Russia has made some progress toward the creation of a market economy in the last decade, but the record of economic performance has been disappointing. This is a key message of the OECD’s latest Economic Survey on the Russian Federation, published in March. Progress in macroeconomic stabilisation since 1995, leading to modest gains in output, living standards and financial market improvements by 1997, raised some hopes that the Russian economy had finally turned the corner. But these hopes faded with the stock market crash of 1997, the financial crisis of 1998 and further decline. Government attention has been absorbed by emergency management, rather than medium-term objectives. Hyperinflation was avoided by restrictive policies, bringing inflation to under 3% since February 1999 and stabilising the rouble. But the currency’s sharp depreciation made debt servicing extremely difficult. On the other hand, a weaker rouble and favourable export prices have helped industry to lead a recovery in the last 18 months. There is even evidence of genuine progress towards the creation of a market economy. Moreover, the recovery has alleviated pressures on the federal budget. However, some of the causes of the recovery may be only temporary. The rouble has begun to strengthen since February 1999, for instance, and this could slow the expansion. Meanwhile, some prices, such as for transport and energy, have been controlled, leading to price distortions.
The government faces many challenges. The tax system, while slowly being reformed, has long been a thorn in Russia’s transition. There is a need to restructure Russia’s banks and to restore the cash economy, which has been demonetised in recent years. There are pressing social challenges too, since despite the recovery in GDP, real incomes remain lower than pre-crisis levels, and poverty and social distress have increased for much of the population.
©OECD Observer April 2000