Russian Economy 2002: Paying Foreign Debt, Suffering from Poverty

Russian economic growth is provided by only two major cities

It deems that the Russian government is happy with its activity in the year 2002. The growth of the Gross Domestic Product made up 4.1%, the inflation rate was registered on the level of only 15%. The outflow of capital decreased, gold and forex reserves of the Russian Central Bank increased a lot. The money to serve the foreign debt has been saved. In addition to that, foreign specialists noticed the consumer boom in Russia. However, even the State Statistics committee does not conceal that the improvement of the living standard is basically provided with two major Russian cities – Moscow and St.Petersburg. The rest of Russia suffers from cold, poverty, absence of electricity and heating power. Lonely pensioners freeze in their apartments. Yet, the government is being too proud with the GDP of four percent and the inflation rate of 15%. The economic progress in Russia on the whole leaves much to be desired.

The so-called outflow of capital was reduced in 2002. The past year was remarkable for the fact that the outflow of capital was a lot less than new currency investments to Russia – about only ten billion dollars (against $24 billion in the past decade). Yet, the government had to acknowledge that the level of foreign investments to the Russian economy was ten times as less as it was needed.

The reserves of the Russian Central Bank have increased by 13 billion dollars over the period of several months. This is a fantastic number for Russian financial institutions. Thirteen billion dollars were the sum that the Central Bank had on its accounts before the notorious default in August of 1998. The government  is happy about the fact that the problem of peak payments for the Russian foreign debt is not the most important issue for the country’s economy. On the other hand, analysts do not say anything about the issue of the country’s well-being for the current year. The State Statistics Committee informed that the living standard in Russia improved, the volume of bank deposits raised, as well as the consumption level. It is clear that the government concentrated its efforts on the execution of Russia’s foreign obligations. Russian people’s living standard has not improved at all. People still do not get paid on time, it was especially noticeable in summer.  President Vladimir Putin criticized Vice Premier for Social Affairs, Valentina Matviyenko and Finance Minister Aleksey Kudrin. As it turned out, salary hold-ups basically happened in the private field of economy.

Russian companies do not pay wages to their workers for months. Enterprises raise their competitive ability that way, providing additional investments for themselves too. If someone makes a company pay wages on time, or raise them on account of the inflation rate, a company will be ruined. In addition to that, the level of wages in Russia leaves much to be desired. World Bank experts conducted a labor market research in Russia. They came to conclusion that 50% of the Russian economy is the shadow economy. This means that the Russian people basically live owing to their participation in illegal economy. Nevertheless, the State Duma prolonged the validity of the previous consumer basket. This decision was made against the background of the fact that prices doubled over the validity period of the consumer basket. No wonder that Russian flight control officers went on a hunger strike, paralyzing the air traffic in a half of the country. This was the peak of the open negligence that both the government and the private capital had towards the living standard of a common Russian citizen.

The country’s economy was developing and growing over the financial crisis of 1998. However, all positive results of that progress were used by a small group of oligarchs. The people of Russia did not have anything from that really. That is why the Russian society has a wish to reconsider privatization results. Flight control officers’ hunger strike is just a start. Most likely, the new year will be marked with strikes as well.

What can this all lead to? The government has a good way out: the mass introduction of market principles and privatization. Flight officers go on strikes, but miners don’t. They do not think of any strikes, they need to work. If private enterprises have a political will and freedom of action, they manage to settle social issues rather quickly. Private security guards use tear gas and rubber batons. Cheaper workers from CIS countries take the rioters’ place, and there is no problem in sight. The government keeps serving the foreign debt. Will that scenario work during the year of parliamentary and presidential elections?

Therefore, it is not ruled out that the Russian people will have a chance to improve their living standard. It goes without saying that this improvement will be followed with another default, which will then turn to another stage of the economic and inflation growth. This will probably last until the moment, when a common Russian citizen does not like the average monthly salary of 50 dollars (like in China).

Dmitry Slobodanuk

Translated by Dmitry Sudakov

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Author`s name Olga Savka