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FAX: [7] (095) 956-42-61
consulate(s) general: St. Petersburg, Vladivostok, Yekaterinburg

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@Russia:Economy

Economy-overview: Russia, a vast country with a wealth of natural
resources, a well-educated population, and a diverse, but declining,
industrial base, continues to experience formidable difficulties in
moving from its old centrally planned economy to a modern market
economy. After seven consecutive years of contraction 1990-96 in which
GDP fell by one-third, GDP grew by 0.4% in 1997, according to official
statistics. Moscow continued to make strides in its battle against
inflation, which fell to 11%, half the 1996 rate. The central
government made good on most back wages owed public-sector
employees-including the military-although the stock of wage arrears to
employees of private enterprises remained large. Privatization
revenues increased significantly, largely on the strength of a few
high-profile tenders, such as that of telecommunications giant
Svyazinvest. On the downside, Moscow continued to struggle with a
severe fiscal imbalance. Lagging tax collections led the government to
adopt a revised budget in spring 1997 that cut spending by about 20%
despite protests from the legislature. Russia's traditional trade
surplus continued to contract-largely because of soft international
commodity prices-and Moscow's WTrO accession made only halting
progress. Although President YEL'TSIN brought in a new economic team
early in 1997, key structural reform initiatives continue to move
slowly. A revised tax code remains stuck in the Duma, while little
progress is being made on agricultural land reform. Small business
development has lagged. Prospects for a return to robust growth have
been set back by the spillover from Asia's financial turmoil, which
hit Russia hard during the last quarter of 1997. Moscow at first tried
to both support the ruble and keep interest rates down, but this
policy proved unsustainable, and in early December 1997 the Central
Bank let interest rates rise sharply. As the year ended, Russian
authorities were attempting to put the best face on the financial
situation, while at the same time scaling back their previous
optimistic growth projections for 1998 to 1%-2%. Because of Russia's
severe macroeconomic constraints, resources allocated to the military
sector have declined sharply