Russia

Putin and Russia's Economy

Topics: Economic Development
Countries: Russia

If salaries are increasing, do people really care about democracy? Today's Economist takes an in depth look at what Putin has really done for the Russian economy.

When asked by a foreign journalist about the lack of political competition and dialog, Putin responded: “The salaries here are going up by 16 percent. There's the answer to your question.” According to this article, Putin cannot fairly claim to be the main cause of this economic success.

The rapid growth is not meeting Russia's full potential and simultaneously trapping them into a dangerous dependency on energy. The economic growth has also been accompanied by rampant corruption. Are you wondering which country equals Russia in corruption levels? Togo. Despite this fact, foreign capital and investment continues to rise at a pace that would be unheard of for that small African nation.

The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7 percent in 1999 to 31.6 percent in 2007. Natural resources account for 80 percent of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.

To appreciate the impact oil prices have on the economy, compare real GDP growth of about 7 percent with growth measured in international prices. In dollar terms, says Rory MacFarquhar of Goldman Sachs, Russia's economy has grown on average by 27 percent a year, the fastest of any big economy since 2000. The flow of petrodollars is fanning a massive consumption boom, making Russia the sixth-biggest market in Europe. Disposable incomes (and retail trade) have been growing twice as fast as GDP.

The problem, says Peter Aven, the head of Alfa Bank, is that Russia has failed to convert the oil stimulus into domestic production. Imports are growing much faster than manufacturing. The rapid real appreciation of the rouble is hurting Russia's producers, and many goods are of poor quality. This is why Algeria says it wants to return 15 military jets it purchased from Russia.

Monetary Flu Season

In a daily analysis from last week, Council on Foreign Relations senior fellow Benn Still suggested that the United States is “exporting inflation worldwide.” The latest action by the US Federal Reserve may have staved off inflationary disaster domestically but only to the detriment of other nations who peg their currency to the dollar.

Venezuela struggled with inflation rates over 20 percent in 2007 (Bloomberg). Argentina and Bolivia face similar concerns. Official data puts Russian inflation for 2007 at nearly 12 percent (Forbes). Several Gulf Arab states also find themselves with inflation over or near 10 percent. In China, rates near 7 percent registered in December 2007 represent the highest inflation in over a decade. China’s Prime Minister Wen Jiabao recently announced Beijing would freeze short-term energy prices in an attempt to curb consumer price increases (NYT).

From the Archives

The Chinese Immigrant Experience in Russia

Topics: Migration
Countries: Russia
Previously filed under: Global Economy
Frustrated by a weak economy and a lack of jobs, many Russians have directed blame toward a growing immigrant population.

Breaking News

Zimbabwe: Irony of Rich Farmers Without Cash

All Africa - Fri, 05/16/2008 - 13:16
ZIMBABWE'S tobacco farmers are having cash problems. They have so much money in their pockets, but cannot buy what they need because it is in the form of cheques.

Ghana: Fisheries Act Forbids Foreign Vessels From Fishing

All Africa - Fri, 05/16/2008 - 12:22
The Ministry of Fisheries has denied allegations by a group, called the Joint Action Against Pair Trawling (JAAPT) that foreign vessels have invaded Ghana's fishing industry and all vessels plying the coastal areas of the country are engaged in pair trawling activities. It says the allegations are simply untrue.

Surplus Rice in Japan 'Could End Rice Crisis'

OneWorld Daily Headlines - Fri, 05/16/2008 - 19:44
Selling excess rice held in Japan and imported from the United States would incite a rapid drop in the global price of rice but requires immediate action from Tokyo and Washington, write former editor of The Rice Trader, Tom Slayton, and policy analyst, Peter Timmer.

Half in Ten

OneWorld Daily Headlines - Fri, 05/16/2008 - 19:44
Four prominent American social justice groups are launching a campaign to halve poverty in the United States in 10 years.

Myanmar Farmers May Miss Harvest

New York Times - Thu, 05/15/2008 - 21:34
The timing of Cyclone Nargis, which disrupted farmers as they were preparing to plant, could not have been worse.

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