Resurgent Russian Economy?

Abstract

On 1 October 2007, two months before parliamentary elections of 2 December 2007 and less than half a year before presidential elections of 2 March 2008, President Vladimir Putin agreed to put his name on electoral ballot sheet of largest Russian party that had always supported him-United Russia-although he had never been a member. In December's parliamentary elections, United Russia received 64 percent of votes, whereas Just Russia-a party that was more left-oriented but also openly supported Putin-received another eight percent of votes. Only two opposition parties managed to overcome seven-percent barrier in proportional representation elections to get their deputies into parliament: Communists (12 percent) and nationalistic Liberal Democratic party (eight percent). Other parties altogether received less than eight percent of votes.Shortly after December 2007, Dmitry Medvedev, then deputy prime minister, became a joint presidential candidate of four parties (United Russia, Just Russia, and two minor parties not represented in parliament) and immediately offered Putin post of prime minister in future government. Putin accepted, making it clear he was going to stay in politics even after his second presidential term came to an end. On 2 March 2008, Medvedev was elected president by an overwhelming majority and nominated Putin as prime minister.Putin's decision to stay on board in a new administration is understandable: he is prohibited from running for a third presidential term by constitution but he remains extremely popular-53 percent of electorate voted for Putin in 2000, 71 percent in 2004, and over 60 percent said they would vote for him in September 2007, even though he was not going to run. The secret of his high popularity is simple: he left country in better shape than when he came into power eight years earlier.PUTIN'S LEGACY: ECONOMIC ACHIEVEMENTSThe stabilization of past eight years was especially impressive, if compared to period of disarray of the rocky The Russian economy lost 45 percent of its output during transformational recession of 1989-98, income inequalities increased significantly, crime rate doubled, and life expectancy dropped from 70 to 65 years. The short-lived stabilization of 1995-98 (when ruble was pegged to dollar and inflation subsided) ended with spectacular currency crisis of August 1998, when ruble lost over 60 percent of its value in several months, resulting in acceleration of inflation, crime, suicides, and mortality rate.However, after 1998 currency crisis, Russian economy started to grow. The average annual growth rate totaled about seven percent in 1999-2007, so now GDP is gradually approaching its pre-recession level of 1989. Real incomes and personal consumption increased even faster-more than doubling in 1999-2007-and have already surpassed pre-recession level of late 1980s. The major push was given by devaluation of ruble in 1998 and by higher world prices for oil and gas later, but Putin can at least take credit for not ruining this growth. Inflation fell from 84 percent in 1998, when prices jumped after August 1998 currency crisis and dramatic devaluation of ruble, to 10-12 percent in 2004-07.Economic growth and high world fuel prices helped government to collect more tax revenues, so government budget moved from a deficit to surplus, and government spending as a proportion of GDP increased since 1999, allowing partial restoration of institutional capacity of state that was lost in 1990s. Moreover, high oil and gas prices in world markets allowed Russia to enjoy high foreign trade surpluses and to accumulate foreign exchange reserves, which increased from less than $15 billion right after 1998 currency crisis to nearly $500 billion at beginning of 2008.By comparative standards, Russian performance is not that impressive. …