Russia at a Glance: 2000-01
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COUNTRY REPORT Russia At a glance: 2000-01 OVERVIEW The president, Vladimir Putin, is not yet strong enough to alienate too many vested interests at a time. He will have to find a compromise with the regions and tread carefully with regard to Russia’s powerful business barons. Expectations that the pace of economic reform will accelerate considerably should probably be discounted. The business environment will remain flawed and investment will not pick up fast enough to sustain the current pace of the economic expansion. Real GDP growth is forecast to average 3.7% in 2000 but to slow to 3% in 2001. Falling oil prices will have a noticeable but not critical impact on the budget and the current account. Key changes from last month Political forecast • Mr Putin may be forced to backtrack on his centralisation plans as the regions have finally taken up the gauntlet thrown down by the Kremlin. Mikhail Kasyanov’s cabinet is now complete. It represents a fragile balance between opposing political and economic groupings. Tensions can be expected. The imposition of presidential rule on Chechnya will not pacify the region. Economic policy outlook • The government will preserve most key points of German Gref’s liberal economic programme but many will be watered down in the implementation phase. The State Duma has passed the tax reform bill, introducing a flat income tax rate of 13%, simplifying the social security system and raising the rate of profit tax. Economic forecast • Unexpectedly high inflation in May could already be the consequence of large capital inflows. The EIU expects disinflation to be sluggish and the rouble to remain strong in 2000. • The slowdown in industrial output growth in May confirms our view that the current pace of GDP growth will not be sustained. June 2000 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1350-7184 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Russia 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2000-01 7 Political forecast 8 Economic policy outlook 9 Economic forecast 12 The political scene 20 Economic policy 30 The domestic economy 30 Output and demand 33 Employment, wages and prices 34 Financial indicators 35 Sectoral trends 39 Foreign trade and payments List of tables 9 International assumptions summary 11 Forecast summary 23 Federal budget execution 24 Federal budget 26 Payroll taxes 29 Main economic policy indicators 31 Production growth indicators, 2000 32 Industrial output by sector, 2000 36 Drilling volumes (production and exploration) 38 Main macroeconomic indicators 40 Balance of payments, 1999 42 External debt outstanding, Jan 1st 43 Oil export duties 44 Main external indicators EIU Country Report June 2000 © The Economist Intelligence Unit Limited 2000 2 Russia List of figures 12 Gross domestic product 12 Rouble exchange rates 24 Federal budget balance 28 Money supply 32 Domestic demand 34 Inflation 39 Trade balance 41 Investment inflows EIU Country Report June 2000 © The Economist Intelligence Unit Limited 2000 Russia 3 June 13th 2000 Summary June 2000 Outlook for 2000-01 The president, Vladimir Putin, is not yet strong enough to alienate too many vested interests at a time. He will have to find a compromise with the regions and tread carefully with regard to Russia’s powerful business barons. Expecta- tions that the pace of economic reform will accelerate considerably should probably be discounted. The business environment will remain flawed and investment will not pick up fast enough to sustain the current pace of the economic expansion. Real GDP growth is forecast to average 3.7% in 2000 but to slow to 3% in 2001. Disinflation will be sluggish, with average inflation in 2001 still well above the government’s forecast of 11-12%. Falling oil prices will have a noticeable but not critical impact on the budget and the current account. The political scene Mikhail Kasyanov’s cabinet represents a fragile balance between opposing political and economic interests, and tensions are looming over economic policy. Mr Putin may yet have to backtrack on his regional reform plans. A police raid on the Media Most group has reinforced concerns about press freedom. The imposition of presidential rule on Chechnya does not solve any of the underlying problems of the region. Economic policy German Gref has submitted his economic policy programme to the government but many key proposals may be watered down in the implementation phase. The strong fiscal performance in early 2000 has encouraged the government to plan for a balanced budget in 2001. The Duma has passed tax legislation that reduces income tax to a flat rate of 13% and shifts all social security payments into the federal budget. The domestic economy Real GDP grew by an estimated 6.8% year on year in the first quarter of 2000, but there were signs of a slowdown in the industrial sector in April. Rising real wage and employment trends are pushing up consumer confidence. Consumer prices jumped by 1.8% in May as large capital inflows continue to push up the money supply. The large oil companies are planning to increase spending on new exploration to prevent a decline in overall output in coming years. External sector The trade surplus reached US$19.1bn in January-April 2000, mainly as a result of high commodity prices. The current-account surplus for 1999 was US$25bn. Capital outflows may have slowed and foreign direct investment is set to pick up. Russia continues to seek debt forgiveness from the Paris Club. Editor: Katinka Barysch Editorial closing date: June 13th 2000 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report June 2000 © The Economist Intelligence Unit Limited 2000 4 Russia Political structure Official name The Russian Federation Legal system Federal state with republican form of government. A new constitution was adopted after a national vote on December 12th 1993 National legislature The constitution created a two-chamber legislature: the lower house, the State Duma, with 450 deputies elected on a territorial basis; and the upper house, the Federation Council, with 178 deputies, 2 from each of Russia’s 89 republics and regions Electoral system Universal direct suffrage over the age of 18. Half of the State Duma members are elected from party lists, and the other half in a simple majority contest. The Federation Council is composed of heads of regional executive and legislative bodies National elections December 19th 1999 (parliamentary), March 26th 2000 (presidential); next elections due in December 2003 (parliamentary), March 2004 (presidential) Head of state The president, elected for a four-year term; currently Vladimir Putin, elected March 26th 2000 and inaugurated May 7th 2000 National government The government is appointed by the prime minister, currently Mikhail Kasyanov Main political parties The Russian party political scene has been fluid, with a large number of parties and organisations. The most important parties are: Communist Party