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  Assessment and Recommendations

  The major economic challenge facing Russia is the achievement of long-term, sustainable growth that would allow for a relatively rapid convergence between living standards in Russia and the OECD economies. The nature of this challenge is largely determined by Russia’s economic structure. At present, Russia’s economy is highly dependent on the export of a limited range of natural resources, chiefly hydrocarbons and metals. This presents policymakers with a number of specific problems. In particular, resource dependence makes the Russian economy especially vulnerable to external shocks. It is therefore difficult to overstate the importance of prudent macroeconomic policies, especially ...

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  Sustaining Growth

  The main economic challenge facing Russia is the achievement of longterm, sustainable growth at rates high enough to bring about relatively rapid convergence between Russian living standards and those of more developed western economies. Establishing conditions for sustained growth is therefore the central concern of the present survey. This focus necessitates paying particular attention to Russia’s economic structure. Russia’s economy is highly dependent on the export of a limited range of natural resources, chiefly hydrocarbons and metals, and it shares many of the characteristics of other "less-diversified economies". Resource dependence confronts Russian policy-makers with a particular set of macroeconomic challenges, including vulnerability to external shocks, "Dutch disease" and the various institutional pathologies which are often associated with ...

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  Industrial Competitiveness

  The issue of industrial competitiveness is especially important for Russia. The coming years will see continued cost pressure on enterprises’ inputs and further real exchange-rate appreciation, which will have to be matched by productivity increases. The 1998 financial crisis remains a vivid reminder of what can happen when productivity fails to increase in line with input costs or an appreciating exchange rate, rendering a country’s industry increasingly uncompetitive. Industrial competitiveness, however, is not only a general, but also a structural issue in Russia. The dual structure of the economy (see Chapter 1) means that productivity in a number of sectors, especially outside the natural resource industries, is still at levels that raise questions about their longer-term viability. It is therefore important ...

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  Natural Gas

  The natural gas industry is probably the least marketised sector in the Russian economy. Despite – or perhaps because of – its enormous significance, it has proved extraordinarily successful in preserving the transitional institutional structures created in 1992 and in resisting attempts to increase the role of market forces in its operation. While a largely unreformed gas industry demonstrated considerable resilience during the early years of the post-communist transition, it is increasingly clear that the failure to allow greater play to market forces in the sector represents a threat to its long-term development and, by extension, to Russia’s long-term growth prospects (see Chapter 1). This chapter will examine the state of the natural gas industry and the prospects for its development before ...

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  Power Sector Restructuring

  In 2003, after many years of debate, Russia embarked on the restructuring of its electricity sector, launching one of the most far-reaching and technically complex reforms of the post-Soviet era. This will involve the corporate restructuring of the country’s massive electricity monopolist, RAO UES, and the implementation of legislation that will provide the framework for the creation of markets in electricity generation and supply and for a revamped set of regulatory arrangements for transmission and distribution. This chapter provides an assessment of the reform plans as they now stand and raises a number of issues that will need to be addressed as the reform is implemented. The discussion begins with an ...

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  Banking Reform

  The relationship between financial-sector development and economic growth has long been the subject of much debate. However, a growing body of recent empirical work strongly supports the proposition that financial development contributes to growth over the long term. Moreover, there is evidence to suggest that the intermediation-growth link is stronger for less financially developed countries, such as Russia. There are good reasons to believe that the development of the banking system in particular will be critical to sustaining the growth of investment and output in Russia over the longer term (see Chapter 1). Given the limits on its current ability to attract foreign investment and on the capacity of firms outside the resource sectors to finance investment from retained earnings, Russia’s growth will depend to a great extent on the effective mobilisation and intermediation of ...

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