Economic Change in Russia

The Russia and Eurasia Program offers analysis of rapid economic change in Russia and the consequences for U.S. policy

There is no aspect of contemporary Russia that has changed more rapidly and unexpectedly than its economic situation. When Vladimir Putin became President, Russia was effectively bankrupt as it owed more money to the International Monetary Fund (IMF) than it had in foreign currency reserves. Since then, Russia has achieved a virtual macroeconomic revolution to the point where it is one of the largest creditors of U.S. debt in the world. Its nominal dollar GDP has increased by more than a factor of six, and has the potential to reach more than $2 trillion by 2010. Growth of this magnitude would equate to nearly a ten fold increase in GDP over the course of a decade.  

In early 2009, the Ministry of Economic Trade and Development published an ambitious plan outlining Russian economic goals to the year 2020. If these goals are reached, Russia would become the largest economy in Europe and the fifth largest in the world following the United States, China, Japan, and India.

When examining the Russian economy, the first thing that needs to be considered is the sustainability of the current growth trends. Is the Russian government pursuing policies that are likely to constrain growth? How much does corruption tax economic expansion? How are Russian leaders weighing the trade-offs of investing in infrastructure modernization, growing social welfare demands, military modernization, etc.?  Are the development and distribution of Russia’s vast energy resources driven more by political or commercial factors?

The fundamental question the United States needs to answer concerns the degree to which Russian economic resurgence presents an opportunity or a threat to its interests. To what extent should the United States encourage deeper integration and interdependence? In the realm of security, U.S. policy toward Russia today broadly consists of contradictory tendencies toward engagement and containment. However these tendencies are also very relevant when considering the economic future of the Russian Federation.

Never in its history has Russia been more prosperous or integrated into the global economy than it is now. Seemingly, this is a positive development and the achievement of one of the core goals of U.S. policy toward Russia since the Soviet collapse. However, like many aspects of contemporary Russia, this phenomenon is highly controversial in Washington, often due to the conflicting nature of economic information. This project seeks to clarify U.S. interests on the Russian economy and help place them in the broader context of U.S. policy toward Russia.

After a decade of stunning economic growth, fueled by rising commodity prices and cheap foreign credit, the Russian economy established itself as a very attractive seat for foreign investment. By July 2008, Russian foreign currency reserves totaled more than $588.9 billion and oil prices broke new records at more than $147.27 per barrel, while Russian banks acquired foreign debt amounting $500 billion Even after months of financial instability following the volatility that rocked U.S. financial markets during the spring of 2008, Russia appeared to be weathering the financial storm better than most. However, as the crisis deepened, it became apparent that Russia would not be exempt from the economic downturn. Frozen credit markets, rapidly declining energy prices, and significant investor pull-back began having an effect on the Russian economy. Initial reaction from the Kremlin downplayed the impact of the crisis on Russia, but instead levied scorn on American regulators for failing to foresee the downturn.

By the end of 2008, the ruble stood significantly weakened against the dollar and the main Russian stock index had all but collapsed. As industrial production slowed, unemployment increased and isolated incidences of civil unrest began to appear across the country.  These factors, combined with a growing problem capital flight, forced the government to act by passing a broad economic stimulus package and injecting more than $200 billion into the economy. In spring 2009, oil prices climbed back from the low point they reached earlier in the year and the global impact of the crisis eased. Even so, experts predict Russia will continue to feel the effects of the crisis in the years ahead with economic contraction of between 7 and 8 percent expected in 2009 and only a modest growth in consecutive years. The global financial downturn has highlighted serious deficiencies in the economic policies of the Kremlin and the Russian economy itself. The speed and trajectory of Russia's recovery is highly contingent on the willingness of Russian policymakers to diversify their revenue streams and make much needed economic and monetary reforms.

Summaries from working group meetings are available below.

 "Russian Economic Goals to 2020: Dreams or Reality?" Presentation by Mikhail Dmitriev and Anders Aslund.

"Russian Perspective on the U.S. and its Role in Russian Economic Development" Presentation by Sergei Guriev.

"Russian Hydrocarbons: Economic Driver and Foreign Policy Tool?" Presentation by Adam Stulberg and Edward Chow. Powerpoint presentation available here.

"Corruption: A Constraint on Growth and a Threat to Security?" Presentation by Michael Alexeev and Robert Legvold. Powerpoint presentation available.

"Russian Debates about How to Allocate the New Wealth," Presentation by Clifford Gaddy and Barry Ickes.

"The Russian Armed Forces, Military Spending, and the Arms Industry," Presentation by Keith Crane and Olga Oliker.