om
131% in 1995 to 22% in 1996. Russia failed to make any progress in
restructuring its social welfare programs to target the most needy -
among whom are many of the old pensioners - or to pass needed tax
reform. While approximately 75% of industry has now been privatized,
the agricultural sector has undergone little reform since the break-up
of the Soviet Union. Stockholder rights remain weak while crime and
corruption are rampant in much of the economy. Many enterprises
continue to operate without hard budget constraints, resulting in
barter trade and increased inter-enterprise debts. According to
official statistics, the Russian economy declined for the fifth
straight year since the beginning of reforms, with GDP in 1996 falling
by 6% and industrial output by 5%. The true size of the Russian
economy remains controversial, however, with estimates of unreported
economic activity ranging from 20%-50% of GDP. Indeed, according to
Russian statistics, the Russian consumer has seen a small improvement
in the last several years, with real average incomes growing by about
8% from early 1993 to late 1996. The share of the Russian population
living below the poverty line is said to have dropped from one-third
in early 1993 to one-fifth in late 1996. Few Russians lack basic
necessities, and ownership of consumer goods such as VCRs and
automobiles has increased markedly. The growth of wage and pension
arrears slowed in the second half of 1996, and the government pledged
to clear all budget-funded wage and pension arrears by the end of
1997. The government continued to be plagued with tax collection
problems during 1996, forcing it to cut its planned spending by 18%. A
crackdown on major tax debtors at the end of the year had only limited
success. Spending by all levels of government remains high, between
40%-45% of GDP. The economy is continuing its integration into world
markets. Russia's trade surplus, after adjustment for unreported
"shuttle" trade, grew to a record $28.5 billion in 1996, according to
official Russian statistics. Export growth, which slowed from 18% to
9%, was due mostly to increased raw material prices. After increasing
by 15% in 1995, imports dipped by 2% in 1996 as Russian demand for
Western consumer goods slackened. Russia is continuing to make
progress in its WTrO negotiations; the government has made quick
accession one of its major policy goals. The continued unsettled
economic and political situation h