#4
Minneapolis Star Tribune
January 5, 2002
Editorial
Russia's economy: Cause for cautious celebration
At the end of 1998, it was difficult to find anyone willing to bet on Russia. Plenty were willing to bet against it. But three years later, the cockeyed optimists seem to be winning the day -- so far.
In August 1998, because of the Asian financial collapse and the slackening in commodities demand it caused, oil-revenue dependent Russia had seen its international debt balloon and the value of the ruble collapse. The former central republic of the Soviet Union was in full-blown economic crisis. The International Monetary Fund finally refused to pour any more money into the country. Unpredictable and ineffectual President Boris Yeltsin was in the waning days of his second term. The country had suffered through almost a decade of wanton looting of its economy by a small band of oligarchs.
As a consequence of the thievery and mismanagement, the output of the Russian economy had shrunk by half. Organized crime seemed at times to have more power than the central government. While the beginnings of a middle class could be seen in Moscow, people across vast swatches of rural Russia lived in grinding poverty. Unemployment was endemic, alcoholism was soaring and the health of the Russian population was deteriorating rapidly.
Now consider the Russian economy at the end of 2001. In the previous year, the Russian stock market rose 60 percent, the most of any market in the world. The economy grew by a respectable 5 percent. Standard and Poor's upgraded the country's credit rating to B+ from B, reflecting the disciplined fiscal and monetary policies of President Vladimir Putin's administration. Inflation, though still high, was down dramatically from the mid-1990s.
As economists point out, now comes the hard part. While Russia has begun to diversify its economy so it is less dependent on volatile world prices for oil and natural gas, much more remains to be done in that regard. A truly diversified economy that is attractive to global investors requires reforms in the banking system, the passage of further judicial reform and still more tax reform. The system must become more transparent, more governed by the rule of law than by the law of the mafia jungle. Government needs to pay a great deal more attention to aiding small, home-grown entrepreneurs with credits, grants and tax policies that encourage growth and risk. Poverty, health care, transportation, regional economic development all remain urgent challenges for the years ahead.
And yet Russia now seems to have passed a critical tipping point. Despite the travails of its first post-Communist decade, and especially the whomping the economy took in 1998, the country has embraced vigorously the market and democracy. As Mikhail Gorbachev, last secretary general of the Soviet Communist Party, observes, once people have grown accustomed to those freedoms, they are loath to go backward.
Russia is so rich in resources and in bright, well-educated people that by all counts it should be looking forward to a very prosperous future. In the early post-Communist years, that future was taken from Russia by thugs and thieves. How good now to see the country on the high road at last. Thank goodness the optimists, and we count ourselves among them, appear for now to have gotten it right.
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