overty has declined steadily and the
middle class has continued to expand. Russia has also improved its
international financial position since the 1998 financial crisis.
Over the past several years, Russia has used its stabilization fund
based on oil taxes to prepay all Soviet-era sovereign debt to Paris
Club creditors and the IMF. Foreign debt has decreased to 39% of
GDP, mainly due to decreasing state debt, while commercial debt to
foreigners has risen strongly. Oil export earnings have allowed
Russia to increase its foreign reserves from $12 billion in 1999 to
some $315 billion at yearend 2006, the third largest reserves in the
world. These achievements, along with a renewed government effort to
advance structural reforms and fiscal restraint, have raised
business and investor confidence in Russia's economic prospects.
Russia's economy grew 6.6% in 2006 and inflation growth was below
10% for the first time in the past 10 years. Russia shows signs of
increasing its ties to the global economy, having signed a bilateral
market access agreement with the US as a prelude to possible WTO
entry. Nevertheless, serious problems persist. Oil, natural gas,
metals, and timber account for more than 80% of exports, leaving the
country vulnerable to swings in world commodity prices. Russia's
manufacturing base is dilapidated and must be replaced or modernized
if the country is to achieve broad-based economic growth. The
banking system, while growing at a high rate and increasing consumer
lending, is still small relative to the banking sectors of Russia's
emerging market peers. Domestic and foreign investor sentiment is
tempered by political uncertainties ahead of elections, corruption,
and widespread lack of trust in institutions. President PUTIN
continues to grant more influence to forces within his government
that desire to reassert state control over the economy. Government
spending has increased and risks becoming populist, most notably in
the form of the four "national projects" of agriculture, education,
housing, and medicine. Russia has made little progress in building
the rule of law, the bedrock of a modern market economy.

GDP (purchasing power parity):
$1.723 trillion (2006 est.)

GDP (official exchange rate):
$733 billion (2006 est.)

GDP - real growth rate:
6.6% (2006 est.)

GDP - per capita (PPP):
$12,100 (2006 est.)

GDP - composition by