Economic Performance

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Economic Performance Overview

The Russian Federation has come a long way in terms of its national economy in the past 10 years. With the end of the country’s financial crisis in 1998, it has made large strides in improvement through macroeconomic policies. In addition, the reforms in fiscal and banking sectors in the Russian economy have made it one of the largest economic recovery projects in recent years.

The financial crisis of 1998 left the world in shock and the Russian Federation crumbled. “The crisis, which involved a default on domestic public debt and a devaluation of the ruble, was a massive shock to the system and a considerable surprise to both Russians and foreign investors.” 23 Currently, Russia has been growing at rapid rates, and seeks to continue to do so. International investors continue to show interest in Russian industry, especially regarding energy resources such as oil, natural gas, and diamond mining. In addition, monetary and fiscal policy is being shaped to benefit the Russian society which in turn is keeping inflation from taking off, and thus keeping Russia from entering another downfall.

Economic Performance in 2004

Russian growth in the year 2004 was steady overall, but the greatest growth occurred in areas other than the resource sectors. Due to this shift, the standard of living amongst Russian citizens has improved and poverty continues to decline. GDP in the first half of 2004 grew by 7.4% in comparison to that in 2003. As well, output of the main sectors of the economy increased by an estimated 7.9% during the first half of 2004, but dialed back in the third quarter of 2004, which caused the final numbers to rest at 5.4 percent24. In addition, Russian exports have increased by 26.6 billion dollars from 2003 to 2004, as imports have done the same by 14.4 billion dollars. It is important to note that Russia exported 50.5 billion dollars more than it imported in 2004. This shows that Russia is experiencing a trade surplus thanks to the relative price of Russian goods produced being less expensive than those in other countries. In 2003 Russia started a number of structural reforms in the areas of government administration, state budgeting, interbudgetary relations, the banking sector, and the re-structuring of the electricity industry25. See Chart 1 for a more detailed breakdown of the banking system.

With regard to the banking sector, growth in Russian banking is rising faster than growth in GDP. From the financial crisis of 1998 to year 2003 “aggregate commercial bank assets increased from 31.5 to 42.2 % of GDP” 26. This substantial growth in assets shows good investment perception of Russia and should continue to grow. Due to higher amounts of investment in Russian banks, Russia has decided to incorporate a Deposit Insurance which is the crux of its banking reform. This deposit insurance will allow better expectations of investors in Russia and will act like the FDIC in the United States. As well, the deposit insurance will force Russia to reform other banking systems such as accounting, bank monitoring, and procedures in bank resolution; all helping the Russian banking system progress in the future27.