Observations on Russian Exposure to the Dutch Disease

Abstract

A senior Japanese authority on the Russian economy and its energy sector addresses the country's exposure to the so-called Dutch disease, suggesting that Russia did suffer from the potentially ruinous overdependence on oil and gas exports. The author argues, however, that the symptoms of the disease were actually not severe, attributing his interpretation to: (1) drastic decline of noncompetitive domestic manufacturing industries in the 1990s, which prompted a huge inflow of imports in the 2000s, but left competitive manufacturing enterprises in a position to survive; (2) extraordinary oil price increases in the 2000s, which significantly raised household and business incomes, creating augmented demand for products of domestic origin; (3) large differences between Russian and world prices of oil and gas, which functioned as subsidies for domestic manufacturing; and (4) massive intervention in foreign exchange markets by the Central Bank of Russia, which restricted the growth of imports and thus strengthened the surviving domestic manufacturing enterprises.