#7
New York Times
November 23, 2001
Editorial
Russia's Economic Rebound
When Communism collapsed in Moscow a decade ago, the Russian economy was in a stupor. It is only now springing back to life. The revival is good for Russia and its new friends in the West, but it will not be sustained unless President Vladimir Putin makes further reforms.
Russia's long-declining fortunes established a dubious benchmark not long ago when economists reported that the country ranked just above Guatemala in per capita income. The hardships were painful for millions of Russians, who thought the demise of Soviet rule would bring prosperity to a land long stunted by misgovernance. Now they can begin to hope again. Even with oil prices drifting downward, the Russian economy looks likely to expand by more than 3 percent this year.
The causes of Russian economic decay are well known. When the Soviet Union disintegrated, the country descended into a free-for-all of crime and risky entrepreneurship. Corruption was so rampant that big business and the mafia were virtually indistinguishable. The government of Boris Yeltsin failed to privatize natural resource conglomerates in a way that ensured transparent management and steady tax revenues. Debts mounted.
The financial crisis in 1998 provided a needed shakeout. A devalued ruble, improved property rights, better bankruptcy laws and new oversight of securities markets followed. Buoyed by high oil prices, Russia righted itself.
Mr. Putin has continued to bolster Russia's financial institutions and has made progress in stemming corruption. Businessmen have started to reinvest their profits at home rather than sending them abroad, a sure sign of increasing confidence in Russia's future. Still, the scarcity of foreign investment suggests Mr. Putin needs to do much more.
The government must put in effect full-disclosure rules in Moscow's financial markets and end its tacit tolerance of shady insider deals. It should also lay the foundations for a national banking system. Further strengthening the rule of law will save companies security and insurance costs. A substantial corporate tax reform will make doing business easier, as well as recouping some of the proceeds lost in the privatizations. Rather than seeking to block the westward overtures of its Baltic neighbors, Russia should reach out to them as a bridge to Western Europe's economies, as Hong Kong and Taiwan are for China.
If Russia can achieve these changes quickly, it will be well on its way to Mr. Putin's goal of membership in the World Trade Organization and repayment of its foreign debts. But that is not enough. The Russian economy still relies too much on natural resources and heavy manufacturing, much of which supplied military hardware for the cold war. Russia has become a formidable competitor in energy markets, but dependence on commodities makes the economy, and the government, too vulnerable to fluctuations in prices. A shift to more modern, high-technology manufacturing and services would be the true guarantor of Russia's economic future.
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