By IPS Correspondents
MOSCOW, Dec 27 2001 (IPS)

Russia’s economy has picked up after a decade-long decline, but economists have warned that a lot still needs to be done to secure sustainable development.

The year 2001 was a successful one for Russia, President Vladimir Putin said in televised remarks on Dec 24.

By the end of 2001, Russia’s Gross Domestic Product (GDP) growth is expected to reach 5.5 percent and drop to four percent in 2002, according to Finance Minister Alexey Kudrin.

Tough reforms by the Kremlin include the introduction of a 13- percent flat tax on incomes, new labour and land codes, as well as the restructuring of the country’s pension system.

Some former Soviet states reported even better results. Kazakhstan, for example, has recorded 10 percent, and Ukraine seven percent, GDP growth rates in 2001.

In 2001, all sectors of Russia’s economy have grown, according to Deputy Prime Minister Valentina Maviyenko. Agriculture has recorded a six-percent growth due to an unprecedented harvest of 83 million tonnes of grain, she said.

“Positive trends of the past two years in terms of economic growth will continue in 2002,” Maviyenko said.

Putin said the average Russian would “be happy” by 2010. Interestingly, the Russian leader mentioned a deadline well after the expiration of his presidential term.

Riding on top of commodity exports, government officials paint a rosy picture of the country’s booming economy.

However, experts warn that continued over-reliance on oil and gas exports might eventually push Russia into a vicious circle of debt crises, and increasing dependence on international commodity prices, a pattern well known in developing countries.

In 2001, Russia expects foreign trade surplus to exceed 40 billion U.S. dollars – still lower compared to 65 billion U.S. dollars in 2000. Correspondingly, the nation’s gold and hard currency reserves rose to nearly 35 billion U.S. dollars, almost tripling the 1998 level, according to the Central Bank of Russia.

Russia’s financial health has improved significantly since the 1998 crisis, largely due to high world market prices for its energy and commodity exports.

Another potential challenge to the sustainability of Russia’s development is the country’s foreign debt of about 150 billion U.S. dollars owed to Western governments, banks, the World Bank and the International Monetary Fund (IMF). This debt represents roughly four fifths of the country’s GDP, or 1,000 U.S. dollars per citizen.

About two thirds of that debt was incurred by the Soviet Union, and Moscow has agreed to repay it.

Following the 1998 economic crisis, some Russian government officials, including former Finance Minister Boris Fyodorov, invited Argentina’s Domingo Cavallo to advise how Russia could service its sovereign debt.

Later, Moscow declined Cavallo’s “currency board” advice. Now Russian officials pride themselves as having avoided Argentina’s scenario.

Both Russia’s 1998 economic crisis and Argentina’s current troubles were caused by the IMF’s structural adjustment programme, argues Mikhail Margelov of the Upper House of the Russian Parliament. Russia has refrained from further borrowing, he said.

Prime Minister Mikhaoil Kasyanov said a repetition of Argentina’s scenario is “impossible” in Russia.

Russia is sitting on world’s richest natural wealth, priding itself with an impressive ranking in the oil and commodity ratings. It is the world’s biggest natural gas producer and exporter, producing some 550 billion cubic metres a year and pumping over 200 billion cubic metres abroad.

With the country’s 12 billion metric tonnes of proven oil deposits, Russia is one of the world’s biggest oil producers, at some seven million barrels per day (bpd).

Much of Russia’s oil and metal industries were sold to well- connected tycoons at cheap bargains. Oil and metal magnates have opted to siphon out their cheaply acquired assets via obscure offshore entities instead of investing in production.

Economists estimate that the Russian oil corporations currently invest at home roughly a third of their revenues, while the rest remains abroad.

Despite the rosy macroeconomic picture, there have been some warning bells recently as Russian oil hovered well below 20 U.S. dollars per barrel.

Russia’s slowing economy may entail disastrous devaluation of the national currency – ruble – between 2003 and 2005, argues said Mikhail Delyagin, head of the Institute of Globalisation Problems, a Moscow-based think-tank.

The next economic crisis may also turn Russia into a police state, he warned.

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