The Russian Economy: A Very Short Introduction by Richard Connolly

Author:Richard Connolly [Connolly, Richard]
Language: eng
Format: epub
ISBN: 9780192588555
Publisher: OUP Oxford
Published: 2020-06-02T00:00:00+00:00

It was clear that Putin possessed the will and ability to follow through on his promise to strengthen the state. However, he also revealed a reform agenda, produced at the end of 1999 by the Centre for Strategic Research, a liberal-minded think tank headed by Putin’s personal friend German Gref, who was appointed as minister of the economy. Over the next three years, Putin and his government, including economic liberals like finance minister Alexei Kudrin, implemented a number of measures from what was labelled the ‘Gref Plan’. Over this period, the government introduced a 13 per cent flat tax, which was considered an innovative and path-breaking step at the time. Along with rising oil prices, it quickly helped boost tax revenues. Corporation tax was reduced, while public utilities, including the cumbersome electricity industry, and land laws were reformed.

These reforms appeared to yield almost immediate rewards. Macroeconomic stability, which had proven so elusive under Yeltsin, was quickly achieved, with Russia achieving a budget surplus in 2001 for the first time. The government used these surpluses to pay down Russia’s stock of sovereign debt that grew in the 1990s. Government external debt declined from $131 billion at the end of 1999 to less than $40 billion in 2007. At just 3 per cent of GDP, state external debt was now among the lowest in the world. Budget surpluses grew so much that a stabilization fund was created in 2004 where surplus tax revenues were accumulated. Annual inflation dropped from 85 per cent in 1999 to just 15 per cent in 2002. Most importantly, GDP continued to expand at an average annual rate of just under 7 per cent between 1999 and 2004. Living standards rose, and the memories of the chaos and poverty of the 1990s began to recede.

In the political sphere, economic growth and the accompanying influx of tax revenues increased the relative power of the state. Unlike Yeltsin, Putin was not reliant either on loans or favours from business, and did not need to parcel out state property to shore up his political position. Within just a few years, Putin appeared to have repaired much of the damage that had left the Russian state in such a weak position in 1998. His apparent commitment to prudent fiscal and monetary policies played a crucial role in making this possible.

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