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RUSSIAN
ECONOMY AFTER
THE 1998
CURRENCY
CRISIS
RUSSIA REDUX?
-New Left Review, No. 44,
-March-April 2007.
Output is growing, inflation is under control
GDP grow th rates and inflation (right axis, log scale) in Russia, %,
1990-2007
GDP grow th rates
10
10000
5
1000
0
100
-5
Inflation (CPI, Dec. to Dec.)
10
-10
2006
2004
2002
2000
1998
1996
1994
1992
1
1990
-15
Unemployment is falling
Unem ploym ent rate, ILO definition, % of labor force, annual averages
13
12
11
10
9
8
7
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
FOREX increased in 2007 to over $400 billion, but
RER keeps growing
Fig. 5. Real effective exchange rate, Dec. 1995=100%(left scale), and year end
gross foreign exchange reserves, including gold, bln. $ (right log scale)
160
1000
140
REER
120
100
100
80
60
FOREX
10
40
20
0
1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Fig. 2. GDP change in FSU economies, 1989 = 100%
Central Europe
Uzbekistan
Belarus
115
Kazakhstan
105
Estonia
95
Turkmenistan
Azerbaijan
85
Latvia
75
Lithuania
Tajikistan
65
Russia
55
Kyrgyzstan
Armenia
45
Ukraine
35
Georgia
25
Moldova
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
The dynamics of HDI in Belarus is better than
in Russia, not to speak about China or Cuba
Hum an Developm ent Index for China, Belarus, Russia and Ukraine
0,83
0,81
0,79
0,77
0,75
Cuba
0,73
Russia
Belarus
0,71
Ukraine
0,69
China
0,67
0,65
0,63
1990
1992
1994
1996
1998
2000
2002
2004
Russia was leading in economic
liberalization, while Belarus was lagging
Private sector share in GDP, %
80
Russian Federation
70
Ukraine
60
Belarus
50
40
30
20
10
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
But Belarus and Uzbekistan are doing better (even though
they are net importers of fuel), not to mention net
exporters like Azerbaijan, Kazakhstan, Turkmenistan
GDP in 2006 as a % of 1989
Moldova
Georgia
Ukraine
Tajikistan
Kyrgyzstan
Russia
Bulgaria
Croatia
Lithuania
Latvia
Rom ania
Azerbaijan
Kazakhstan
Arm enia
Czech Republic
Hungary
Belarus
Uzbekistan
Slovakia
Slovenia
Albania
Estonia
Poland
Turkm enistan
40
60
80
100
120
140
160
180
Russian growth is lagging behind that of
oil exporters and some oil importers
Average annual GDP grow th rates in CIS countries in 2000-07, EBRD
estimates
Azerbaijan
Turkmenistan
Armenia
Kazakhstan
Tajikistan
Belarus
Ukraine
Georgia
Russia
Moldova
Uzbekistan
Kyrgyzstan
16
14
12
10
8
6
4
2
0
In the 1990s mortality rate rose to the
highest level in the postwar period
Moratlity rate, per 1000
inhabitants
70
16
69
Life expectancy
(right scale)
14
68
67
12
66
Mortality
(left scale)
10
8
65
64
6
63
2007 (1st half)
2004
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
Average life expectancy, years
Fig. 2 Mortality rate (per 1000) and average life expectancy, years
In the 1990s the murder rate tripled
or quadrupled
Fig. 1. Murder rates and suicide rate per 100,000 inhabitants
August 1998 currency crisis
45
40
35
30
25
20
15
Murder rate (crim e statistics)
Murder rate (death statistics)
10
2007 (Ist half)
2006
2005
2004
2003
2002
2001
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
2000
Suicide rate
5
Number of billionaires per 1 trillion dollars PPP GDP in 2007, by country
Iceland
Lebanon
Cyprus
Hong Kong
Kuw ait
Israel
United Arab Emirates
Kazakhstan
Turkey
Saudi Arabia
Russia
Malaysia
USA
Singapore
New Zealand
Sw itzerland
Ireland
Sw eden
Oman
Germany
Canada
Ukraine
Norw ay
Australia
Serbia
Spain
Chile
United Kingdom
Brazil
Venezuela
Egypt
Taiw an
Denmark
Austria
India
Poland
South Korea
Mexico
France
Italy
Netherlands
Philippines
Colombia
Japan
Belgium
South Africa
Thailand
Romania
Czech Republic
Portugal
Greece
Num ber of billionaires in 2007 and PPP GDP in 2005 (billion $) by country
450
US
400
350
300
R2 = 0,6811
250
200
150
100
Russia
50
Germ any
India
UK
0
0
-50
2 000
China
Japan
4 000
6 000
8 000
10 000
12 000
Relevant papers : http://www.carleton.ca/~vpopov
• Shock Therapy versus Gradualism Reconsidered: Lessons
from Transition Economies after 15 Years of Reforms. Comparative Economic Studies, Vol. 49, Issue 1, March 2007,
pp. 1-31.
• Democracy, Quality of Institutions and Economic Growth (coauthored with V. Polterovich). – In: Political Institutions And
Development. Failed Expectations and Renewed Hopes.
Edited by Natalia Dinello and Vladimir Popov. Edward Elgar
Publishing, 2007.
• Reform Strategies and Economic Performance of Russia’s
Regions. – World Development, Vol. 29, No 5, 2001, pp. 86586.
• Shock Therapy versus Gradualism: The End of the Debate
(Explaining the Magnitude of the Transformational
Recession). – Comparative Economic Studies, Vol. 42, Spring,
2000, No. 1, pp. 1-57.
Fig. 5. Government expenditure, % of GDP
U S S R /
60
R U S S IA
P O L A N D
C H IN A
50
40
Debt service
30
Defence
Subsidies
20
Investment
10
"Ordinary
government"
0
1985 1989 1995 1978 1985 1994 1989 1996
S o u rc e : (P o p o v , 2 0 0 0 ).
Collapse of the public spending
Fig. 6. Consolidated government revenues and expenditure, % of GDP
70
60
50
Expenditure
40
30
20
1992
Revenues
1993 1994
1995 1996
Deficit
1997 1998
Surplus
1999 2000
2001 2002
2003 2004
2005
Russia missed the opportunity to use the windfall profits
from oil and gas exports to repair the damage done to the
public spending in the 1990s
Fig. 3. Government budget revenues and expenditure, % of GDP
40
Expenditure
Consolidated budget
35
30
Revenues
25
20
15
Federal budget
Expenditure
Revenues
10
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Corruption Perception Indices
5,5
China
5
Russia
India
4,5
4
3,5
3
2,5
2
1980-85
1995
2002
2003
2004
2005
Control over corruption indices in Russia and China (points,
ranges from -2.5 to +2.5)
1996
1998
2000
2002
2003
2004
2005
-0,10
-0,30
China
Russia
-0,50
-0,70
-0,90
-1,10
Governm ent effectiveness indices in Russia and China
(points, ranges from -2.5 to +2.5)
0,20
0,00
1996
1998
China
Russia
2000
2002
2003
2004
2005
-0,20
-0,40
-0,60
-0,80
Rule of law indices in Russia and China (points, ranges
from -2.5 to +2.5)
-0,20
1996
1998
2000
2002
2003
2004
2005
-0,30
-0,40
-0,50
China
-0,60
Russia
-0,70
-0,80
-0,90
-1,00
Macroeconomic policy after the crisis
Annual grow th rates of real w ages, real incom es and productivity, %
Real w ages
20
Real incom es
18
Productivity
16
14
12
10
8
6
4
2
0
2001
2002
2003
2004
2005
2006
Why real incomes and wages grow
faster than productivity?
Fig ure 1. Grow th Ra tes of GDP a nd GDI
GDP
GDI, Pm
20 %
GDI, Pda
15
10
5
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
-5
-10
Source: Kuboniw a , 2007.
2006
Macroeconomic policy after the crisis
Grow th of real investm ent and total (private and
governm ent) consum ption, 1991=100%
140
120
100
80
Consum ption
60
Investm ent
40
20
0
1991
1993
1995
1997
1999
2001
2003
2005
Macroeconomic policy after the crisis
Structure of Russian GDP, %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Net export
Investm ent
2005
2003
2001
1999
1997
1995
1993
1991
Governm ent
consum ption
Private
consum ption
In 1995-98 exchange rate was pegged to the dollar, inflation
fell, but RER increased greatly, and FOREX decreased
Fig. 5. Real effective exchange rate, Dec. 1995=100%(left scale), and year end
gross foreign exchange reserves, including gold, bln. $ (right log scale)
160
1000
140
REER
120
100
100
80
60
FOREX
10
40
20
0
1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Goods export and imports to Russia, billion $, annual data
350
300
250
Export
200
150
Import
100
50
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Fig. 4. Goods export from and im port to Russia, billion $, m onthly data
August 1998 currency crisis
30
25
20
Exp
Im p
15
10
5
0
2007 1
7
2006 1
7
2005 1
7
2004 1
7
2003 1
7
2002 1
7
2001 1
7
2000 1
7
1999 1
7
1998 1
7
1997 1
7
1996 1
7
1995 1
7
1994 1
Fig. 5. Real exports and imports of goods and services, national accounts statistics,
1995=100%
260
240
220
EXP
200
IMP
180
160
140
120
100
80
60
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Balance of payments items, Russia 1992-2007, billion $
200000
Capital account, including
"errors and omissions"
150000
Change in Reserves
100000
Current Account
50000
0
-50000
-100000
-150000
-200000
2007 (est.)
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
Private capital flow s (mln.$, left scale) and oil prices (cents a barrel - right scale) in
1994-2004, million $
10000
4500
8000
4000
6000
PCF
Oil price
3500
4000
3000
2000
2500
0
2000
-2000
1500
-4000
1000
-6000
500
-8000
-10000
0
CORR betw een
private capital
flow s (including
errors and
omissions) and
oil prices = 0.16
III
IV
2003 I
II
III
IV
2000 I
II
III
IV
1997 I
II
III
IV
1994 I
Oil prices grow, but GDP growth does not accelerate
Fig. 6. Oil prices (2006 $ a barrel, right scale) and GDP growth rates in Russia (%,
left scale), 1990-2007
15
70
Oil price
60
10
GDP growth rates
5
50
40
0
30
-5
20
-10
10
-15
0
2007 (estimate)
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
Oil prices in 2006 $ per barrel(1869-2006)
Russia's external debt, billion $
320
280
200
Nonfinancial
enterprises
160
Banks
240
120
40
01.01.2006
1.01.2005
1.01.2004
1.01.2003
1.01.2002
1.01.2001
1.01.2000
1.01. 1999
1.01.1998
0
CB
(including
government
debt to IMF)
Governmen
t
01.01.2007
80