#6331
| JRL #6331 | Plain Text - Entire Issue |
|
Date: Sat, 29 Jun 2002
Russia's Uncertain Economic Future, a 463 page volume, has been released by the Joint Economic Committee of the U.S. Congress and is now on the Government Printing Office {GPO] website. You may find it with the following: http://www.access.gpo.gov/congress/joint/sjoint03.html and scroll down to Committee Prints. ------ [DJ: Here is reproduced the table of contents and the Highlights and Overview by John Hardt. The full text is available as indicated above.] RUSSIA'S UNCERTAIN ECONOMIC FUTURE CONTENTS Page Foreword, by Senator Robert F. Bennett........................... iii HIGHLIGHTS John P. Hardt, Senior Specialist in Post-Soviet Economics at the Congressional Research Service, is author of the Highlights, the Overview and coordinator of the volume. The authors in this volume analyze the present state of the Russian economy
and its future possibilities. Vladimir Putin has committed himself to economic
reform in his 2 years as Russia's president. The opportunity for a transition to
a democratic market economy is more likely now than at any previous time in
Russian history. This volume explores the opportunities offered by this
transition and the obstacles it faces, with particular reference to Putin's
reform agenda. The main findings of the volume are as follows:
The path of Russia's economic development will make a significant difference to the United States. U.S. policy, in turn, will play an important role in Russia's future economic development. ind Russia may become a major trading and investment partner with the United States in spite of its modest bilateral trade and investment in the past. ind The United States may benefit from reduced Russian sale of arms to countries who may be a threat to U.S. security interests. ind U.S. support could facilitate Russia's integration into the global economy and its eventual accession to the World Trade Organization in spite of the noncompetitive nature of most Russian enterprises and strong protectionist sentiments. ind The United States may take an effective lead in helping Russia manage its external debt burden, even though the majority of its external debt is held by other countries. OVERVIEW By John Hardt \1\ Russia's uncertain economic future is of special concern to U.S. as well as Russian policymakers. This was highlighted by the Bush/Putin Summit in Washington, DC, and Crawford, Texas, November 13-15, 2001, as Putin moved to align Russia more closely with the western market economies.\2\ The range of possible economic developments in Russia is greater now than in the past. --------------------------------------------------------------------------- \1\ John P. Hardt is a Senior Specialist in Post-Soviet Economics at the Congressional Research Service. References to authors from the volume are made in the text of the Overview. References to authors not in the volume are made in footnotes. \2\ Communiques of Washington/Crawford Summit, Washington File, State Department. --------------------------------------------------------------------------- This volume includes articles that present four approaches to the overarching question: Where is the Russian economy going?
This volume is divided into four sections: past performance and insights for future prospects; Russia's economic challenges; long-term prospects for Russia's economic governance; and Russia's economic future and U.S. interests. What follows is a summary of the authors' responses to the above questions, supplemented by commentary provided by the volume's coordinator. The contributors to this volume offer contrasting perspectives on these questions. They consider that Putin turning out to be an effective reformer rather than an authoritarian leader to be crucial to the development of Russia's economic future. While these contributions do not represent the views of the Congressional Research Service (which does not take positions on public issues), nor necessarily of the Joint Economic Committee of the U.S. Congress, they do reflect schools of thought in the professional community in the United States and abroad. Past Economic Performance and Insights for Future Prospects Past performance in quantitative terms is useful but not definitive in understanding the past and in forecasting its future. While progress in reform made in the early 1990s provided some expectation of improved growth, Russia suffered a severe recession from 1992 through 1998. By 1998 gross domestic product (GDP) was 70 percent that of 1992. After the financial crisis in 1998, Russia experienced unprecedented short-term economic growth, with real GDP growth expected to reach 5 percent in 2001. William Cooper, in his performance assessment, finds that making accurate projections of Russia's economic future is difficult: ``The current economic growth could be short lived but it has generated political support and thus presents President Putin and his team with a `window of opportunity' to promote economic reform. The current upswing in economic growth is favorable but not sufficient to assure sustained growth.'' Russia's Economic Challenges Ben Slay reports: ``Huge current account surpluses and unprecedented growth and reserves are welcome developments in the last 3 years. However, capital flight has not abated and foreign direct investment that would help modernize and recapitalize Russian industry is conspicuously absent in Russia.'' Ben Slay adds that large capital flight and minuscule foreign direct investment mirror each other as symptoms of failure of institutional reform in Russia.\3\ In this context it may be just as difficult to substantiate that Russia has ``turned the corner'' toward sustained economic growth and is now a market economy as it was earlier to document that Russia was a failing transitional economy. --------------------------------------------------------------------------- \3\ European Bank for Reconstruction and Development (EBRD), ``Cross-Border Capital Flows,'' Transition Report Update, April 2001; John P. Hardt, Russia's Economic Policy Dilemma and U.S. Interests, CRS Report RL30266, January 23, 1999; Alexander Boulatov and Mark Silveira, ``Capital Flight and Foreign Direct Investment,'' Working Paper, Washington, DC, August 2001. --------------------------------------------------------------------------- Past performance shortfalls provide a road map for the difficult reform path ahead. Future reform requires development of an incentive system, a working financial system, competitive enterprises, and adequate attention to the quality of life. Russia's current economic challenges are summarized in Putin's ``unfinished agenda.'' Slay argues, along with many other specialists, that only the radical reforms in the Putin agenda will be sufficient to create a market-friendly system. While a turning point toward development of a market system may be more likely than at any time in Russian history, implementation of reform policies on the Putin agenda can be decisive only if they result in redistribution of the political power that controls economic decisionmaking, along with a revision of budgetary priorities. Central to reform implementation, in the view of this report's contributors, will be the character of President Putin as a reformer. President Putin has used his vision of Russia's economic future as the theoretical basis for his reform agenda. Putin's vision is for ``rapid and comprehensive'' institutional reform, to ensure that Russia will not fall further behind the developed countries in economic performance. Putin, as an advocate of reform, has prescribed the reform medicine favored by western economic specialists, but it remains to be seen whether Putin, as President, administers this medicine. By restructuring the power of Russian financial and government elites and reducing populist subsidies, Putin may erode his own popularity and power. While many reforms may have an immediate impact, the full benefits from successful reform may accrue to Putin's successors. If Putin is unable or unwilling to be proactive on his reform agenda, then, in the view of Jonathan Winer and Phil Williams, political elites will continue to dominate the political and economic future of Russia. Putin's difficulty in supporting reform may be characterized as a twofold dilemma arising from the necessity to bring about a redistribution of power and a change in budgetary priorities. On the redistribution of power that is a prerequisite for reform, Putin has the classic Machiavellian constraint that he must utilize the full force of his leadership against the wishes of strong, entrenched opponents because the proponents of change are weaker and less ardent. Budgetary priorities need to promote the market system rather than cater to the state and political elites. Winer and Williams consider the political elites satisfied that the fruits of reform and their preferential share can be retained through the use of state power. Putin, as a reformer, may have to effectively use his leadership role to maintain both the elite and popular support needed for implementing reform. For example, in restructuring Gazprom, the energy conglomerate, Putin may have to convince its administrators and stockholders that being a global enterprise, and conforming to the requirements of the world marketplace, would protect their wealth and assure their future income, more than would retaining their privileged domestic position under an autocratic model of governance. Were Gazprom to become a model of corporate governance, the likely increase in wealth and profit for its shareholders might influence other oligarchs to support infrastructure monopoly reforms. There are some recent indications that other enterprises may be seeking profits instead of rents. Ben Slay notes that the consolidation trend in industry has recently led many cash- rich enterprises to raise the level of corporate governance in lossmaking enterprises they have acquired. Responsiveness to market forces may thus be seen as beneficial to some Russian industrial elites by assuring protection of their wealth and prospects for profitability. Profit seeking beneficial to the Russian economy as a whole may prove more favorable economically to some industrial elites than rent seeking that only feathers their own nests. In reducing subsidies to housing and utilities, Putin may need to design a support program that does not sink Russian urban dwellers further into poverty and generate opposition to reform but that, instead, offers prospects for future improvement in the quality of citizens' lives. By developing a new social contract supporting education and a meaningful social safety net, as suggested by Judyth Twigg, Putin might generate more reform support from the developing middle class and the populace. Some need-based income maintenance programs may be both economically and politically more successful than traditional subsidies. Without a proactive policy, the benefits of market transition toward sustained economic growth are unlikely to be forthcoming. There is uncertainty about implementation of reform in Russia because Putin must face difficult decisions that will involve political risks and economic costs. Reform would reduce the direct political and economic power of the financial and governmental elites, including the Putin presidency. The marketplace, foreign investors and government regulators would take over important economic decisionmaking functions and change the basis for wealth accumulation from political to economic criteria. Even with more revenue in a growing economy, relative shares of the budget would need to shift away from national security, politically popular or populist subsidies, and debt servicing. A market-friendly budget would need to fund necessary reforms: a new civil service, a working financial system, infrastructure improvement, and social welfare. These are both very costly and inimical to the interests of the entrenched elites. Budget priorities that favor the interests of the middle class and the populace as a whole may gain broad support for reform over time, but reduction of populist subsidies and uncertainty of future growth may lead to short- term popular sentiments against reform. removing barriers and providing an incentive system The authors in this section stress the importance of removing barriers inherited from the previous Soviet system in order to assure development of a market-based incentive system. In the in-depth studies of Russian economic performance in the 1990s, Vincent Palmeda and Bill Lewis conclude that the productivity potential of key sectors and the economy as a whole have been constrained by the lack of an incentive system.\4\ Palmeda and Lewis, in updating their assessment to 2001, conclude that with market-oriented changes in economic institutions, Russia's economy might expect to sustain a GDP growth rate of 8 percent per annum. --------------------------------------------------------------------------- \4\ McKinsey Global Institute, Unlocking Economic Growth in Russia, October 1999. --------------------------------------------------------------------------- In their essay, Paul Gregory and Wolfram Schrettl note that the Russian economy denies itself the benefits of its full productive potential by the lack of a market-friendly administrative system that incorporates rule-of-law concepts, establishes property rights, and enforces laws through a competent judicial system. Such an administrative reform would require a professional civil service. Gregory and Schrettl opine that economic rationality should lead Putin to give priority to administrative restructuring and adequately rewarding a new civil service in Russia as a condition for effective reform. However, they are not optimistic that Putin will overcome the political barriers to implementing these administrative reforms. Winer and Williams are even more doubtful that the current administrative system based on cronyism, crime and corruption will change. The necessary reforms, they argue, ``require Russia to undertake steps that threaten those whose power depends on discouraging rule-of-law, including criminals, exploitative business persons and corrupt bureaucrats.'' financial reform: taxes, budgets and banks An efficient monetized economy is essential for operation of a market economy. To promote these objectives, a variety of financial reforms are required: - Generation of sufficient tax revenue that may be used to fund reform programs; - A shift of budget priorities sufficient to promote market reform initiatives; and - Creation of banks that are attractive to savers and banks that efficiently convert savings to investment. According to Z. Blake Marshall, tax reform currently under way will remove the onerous taxes of the past authoritarian command economy and replace them with taxes that do not place undue burdens on domestic and foreign enterprises. The new tax code, if fully implemented, will go far toward encouraging a market-friendly system. Budgets have recently become important instruments of Putin's policymaking, according to James Duran. The current priority budgetary outlays, however, do not support effective reform. Three appropriations are scheduled to absorb the major share of the 2002 budget: external debt servicing, subsidies for holding down apartment rents and utility fees, and defense spending. Duran says reform may not be implemented effectively without a radical change in these budget priorities. Even if adequate expenditures for reform are mandated, there may continue to be unfunded mandates because of the likely over- commitment of future budgets and the continuing pressures toward funding traditional claimants. On the issue of debt servicing, Putin accepted in 2001 the foreign creditors' requirement that debt be fully serviced. External debt servicing will peak in 2003 and continue at a high level thereafter unless Russia receives major debt relief. Closing down popular subsidies for holding down rents and utility fees is proving to be politically difficult, as indicated by current parliamentary debates. Putin's civilian budget policy may be doomed to a robbing Peter to pay Paul policy of partially funding reform-related programs. In the area of defense spending, Russia continues to allocate a higher percentage of GDP than any NATO countries, and spends more in absolute terms than all NATO countries except the United States, according to Christopher Hill. Under current defense plans, maintaining and developing some new weapon systems and downscaling military manpower will require additional spending. Hill states that in order to re-emerge as a modern and powerful presence on the world scene by 2010, total defense spending needs to increase by about 3.5 percent per annum in terms of real increase in GDP. Other Russian defense economic specialists say that fulfilling Putin's defense policy requirements for the decade will require defense spending increases that exceed the rate of GDP growth.\5\ Still other analysts do not see that increasing defense spending necessarily reduces civilian allocations to meet reform needs. They believe that Russia can establish market conditions in its civilian economy that would attract foreign investment and generate increased growth that could permit increased defense spending and also generate funds for necessary reform.\6\ --------------------------------------------------------------------------- \5\ Christopher Davis, ``Defense Sector in the Economy of a Declining Superpower: Soviet Union and Russia, 1965-2001,'' Defense and Peace Economics, Overseas Publishers Association, 2001. \6\ Steven Rosefielde, ``Back To The Future: Prospects for Russia's Military Industrial Revival,'' Conference on Eurasia's Future Landpower Environment, Washington, DC, July 10-11, 2001. --------------------------------------------------------------------------- On the issue of financial reform, David Kemme considers development of a functioning banking system the key to Putin's plan to generate increased investment in order to promote sustained growth. ``While the number of financial institutions has increased dramatically, the state structure still dominates the financial sector,'' reports Kemme. Because of a lack of legal and regulatory development in banks, savers do not trust banks, banks do not convert savings to investment, and conflicts of interest are rampant throughout the banking system. At this stage of Russian development, banks are far more critical than stock and bond markets for assuring economic growth, according to Kemme. The best indicator for success in banking reform, according to Slay, would be purchase and control of some major Russian banks by large western banks, such as Deutsche Bank or Citibank. Only multinational banks possess the resources and the size needed to resist political pressures to lend, Slay asserts. breakup of monopolies: energy, transportation and agriculture There are three major monopolistic sectors Putin's reform policies seek to break up: energy, transportation and agriculture. Enhanced competitiveness in these sectors would facilitate increased economic growth. Opening the energy industry by restructuring Gazprom and the Unified Energy System (UES) would provide the benefits of globalization, larger markets, more foreign direct investment and better corporate governance. The energy sector accounted for about 16 percent of GDP, 48 percent of federal budget revenue and 54 percent of foreign exchange earnings in 2000, according to Matthew Sagers. Energy, especially gas and oil, may be the primary engine of future Russian growth. Long-term investment necessary for growth in the energy sector is largely dependent on comprehensive reform, according to Sagers. A major increase in foreign direct investment (FDI) may be channeled early on to the oil and gas sectors if current reforms lead to one or more foreign investment success stories, e.g., joint oil and gas developments in Sakhalin, expansion of the Caspian pipeline consortia, or increased foreign investment in a reformed Gazprom and UES. Overall, the saying ``As Gazprom goes, so goes the economic reform of Russia'' has some merit. If domestic and foreign shareholders have a larger say in decisionmaking and corporate governance improves, Gazprom may become a global enterprise and a major spur to overall reform. Gazprom, as a competitive global enterprise, might be the largest industry or sector contributor to future Russian GDP, revenue, and export earnings.\7\ Increased revenue from gas and oil sales might then serve to loosen budget constraints that limit funding for reform programs. --------------------------------------------------------------------------- \7\ Boris Fyodorov, Interviews and Correspondence. --------------------------------------------------------------------------- Putin wants the railroad system to follow the same reform pattern projected for Gazprom and UES. The current partially privatized rail transport system is inefficient and a burden on the Russian economy as a whole. Although not directly bracketed in Putin's reform agenda with energy and transportation monopolies, Russian agriculture is another key monopolistic system from farm to market. Agriculture is ticketed for restructuring and clarification of property rights through a new Land Code for agricultural land. Only 5 percent of agriculture is privatized. While the Russian Parliament has passed a Land Code providing for property rights for urban centers, legislation has not yet extended the Land Code to include agricultural land. Providing for secure land ownership for Russian farmers would permit equity financing in the agriculture sector. Some vertical consolidation, ``joint stock companies,'' may hold promise for more efficient farm-to- market agriculture, according to William Liefert. Overall, demonopolization in the Russian economy may serve to shift the structure of the Russian economy toward value- added manufacturing and processing enterprises, according to Palmeda and Lewis. Oil, gas and other commodity output might substantially increase in absolute terms. Sectors such as general merchandising, food processing and distribution would then likely increase their relative share of GDP, moving Russia over time toward a developed economy structure and away from the commodity-based pattern of a developing economy. human capital and the social contract Russia's large, literate and skilled labor force has traditionally been considered a strong asset for improving productivity. As Murray Feshbach and Judyth Twigg graphically demonstrated, Russia's human capital has become a seriously depreciating asset. Population decreases caused by the ``burden of decades of destructive practices that have had a direct, harmful impact on public health'' make addressing demographic and health concerns a national priority, according to Feshbach. With a projected escalation of HIV/AIDS and tuberculosis, infectious diseases may reach calamitous proportions in Russia. However, there has been no appropriate legislation addressing what Feshbach calls the ``demographic and health meltdown.'' The quality of human capital, such as skilled workers and scientists, also has been sharply deteriorating due to lack of social security measures. In the Soviet era, workers had some degree of stability through a social safety net that provided minimal but predictable benefits. This represented an implicit social contract between the state and the citizenry. In post- Soviet Russia, this minimal commitment of the state to the citizens has not been fulfilled. Twigg notes the deleterious effect this has had on the development of human capital: ``Sudden withdrawal of meager but comprehensive programs covering health care, pensions, employment, housing and other services has resulted in widespread poverty and disillusion.'' Putin has introduced ambitious and, if funded, expensive programs for social welfare entitlements, pension funds, and education to meet human capital needs. Duran notes that Putin also supports expensive legal reform that would stimulate enterprise efficiency and protect workers' rights. Unless there is more revenue and a change in budgetary priorities, these mandates will be underfunded. Long-term Prospects for Russia's Economic Governance Many Russian specialists subscribe to one of two differing schools of thought on Russia's future beyond 2010. One envisions a market economy, the other foresees rule by a predatory elite. James Millar sees an ``inexorable trend'' toward a complete market economy and away from the past autocratic economic governance model, especially the Soviet development pattern. This judgment is based on Russia's commitment to attain sustained economic growth that can only come from transition to a market system. Peter Stavrakis, on the other hand, projects a predatory model for Russia that rejects liberal democracy and postulates retention of only a patina of a democratic market system. ``Free markets and civil society,'' Stavrakis claims, ``are thus hostage to political elites who are free to intervene whenever and wherever this appears financially profitable and politically useful.'' In his view, Russian state leadership would continue to support the powerful predatory elites. Russia's predatory elites favor a continued state role in governing the economy. The ``directive economy'' plan supported by Viktor Ishayev, governor of Khabarovsk, calls for continued state control of economic decisionmaking in investment and allocation of resources.\8\ Through state control of economic decisions on investment and production, Ishayev's group promises results comparable to those projected for Putin's unfinished reform agenda without reducing the direct economic power of the state and the political elites. The Ishayev program also promises to increase the size and influence of the middle class. Some members of Putin's state apparatus appear to be inclined toward supporting the Ishayev plan. There is concern that adoption of the Ishayev plan would support the views of Stavrakis that Russia's future governance will be based on a predatory, political elite system. --------------------------------------------------------------------------- \8\ Strategy for the Development of the State to the Year 2010, Moscow, 2000. Cf. John Hardt, CRS Report RL30266, op. cit. --------------------------------------------------------------------------- The authors in this volume consider it necessary that Putin take a strong leadership role in reform and make the necessary decisions reducing the role of the state in economic decisionmaking. Whether Putin is able to fulfil this strategic role is still to be demonstrated. Proponents of these contrasting views expect Russia's future to be determined by long-term historical processes without major policy changes in the short run up to 2010. Both Millar and Stavrakis consider that the choices of Russia's future economic governance are at this point largely pre- ordained. Millar cites ``reform fatigue'' as a reason for not expecting effective reform soon. Moreover, a functioning market system would require across-the-board comprehensive reform that would not come quickly even if Russia adhered to the accession process of the European Union (EU). Effective compliance with the transition requirements of the EU would be a lengthy process for Russia. Stavrakis finds the autocratic trend resistant to reform. He sees the entrenched ``financial oligarchy now competing with the state elites using standard Russia-style methods: corruption and cronyism dominate and society has withdrawn from the political and economic arena.'' Moreover, he argues that the autocratic model is more consonant with Russia's imperial legacy. Stavrakis sees a pattern of historical crises, ``times of trouble,'' characterized by recurring resistance of Russia to western democratic market models accompanied by increasingly authoritarian, inward-directed governance. Russia's Economic Future and U.S. Interests In considering Russia's economic future, U.S. policymakers may recognize not only the diverse possible outcomes for Russia, but also the varying effects those outcomes may have on U.S. interests. Russian success and U.S. interests may not converge, but they are not necessarily opposed. Curt Tarnoff notes that ``three overarching interests are involved: security, stability and humanitarian concerns.'' Successful reforms may provide considerable reduction in the threats to U.S. security if reform leads to decreased defense spending, reduced weapons inventories, non-proliferation of weapons of mass destruction, and reduced arm sales. However, a stronger economy may also permit re-establishment of military forces in Russia that might be considered a threat to U.S. security. Market reform may lead to a stable and profitable commercial relationship with Russia. However, a reformed Russia may be a stronger competitor in the world market and an increased threat to U.S. national security interests. The rule of law needed for effective market reform may contribute to development of a more civil, humane Russian society. However, the absence of effective reform may have negative effects on the human rights interests of the United States. security issues The United States has tried to discourage Russia from making foreign arms sales, especially to states that are perceived to be threats to U.S. security. The current expansion of Russian arms sales appears troublesome to the United States, as Kevin O'Prey notes, because ``more sophisticated weapon systems have been supplied to countries that may be a threat to U.S. interests.'' U.S. policymakers may also be concerned that the income from arms sales might be used to revive and expand Russia's military industrial base. While 1,600 defense enterprises continue to operate at minimum production levels, only 6 to 10 of these enterprises benefit from cash sale of arms. Moreover, even with more arms sales and increased defense spending, O'Prey doubts that Moscow could resume the cold war arms race with the United States. Russia's military complex does not have the capability to compete in high-technology weapons, especially because of backwardness in electronics. Even in the worst-case scenario, Russia could return only to manufacturing large quantities of older generation weapons, according to O'Prey. Others consider it possible for Russia to fund reform and increase defense spending, thereby having the resources to rebuild its war mobilization base sufficient to compete with the United States.\9\ --------------------------------------------------------------------------- \9\ Steven Rosefielde, op. cit.; and Vitaly Shlykov in Voennyi Vestnik (Military Herald) #8, Moscow, April 2001. --------------------------------------------------------------------------- Promotion of nuclear and chemical non-proliferation has also been a centerpiece of U.S. security relations with Russia. If the United States felt assured that Russian budget priorities would shift to funding reform, some mutually beneficial debt swaps might be in order.\10\ Security and stability interests of the United States and Russia may be linked by debt for non-proliferation swaps that might dampen the proliferation threat and reduce the heavy debt service burden from Soviet-era debt. U.S. leadership in debt management negotiations might influence other creditors to follow suit.\11\ Germany has been considering debt for assets swaps in negotiating some inherited Russian Paris Club debt since the Schroeder-Putin summit in April 2000. The European Bank for Reconstruction and Development (EBRD) has offered to support debt swaps that might encourage nuclear power plant safety and discourage weapons proliferation in the former states of the Soviet Union.\12\ --------------------------------------------------------------------------- \10\ John P. Hardt, Russia's Paris Club Debt and U.S. Interests, CRS Report RL30617, updated June 6, 2001; John P. Hardt, Putin's Economic Strategy and U.S. Interests, CRS Report RL31023, June 19, 2001. \11\ The Biden-Lugar-Helms S-1803, Russian Federation Debt Reduction for Nonproliferation Act of 2001. James Fuller, Debt-for- Nonproliferation, Pacific Northwest Center for Gloval Security and Defense Nonproliferation Programs. Paper delivered in Moscow, Russia, December 10, 2001. \12\ EBRD, Transition Report Update, April 2001. --------------------------------------------------------------------------- stability issues Programs favoring development of a democratic market system may support domestic stability in Russia and its integration into the global marketplace and international institutions. In the Department of Commerce paper in this volume, Inga Litvinsky and Matt London note, ``The U.S. administration would like to see business become the bedrock of U.S.-Russian relations . . . Thus, U.S. and Russian interests are in alignment to commence a new bilateral commercial era.'' Bilateral trade and investment ties in the past have been small and concentrated in a limited number of sectors, according to Tanya Shuster. Were Russia to reform and enter the process of accession to the World Trade Organization (WTO), U.S. commercial relations with Russia might substantially expand in volume and scope. The Economic Dialogue, with its private sector initiative, undertaken after the Bush/Putin June 2001 Summit may encourage favorable trade and investment developments. Successful energy investments might top the bilateral commercial agenda. Litvinsky and London further note, ``As Russia moves closer to WTO membership, the United States will need to re-examine our domestic trade laws.'' Permanent normal trade relations (PNTR), more access of Russian steel and other commodities to the U.S. market, and greater Export/Import Bank financing might then be placed on the U.S. legislative agenda. Favorable developments in the bilateral commercial environment are contingent on Russia completing Putin's unfinished agenda. Thus, reform may have to be the horse leading the bilateral commercial cart. humanitarian issues Human and civil rights in Russia have been of continuing concern to the United States. The conduct of the war in Chechnya violates many of the humanitarian principles of the United States. Threats to freedom of religion in Russia have drawn continuous U.S. monitoring and concern. Freedom of speech, imperiled by state intervention and control over television, radio and print media, has troubled U.S. policymakers. Human and civil rights and stability interests have been adversely affected by persistent crime and corruption in Russia. Russian crime, corruption and money laundering have all plagued U.S.-Russian relations and deterred market reform. Capital flight and money laundering have had a disruptive effect on the U.S. banking system and encouraged international crime and terrorism, in the view of Winer and Williams. A peaceful, prosperous, market-oriented Russia might become more democratic and more sensitive to civil and human rights, but the record to date is mixed. Thus, in summary, policymakers in Russia and the United States face prospective benefits and costs as well as the uncertainty inherent in Russian policy options. The current policy of renewed dialogue and engagement adopted by both sides at the Bush-Putin Summits of 2001 may generate a forum within which prospective Russian economic reform measures may be influenced by the interaction of Russian and U.S. policymakers. The analyses in this volume do not provide definitive answers to the questions posed at the outset of this overview or to the overarching question, where is the Russian economy going, but they may offer a carefully reasoned range of U.S. policy choices. The United States, in concert with other western countries, may influence the direction that Putin pursues in economic reform. Policies needed for the reform process pose difficult decisions for the Russian leadership, some of which could lead to a different distribution of power and resources in Russia, contrary to the vested interests of powerful elites. These decisions may be influenced by U.S. policymakers and western allies of the United States. The United States and Germany may encourage or discourage Russian reform measures by use of leverage from debt management policy. By engaging in debt restructuring the United States may be able to use its leverage to push Russia toward more effective non-proliferation measures. Germany, as Russia's leading western trading partner and creditor, may play a leading role in economic policy with Russia, if it chooses to take the initiative. An economic dialog between the Bush and Putin Administrations could be an important stimulus for broader agreements that would enhance our mutual national interests. Similarly, WTO accession discussions might benefit both countries. However, caution may be required to assure that the Russian economic reform process leads to concrete developments rather than promises that remain unfulfilled. The IMF, World Bank, EBRD and other international institutions may play a continuing but less critical role in Russian economic development. If debt rescheduling is put on the policy agenda, the IMF would need to be involved. Jonathan Sanford notes that after a decade of programs from international financial institutions (IFIs) treating Russia as a special case for aid and advice, the IFIs now plan to treat Russia as a normal country. |
Back to the Top • JRL Home • CDI Russia Weekly • Iraq War: RW 2003 • CDI Home