The Russian economy in 2009: Steep decline despite crisis management

Authors:

  • Susanne Oxenstierna

Publish date: 2009-12-18

Report number: FOI-R--2853--SE

Pages: 56

Written in: English

Keywords:

  • Economic growth
  • Russia
  • financial crisis
  • unemployment
  • living standard
  • military spending
  • military industrial complex
  • modernisation
  • structural change

Abstract

Despite a massive anti-crisis programme, Russian GDP will drop by around 8 percent in 2009. this steep decline stands in sharp contrast to the average annual growth in GDP of 7 percent observed during the early 2000s. The budget deficit for 2009 is esatimated at 8,9 percent of GDP and an underbalanced budget is expected up to 2012. The most serious consequence of the economic crisis is the drop in living standard and increase in the number of poor people in Russia. By the end of 2009, Russia will have almost 25 million poor and a poverty rate of 17,4 percent. National defence was cut by over 10 percent by the anti-crisis programme, and among its budget lines it is only those linked to international commitments that have been increased quite substantially. The companies of the military industrial complex are among the priority companies that have received substantial support from the government. The government has also pumped new capital into several strategic companies, but despite substantial support the results are meagre. President Medvedev has severely criticised the military companies and indicated that they must start producing contemporary arms of high quality at lower prices. Large sections of the military industrial complex need to be scrapped, since the technology dates from Soviet times and cannot produce contemporary arms. The anti-crisis programme has been criticised for giving huge support to large uncompetitive Soviet-type companies and not to small anmd medium sized companies. The programme has largely been geared at labour hoarding and keeping unemployment down. The government has not embarked on infrastructure projects to create public works and lacks policies for enhancing structural change. In the programme Russia go! President Medvedev suggests that during the coming decade Russia should become a country with its wellbeing largely provided by intellectual resources. Sectors to be developed include the pharmaceutical industry, nuclear power, nano-techniques and IT. The major impediment to real modernisation in the Russian economy and society is the rent-seeking nomenklatura. Further integration into the global economy is a crucial element for success in Russia´s future economic development. By joining the WTO Russia must become more competitive and follow common rules. It should be noted, however, that both high growth and low growth might be related to better or worse political relations with the West. On the evidence since 1991, it can be concluded that Russia has more drive in its economic reforms when the economy is weak. The potential trigger for serious democratic reforms is a different matter and remains an open question.

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