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Nicolai N. Petro is Professor of Politics at the University of Rhode Island (USA). He is the author or editor of eight books on Russian politics, and has served as special assistant on Soviet affairs in the U.S. Department of State in 1989-90.
As president of Russia, Vladimir Putin?s most obvious accomplishment has been to transform the Russian economy from a bankrupt relic of the USSR into a global giant. The past ten years of 7% annual GDP growth have pushed the Russian economy well over the $1 trillion dollar mark, from 22nd to 9th in the world.
The growth in prosperity has led to a profound shift in the dynamics of Russian society. One way to grasp themagnitude of this shift is suggested by the late economist Karl Polanyi. Polanyi wrote of «the great transformation» that results from the planned introduction of laissez faire principles, and the instinctive social reaction that it provokes. As markets release the energy necessary for dynamic economic growth, the traditional culture defends itself, eventually forcing the compromises necessary for social stability. He called the outcome of this process, «the greatest human invention of all time Market Society».
Polanyi?s unusual view of economic laissez faire as ?artificial?, and socio-cultural constraints on them as ?natural?, have not been popular in recent years. Perhaps if they had been, more observers would have recognized the carefully con-structed nature of the social changes underway in Russia, and recognized them for what they are a project designed to transform Russia from a mere vestige of the USSR into a modern and prosperous contemporary society.
For too many years, Western pundits could not even imagine Russia?s political leaders coming up with anything so ambitious. Even after Alexei Chadaev connected all the dots in his 2005 book Putin: His Ideology, and even when, as a presidential candidate, Dmitry Medvedev mentioned publicly that, as early as 2000, the government had begun to «think seriously about how we might work for decades ahead thinking also about morality and values»[1], it seemed too fantastic to believe that the successor to Yeltsin?s corrupt and inept government could come up with a recovery strategy that would span decades. A brief summary of what has since become known as the Putin Plan, however, reveals why this transformation has been so successful, and offers insights into how Russia will emerge from the current economic crisis.
The Two Pillars of the Putin Plan
The Putin Plan rests on two pillars: (1) stable economic growth; and (2) a stable legal environment. Each und is in turn divided into two phases, the first of which is ?consolidation? and the second ?reconstruction?. The consolidation phase is now largely complete, while the reconstruction phase had only just begun before the 2008 collapse of global investment.
Within weeks of his election in 2000, Putin proposed a comprehensive package of reforms that eliminated fuel and sales taxes, reduced the corporate tax rate, and introduced a 13% flat tax on personal income.
Within just one year the Russian government moved from having regular budget deficits to having regular budget surpluses[2]. With stable revenues, tax inspections were curtailed[3], and in 2006 a comprehensive tax amnesty allowed citizens to legalize all prior undeclared income[4].
While tax reforms stabilized government revenues, the massive privatization of state assets funded economic re-construction. Fifteen years ago Russia's industry was fully state-owned. By 2002 it was 90% privately owned[5].
As the value of Russian assets has increased, the rate of privatization has gradually slowed, although it remains an essential element of the government?s economic recovery strategy. During the past decade, employment in private enterprises has grown by 41% and declined 15% in state enterprises. Overall, by 2007, state-owned enterprises shrank by 10%[6]. Indeed, that year Finance Minister Kudrin reported that federal budget support for industry in Russia was 11%, compared to 10% in the United States[7].
The government?s commitment to privatization can even be seen in the energy sector, where, despite having increased the state?s stake in oil production from 10% to 27% in recent years, it has also opened up coal production, and parts of the gas market to private investors[8]. The past decade?s experience auctioning off mid-sized airlines, banks, car plants, has also been invaluable in helping to successfully carry out what Business Week called, «one of the most radical electricity reforms anywhere in the world» the privatization of the country?s electricity monopoly, completed in July 2008[9].
The high price of oil and natural gas allowed the Russian government to stash away $600 billion in currency reserves and a national Stabilization Fund for long term reconstruction[10]. But while the government budget remains heavily dependent on this revenue, it should be noted that, since 2004 oil and gas production have accounted for an ever decreasing per-centage of Russia's GDP (now about 20%), and less than a third of its annual economic growth[11].
At the beginning of 2008, Russia?s basic indicators appeared so good, that many observers thought it might even become a ?safe haven? in the gathering economic storm. Not so. The Russian stock market fell by almost 70% in 2008. The dramatic fall in the price of oil has forced the government to adopt extraordinary anti-crisis measures estimated at as much as 12% of GDP in 2009, and to contemplate the first federal budget deficit in more than a decade. In the past year alone, the ruble has lost nearly a third of its value, and the resulting crisis of confidence has led to a $200 billion drop in available reserves.
As dramatic as this turnaround in fortunes has been, however, some analysts see Russia as potentially being one of the first to emerge from this crisis[12]. They cite the following reasons:
· Russia faces no major debt problems. Govern-ment debt is low, corporate debt is mo-derate, and household debt is still miniscule at 9% of GDP. Russian companies have cut their total foreign debt by more than 1/3 in recent months. The peak of foreign debt repayments for 2009 has already passed. Russia simply does not face the huge solvency problem that Western countries face.
· There is little chance of a balance of payments crisis. The Central Bank is running a surplus, capital outflows have slowed, and, after managing the rubles fall last year, in April 2009 the Central Bank had to intervene to prevent a too precipitous strengthening of the ruble. According to Richard Hainsworth, head of the bank rating agency RusRating in Moscow, Russian banks are in a fundamentally healthier state than their Western counterparts[13].
· Despite the high cost of the government?s anti-crisis initiatives, overall state expenditures re-main at 19% of GDP, much lower than the 40% that is typical of most Western econo-mies[14]. And, although Finance Minister Kudrin expects the Stabilization Fund to be exhausted by the end of 2010, so long as the price of a barrel oil remains above $50, he says, it will be replenished[15].
That is why, despite projections that the economy will shrink anywhere between 2-5% in 2009, in its latest revision of the budget, the Russian govern-ment actually raised total spending more than 7%, with social programs showing the biggest gains. «The worst is over for Russia», according to Grant Shotter, citing as proof Russia's MICEX stocks index which, after being the world?s worst performer in 2008, has been the world?s best performer in 2009[16].
Russia's Legal Evolution
The second pillar of the Putin Plan involves the creation of a stable legal environment for the application of the rule of law. During his first term as president, Russia introduced a new criminal code, habeus corpus, a juvenile justice system, trial by jury, legal aid for the indigent, and a nation wide system of bailiffs, all institutions that have taken other countries decades, if not centuries, to put in place.
In Putin?s second term, emphasis has shifted to the courts who must interpret these new laws. Landmark court decisions on individual rights have struck down compensation limits in the case of government disasters, like Chernobyl[17], and strengthened the rights of defendants to gather evidence, alibis and witnesses[18]. Courts have provided guidelines on what can and cannot be deemed ?secret?[19], and ruled that the State must pay compensation to everyone whose arrest is found to have been without merit[20]. The government has also introduced legislation that all but eliminated closed judicial proceedings, and the pretrial detention centers run by the Federal Security Service, and added many new privacy protections for individuals[21]. Since March 2005, the Ministry of Justice has been experimenting with free legal aide programs in ten regions. This has proved so popular that, with government funding, the Russian Association of Lawyers is working to set up more than 24,000 free legal aide centers across the country[22].
The conventional wisdom has it that the Russian judiciary is far from independent. Yet, if one gauges independence by the number of times that courts rule against the government in favor of private citizens, then Russian courts are independent nearly 80% of the time[23].
Although the government has promised to inject US $2 billion into the legal infrastructure over the next five years[24], Russia is still a long way from having a smoothly functioning legal culture. But while dwelling on its many flaws, perhaps critics should also consider how much has been accomplished in just a decade, including, for example, that the number of persons turning to the courts for redress of grievances has increased six-fold[25].
Surely, one of the most impressive aspect of Putin?s legal reforms is that, in the face of terrorism and secession, Russia not only created a new legal system, but very deliberately sought to humanize it. For instance, since Putin introduced the new code of criminal procedures, acquittal rates have jumped from 0.8% to 10% overall, and almost 20% in jury trials[26]. All the while, the government has never used the excuse of war, or terrorism, to refuse to comply with judgments of the European Court of Human Rights. In a world prone to cynicism about respect for the law, this is enormously inspiring.
Phase II: the Medvedev Liberalization
Although significant progress has been made in laying the foundations for long-term pro-sperity[27], two terms have not been enough to institutionalize the transformation of Russia into a modern economic and political system. Putin therefore backed his chief legal advisor and later first deputy prime minister, Dmitry Medvedev, to be his successor. Running on a platform of continuing Putin?s policies (even pledging to appoint Putin as his Prime Minister), it is hardly surprising that Medvedev won by large margin.
Despite the overall continuity, however, there have been some significant changes in emphasis under Medvedev. Perhaps the most notable has been the emphasis on personal opportunity and responsibility.. According to Medve-dev, the state has only two positive economic obligations. First, to assist Russian companies to become more globally competitive. Second, to combat poverty. Beyond that, he says, «if government participation is not essential, then the government should not be involved»[28]. Time and again, Medvedev has proposed solutions for Russia's social problems that reflect his preference for market-based solutions. He has forced regions to compete with each other for federal funding. In education, healthcare and pension reform he has championed the idea that government funding ought to follow individuals rather than institutions. He lobbied hard for, and finally won, changes in the law to allow universities to set up their own small businesses and create endowments to ensure funding independent from the state.
Market and legal terminology also suffuse Medvedev's description of the relationship between government and civil society. He depicts it as a contract that government "offers" to civil society in the form of specific national priorities. Non-governmental organizations (NGOs), he says, must play a more important role at every level of government. Without their feedback, «the government is blind and winds up working only for itself»[29].
The view of Medvedev as a lackey blindly carrying out Putin's bidding is therefore simplistic. Rather, Medvedev argues, the time has come to shift the focus from consolidation to liberalization. If, during the 1990s «screws were, perhaps, screwed on too tight», now they should be relaxed. Medvedev's rise thus signals the beginning of the next phase of the government?s efforts to create Russia's first truly liberal society. But will global economic conditions allow Russia to proceed on its course, or throw it back to the past?
Crisis or Continuity?
The Putin plan is a densely woven web of initiatives, none of which can be gauged properly without understanding their broader purpose. The persistent inability, or unwillingness, to see the broader picture has condemned many analysts to a fragmented and often incoherent analysis of Russia.
For example, dramatic value changes have taken place under Putin that have created a broad base of support in favor of the Putin Plan. Some sociologists, like Alexander Oslon, have highlighted in particular the fact that young people today have values so different from their predecessors, that they deserve a distinct label. He calls them «The Putin Generation»[30].
This generation tends to be bolder than their parents, and to view aggressiveness as a manifestation of self-confidence and initiative. Unlike their parents and grandparents who are appalled by emergence of the ?super rich?, they take pride in the fact that Russia has the world?s second largest number of billionaires, and hope to make the list of Russia?s richest individuals themselves, or at least to see their children on it[31]. They have little nostalgia for the Soviet era, and take capitalism, political and media pluralism, and travel abroad for granted[32]. They are quite comfortable shifting primary responsibility for economic welfare from the state to the individual[33].
The Putin Plan appeals directly to them. According to pollsters, the 20% rise in the number of Russians who, since 2005, say that the country is moving in the right direction can be attributed mainly to the coming of age of this new constituency, which began to vote after 2003[34]. These young voters, who came out in record numbers in the 2007 parliamentary and 2008 presidential elections, form the core of what some pollsters are calling «the Putin majority»[35].
But if, as Kremlin advisor Gleb Pavlovsky puts it, Russia today is «the house that Putin built»[36], it is still far from fully furnished. That task will fall to the Putin Generation. Although still very skeptical of politicians and political parties, these young people are nearly twice as likely to join a political organization than any other age group[37]. By a significant margin (73%), those who voted for Dmitry Medvedev expect him to further promote democracy in the country and, like most Russians, they regard the political system constructed under him to be more democratic, and a better safeguard of human rights, than what the country had under either Gorbachev or Yeltsin[38].
Some of these ambitious plans will have to be put on hold if the economy continue to decline in 2010, but it is highly unlikely that they will be entirely abandoned. Even in the present economic climate, Medvedev has gone ahead with several items on his agenda, including: easing the limits on political participation and media access imposed on small political parties, strengthening the public oversight role of the public chamber, extending the electoral terms of the president and the Duma, reforming the upper house so that only locally elected officials can become senators, allowing local city councils to remove mayors, ordering amendmendments to the laws on state secrets and treason to prevent them from being interpreted ?too broadly,? and signing into law a decree expanding public access to government activity as part of his anticorruption initiative[39]. Many critical challenges remain: declining birth rates, the need to diversify industry and create high tech jobs, and reduce the gap between rich and poor. The gradual approach to political and economic transition taken by the Putin Plan, however, has proven to be a popular solution to an unpopular task. In a survey taken at the end of 2008, 80% cited the Putin era as the best Russia has had in a century[40]. That is why Medvedev, Putin, or whoever succeeds to the presidency next will most likely continue with the Putin Plan, moving in the direction of creating, as Medvedev puts it, «an effective civil society composed of mature individuals ready for democracy»[41].
How should the West respond to this goal? A bit more humility and self-criticism would be a very good start. I concur with George F. Kennan?s view that, «this whole tendency to see ourselves as the center of political enlightenment and as teachers strikes me as unthought-through, vainglorious, and undesirable»[42].
It ought to be obvious by now that Russia does not wish to be remade in anyone else?s image. Consequently, it cannot possibly benefit the West to foist its own political standards, typically in a highly selective fashion, upon a country whose foreign policy toward the West has so far been remarkably benign, in that Russia defines itself as a country fundamentally within the European political tradition.
We should not assume that this benign attitude will persist regardless of Western policies. If Western politicians continue to arrogantly assume that Russia has no choice but to submit to their judgments and to policies that it considers unfair, then our children may very well one day be asking asking us: «Mommy, who lost Russia to China?»[43].
[1] D. MEDVEDEV, Vstuplenie pervovo zamestitelja predsedatelja pravitel?stva RF Dmitrija Medvedeva na II obsterosijskom grazhdanskom forume, VIPerson.Ru, January 22, 2008.
[2] N. REYNOLDS, Tax reform, not oil, fuelled Russia's revival, in «Johnson's Russia List 2007», n.98.
[3] T. PANINA, Nalogoviki ostanutsia bez vnezapnosti: im razreshat provodit? proverki ne chashe dvuh raz v god, in «Rossiiskaya gazeta», April 30, 2005.
[4] D. DOKUCHAEV, State Duma Has Voted for Tax Amnesty. At Last!, in «Moscow News», December 29, 2006.
[5] A. ASLUND et al., Russia's Surprise Economic Success, in «Financial Times», October 9, 2002.
[6] C. WOLF, Where does Russia's economy lie on the spectrum of ?transition??, in «Taipei Times», January 8, 2007.
[7] Pravitel?stvo Rossij dolzhno sokratit? ob?em gospodderzhki ekonomiki (Kudrin), in «Russkiy zhurnal», June 9, 2007.
[8] Experts Debate Efficiency, Industry Share of State Energy Companies, in «Nezavisimaya gazeta», July 3, 2007; Sostoialis? perv?e v Rossij birzhev?e torghi gazom - tsena na 15 dollarov v?she gosydarstvennoi, NEWSru.com, November 22, 2006.
[9] J. BUSH, Electric Shock in Russia, Businessweek.com, March 22, 2007. E. GRISHKOVETS - I. BULAVINOV, Chubais: Don?t Privatize Everything, in «Kom-mersant», June 30, 2008.
[10] C.G. GADDY - B.W. ICKES, Putin's Third Way, in «National Interest», January 6, 2009.
[11] C. WOLF, Where does Russia's economy lie on the spectrum of ?transition??, cit.
[12] M. GILMAN, A Few Economic Truths to Ease the Misery, in «Moscow Times», April 8, 2009; L. HALLIGAN, Is the Russian bear over-bearing?, BusinessNew Europe.eu, March 12, 2009; A. BLOMFIELD, Has Russian got its groove back?, in «The Daily Telegraph», March 21, 2009.
[13] J. BUSH, The Worries Facing Russia?s Banks, in «Business Week», April 13, 2009.
[14] L. HALLIGAN, Is the Russian bear over-bearing? in BusinessNewEurope.eu, March 12, 2009.
[15] A. KUDRIN, Rossija gotova k v?pusku dolgov?h bumag, April 28, 2009.
[16] T. FARRAND, Worst is Over? for Russia, Hexam Emerging Market Fund Says, Bloomberg, March 25, 2009.
[17] M.E. BAUDOIN, The Constitutional Court: Counterweight to Autho-ritarianism?, in «Europe-Asia Stu-dies», July 2006.
[18] F. STERKIN, Sledstvie obyazali dokazyvat'alibi obvinyaemogo, Strana.Ru, June 30, 2004.
[19] V. KULIKOV, Verhovn?j sud snimaet grif sekretno i pogon? s voenn?h sudei, in «Rossiiskaya gazeta», February 1, 2006.
[20] N. KORCHMAREK, Femida vzrosleet, Strana.ru, December 28, 2006; V. KULIKOV, Minfin rasplatitsia za vseh, in «Rossiiskaya gazeta», June 21, 2007.
[21] V. KULIKOV, Vas zasekretiat, in «Rossiiskaya gazeta», January 21, 2006;; Putin podpisal zakon ?O personal?n?h dann?h, Strana.ru July 28, 2006; Putin Signs Law to Strip FSB of Detention Centers, in «RIA Novosti» (April 17, 2006) in «Johnson's Russia List» 2006-n.91. cit_af ref_bf( ref_num14072)ref_afcit_af ref_bf( ref_num15288)ref_af
[22] V. MOTYASHOV, Mest? i samosud - est? li im opravdanie?, in «Rossiiskaya gazeta», July 27, 2007cit_af ref_bf(Motyashov, ref_num19672)ref_af; cit_bfGlava Miniusta raschit?vaet, sto v 2008-2010 gg. vse maloimustie poluchat besplatnuju pomost? iuristov, in «Vesti» May 25, 2007cit_af ref_bf( ref_num19224)ref_af; cit_bfA. KORNIA et al., The Legal Advice National Project, in «Vedomosti» (December 13, 2006,) in «Johnson's Russia List» 2006-n.279. cit_af ref_bf(Kornia, ref_num17856)ref_af
[23] P. SOLOMON, The Sutyagin case doesn't indict all Russian justice, in «Globe and Mail», April 14, 2004.
[24] Verhovn?ij sud Rossij podgotovil zakonoproekt ob informachionnoi otkr?tosti deiatel?nosti sudov, NEWSru.com, April 25, 2007.
[25] Y. KOLESOV, The Shadow of Judgement, Vremya novostei, October 19, 2004; V. SIMONOV, Little Guy Defeats Russian Giant in Court, in «RIA Novosti», October 20, 2004.
[26] V. V. KULIKOV, Verhovn?j sud, cit.
[27] A study by German banks found, much to the authors? own surprise, that Russia was outpacing the US, UK and Germany in securing long-term economic and environmental prosperity for its population. See H. WILLIAMSON, Russia surprises in sustainability league, in «Financial Times», September 13, 2007.
[28] E. GRIGORJEVA, Dmitrij Medvedv: V istorij dolzhn? b?t svoi geroi, in VIPerson.Ru, January 29, 2007.
[29] D. MEDVEDEV, bez kommunikatij s institutami grazhdanskogo obshchestva gosudarstvo slepo. . . ., VIPerson.Ru, February 4, 2008.
[30] Nostalgia for USSR Declines - Public Opinion Poll, in «Interfax», December 24, 2007; G. ILYICHEV, Slogan of the Day, in «Izvestia», June 7, 2007.
[31] D. POLIKANOV, Russia?s Youth, in «Russia Profile», April 5, 2006.
[32] Nostalgia for USSR Declines - Public Opinion Poll, cit.; G. ILYICHEV, Slogan of the Day.cit.
[33] D. POLIKANOV, Russia?s Youth, cit.
[34] G. ILYICHEV, Slogan of the Day, cit.
[35] S. BELANOVSKY, V massah Medvedev vosprinimaetsia kak politik lev?j, in «Russkiy zhurnal», December 13, 2007.
[36] M. GLIKIN, Putin Will Remain Leader Even After 2008, in «Nezavisimaya gazeta», April 8, 2005.
[37] Young Russian Businessmen Move to Politics, in «Izvestia», June 7, 2005.
[38] L. IVANOV, Dmitrij Medvedev I demokratia, VIPerson.Ru, March 15, 2008; Demokratiya v Rossii, March 23, 2005 opinion poll conducted by the Public Opinion Fund (FOM), http://bd.fom.ru/report /map/tb051313; Perestroika 20 let spustya: proryv k svobode, Gorbachev Fund, 2005; Petukhov, Good Bad Dictatorcit_af ref_bf(Petukhov, ref_num13499)ref_af; cit_bfPolikanov, Russia?s Youth, cit.cit_af ref_bf(Ivanov, ref_num21257)ref_af
[39] E. FOMINA, Medvedev poradoval oppositsiju, Strana.ru, March 2, 2009; V Dumu napravlen presidentskij zakonoproekt o sud?be partij, ne preodolevshih bar?er v 7%, Polit.Ru, February 25, 2009; E. DENISOVA, Efirnoe ravenstvo, SMI.ru, March 2, 2009; B. ARIS, Moscow Blog: Medvedev to build model democracy in BusinessNewEurope.eu, April 30, 2009.
[40] Rossiane schitaiut Vladimira Putina lutshim pravitelem za poslednie 100 let, in «Obshchaya gazeta», November 6, 2008.
[41] N. ALEKSEEVA, Dmitrij Medvedev: ?Stabil?noe razvitie v svobodnoi strane?, VIPerson.Ru, February 12, 2007.
[42] G. KENNAN (obituary), Boston Globe, March 19, 2005.
[43] The author of this memorable phrase is Eric Kraus. See his cit_ Truth and Beauty (? and Russian Finance), in «Russia?s New Asian Century (3 October 2006), in «Johnson's Russia List» 2006-n.223.
END: Nicolai N. Petro
This site presents an analysis of the Russian government's economic policies compared to a list of 34 economic policies as prepared by student Yuliya G. Kalyayeva with the McKeever Institute of Economic Policy Analysis (MIEPA). To read the analysis scroll through this site.
To learn more about MIEPA, click here
Russian born student Yuliya G. Kalyayeva wrote the following study of the Russian economy in the Spring of 2000. The ratings herein are based on the following rating scale:
RATING SCALE
5.0 Perfect Facilitation of Wealth Creation
4.0 Midway between Perfect and Neutral
3.0 Neutral Effect on Wealth Creation
2.0 Midway between Neutral and Obstructionist
1.0 Perfectly Obstructionist to Wealth Creation
[Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]
To read a disclaimer about the analysis in this file, scroll to the bottom of the file.
RUSSIA
Comparison of Russia's economic policies to MIEPA criteria as prepared in the Spring of 2000.
RATING SUMMARY
POLICY NUMBER RAW SCORE ADJUSTED SCORE POSSIBLE PERCENTAGE
1 5.0 15.0 15.0 100 %
2 3.0 9.0 15.0 60
3 1.0 3.0 15.0 20
4 1.0 3.0 15.0 20
5 2.0 6.0 15.0 40
6 3.0 9.0 15.0 60
7 3.0 9.0 15.0 60
8 5.0 15.0 15.0 100
9 3.5 10.5 15.0 70
10 1.0 3.0 15.0 20
11 1.0 3.0 15.0 20
12 1.5 4.5 15.0 30
13 3.0 6.0 10.0 60
14 0.0 0.0 10.0 00
15 1.0 2.0 10.0 20
16 0.0 0.0 10.0 00
17 2.0 4.0 10.0 40
18 2.5 5.0 10.0 50
19 1.0 2.0 10.0 20
20 1.0 2.0 10.0 20
21 2.5 5.0 10.0 50
22 4.0 8.0 10.0 80
23 1.5 3.0 10.0 30
24 2.0 4.0 10.0 40
25 2.0 4.0 10.0 40
26 3.3 6.6 10.0 66
27 1.5 3.0 10.0 30
28 1.0 2.0 10.0 20
29 2.0 2.0 5.0 40
30 2.0 2.0 5.0 40
31 1.0 1.0 5.0 20
32 1.5 1.5 5.0 30
33 2.0 2.0 5.0 40
34 2.5 2.5 5.0 50
TOTAL 69.3 157.6 375.0 42.0%
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INDIVIDUAL POLICIES
1. Freedom from Internal Control: 5.0
Basically today in Russia you can do whatever you want if it's not prohibited by law for a good reason. Religions freedom does exist in Russia. You can believe in whatever you want whether it's an Indian God or a witch from the apartment next door. There is also no limitation on where you want to go on the territory of Russia. Citizens can freely move in different directions including visits to other countries as well.
There is an existence of freedom from internal control in Russia , citizens are free from control of government agencies, it's true simply because of the total "relaxation" of people based on the instability and low salaries. There is no reason to expect working responsibilities from people tired of the economic disorder. That's true that Russia is a country of a great potential and that there are huge opportunities of starting different kinds of business. Even though the "Freedom from internal control" appears to be a true statement in order to succeed that's not enough for a business to operate, there are still so many factors that will disable any attempt of an entrepreneur. One and probably the main reason is an unbelievable corruption of the government and all its branches. On the other hand existence of a current "bribe system" helps sometimes to avoid some stupid laws and bureaucracy ,which usually take a lot of time to deal with.
Source: Personal
2. Freedom of Speech: 3.0
There is an obvious truth that it's very risky to have any opinion against any powerful group in Russia. If you want to have your opinion on something it's better to keep it quiet unless you have somebody "behind" you but even that is not a guarantee of your safety. For a person who wants to share with his or her "unpopular" thoughts or information about the government or mafia there is a real danger of being killed.
"Freedom of speech"- that was something that we had no idea about when it had finally come as a symbol of a new start for the country. Well, "Freedom of Speech" is a tricky thing which government can use as another manipulation tool. So what have we now? Definitely something has changed since 1986 , when on every corner everybody could see and hear slogans about Perestroika, Glasnost, and Freedom of Speech. However it's difficult to give any confident opinion or comment on that issue today. Things on paper and real life are no doubt different. Anyway to be fair it's necessary to say that today people of Russia have access to a big variety of information whether it's scandalous or not. People today can listen and watch to any radio or TV station they want to , make their own conclusions on different issues and that's a big plus. On the other hand everybody knows that they have to filter the information that the government or journalists try to feed them. Looking from a different point of view as a journalist or broadcaster you don't have so many options about what to say. With some truthful information it's possible to get away with it if it serves other powerful people. Otherwise as for any times and any places "Freedom of speech" itself is doomed to be hypocritical. There are still terrible memories about what happened and keep happening for the last years with people who wanted to speak the truth. Is there any point to talk or see any indications of the Freedom of Speech? That is a question.
Source: Personal
3. Effective, Fair Police Force: 1.0
As any other official organization in Russia police forces are corrupted as well and that's a pain. Police that are called to serve and protect their own citizens in reality appeared as untouchable kind of crime. Not everybody is corrupted but it's better to remain silent in their positions and do not put their nose into investigating of corrupted structures. From personal sources I know for sure that there are existing documents that could put an end or maybe start an endless war with a mafia but they are left unused forever, because behind each document is a powerful person who has even more powerful connections.
However on the simple level police could be kind of a threat for some homeless and drunk people. Nobody actually believes in the efficiency of the police force, in fact it even would make people laugh if somebody would ask about the efficiency of the police. Common opinion about police is as criminals in uniforms.
Source: 1. Source: "Mafiocracy in Russia" by Alexandre Konanykhine and Elena Gratcheva. http://www.konanykhine.com/mafiocracy.htm date of access : 4/11/00 2.Personal.
4. Currency: 1.0
" Economic reforms will require a solution to the problem of the ruble exchange rate." -Stanislav Shatalin, 1990 /Russian economist
Russia has its currency known as ruble and if you live in Russia you can use rubles to buy any food or any good that you want. However if you want to buy something that bigger than TV or a dishwasher there is hardly any chance that anybody will accept your rubles – you got to pay in dollars because of its stability. The ruble as a currency is not ready for stabilization. Russian economic reforms to-date, including this year's price liberalization, fall short of the critical monetary overhaul needed to permit ruble stabilization.
Implementing the Russian- proposed Ruble Stabilization Fund under current conditions will probably not have the intended effect. In fact, existing Western loan guarantee programs to the Commonwealth of Independent States (CIS) may actually destabilize the ruble , due to the nature of the Russian monetary system and our misconceptions of what the ruble represents . A better understanding of the "ruble" could save the West billions of dollars and the profound embarrassment of learning too late that we contributed to the failure of Russian economic reform.
The Two Faces of the Ruble : the cash currency, commonly recognized as the "ruble" and a book-entry instrument used almost exclusively by State-owned industry and government monopolies . Neither is a genuine money in the conventional sense. The cash ruble circulates among the population like real money , but its purchasing power is limited. Cash rubles can buy goods and services at retail prices as mentioned before , but generally cannot be used by private citizens to buy raw materials, bulk commodities or even most manufactured goods at wholesale prices. This is a throw-back to the Marxist axiom that private citizens cannot own (or buy) the "means of production." The prices liberalized on January 2 were retail prices denominated in cash rubles. The funds that can buy the " means of production" are called book-entry rubles. But book-entry rubles do not circulate among the general population, so they are not money in the traditional sense. Today's rate of ruble is 27.40per one dollar, average salary is 1'500 rubles which approximately is $55 . To buy a loaf of bread you need 5-6 rubles.
Source: EASTERN APPROACHES RUBLES, WESTERN AID AND RUBLE STABILIZATION Stephen S. Moody http://www.cpsss.org/persp/moody.txt - Date of access : 5/16/00
5. Commercial Banks: 2.0
Important thing to say is that banking system seems to show the first signs of a recovery. A year and a half after the financial crisis in Aug. 1998 ,banks started to give longer –term loans to small and midsize businesses. Obviously it's a positive thing for the economy of Russia. Back in 1990s banks had little intention to make risky business loans when they could earn easy profits from currency trading and high-yielding Treasury bills. Abnormal inflation also discouraged banks from lending long. Today annual inflation is down to 25%.
Loans to borrowers are generating higher returns than investments in government bonds. A three-month Treasury bill, sold in Feb. for the first time since Russia defaulted in Aug., 1998 ,yielded an annualized 20%. Most banks say they are lending for three months in rubles at an annualized rate of between 30% and 40%.That's the reason why many Russian banks are stepping up lending . Anyway it's still too early to say anything certain about further behavior of banks which undoubtedly based on the entire politic of government and when on the other hand the interest rate on loans for entrepreneur is too big.
On June 30, 1997 there were 1,881 commercial banks in Russia, ranging from large full service institutions in Moscow and St. Petersburg to small regional banks providing fairly limited services in a single town or region, as well as a small number of foreign banks. In 1995, minimal reserve requirements for rouble accounts were increased. However banking supervision was tightened: during 10 months of 1995 January 129 banks had their licenses withdrawn if compare to 65 in 1994. A reform program supported by the World Bank aims to create a select group of banks that would be capable of complying with international standards and which would in return become eligible for certain privileges. In 1993 tight restrictions were imposed on foreign banks. In 1995 there were 17 foreign banks which appeared to be 7% of the total capital of banks in Russia.
Sources: The Financial System of the Russian Federation. Banking. http://www.russianembassy.org -Date of access: 3/21/00
6. Communication Systems: 3.0
For a person who wants to do business in Russia there is definitely a good situation on the subject of communications. Today you can easily buy a service of a cellular phone company and can reach wherever and whoever you want , there is just one thing though ,it's really expensive - something about $2 per minute. Today Russia undoubtedly has made progress in its developing of communications such as telephone and adoption of Internet. But still for many people installation of the phone is kind of expensive and it's better to forget about the Internet. Anyway there is hope that the situation will positively change with the fast growing of different kinds of communications that Russia experiences today and with establishing more firms that will be able to offer communication services.
In 1997 there were 23.8 million telephones est. Since the 1991 telephone system in Russia has experienced improvement , more than 1,000 companies in the country got their licenses to offer communication services. Also access to digital lines has improved ,but mostly in urban centers. Internet and e-mail services keep improving as well even though it's still expensive-somewhere about $50-60 per month, when the average salary is about $50-70,obviously the Internet still seems as a kind of fancy stuff for regular people. However, Russia has made progress toward building the telecommunications infrastructure necessary for a market economy. According to CIA data the telephone systems in 60 regional capitals have modern digital infrastructures ; cellular services ,both analog and digital are available in many areas, but in the provinces and out-lying districts telephone services are still outdated, and low density.
Radio broadcast stations are: AM and FM , actually there are about 1,050 radio broadcast stations throughout the country. Radio stations (normally it's FM) became popular mostly because of the music and news that they broadcast. So there are about 80 million radio receivers in the country. Next talking about television broadcast stations , there are about 11,000 of them and televisions receivers are more than 55 million. Internationally Russia is connected by three undersea fiber-optic cables; digital switches in several cities provide more than 50,000 lines for international telephone calls; satellite earth stations provided access to Intelsat, Intersputnik, Eutelsat, Inmarsat, and Orbita.
Sources: 1.CIA-The World Factbook 1999- Russia http://www.odci.gov/cia/publications/factbook/rs.html - date of access : 4/25/00. 2.Personal
7. Transportation: 3.0
So why is the grade for the transportation 3.0?- even though Russia has lots of railways , highways, waterways and airports, machinery that is in use for the purposes of transportation is mostly very old and often in need of mechanical services, repair or simply in replacement (which is expensive). There is also a human factor when drivers or personnel who's in charge don't feel a necessary responsibility for their work because of the low salaries and instability.
Railways according to the CIA data on 1997 in Russia: total:150,000km-1997 est. (154,000 -1994 est.),87,000 km in common carrier service 67,000km serve specific industries (not for common carrier use).Broad Gauge : 150,000km (154,000km- 1994est.) 1.520-m gauge (1997est.)
Highways: Total: 948,000km –1997est(934,000km-1994 est.) – 445,000km are not available for common carrier use). Paved –336,000 km, unpaved –612,00km (including 411,000 km of graveled or some other form of surfacing and 201,000 km of unstabilized earth) (1995est.)
Waterways: total navigable routes in general use 101,000km ; routes with navigation guides serving the Russian River Fleet 95,900km; routes with night navigational aids 60,400 km;man-made navigable routes 16,900km.
Pipelines: oil 48,000km;petroleum products 15,000km; natural gas 140,000km (1993est.)
Merchant marine: total: 617 ships (1,000 GRT or over) totaling 4,146,329 GRT/5,278,909 DWT Ships by type: barge carrier 1,bulk 19,cargo 309,combination bulk 21,combination ore/oil 6,container 25,multifunction large-load carrier 1,oil tanker 149,passenger 35,passenger-cargo 3,refrigerated cargo 16,roll-on/roll-off cargo 25,short-sea passenger 7 (1998 est.).
Airports: 2,517 (1994 est.) Airports with paved runways: 630 Airports with unpaved runways: 1,887
Source: 1.CIA-The World Factbook 1999-Russia http://www.odci.gov/cia/publications/factbook/rs.html- date of access: 4/25/00; 2.Personal.
8. Education: 5.0
With all the instability that goes on in Russia and economic disorder one thing that every Russian would be proud of is Russian education, which still remains one of the best in Europe. The system of education itself still has the basics that were established during the Communist Era. It started with free public schools where the level of educational programs was the same for everybody. Today most of the schools keep following standard government programs with some changes. (Also for today appeared a lot of private schools and colleges). However the value of diploma from the government institute or university is the highest. It's still difficult to get into a government university , because besides good grades , a prospective student has to have some connections and usually teachers from schools or universities are very helpful in this matter. Needless to mention that government education is absolutely free and in fact the student gets paid with a governmental grant ( which is tiny, but still…).
Anyway the system of school is: First of all - primary, secondary, and high school are located in the same building , it's a whole organism. 1st is a primary school which normally accepts children at age 7. After 3 years in a primary school children go to secondary or middle school where they start to have bigger variety of classes and homework. (Homework is necessary ). Middle school takes 6 years, after that a student can leave school and go to a specialized college such as music, ballet , sports and other, go to work , or continue his or her education in high school that takes 2 more years. Usually 90% of students graduate from high school. Students who want to go to the university have to take a number of exams which are identical for everybody and then the jury of the university would decide who's going to become a student of this university. No wonder that the level of literacy ( age 15 and over can read and write) is 98% , male- 100% and female- 97% (1989 est.).
Source: 1.Personal; 2.CIA- The World Factbook 1999- Russia. http://www.odci.gov/cia/publications/factbook/rs.html- date of access: 4/25/00
9. Social Mobility: 3.5
Russia still has free education which is equal for everybody - elementary, primary ,high school, government colleges (institutes,universities,academies). People who can really help beginners in finding and achieving goal are mostly teachers. Actually it is not their responsibility, but traditionally they participate in student's life. Everybody can study whatever she or he wants, the system of grades is the same everywhere , plans of education -programs are standard , which are very wise and useful and help to create healthy competition. To be accepted by certain universities the person must pass exams no matter what grades she or he had in previous schools. On the other hand to be accepted by popular universities the person better have besides fundamental knowledge some connections and money, because everybody wants to survive and deans do too.
In the Russian education system private schools recently appeared which are kind of expensive , they accept with no problem almost everybody but the reason why it's not so popular is because not every employer will be interested in an employee with such a diploma. People got used to trust the government system and standards. However for kindergarten where children can attend from age of 4 to 7 the situation is different, you have to pay. Usually most of children go to kindergarten , it's rare to see that somebody can afford a baby-sitter and it's better for "small people" to find their place in society.
The issue of homeless people became one of the problems in Russia , it's new for the country which hadn't had any homeless or unemployed person since the Revolution. Today this problem seems almost impossible to solve. As a former center of former Union of Socialistic republics Russia still retains some of the good sides of socialism. Thus there are still free medical services, though like everywhere in order to get good care for yourself or relative you have to pay sometimes in personal form to a doctor , surgeon, or nurse. Anyway if you get sick you surely don't have to pay any money for a doctor's advice. This system works for people of old age.
Source: Personal
10. Freedom from Outside Control: 1.0
The Russian economy today is depending on the International Monetary Fund (IMF) and foreign loans to achieve reform. With approving loans for Russia the IMF controls and rules how the money is supposed to be distributed like for instance which of the internal debts should be paid first or shouldn't be paid at all , or which of the government enterprises should be annulled. So Russia currently is under the "mood " of the IMF and other foreign financial agencies and that obviously has its influence on small businesses as well. The IMF - often seen as the policeman of international capitalism was slow to build faith in Russia's reforms. One of the key roles of the IMF has always been to signal to governments around the world whether a government is moving its economy basically in the right direction or not and therefore whether they should be lenient or not in calling in any debts they may be owed. So in 1996, when the IMF granted Russia a $10 billion loan over three years, the following month, April, the "Paris club" of Western creditor governments agreed to reschedule payments on Russia's $40 billion of external debt. But because it is still in the process of reform, Russia remains a high risk on commercial lending markets, so much so that the major credit rating agencies around the world for a long time have refused to give any rating at all to Russian government securities such as bonds or treasury bills.
Sources: The IMF and foreign support for reforms. http://www.megastories.com/russia/economy/1mf.htm- Date of access : 5/25/00
11. Foreign Currency Transactions: 1.0
The rouble is now fully convertible for current account transactions. A unified exchange rate was introduced in the summer of 1992 and until 1995 Russian authorities allowed the exchange rate to float. The official exchange rate is determined by the outcome of large-volume, daily auctions on the Moscow Interbank Currency Exchange. Trade on the foreign exchange market can amount to US$ 500 million a day. Foreign exchange earnings are subject to 50% export surrender requirements at the market exchange rate.
In January 1994 the use of foreign currencies for cash transactions within Russia was prohibited. However Russian people keep buying American Dollars and German Marks in order in any way to avoid an inflation. Foreign currency still has its "Hard Cash" meaning.
Sources: 1.The Financial System of the Russian Federation. http://www.russianembassy.org - Date of access: 3/21/00; 2.Personal.
12. Border Control: 1.5
Actually there are regulations and rules about what can be taken outside the borders and what can't. However like anywhere else in the governmental system of Russia rules usually are just on paper. Lately in newspapers you can easily find information about how somebody again tried to get away with the pack of drugs ,gold, or Uranium or other chemical element which can be used in the nuclear missiles. Some of those people got caught but others have done it successfully by bribing the guards or customs. Contraband is not the most evil thing though, but the corruption is.
Borders with the former Soviet Republics are another sad story. Everybody knows that people who are in charge of customs are making good money by very often illegal confiscation goods and money from bus or train passengers who cross the border. Sometimes it's getting totally out of control and it's still better to obey, cause anyway you have nobody to complain to. Outside borders are weak and nobody really cares about that, anyway there is even a joke about that "who would need to occupy such a poor country?". The military branch got weak and almost disable. Machinery that was powerful a long time ago today needs to be replaced but there is no money for that. ( see #26-"Strong Army").
Source: Personal
13. Cultural, Language Homogeneity: 3.0
Even though Russia is a very big country which has occupied a huge territory on the East of Europe there are not so many different ethnic groups or their percentage has a small part in the main body of the population. According to CIA data there are following percentage of ethnic groups: Russian – 81.5 %, Tatar-3.8% , Ukrainian 3%, Chuvash 1.2%, Bashkir 0.9% , Byelorussian 0.8%, Moldavian 0.7 %, and other 8.1% . As we can see most of the population is composed by Russian. Also the common language is Russian, cause even in the former republics of Soviet Union besides local language the official language for a long time was Russian. The most common religion in Russia is Russian Orthodox which celebrated its 1000 anniversary in 1988. Also there are Muslim and other. So it's appeared that Russia is a pretty homogeneous country, and there was also influence of Communism where one of the main slogans was " All people are brothers and sisters", and so are nations.
Then how explain all those local conflicts that happened in almost all former Soviet republics? Things has changed after Perestroika. Actually it's obviously that almost in all ethnic conflicts government officials follow there own purpose of making profit out of war. In 1997 number of newspapers published information about that government has made 16,5 trillion rubles by selling weapons to Chechnya's soldiers. The Chechnya conflict wasn't actually based on the religion or national issue but because it's profitable for government officials to sell illegally guns to the other side. It's really difficult to say anything certain about whether the situation is going to change or not, because of unbelievable corruption in the current government. It seems endless.
Source: CIA – The World Factbook 1999 – Russia http://www.odci.gov/cia/publications/factbook/rs.hrml date of access: 2/8/00
14. Political Effectiveness: 0.0
There is NO political effectiveness in Russia. Instead of solving problems that appeared as a result of the USSR collapse the government is busy fighting with each other and looking for a scapegoat. Each approach with a new idea how to rule the current situation is potentially doomed. Most of the government officials and academics who are doing research on how to improve the situation sometimes it seems never have heard that theory and practice are different things , however for some reason they allow themselves to make economic experiments. On the other hand because of the unbelievable corruption nobody really cares about the future of the country as long as it doesn't become come personal. Legislation keeps experiencing different changes , sometimes absolutely unreasonable. To understand the politic of the government normally takes insanity for a common man The purposes of new regulations usually seem to be working for further robbing the country and its citizens. Obviously being a businessman in Russia takes bravery and it is totally pointless to expect any support from the local authorities. As political ruling is totally ineffective up in Moscow and other urban areas , even worse happens in rural areas .However some local officials try to do their best but at the end they understand that it's impossible fight the system and corruption.
Source: Personal.
15. Institutional Stability: 1.0
You can be sure when you say that Russia is an absolutely unpredictable country. Nobody knows what is going to happen next. Stability? You've got to be kidding? Constant changes in the governmental structure by former president Yeltsin finally stopped being shocking. At first everybody tried to see some kind of smart move behind all of those re-arrangements when in fact it became clear that it was nothing but looking for something. All that matters is not in the certain person but in the structure of the whole system , organism , institute; and this institute is currently chaotic and unpredictable. Waking up every morning you can be sure that there is a new legislation or regulation that can rob you . For people who try to do business in Russia there are thousands things that will drive you insane before you'll be able to register your business and finally start working (besides dealing with the mafia). If you 're doing business in this country you better have some connections with the local authorities that's how you can keep track of what is going on, but still you never know and that's scary. Legislation is tricky and can be read in any way that is serves the authorities and they in their turn never forget to make a fool of you.
Source: Personal.
16. Honest Government: 0.0
In 1994 in a poll in Russia in response to the question "Who controls Russia?" – 23% said "The Mafia", 22%- "No one" ,19%-"I don't know" and 14% responded with " President Yeltsin". Yeltsin himself said that Russia has developed into " the superpower of crime". So what's actually going on? What has happened after the Communist era had approached its end?
Mafia or Mafiocracy is a social system which has developed in the 1990s in Russia. The system differs from Democracy and Communism. Factors of Mafiocracy appeare to be the following: several powerful organized criminal groups take full control over national economy, when the corrupt government and law enforcement agencies serve as tools for organized criminal groups and the formal country leaders are unable and unwilling to fight organized crime and corruption. Obviously Mafiocracy is a cause of paralysis of the legal system. According to the FBI, by 1995 the Russian Mafia had taken control over 70-80% of all Russian commercial enterprises. Why the things keep being in the same place and attempts to fight corruption don't occur often? At first any tries to deal with a completely corrupt government are hopeless and doomed. Second – how it's possible for the official with salary about 100-250$ per month not to be interested in other profit?
Why it's impossible to be a non-corrupted official? An official who is not implicated in the corrupt deals is viewed as a potential danger by his corrupt colleagues. An official who is not participating in corruption is recognized by corrupt Russian government officials as "foreign" and suspicious. Now it's getting clear what prevents the government officials from being non-corrupt, but actually being willfully corrupt, not forced. In fact being a government official appeared to be an opportunity to make comfortable living in poor Russia. However on the other hand corrupted government is very comfortable for the president and makes it easier to control corrupt officials, it looks like in exchange for the "license to steal" they are ready to serve his orders whether they are constitutional or not. In the end I'm deeply agree with a Russian writer and Nobel prize-winner Alexander Solzhenitsyn who wrote that " For the past 10 years, leaders have robbed their own people of national wealth, pocketing billions of dollars, impoverishing millions and possibly leading to he death of thousands. Russia's economic chaos is the result of nearly criminal reforms that have created a new class of mafia capitalists."
Source: "Mafiocracy in Russia" by Alexandre Konanykhine and Elena Gratcheva. http://www.konanykhine.com/mafiocracy.htm date of access : 4/11/00
17. Common Laws: 2.0
Russia is not a country of common laws. In Russia the judgments of courts in concrete cases do not set precedents. In other words, the Russian legal system is not based on judge-made law. The legal system in Russia is based on the civil law system and also the judicial review of legislative acts. During the years of reform Russia has created a legislative framework for a market economy practically from scratch, including the adoption of the Civil Code. However work on the Tax Code has not yet been completed and the new Land Code has not been approved. There is still no law on registration of legal entities, although this procedure continues to be one of the most attractive for law-breakers and corrupt officials. The legislators often borrow regulations which are applicable in other legal systems or countries with a different level of institutional and cultural development. There is poor coordination between different laws, and many of them contain mutually exclusive provisions, even within a single law. The lack of coordination between Federal and regional legislation is a destabilizing factor for entrepreneurial activity.
Source: 1.The Investment Climate in Russia. 2.8. Legislation and Judicial Remedies http://www.eycis.com/climate/2_8.htm - Date of access 5/25/00; 2. CIA- The World Factboook 1999- Russia http://www.odci.gov/cia/publicaions/factbook/rs.html - Date of access 4/25/00
18. Central Bank: 2.5
In 1996 the independent status of the Central Bank of the Russian Federation was strengthened by laws. The principle of independence in the Central Bank appears by the fact that the Bank of Russia is not included in the structure of federal bodies of state power and acts as a special institution with the exclusive right to issue money and organize money circulation. The Central Bank of Russia is the main state regulatory body responsible for supervising banking institutions, registering commercial banks, issuing operating licenses and authorizing hard currency dealings.
However there is something about the Central Bank that doesn't seem to be "quite" smooth. The Central Bank sent billions of dollars to a secret bank account on Britain's Channel Islands over a period of several years. The Central Bank said the original capital was returned, but it hasn't said where the profits from the investments went. There is money missing from the government coffers, but no one seems to care, someone from the parliament tried to push for a more detailed investigation of the Central Bank, but "the prosecutor general has been doing his best not to open a criminal case,'' said Gonchar /an independent member of parliament /. The Russian government has not been accused of any wrongdoing in the Bank of New York scandal. He also said that the Central Bank documents have led him to believe that government has mishandled large sums of money on multiple occasions, including loans given to Russia by the International Monetary Fund.
Sources: 1.Bank of Russia Today; http://www.cbr.ru/eng/banktoday/status.htm -Date of access: 3/21/00; 2. 2.Russian Banking Sector http://library.northernlight.com/ML1999034010018307.html/Date of access : 5/2/00; 3. Business-Bank scandal may have explosive effect on Russia's economy 08/29/99 http://ww.lubbockonline.com/stories/082999/bus_082999088.shtml -Date of access: 5/9/00
19. Domestic Budget Management: 1.0
The federal budget for Russia always was and obviously still is a big pain in the "neck". Every year the Duma (lower house of parliament) experiences troubles with accepting a new budget. Usually it takes about half a year to approve a new one. All the time deputies in the Duma couldn't come to the final conclusion about the budget. No secret that lately the Duma had to ratify a budget in a short time in order to finally get financed by the IMF . Such thing happens because of the constant deficit in the federal budget and inability to decide what are the most important fields for financing. There are also take place various disagreements and childish battles among the deputies who it seems don't quite understand or maybe forgot why they are there.
However the Duma rejected government's draft budget for 2000 . On the other hand government promises that it will stick to far stricter budget discipline next year. The devaluation of the ruble , the surge in international oil prices, and the default on domestic debt payments have significantly eased the government's challenge in balancing the budget. The finance ministry forecasts federal spending will amount to Rbs803bn (some $25bn at predicted exchange rates) in 2000, supported by revenues of Rbs745bn. That will leave a small budget deficit - equivalent to 1.1 per cent of gross domestic product - to be financed by international borrowing. The future of loans to Russia from the International Monetary Fund has been called into question following the spate of scandals concerning top-level corruption and alleged money laundering.
Source: 1.Personal; 2.World Economy & Finance RUSSIA: Duma rejects government draft budget. By John Thornhill in Moscow. http://www.ft.com/ftsurveys/q7a36.htm - Date of access- 05/25/00
20. Government Debt: 1.0
Total Russian foreign debt, including former Soviet debt, was $130.3bn. on the end of 1995 . Russia has been unable to service its debt fully since late 1991. An agreement was reached with the Paris and London Clubs in November 1995 on rescheduling Russian debt-service payments. However on the year 1998 according to CIA World Factbook the external debt of Russia was $164 billion which appeared to be 100% from Russia's GDP (GDP is 164$ billion). The situation obviously seems to be catastrophic. Other aspect is that the country gets a big influence from the West and from which Russia waits for a 1st portion of the $22.5 billion dollar loan (IMF approved the loan in 1996). One of the conditions under which the loan was given was the request of the World Bank to close down unproductive mines and spin off coal company subsidiaries. Needless to say that the situation gets even worse when the next IMF loan planning to be used as a repay for the previous loan.
Sources: 1.CIA-The World Factbook 1999 – Russia http://www.odci.gov/cia/publications/factbook/rs.html/ Date of access: 2/8/00; 2. The Financial System of the Russian Federation. http://www.russianembassy.org - Date of access : 3/21/00
21. Private Property: 2.5
Today a Russian citizen can sell and buy his or her property. But Russia still has its rule of "propiska"-residence permit. In order to sell an apartment or a house you have to stop your residence permit in that place and the other person who's willing to buy the place should check if nobody has a residence permit in that same place, because that means that the person has a right to live in that place. Obviously this is another way for criminals to make money – they would make fake documents and then simply kick out the real owner who is not actually the owner anymore because of the false papers. Russian property rights are tricky like all other rules in Russia. Also apartments today (and houses as well) can be sold and bought for hard money which usually is to be in US dollars. Needless to say how dangerous it is to carry around such a huge amount of money. People don't trust banks because of the potential fear that they won't be able to get their money back. Staff at banks practices in giving away information to the Mafia about how much money somebody has or took from the account.
Source: Personal.
22. Economic Statistics: 4.0; for population; 2.5 for outsiders.
It's an interesting issue, because while I was doing my research on other questions I found different information about GDP and Import-Export operations. So the CIA numbers were quite different from the numbers that were given by the Russian Embassy. Anyway after establishing "freedom of word" today in Russia it's possible to hear truthful information and statistics about the current economic situation. The Russian people are fully informed about real things and conditions. In the news or informative economic shows and discussions it's possible to get the latest information about what's going on. Also there are good sites on the Internet that are purely statistical such as: State committee of the Russian Federation on statistics (http://www.gks.ru/scripts/eng/ ).
Of course some people in the government keep trying to manipulate information in their personal interests in order to attract western investors. Politicians would talk about "promising" future of Russia and a new opportunity for the investors. "Promising" investments which are not promising at all often became nothing but an endless "black hole". It's just another way to get wealthier for powerful people when foreign capital meets unbelievable conditions of governmental taxation. So it would be fair to say that economic statistics appeared to be more truthful for the people who live in the country when on the other hand statistics seems kind of decorated for western investors. (That's why the grade appears to be in two numbers.)
Sources: Personal
23. Protection of Public Health and Safety: 1.5
The situation around the issue of health and safety is catastrophic in Russia now. When I was analyzing this aspect I thought it would be necessary to refer to the person who analyzed this situation back in the year 1996. The birth rate then was : 12.64 per 1000 population (1995) and according to official Russian statistics 9.5/1000 . The death rate was: 11.36/1000 (1995) and 15.5/1000 (1994) Today data on the year 1999 is: Birth rate : 9.64/1000. Death rate: 14.96/1000 (1999) and that's according to the CIA data , when in the Health Situation report it says that: Birth rate is down to 9.3/1000 and Death rate: reported 17/1000 (est.14.5/1000). Information about infant mortality makes you speechless : 23/1000.
In other words the population in Russia is on its way to become extinct. Needless to say that these data gives an obvious picture of the health situation in the country. Among the people who are likely to finish their life are pensioners, for whom government is not able to provide good health care and social help. Mortality among infants is explains by a small quantity of medical equipment , bad care of expecting mothers , insufficiency and inability to buy good, food full of vitamins and other economic and social factors.
Sources:1. Health Situation Report: Russia: Health issues and related economic statistics. http://www.aiha.com/english/general/chi/russia/ru1 Date of access: 2/29/00 2.CIA-The World Factbook 1999-Russia http://www.odci.gov/cia/publications/factbook/rs.html Date of access: 2/8/00
24. High Wage Policies: 2.0.
Usually the average salary per month is just enough to buy food and some essential clothing. People today can't afford to travel as much as they did in the times of the Soviet Union and they can't buy houses or condominiums because of the lack of credit system. Everything sells and buys for pure cash.
Again statistic's numbers are dry and sometimes can't be reflection of the real thing. So it would be true to say that besides such unbelievably tiny salaries, people would be happy enough just to get their deserved money. Talking about wages it's necessary to mention that today millions of soldiers, workers and pensioners have not been paid for months. On February 1997, the Russian government owed $7 billion in belated salaries, $2.7 billion in pensions, and over $10 billion to government contractors. What actually goes on now is that each time when government makes its next try to come up with higher wages it somehow ends up with printing money which makes things even worse. So it looks like kind of a financial drug, self-deception for the government itself and for people who it's supposed to serve and protect. Relief for a very short time ends up with the next wave of inflation. Anyway to get a clearer picture about average monthly wages would help following: Average monthly wages accrued rubles on June 1999 were 1626.4, which in US dollars means $67.2.One Dollar = 24.38 Roubles.
Sources: State committee of the Russian Federation on statistics. -Average Monthly Wages Accrued. http://www.gks.ru/scripts/eng/1c.exe Date of access: 2/29/00
25. Environmental Protection: 2.0
Russia as probably any other big country has its environmental problems. Mostly they left since the former Soviet Union had industrial waste areas that were not made public because of the Communist Era. The largest potential environmental problems aren't realized yet by the government. Also the Soviet military plants had vast stores of biological and chemical weapons that need to be safely disposed.
Of course the main issue of any problem that the "New Russia" has to face including environmental problems is money. The Russian government does not have the financial resources to pay for the hazards to be cleaned up properly and what is even more sad is that nobody really cares about such an issue, people don't want to be involved in other problems .Their personal problem is how to make enough money to buy food and cloth. Everybody just had enough, people are really tired of everything .No doubt that everybody understands what can bring environmental inactivity, but for the population it's just one more thing too many. Today there are not such new regulations that could possibly change the current ecological situation. Some fines are ridiculously low and what is interesting is that on the other hand some fines are ridiculously high and it's insane to expect anybody to pay such fines in the unstable financial situation for Russia. It's much easier and cheaper for enterprises to find the "right" person in the ecology control system.
Source: Russian Environmental Pollution by Daryl R. Evans; http://www.csudh.edu/global_options/375Students-Sp96/Russia/Envir.Pollution.html - Date of access: 2/21/00 26.
Strong Army: 3.3
Even though everybody knows that the Russian Forces experience a budget crisis today ,Russia still has its ability of potential threat to the West. That's why I grade the current situation at score 3.3. At the present time ,several hundred thousand servicemen, a third of them officers, are performing their military service in groupings of the strategic nuclear forces. Military branches of the Russian Federation Army include: Ground Forces, Navy, Air Forces, Strategic Rocket Forces ( the Air Defense Force merged into the Air Force in March 1998). The eligible age to join the Army is 18. Military manpower-availability between ages 15 and 49 is 30,665,138 (1999). However in the near term , reform of the Russian Federation's Armed Forces will be conducted under conditions of deep economic crisis. For instance not a single new strategic nuclear submarine has been launched since year 1990.( Considering the life cycle of submarines this means that they could disappear in 15 years).One of the main requirements will be to minimize the country's budget for defense. (Defense spending fell by about 10% in real terms in 1996),so the Armed Forces will have to be reduced .
Sources: 1. CIA- The World Factbook 1999-Russia. http://www.odci.gov/CIA/publications/factbook/rs.html/ Date of access: 2/8/00; 2. Russian Hardliners' Military Doctrine: In Their Own Words.Heritage Foundation . Army Reform And Security: Conceptual Theses of the Strategy of Reforming The Armed Forces of the Russian Federation.- by Valery Dmentyev, Lieutenant General (Ret.) and Doctor of Technical Sciences, and Anton Surikov, Doctor or Technical Sciences. http://www.heritage.org/library/categories/forpol/fyi104.html - Date of access : 2/22/00 3. Personal
27. Foreign Trade Impact: 1.5
Foreign trade has a huge part (70%) in GDP of Russia but the unstable situation remains the same which means that there is something obviously wrong with the numbers. Either the numbers are fake (which doesn't support by CIA data) or money avoids its way to the treasury. Even though export-import operations appeared to be 70% of GDP it's really hard to see any visible positive changes in the economy.
There is no secret that the money that are made out of export-import operations (mostly :oil" money) went and go to the pockets of government officials and people close to them. In 1998 Russia's exports totaled 71.3 billion dollars and imports totaled 43.7 billion dollars. GDP for 1999 was 4 trillion rubles which approximately equals to 164 $ billion. If Total Exports + Total Import = 71+ 44 =115 $ billion and GDP is 164 $ billion, thus Import-Export operations appear as 70 % of GDP, which obviously means weaknesses in the industrial area and financial politic.
Sources: 1.Russsian Federation : Political and Socio-Economy Portrait. Russian Embassy. http://222.russianembassy.org/portrait.html - Date of access : 2/22/00; 2.The World Factbook 1999- Russia http://www.odci.gov./cia/publicaitons/factbook/rs.html- Date of access : 2/8/00; 3.Desperate to Save Its Economy, Russia Attacks Giant Monopoly. Monday, July 6,1998. http://www.csmonitor.com/durable/1998/07/06/p7sl.html - Date of access : 2/22/00
28. Protection of Foreign Currency Earning Enterprises: 1.0
The government is trying to squeeze revenue from wherever it can, but the natural resource sector will suffer. 14/01/99 Russia has imposed a range of export tariffs on its most valuable natural resources, oil, gas and metals, with a view "to boost budget revenues slashed by the economic crisis", the government said. Tariff policy department at the Trade Ministry, said that recommendations on the tariffs had been made by the government commission on protective measures in foreign trade and customs policy. But while revenues will certainly benefit, raw materials companies, the biggest contributors to Russia's economy, could lose out heavily. The Fuel and Energy Ministry said it wants duties on oil exports replaced by a tax on additional profit, but it has not yet won support for the idea from other federal departments. Tariffs have been set at a rate of 5 % of the customs value of the commodities on oil products, natural gas, coal, copper and nickel. They will apply for 6 months. State Customs Committee said that the tariffs could raise 30 bn rubles ($ 1.4 bn) in 1999. The export tariff on crude oil will be set at a floating rate, depending on the price of Russian Urals export blend crude on international markets, a draft resolution on the crude tariff said.
Source: News and Trends CIS/Russia Russia imposes export tariffs http://www.gasandoil.com/goc/news/ntr90870.htm - Date of access: 5/25/00
29. Management of Foreign Currency Budget: 2.0
According to the latest data Russia's export exceeds import which is naturally seems good. Surplus that appears is following : 71.3-43.7=27.6$ billion. It's obvious that such surplus supposed to make a noticeable difference in the economy, but the problem is that the money actually keep disappearing in the pockets of corruptive people in the government.
Anyway to understand the picture of management of foreign currency budget let's see the picture of export - import : Export : Electricity: 24.2 billion kWh (1996) Agriculture products: grain, sugar beets, sunflower seed, vegetables, fruits, beef, milk Commodities: petroleum, petroleum products, natural gas, wood, wood products, metals, chemicals, variety of civilian and military products. Total Exports: - 71.3 $ billion (1998) or 71.8 $ billion (1998) ® according to the CIA fact book. Import: Electricity -: 6.6 billion kWh (1996) Commodities: machinery, equipment, consumer goods, medicines, meat, grain, sugar, semifinished metal products . Total Imports : 43.7 $ billion (1998) or 58.5 $billion (1998)® according to the CIA fact book. Export partners of Russia are Ukraine,Germany,US,Belarus , other Western and less developed countries. And import partners are Europe, North America, Japan, and less developed countries.
Sources: 1.Russian Federation :Political and Socio-Economy Portrait. Russian Embassy. http://www.russianembassy.org/portrait.thml - Date of access : 2/22/00; 2. The World Factbook 1999 – Russia http://www.odci.gov/cia/publications/factbook/rs/html/ Date of access: 2/8/00
30. Layers of Collective Action: 2.0
Today in Russia there is no election system where you can vote for let's say city councils or school boards. Existing elections are just about the president of Russia, deputies in the Duma, governors, mayors and other head-authorities. This is obviously this way so that it's easier to control local authorities and what goes on the rural areas. So if you have a problem and want to solve it in official order then you have to go through the whole "ladder" of different authorities till you'll get any result. That's a bureaucracy.
Source: Personal
31. Pro-business Climate: 1.0
Today in most of the cases in Russia it's impossible to make big money honestly. Secondly : besides thinking of such people as snobs ,people know that their business very often connects with organized crime groups (Mafia) and is very dangerous. Everybody knows that in the opening of any business "traditionally" in 1 to 3 months "somebody" is going to visit you (personal experience) in order to claim part of money from your profit (don't forget government taxes). Nobody knows if your products will sell successfully or not , if yes and you don't know "somebody upper or stronger" than the person (or group) who visited you, then you're tied up with that certain group (usually connected to the certain person in domestic government).
Behind all of the fancy things such as expensive cars ,houses ,etc., there is always a danger from powerful people to less powerful people of being killed if something goes wrong. Cruel murders of "business" people have happened in Russia for the last 10 years, because not everybody who one way or another connected to Mafia was totally criminal , some of these people had their principles but every time money and life go together. The richer you are the risk of getting in "trouble" increases. Currently every little, tiny business in Russia is under "control" and everybody knows that , but people prefer to keep silent , cause even writing about such things in the local newspaper can cost you at least an accident or even a life. Remember that you can't go to the militia (police) office ,because of the corruption , which like cancer spreads out through the whole organism. However there is a hope that in 20-30 years money will stop go to the Swiss accounts ,or to Wall Street when "business" people will start to care about their money in Russia and influence tax legislation and other business' laws. I have a deep belief that in most cases a poor person will have more temptation to steal , then a person, who is wealthy.
Source: Personal
32. Government Enterprises: 1.5
One of the biggest government enterprises for today is appear Gazprom an enterprise that has a huge role in the economy of the whole country. But what's wrong with this biggest in the world natural gas producer? Getting huge money out of international trades this monopoly giant doesn't want to pay taxes. For today Gasprom owes hundreds of millions of dollars in back taxes. When at the same moment Gazprom's assets include: yachts ,lodges ,country homes, swimming pools and etc. The same kind of situation appeared with two other government's enterprises such as UES-electrical utility monopoly and the Norilsk Nickel metals producer. However demand of the Russian government for taxes being paid doesn't necessary mean that the taxes would be paid. According to unofficial sources of information people who directly participate in profit of the enterprises are the same people in the government. So that is obviously that in any ways they would try to avoid the law and make giving the money back impossible. It's hard to understand that without knowing what kind of money we're actually talking about here. For instance the compromise that was achieved says that the assets would be left alone if Gazprom paid $600 million per month for the next several months. Sure nobody from the current "owners" of the Gazprom wants to see the enterprise,which appeared as "gold mine" for them be privatized. That's why it's really hard to make things work in a normal lawful way.
Source: Desperate to Save Its Economy, Russia Attacks Giant Monopoly, Judith Matloff (The Christian Science Monitor),Moscowhttp://www.csmonitor.com/durable/1998/07/06/p7s1.htm
33. International Security Agreements: 2.0
As a matter of fact Russia still remains one of the big countries with great nuclear potential and besides visual aspects over International Security Agreements issue which includes recent NATO there are obviously others invisible for outsiders reasons from both sides which explain one or another action and decision made. And maybe that's one of the reasons why powerful countries such as the USA couldn't dictate what to do about the "Chechnya" issue, as it's been done in Serbia. Sometimes it's impossible to dictate or advice another country just because it seems right to you from the outside without knowing the real situation and causes of it.
Of course the position of the government on International Security Agreements issues has its big influence on the Economy as well as other aspects. Russia however is going to pursue a "peaceful" foreign policy because of its social programs . Also defense spending has to increase because of personnel needs, military reform, and replacement hardware ( which is expensive). Yet among advocates of "peaceful" foreign policy is the "new money" -financial-industrial groups centered around recently established banks. Their interest based on the profits that they get or expect to get from trade. On the other hand the domestic market , agriculture, labor unions have minimal interest because of potential losses and greater competitiveness . One of the points of view is getting obviously ,loosing interest in further integration on the world market by the failure of economy-based interest groups can cause conflicts with the West. So the optimal way to regulate and solve conflicts is through international institutions based on joint policy. Policy, however should be internationalized not just with the West but with other countries s uch as China as well.
Source: Davis center for Russian studies.Director: Celeste A. Wallander, Associate professor of Government, Harvard University. Program on New Approaches to Russian Security Policy Memo Series,Series Editor:Erin Powers. 1."Russia's Relations with NATO.",Nikolai Sokov 2."Impact on foreign policy.", Nikolai Sokov 3. Personal http://www.fas.harvard.edu/ponars/html -Date of access - 2/10/00
34. Protection of Domestic Enterprises From Government Mandated Costs: 2.5
Speaking of today's condition of domestic enterprises in Russia it would be quite difficult to agree that the tax environment is favorable for such business. Firstly it would be enough to say that starting from the Dec.6th 1991. Russia was literally shocked by unbelievably insolent Tax on Added Value , which was equal to 10% on goods for infants, children and 20% on other goods. It's pretty clear that this kind of tax besides its absurdity became the main cause of increases of prices on goods and decreases in wages - income of citizens as well. Needless to say that in order to survive people had to come up with any possible and impossible way of avoiding such tax.
However after May 1st. 1995 the situation has changed even more , new changes of Tax on Added Value have to be applied to imported provision at a rate of 10% and at a rate of 20% on imported goods for children and infants. Starting from Dec.27, 1991 taxes on profits of domestic enterprises and foreign firms amounted to 32%, and for intermediaries such as brokerage firms and others in the amount of 45%. Also additional tax applies to profit from dividends, interests, profit from participation in different from given enterprises at a rate of 15% to 18%, and the same tax for gambling business' is 70% to 90%. It would be interesting to mention that enterprises taxes on profit have to be paid each month in advance, based on the previous year's profit. I evaluate the current situation in government tax system as 2 + ,I put + because of the people who regardless of unreasonable government taxes are trying to keep their business' affordable for the population at any price. With this kind of government tax policy it's difficult to speak of any kind of protection of domestic enterprises in Russia. No wonder Russian citizens keep getting an impression that the government creates inflation on purpose. As for today it's clear that government taxes are remain the largest cost to domestic enterprises.
Source:. Ministry of Science and Technology of Russian Federation . 1. InfoScience, Legal database of Russian Federation: http://www.minstp.ru/docs/uri/95/70_001.html -Date of access - 2/10/00
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