresh and frozen fish and about one-third of world output of canned fish. Natural resources, especially energy, dominate Russian exports. Ninety percent of Russian exports to the United States are minerals or other raw materials.

Russia is one of the most industrialized of the former Soviet republics. However, years of very low investment have left much of Russian industry antiquated and highly inefficient. Besides its resource-based industries, it has developed large manufacturing capacities, notably in machinery. Russia inherited most of the defense industrial base of the Soviet Union, so armaments are the single-largest manufactured goods export category for Russia. Efforts have been made with varying success over the past few years to convert defense industries to civilian use.

Russia comprises roughly three-quarters of the territory of the former Soviet Union but has relatively little area suited for agriculture because of its arid climate and inconsistent rainfall. Northern areas concentrate mainly on livestock, and the southern parts and western Siberia produce grain. Restructuring of former state farms has been an extremely slow process. The new land code passed by the Duma in 2002 should speed restructuring and attract new domestic investment to Russian agriculture. Foreigners are not allowed to own farmland in Russia. Private farms and garden plots of individuals account for over one-half of all agricultural production.

In 1999, investment increased by 4.5%, the first such growth since 1990. Investment growth has continued at high rates from a very low base, with an almost 30% increase in total foreign investments in 2001 compared to the previous year. Higher retained earnings, increased cash transactions, the positive outlook for sales, and political stability have contributed to these favorable trends. Foreign investment in Russia is very low. Cumulative investment from U.S. sources of about $4 billion are about the same as U.S. investment in Costa Rica. Over the medium-to-long term, Russian companies that do not invest to increase their competitiveness will find it harder either to expand exports or protect their recent domestic market gains from higher quality imports.

Foreign direct investment, which includes contributions to starting capital and credits extended by foreign co-owners of enterprises, rose slightly in 1999 and 2000, but decreased in 2001 by about 10%. Foreign portfolio investment, which includes shares and securities, decreased dramatically in 1999, but has experienced significant growth since then. In 2001, foreign portfolio investment was $451 million, more than twice the amount from the previous year. Inward foreign investment during the 1990s was dwarfed by Russian capital flight, estimated at about $15 billion annually. During the years of recovery following the 1998 debt crisis, capital flight seems to have slowed. Inward investment from Cyprus and Gibraltar, two important channels for capital flight from Russia in recent years, suggest that some Russian money is returning home.

A significant drawback for investment is the banking sector, which lacks the resources, the capability, and the trust of the population that it would need to attract substantial savings and direct it toward productive investments. Russia's banks contribute only about 3% of overall investment in Russia. While ruble lending has increased since the October 1998 financial crisis, loans are still only 40% of total bank assets. The Central Bank of Russia reduced its refinancing rate five times in 2000, from 55% to 25%, signaling its interest in lower lending rates. Interest on deposits and loans are often below the inflation rate. The poorly developed banking system makes it difficult for entrepreneurs to raise capital and to diversify risk. Banks still perceive commercial lending as risky, and some banks are inexperienced with assessing credit risk.

Money on deposit with Russian banks represents only 7% of GDP. Sberbank receives preferential treatment from the state and holds 73% of all bank deposits. It also is the only Russian bank that has a federal deposit insurance guarantee. Sergei Ignatiev recently replaced Vikto Gerashchenko as Chairman of the Russian Central Bank. Under his leadership, necessary banking reforms, including stricter accounting procedures and federal deposit insurance, are likely to be implemented.

In 1999, exports were up slightly, while imports slumped by 30.5%. As a consequence, the trade surplus ballooned to $33.2 billion, more than double the previous year's level. In 2001, the trend shifted, as exports declined while imports increased. World prices continue to have a major effect on export performance, since commodities, particularly oil, natural gas, metals, and timber comprise 80% of Russian exports. Ferrous metals exports suffered the most in 2001, declining 7.5%. On the import side, steel and grains dropped by 11% and 61%, respectively.

Most analysts predict these trade trends will continue to some extent in 2002. In the first quarter of 2002, import expenditures were up 12%, increased by goods and a rapid rise of travel expenditure. The combination of import duties, a 20% value-added tax and excise taxes on imported goods (especially automobiles, alcoholic beverages, and aircraft) and an import licensing regime for alcohol still restrain demand for imports. Frequent and unpredictable changes in customs regulations also have created problems for foreign and domestic traders and investors. In March 2002, Russia placed a ban on poultry from the United States. In the first quarter of 2002, exports were down 10% as falling income from goods exports was partly compensated for by rising services exports, a trend since 2000. The trade surplus decreased to $7 billion from well over $11 billion the same period last year.

GDP: purchasing power parity - $1.27 trillion (2002 est.)

GDP - real growth rate: 4% (2002 est.)

GDP - per capita: purchasing power parity - $8,800 (2002 est.)

GDP - composition by sector:
agriculture: 7%
industry: 39%
services: 53% (2001 est.)

Population below poverty line: 40% (1999 est.)

Household income or consumption by percentage share:
lowest 10%: 3%
highest 10%: 22.2% (1993)

Inflation rate (consumer prices): 22.1% (2001)

Labor force: 66 million (1997)

Labor force - by occupation: agriculture 15%, industry 30%, services 55% (1999 est.)

Unemployment rate: 12.4% (1999 est.), plus considerable underemployment

revenues: $24.08 billion
expenditures: $26.82 billion, including capital expenditures of $NA (1999 est.)

Industries: 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; shipbuilding; 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, textiles, foodstuffs, handicrafts

Industrial production growth rate: 8.1% (1999 est.)

Electricity - production: 771.947 billion kWh (1998)

Electricity - production by source:
fossil fuel: 67.77%
hydro: 19.49%
nuclear: 12.74%
other: 0% (1998)

Electricity - consumption: 702.711 billion kWh (1998)

Electricity - exports: 21 billion kWh (1998)

Electricity - imports: 5.8 billion kWh (1998)

Agriculture - products: grain, sugar beets, sunflower seed, vegetables, fruits; beef, milk

Exports: $75.4 billion (1999 est.)

Exports - commodities: petroleum and petroleum products, natural gas, wood and wood products, metals, chemicals, and a wide variety of civilian and military manufactures

Exports - partners: Ukraine, Germany, US, Belarus, Netherlands, China

Imports: $48.2 billion (1999 est.)

Imports - commodities: machinery and equipment, consumer goods, medicines, meat, grain, sugar, semifinished metal products

Imports - partners: Germany, Belarus, Ukraine, US, Kazakhstan, Italy

Debt - external: $166 billion (yearend 1999)

Economic aid - recipient: $8.523 billion (1995)

Currency: 1 ruble (R) = 100 kopeks

Exchange rates: rubles per US$1 - 31.61 (September 2002), 26.7996 (December 1999), 24.6199 (1999), 9.7051 (1998), 5,785 (1997), 5,121 (1996), 4,559 (1995)
note: the post-1 January 1998 ruble is equal to 1,000 of the pre-1 January 1998 rubles

Fiscal year: calendar year

See also : Russia