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YEAR AHEAD - Russia faces 2002's hurdles with confidence
By Patrick Lannin

MOSCOW, Dec 21 (Reuters) - Russia, reviled as a bankrupt pariah state just three years ago, enters 2002 as one of the few countries showing good economic growth and a rising stock market and with new, closer relations with the West.

After 10 years of economic and political chaos unleashed by the collapse of communism in 1991, many commentators say the country seems to be finally getting it right.

It is not just the economy and reforms which have earned praise, but also President Vladimir Putin's pro-western policy, particularly his energetic support of the U.S. campaign in Afghanistan.

Putin is a pragmatic leader, intent on easing tensions by cooperating with Cold War foe the United States, in the hope of getting concrete benefits from the West, commentators say.

Benefits would include accelerated entry to the global trade body, the WTO, and help with restructuring the country's huge foreign debt if economic times get tougher.

But Putin faces short-term economic and political challenges next year and unease remains over Chechnya, where human rights groups say abuses continue.

Oil, the key driver of Russia's success in the last two years, is top of the economic list next year. A dollar fall in the price of a barrel of oil lops $1.0 billion off Russia's revenues, economists say.

A sharp fall in oil prices was one reason for the country's 1998 financial crisis, which brought almost pariah status.

But the International Monetary Fund's representative in Moscow Poul Thomsen was calm about Russia's prospects.

"There is of course a scenario where oil prices drop so much and the recession in the West is so bad that there will be a need for even further adjustment of policies and perhaps also some borrowing, but it is not on the horizon," he told Reuters.

He said the country could withstand a substantial fall in oil prices and still keep its financial house in order.

The government forecast economic growth next year of around four percent, down from an expected 5.5 percent this year and a record 8.3 percent in 2000 but above one percent growth estimates for the United States and the joint economies of the European Union.


But the bare economic facts do not give the whole picture, World Bank chief economist for Russia Christof Ruehl said.

"One has to make a distinction between the macro figures which all indicate that things are good...and the real financing demand, which is what you see when you go 10 minutes out of Moscow when roads get dilapidated and trees are growing in the factories through the roof," he said.

Russia, omce a major power, has per capita GDP of around $2,000, compared with $10,000 in Portugal, the poorest EU state, and more than $30,000 in the United States.

Russia needs to ensure steady economic growth for many years to come, something Ruehl said could only be done by broadening the economy away from oil dependence.

Putin's economy broadening plans, which are set to continue in 2002, have included key reforms such as a new code which allows people to buy and sell land for the first time since the 1917 October revolution, and efforts to make doing business easier.

Ruehl said legislation was just a first step.

"If 2001 was the year of reform then 2002 will be the year of implementation. The real difficult part is to track what happens on the ground (with reforms)," he said.

Economic changes which restored investor confidence and boosted the stock market by almost 30 percent this year, making it one of the best-performing bourses, have come with political and diplomatic shifts.


Firming ties with the United States will continue in 2002 despite criticism that the government is selling out to the West, being soft on issues such as Yugoslavia, the Anti-Ballistic Missile Treaty and NATO expansion, commentators say.

But strengthening links with the West is expected to be balanced by further efforts to woo China.

Putin will also need to claim concrete benefits to show Russian citizens and policy makers he is doing the right thing.

Benefits could come from better ties with NATO and greater cooperation with the United States and European Union to get Russia into bodies like the World Trade Organisation.

"The changes in Russian foreign policy have been so abrupt and unexpected that the Russian political elite has had no time to reorient itself," military newspaper Nezavisimaya Voyennoye Obozrenie said.

"The president will be able to prove the correctness of the new course only if the West really moves toward Russia and Russian citizens really feel the impact of this. If this does not happen, the present pro-Western turn could easily be replaced with an opposite one."

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