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• Overview: 
As it has moved from a centrally planned economy toward a free market system, the Russian economy has undergone considerable stress. The country has established new ties in the world economy while links to its traditional trade partners have diminished. Russia accounts for more than one-half of the population of the New Independent States (NIS) of the former Soviet Union and 60% of their total gross domestic product. 

GDP. GDP fell approximately 38.5% between 1992 and 1997, according to official statistics. While these numbers may not reflect significant economic activity in the unofficial economy, the trend has certainly been negative and did not reverse by the end of 1996. Unemployment (by ILO definition) was 9.3% of the work force in 1996, but this figure omits many who work reduced hours or are on involuntary or voluntary leave. 

Monetary Policy. Inflation rose to a peak of 30% per month by January 1993. Since then, monthly inflation has declined and by the end of 1996 ranged between 0 and 2% per month -- marking the essential stabilization of the macroeconomy. Russia abolished the ruble zone in mid-1993, which forced other NIS republics to issue their own currencies. A currency corridor, and subsequently a crawling band mechanism, have been employed by the government since July 1995 to increase ruble stability and to help dampen inflationary expectations. The average exchange rate in 1996 was 5,120 rubles per U.S.$1. 

Government Spending/Taxation. The 1996 federal budget provided a strong underpinning for the government's stabilization program. However, severe revenue shortfalls resulted in a higher than expected deficit of 6.1% of GDP. The revenue shortfall situation is widely seen as due to a combination of factors: the fall in output; weak tax administration practices; an increase in the size of the gray economy; and a cumbersome tax system, including high rates which provoke evasion. 

The domestic government securities (GKO) market has grown in line with government needs for non-inflationary financing, with total GKO's outstanding reaching just under 9% of GDP by December 1996. The draft 1997 federal budget called for a deficit of 3.5% of GDP (Ministry of Finance Definition, which is slightly lower than the IMF definition). 

Law. Lack of legislation in many areas of economic activity is a pressing issue. Taxation and business regulation are unpredictable, and legal enforcement of private business agreements is almost nonexistent. Many government decisions affecting business have been inconsistent. Crime in Russia has increased costs for local and foreign businesses. 

Natural Resources. With the mineral-packed Ural mountains and the vast oil, gas, coal, and timber reserves of Siberia and the Russian Far East, Russia is rich in natural resources. Most are located in remote and climatically unfavorable areas that are difficult to develop and are far from Russian ports. Oil and gas continue to be the main sources of hard currency. Russia is a leading producer and exporter of minerals, gold, and all major fuels. The Russian fishing industry is the world's fourth-largest--behind Japan, the U.S., and China. Russia accounts for one-quarter of the world's production of fresh and frozen fish and about one-third of world output of canned fish. 

Industry. Russia is one of the most industrialized of the former Soviet republics. Besides its resource-based industries, it has developed large manufacturing capacities, notably in machinery. Russia inherited most of the defense industrial base of the Soviet Union; converting it to civilian use is a major goal of the present government. 

Agriculture. Russia comprises roughly three-quarters of the territory of the NIS, but has relatively little area suited for agriculture, because of the arid climate and inconsistent rainfall. Northern areas concentrate mainly on livestock farming, and the southern parts and western Siberia produce grain. Agricultural production, chiefly grain and potatoes, accounts for more than one-half of that for the entire NIS. The transition from centrally planned to market economies requires a radical reform of agriculture, which has yet to take place. 

Investment. Cumulative foreign direct investment in Russia was estimated at $11 billion in 1995, according to Russian government statistics--a figure far below its potential. The U.S. was the largest foreign investor, providing $2 billion of the total. 1996 figures are not yet available but there are no signs of significant new investment. Domestic investment also lags and is presently the greatest obstacle to renewed economic growth. Major areas of interest for U.S. investors have been in energy, food processing, telecommunications, and automobiles. Joint ventures between Russian and foreign firms account for an increasing share of Russian output and trade and are concentrated in the services sector. 

Trade. Russia has liberalized domestic trade and dismantled most non-tariff restrictions on foreign trade. State-subsidized imports were phased out in 1994, as was the system of quotas and licensing for exports. To bolster future foreign trade, Russia applied in June 1993 to the General Agreement on Tariffs and Trade (GATT)--predecessor to the World Trade Organization (WTO). Russia's average weighted tariff is 13-14%. 

Russia has been running a trade surplus since 1993. Russia's trade is dominated by Europe; Germany and the countries of Central and Eastern Europe hold the lead. The U.S. is Russia's second largest trading partner, while China and Japan are Russia's largest Asian trading partners. Trade with the other NIS states is overwhelmingly in industrial products; Ukraine and Kazakstan are by far the most important trade partners. Russia continues to supply large amounts of energy to the NIS states at a discount, although it has tied government credits to debt repayment. 

Highlights From Russian Infrastructure Projects 
International Space Station. Russia and the U.S. are engaged in a joint flight program to lead to the development of the international space station. Key elements include: U.S. astronauts on board the Mir space station for approximately two years; up to 10 U.S. shuttle docking missions; and $400 million in contracts for the provision of hardware, joint technology, and on-board research support by U.S. firms. 

Sakhalin Island Development. The Marathon, McDermott, Mitsui, Mitsubishi, and Shell Sakhalin II consortium plan to develop large oil and gas fields offshore at Sakhalin Island in a $10 billion project. 

Timan Pechora Exploration. Texaco is involved in a $2.5 billion greenfield oil exploration project in the Timan Pechora region of the Komi republic. 

Civil Aviation. Russian manufacturers are using Western engines and avionics to bring the Russian civil fleet up to world standards. 

Civil Shipbuilding and Harbor Modernization. Russia seeks to modernize the St. Petersburg, Vladivostok, and other ports. Russian shipyards have built oil tankers, fishing trawlers, cargo ships, and pleasure craft. 

 
 
• National product: 
GDP - purchasing power parity - $555 billion (1996 est.) 
 
• National product real growth rate: 
-6% (1996 est.) 
 
• National product per capita: 
$3,740 {exchange rate method} (1996 est.) 
 
• Exports: 
$87 billion (f.o.b., 1996) 
 
commodities: 
petroleum and petroleum products, natural gas, wood and wood products, metals, chemicals, and a wide variety of civilian and military manufactures 
 
partners: 
Europe, North America, Japan, Third World countries, Cuba 
 
• Imports: 
$64 billion (f.o.b., 1996) 
 
commodities: 
machinery and equipment, consumer goods, medicines, meat, grain, sugar, semifinished metal products 
 
partners: 
Europe, North America, Japan, Third World countries, Cuba 
 
• External debt: 
+$100 billion (yearend 1997) 
 
• Electricity: 
 
capacity: 
213,100,000 KW 
 
production: 
876 billion kWh 
 
consumption per capita: 
5,800 kWh (1994) 
 
• Industries: 
complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; all forms of machine building from rolling mills to high-performance aircraft and space vehicles; ship- building; road and rail transportation equipment; communications equipment; agricultural machinery, tractors, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables 
 
• Agriculture: 
grain, sugar beets, sunflower seeds, meat, milk, vegetables, fruits; because of its northern location does not grow citrus, cotton, tea, and other warm climate products 
 
• Illicit drugs: 
illicit cultivator of cannabis and opium poppy; mostly for domestic consumption; government has active eradication program; used as transshipment point for Asian and Latin American illicit drugs to Western Europe and Latin America 
 
• Economic aid: 
 
recipient: 
US commitments, including Ex-Im (1990-94), $15 billion; other countries, ODA and OOF bilateral commitments (1990-93), $120 billion 
 
• Currency: 
1 ruble (R) = 100 kopeks 
 
• Exchange rates: 
rubles per US$1 - 3,550 (29 December 1994), 1,247 (27 December 1993); nominal exchange rate still deteriorating but real exchange rate holding steady 
 
• Fiscal year: 
calendar year