For over half a century, the Russian economy, like that of the rest of the USSR, was centrally planned
The state controlled virtually all investment, production and consumption across the country. Economic policy was shaped by the Communist Party. The transition towards a market economy in the 1990s was painful. Radical liberalisation reforms and massive crash privatisation wiped out the living standards of millions, while crime and corruption flourished. In 1998, Russia was hit with a dramatic economic breakdown as the rouble spectacularly collapsed.
But after a decade of crisis, Russia has bounced back. Rising oil prices, increased foreign investment, higher domestic consumption and political stability have bolstered the economic boom. Russia became the fastest growing economy in the G8, ending 2007 with its ninth straight year of growth, averaging 7 per cent annually since 2003.
After years of underachievement, Russia emerged as the world’s leading natural gas exporter and the second largest oil producer after Saudi Arabia. Fuelled by oil revenues, it repaid its Soviet-era debt to Paris Club creditors and the International Monetary Fund.
Poverty has declined steadily and the middle class has grown. So has the number of Russia’s super-rich. The country’s freshly minted billionaires now play on the global stage, sweeping up luxury property, places at top universities and sports franchises. But economic development has been uneven throughout the country, and while the Moscow region booms, the rest, especially rural eras, lags far behind. The bulk of Russia’s manufacturing base dates back to the Soviet era. The country inherited most of the USSR’s defence industry, making it one of the world’s major weapons exporters. Efforts have been made to put military industries on civil rails but successful conversion remains a challenge.
And there are other challenges to face. Despite more then a decade of talks, Russia’s still been unable to join the WTO. Moscow applied for membership in 1993 and although formally Russia’s getting closer to accession, progress has been slow. The country is now pushing to diversify its economy, develop small business and invest in human capital. The Putin government launched a multi-billion investment programme in nanotechnology and started an ambitious social scheme to boost the sectors of housing, agriculture, healthcare and education.