Russia. Country Profile 2003

Transcription

1 Country Profile 2003 Russia This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where its latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) dantecantu@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, on-line databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2003 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author s and the publisher s ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN X Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

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4 Country Profile The Economist Intelligence Unit Limited 2003

5 Russia 1 Contents 3 Basic data 4 Politics 4 Political background 5 Recent political developments 8 Constitution, institutions and administration 9 Political forces 12 International relations and defence 16 Resources and infrastructure 16 Population 17 Education 18 Health 18 Natural resources and the environment 19 Transport, communications and the Internet 22 Energy provision 26 The economy 26 Economic structure 28 Economic policy 33 Economic performance 36 Regional trends 37 Economic sectors 37 Agriculture 39 Mining and semi-processing 40 Manufacturing 41 Construction 42 Financial services 44 Other services 45 The external sector 45 Trade in goods 47 Invisibles and the current account 48 Capital flows and foreign debt 50 Foreign reserves and the exchange rate 51 Appendices 51 Membership of regional organisations 53 Sources of information 55 Reference tables 55 Population 55 Transport statistics 55 National energy statistics 56 Employment by sector 56 Unemployment 56 Gross domestic product 57 Gross domestic product by expenditure 57 Gross domestic product by expenditure 58 Gross domestic product by sector 57 Federal budget The Economist Intelligence Unit Limited Country Profile 2003

6 2 Russia 59 Consolidated budget 59 Money supply 59 Interest rates 60 Prices and earnings 60 Agricultural production 60 Livestock numbers 61 Industrial production 61 Housing completions 61 Banking statistics 62 Main composition of trade 62 Main trading partners 63 Balance of payments, IMF series 64 External debt, World Bank series 64 Foreign reserves 65 Exchange rates Country Profile The Economist Intelligence Unit Limited 2003

7 Russia 3 Russia Basic data Total area Population Main towns 17,075,400 sq km 145.3m (Goskomstat census, October 2002) Population ( 000; Goskomstat census 2002) Moscow (capital) 10,102 St Petersburg 4,669 Novosibirsk 1,426 Nizhny Novgorod 1,311 Yekaterinburg 1,293 Weather in Moscow (altitude 156 metres) Languages Weights and measures Currency Time Fiscal year Public holidays Hottest month, July, C (average daily minimum and maximum); coldest month, January, -16 C to -9 C; driest month, March, 36 mm average rainfall; wettest month, July, 88 mm average rainfall Russian and local languages Metric system since 1927 (Western calendar since 1917) 1 rouble (Rb)=100 kopeks. Market exchange rate on May 1st 2003: Rb31.10:US$1. The rouble was redenominated on January 1st 1998 at 1 new rouble=1,000 old roubles 3 hours ahead of GMT in Moscow and St Petersburg; 10 hours ahead of GMT in Vladivostok Calendar year January 1st, 2nd (New Year), 7th and 8th (Christmas); March 8th (International Women s Day); May 1st and 2nd (Labour Day, Spring Festival); May 9th (Victor Day); June 12th (Independence Day); November 7th (Reconciliation Day); December 12th (Constitution Day) The Economist Intelligence Unit Limited Country Profile 2003

8 4 Russia Politics The Russian Federation, composed of 89 federal subjects, is a presidential system with a bicameral parliament. Vladimir Putin was elected president in March 2000, and is pursuing policies designed to strengthen the powers of the state and of the federal government in particular. For the first time in Russia s post-soviet history, both houses of parliament are supportive of the president and his policies. The president has also enjoyed strong backing from the public. However, these policies have led to the re-emergence of authoritarian tendencies in the Kremlin, in particular intolerance vis-à-vis critical media. Political background Westernisation from above The October Revolution Stalin s industrialisation The relative backwardness of the vast Russian state which had expanded rapidly in the 16th century became evident only in the late 17th and early 18th centuries. Tsar Peter I, recognising that his realm was falling behind its Western neighbours in technical development, military capabilities and social organisation, embarked on a policy of Westernisation by autocratic means. His approach to modernisation the imposition from above of radical and often disruptive change set a pattern that Russian rulers have followed at intervals for three centuries. In the aftermath of the Crimean war, which exposed military and economic weaknesses ignored after successful campaigns against Napoleon in , Tsar Alexander II inaugurated a range of domestic reforms. The most significant was the abolition of serfdom in 1861, but the regime also undertook reforms of finance, education, the legal system, the military and local government. However, Alexander s early reforms had lost momentum by the end of the 1860s, and his assassination in March 1881 ushered in a period of political reaction. The refusal of the last Romanov tsars to complement economic development initiatives with political liberalisation created social tensions that, with the advent of the first world war, hastened the old regime s collapse in Eight months of confusion and instability following the overthrow of the Romanovs in March 1917 culminated in the seizure of power in the capital, Petrograd, by the Bolsheviks, a radical communist splinter of the Russian Social Democratic Labour Party. Over the next five years the Bolsheviks consolidated their rule in Russia, losing Finland, Poland and the Baltic provinces but reassembling the rest of the former empire. Russia assumed federal form in 1922 as the Union of Soviet Socialist Republics (the USSR or Soviet Union), although in reality power was highly centralised in Moscow. Under Stalin the Georgian-born dictator who succeeded Lenin as leader of the Communist Party in 1924 the country s immense natural and human resources were harnessed to a massive industrialisation drive under the highly centralised institutions of the planned economy. Agriculture was forcibly collectivised. The human costs of Stalinist industrialisation were enormous. However, its achievements included a rapid expansion of basic industrial Country Profile The Economist Intelligence Unit Limited 2003

9 Russia 5 output, the defeat of Nazi Germany and the emergence of the Soviet Union as the world s second superpower. Russia falls behind the West again After the second world war the Soviet system failed to keep pace with its Western rivals in economic strength. Despite numerous attempts to decentralise decision-making and introduce limited price signals, the central planning system discouraged innovation and productivity growth while encouraging corruption and the black economy. Economic and political decay took hold in the 1970s, leading to stagnation in the 1980s. This exacerbated social and nationalist tensions, and eventually led to the failed August 1991 coup attempt and the disintegration of the Soviet Union shortly thereafter. Russia emerged as one of the 15 newly independent former Soviet republics, and Boris Yeltsin became its first elected president in June Recent political developments Boris Yeltsin dominates the first post-soviet decade Mr Putin consolidates power in the Kremlin Mr Yeltsin s role in the break-up of the Soviet Union and his economic reform plans provoked opposition from the communist old guard in the Congress of People s Deputies (CPD), which enjoyed supreme law-making power under the 1977 Soviet constitution. To resolve the issue, Mr Yeltsin announced direct presidential rule and the dissolution of the CPD (and its executive arm, the Supreme Soviet) on September 21st Opposition supporters staged their last stand on October 3rd, which Mr Yeltsin forcibly suppressed. The adoption of a new constitution and the election of a new parliament followed in December The new constitution enshrined strong presidential powers. The December 1995 parliamentary election produced an opposition-dominated State Duma (the lower house), in which the Communist Party of the Russian Federation (CPRF) and its allies commanded a near-majority. However, six months later Mr Yeltsin helped by money and media support from the country s emerging business elite won re-election in a second-round run-off against the leader of the CPRF, Gennady Zyuganov. The renewed commitment to economic reform that Mr Yeltsin exhibited in the two years following his re-election was undermined by his increasingly erratic behaviour and poor health, and in August 1998 the collapse of the government s macroeconomic policies destroyed what remained of his authority. A rapid succession of governments and repeated show-downs with an obstructive Duma left policy in a state of paralysis. Although he remained both unwell and unpopular until the end of his presidency, Mr Yeltsin nevertheless managed to win his final political battle, securing the presidency for his chosen successor, Vladimir Putin. Mr Putin, a middle-ranking former KGB officer and one-time head of the Federal Security Service (FSB one of the KGB s successor organisations) was a political unknown when he became Mr Yeltsin s sixth prime minister in July He was then appointed acting president on December 31st 1999 when Mr Yeltsin surprised the world with his resignation, citing health reasons. This put Mr Putin, who had gained popularity by taking a tough line against the rebel republic of Chechnya, in an ideal position to win the presidential election The Economist Intelligence Unit Limited Country Profile 2003

10 6 Russia in March He appointed Mikhail Kasyanov as prime minister, and a number of liberal reformers to the cabinet most notably Aleksei Kudrin as minister of finance and German Gref as minister of the economy and trade. Presidential election results, 2000 (% of votes) Candidate 1st round (Mar 26th) Vladimir Putin (independent) 52.9 Gennady Zyuganov (CPRF) 29.2 Grigory Yavlinsky (Yabloko) 5.8 Aman Tuleyev (independent) 3.0 Vladimir Zhirinovsky (LDPR) 2.7 Others 3.5 Against all 1.9 Note. Figures do not sum to 100 owing to spoiled ballots. Source: Electoral Commission. Nevertheless, economic reform was only secondary during Mr Putin s first year as president, during which he concentrated instead on consolidating his power. He placed former colleagues from the St Petersburg administration in key positions, curbed the powers of business oligarchs and curtailed the powers of Russia s regional leaders. Since he did not simultaneously carry out an all-out campaign against Yeltsin-era holdovers, several groupings are now battling for access to and influence over the president behind the scenes. Aside from the St Petersburg liberals, the most prominent are the remnants of the Yeltsin-era faction (known as the Family ) and personnel drawn from the security services and affiliated organisations ( the Chekists ). Although public opinion polls might present a distorted picture, there is no doubt that Mr Putin enjoys very high public approval ratings. Nevertheless, the president s actions exhibit a sense of insecurity that became particularly evident over the course of 2002 in the government s clampdown on the critical media. Coupled with Kremlin interference in regional elections and a streamlining of the party political system, the Kremlin s assault on the independent media has triggered fears about increasing authoritarianism under the Putin presidency. Emphasis on individual leaders is a systemic weakness The authoritarian drift is a concern because Russia lacks strong checks on executive power. Presidential powers were strengthened in 1993 to avoid a repeat of the deadlock seen between Mr Yeltsin and the CPD. However, this has resulted in a system overly reliant on the personality and abilities of the president. This strengthening of an individual leader builds on and reinforces a long-standing trait of Russian political culture. After centuries of autocratic rule under the Romanovs, and the leadership cults of the Soviet period, personality politics have become entrenched. Although Russia s current political institutions are stable, and the orderly transfer of power appears to be established, voters choices are still overwhelmingly made on the basis of individual politicians rather than party identification the only notable exception to this being the Communist Party of the Russian Federation (CPRF). Country Profile The Economist Intelligence Unit Limited 2003

11 Russia 7 Important recent events August-September 1998 Mounting financial pressure forces a devaluation of the rouble and a default on the government s domestic debt. The cabinet led by Sergei Kiriyenko is dismissed. A three-week political crisis is resolved with the appointment of the foreign minister, Yevgeny Primakov, as prime minister. Mr Primakov s cabinet includes a number of representatives of the Communist Party and its allies in the State Duma (the lower house of parliament). May 1999 Mr Yeltsin, in a counterattack to the Duma s attempt to impeach him, sacks Mr Primakov and appoints the interior minister, Sergei Stepashin, in his place. August 1999 Mr Yeltsin removes Mr Stepashin and appoints the head of the Federal Security Service (FSB), Vladimir Putin, as prime minister. An incursion of Chechen militants into Dagestan triggers the second large-scale military campaign in Chechnya, which continues to the present day. December 1999 Mr Yeltsin resigns on New Year s Eve, leaving Mr Putin, his designated heir, as acting president. March 2000 Mr Putin wins the election to the presidency in the first round of voting, although there are reports of irregularities in some regions. June 2000 The Duma passes Mr Putin s regional reforms, which are designed to curb the power and autonomy of the regional governors. September 2001 Mr Putin stands shoulder-to-shoulder with the US in the aftermath of the September 11th terrorist attacks. He breaks with long-standing foreign policy by allowing the US military to establish bases in the former Soviet republics of Central Asia. January 2002 TV-6, Russia s last non-state controlled TV station with a national reach, is closed. This follows the takeover of NTV, another independent broadcaster, by the statecontrolled Gazprom in April May 2002 Russia signs an arms reduction agreement with the US, and agrees to the creation of a NATO-Russia Council that will give Russia a permanent seat at NATO headquarters, ensuring closer co-operation between Russia and the alliance on certain security issues, such as the fight against terrorism. March 2003 US-Russian relations take a turn for the worse when Russia threatens to veto a second UN resolution backing a US-led attack on Saddam Hussein s Iraq. The Economist Intelligence Unit Limited Country Profile 2003

12 8 Russia Constitution, institutions and administration A strong presidency A weak legislature The judiciary Under the 1993 constitution, the president wields sweeping executive powers, heading the armed forces and Security Council, and having wide powers of appointment. Apart from the positions of prime minister, Central Bank governor and chairman of the Constitutional Court, few senior presidential appointments require parliamentary confirmation. The president may dissolve the Duma if it repeatedly rejects his choice of prime minister or passes two noconfidence motions in the government within three months. The president may also issue decrees without the support of the Duma. The president serves a four-year term and is limited to two consecutive terms. In stark contrast to Mr Yeltsin, who never realised the full potential of his office, Mr Putin has made greater use of existing presidential powers. He has also introduced a number of changes to strengthen the presidency further, mainly at the expense of elected representatives in the Duma and the Federation Council (the upper house of parliament). As a result, there is little open opposition at any level of the Federation. According to the constitution, the 450-member Duma can only challenge the president when it is able to muster a two-thirds majority. During the Yeltsin era the Duma was too fractious to achieve this, and now it is dominated by pro- Putin factions and poses little opposition to the president and his government. The powers of the 178-member Federation Council are also fairly weak. In the past, the ex officio presence of elected regional governors and heads of regional assemblies assured it political influence. However, backed by the Duma, Mr Putin launched his presidency with a drive to curtail the powers of regional leaders and deprive them of their membership of the Federation Council. In 2000 a new law mandated that the heads of regional executive and legislative bodies would no longer gain automatic representation in the Council. Instead, regional executive and legislative branches would elect a representative each. This change has made it easier for the federal authorities to control the composition of the Council: the Kremlin can now bring more pressure to bear on the internal nomination and selection process than is possible in regional elections. As a consolation for the former Council members, Mr Putin set up the State Council an advisory body designed to give regional governors direct access to the president, but which has few formal powers. The independence of the judiciary was severely compromised under communism, and its authority is still comparatively weak. At its apex is the Constitutional Court, comprising 19 judges, whose functions include passing judgement on cases regarding compliance with federal laws, the constitution, statutes and state treaties. The Constitutional Court also settles disputes over the respective competence of different state bodies. The Supreme Court is the highest authority on civil, criminal and administrative law. Most business disputes are heard before arbitration courts headed by a Supreme Arbitration Court. Judges of these courts and the prosecutor-general (who appoints other prosecutors) are also nominated by the president, subject to the approval of the Federation Council. Country Profile The Economist Intelligence Unit Limited 2003

13 Russia 9 The most important ministries The Ministry of Finance has emerged in recent years as the driving force behind Russia s economic reform programme. The current finance minister, Mr Kudrin, has the status of a deputy prime minister, which gives him the right to co-ordinate the policies of a number of other line ministries. The Ministry for Economic Development and Trade has gained in influence since it was taken over by Mr Gref, one of Mr Putin s allies from his St Petersburg days. However, Mr Gref has been struggling with the sprawling bureaucracy of his ministry. Traditionally, the economics ministries had a strong political counterweight in the three power ministries the Ministry of the Interior, the Ministry of Defence and the Federal Security Service (FSB). Following a cabinet reshuffle in March 2001, the three institutions are now also in the hands of Putin allies. Political forces Parties tend to be weak and poorly institutionalised A new law aims to promote party consolidation The party political scene in Russia was highly volatile and fragmented throughout the 1990s but has begun to settle. Some 26 parties were included on the ballot for the 1999 election to the Duma, compared with 43 in Only six of them crossed the 5% threshold for parliamentary representation, and of these only the CPRF could boast a substantial nationwide organisation. The second largest party in the Duma, Unity (now merged into United Russia), was little more than a collection of pro-putin regional notables formed just weeks before the poll. Most other parties are very small, often organised around one prominent personality. A new Kremlin-backed law on political parties, which entered into force in November 2001, looks set dramatically to alter Russia s party political scene. The law seeks to address some shortcomings, such as the opacity of party financing, but it also raises the registration requirements for political parties to a level that could stifle the development of all but the largest political groupings in Russia. Only political movements that have more than 10,000 members, with a minimum of 100 members in each of at least 50 of Russia s 89 regions, can register as a political party. This will remove all regional and issue-based parties from the ballot, leaving perhaps a much smaller of parties than in the past to contest the next election, in December Moreover, the requirement that parties re-register on a regular basis may open the door to state pressure on opposition groupings. Although parties have been given until July 2003 to comply with the new requirements, the law has already triggered a wave of mergers among the groupings and factions represented in the Duma. Main political figures Vladimir Putin Mr Putin took over the presidency of the Russian Federation at the end of 1999, replacing his patron, Boris Yeltsin. After an unremarkable career in the KGB, during which he spent a number of years in the former East Germany, Mr Putin entered the Russian political arena in the early 1990s as an aide to Anatoly Sobchak, the late, liberal mayor of Russia s second city, St Petersburg. Following his move to Moscow he was put in charge of Kremlin relations with Russia s 89 regions before he took over the Federal Security Service (FSB). Known for his loyalty and administrative The Economist Intelligence Unit Limited Country Profile 2003

14 10 Russia efficiency, Mr Putin became prime minister in August 1999 and acting president at the end of the year. Since his election in March 2000 he has imposed his own style on the presidency, replacing the lax and erratic rule of the Yeltsin years with tightly controlled and highly centralised management. The Communist Party Mikhail Kasyanov Mr Kasyanov has been prime minister since May 2000, prior to which he served for a number of years in the Ministry of Finance, where he was chiefly responsible for external debt issues. Mr Putin s drive to replace members of the old guard of the Yeltsin days with his own allies led to persistent rumours in 2001 and 2002 that Mr Kasyanov s days as prime minister might be numbered. However, Mr Kasyanov has proved a political survivor, and has held his post despite persistent differences with the St Petersburg faction, led by German Gref and Aleksei Kudrin. German Gref A liberal from St Petersburg, Mr Gref headed the Centre for Strategic Reform, a thinktank set up by Mr Putin, before he took over the revamped Ministry for Economic Development and Trade in May He was chiefly responsible for drawing up the government s ambitious ten-year economic reform programme, and he has also been put in charge of utilities reform. However, delays in implementing the so-called Gref programme show that Mr Gref s political powers do not match his planning skills. In April 2003 Mr Gref s ill health fuelled speculation that he would resign, unable to withstand repeated attacks from Mr Kasyanov. Aleksei Kudrin A protégé of the former first deputy prime minister Anatoly Chubais, and a longserving finance ministry official, Mr Kudrin was appointed finance minister in May Helped by a fast economic recovery and high international oil prices, he managed to replace the large budget deficits of the mid-1990s with sound surpluses. He is more liberal than Mr Kasyanov and is seen as a potential rival to the prime minister. Sergei Ignatiev Mr Ignatiev took over as chairman of the Russian Central Bank (RCB) following the forced resignation of the mercurial Viktor Gerashchenko in March A career official from the finance ministry, Mr Ignatiev is known for his accuracy and honesty rather than political leadership. Gennady Zyuganov Mr Zyuganov heads the Communist Party of the Russian Federation (CPRF), which under his leadership has veered from socialism towards nationalism and accepted democratisation. A relatively colourless figure, Mr Zyuganov was defeated by Mr Yeltsin in the 1996 presidential contest and by Mr Putin in Although considerable political and organisational skills have allowed him to keep the fractious CPRF together, he has not been able to prevent a few spin-offs and splits. The Communist Party of the Russian Federation (CPRF), successor to the Sovietera Communist Party, was launched in February With more than 500,000 members and 20,000 primary organisations, it is easily the largest and best organised party in Russia. However, the CPRF is an ideologically incoherent coalition of social democrats, Stalinists and nationalists, with very different Country Profile The Economist Intelligence Unit Limited 2003

15 Russia 11 views on the past and planning for the future. The CPRF has done little to dissociate itself from the old order, and this has earned it a core constituency among the elderly and the disaffected, which has helped to shore up the party s share of the vote. The CPRF won 24.3% of the total vote in the party-list system in 1999 and it controls 129 votes in the Duma (90 CPRF deputies and 39 members of its satellite, the Agro-Industrial grouping). During the Putin administration the CPRF has swayed between co-operating with the Kremlin and blocking government initiatives. In 2002 it moved into full opposition to the Kremlin, which resulted in a damaging split after some key CPRF leaders decided to set up a new faction. Centrist parties merge into United Russia United Russia the Duma s strongest political force was set up in February 2002 as a result of the merger between the pro-kremlin Unity and the Fatherland-All Russia Movement (OVR). The two had originally been rivals in the run-up to the 1999 parliamentary election, when the Kremlin helped to set up Unity as a counterweight to the OVR. Unity consisted mainly of middle-ranking regional officials and lacked any clear ideology other than its strong affiliation with Mr Putin, then prime minister. The enormous financial and media backing engineered by the Kremlin secured it second place in the party-list voting in 1999, with 23.3% of the vote. The subsequent adherence of many single-mandate deputies to Unity by creating a satellite faction, People s Deputy has given it 139 deputies in the Duma. However, United Russia has failed to transform itself into a disciplined and coherent political force able to pose a sustained challenge to the CPRF s dominance. In early 2003 internal divisions resulted in a leadership reshuffle, and its approval ratings weakened further. Parliamentary election results Party List vote (%) List seats SMDa seats List vote (%) List seats SMDa seats List vote (%) List seats SMDa seats Russia s Choice n/a n/a n/a Liberal Democratsb (LDPR) Communist Party (CPRF) Agrarian Party (APR) n/a n/a 0 Yabloko Our Home is Russia (OHR) n/a n/a n/a Women of Russia Party of Russian Unity & Accord n/a n/a n/a Democratic Party of Russia n/a n/a 0 n/a n/a n/a Unity n/a n/a n/a n/a n/a n/a Fatherland-All Russia n/a n/a n/a n/a n/a n/a Union of Right Forces n/a n/a n/a n/a n/a n/a Others Independents n/a n/a 141 n/a n/a 78 n/a n/a 112 Postponed n/a n/a 6 n/a 0 n/a n/a 1 1 Note. Figures for party-list voting may not tally to 100 owing to spoiled ballots and ballots cast against all. Figures for seats won do not match faction sizes in the text, owing to the post-election affiliation of independents to factions and the lending of deputies among allied factions. a Single-mandate district. b On the ballot papers in 1999 as Zhirinovsky s Bloc. Source: Electoral Commission. The Economist Intelligence Unit Limited Country Profile 2003

16 12 Russia Liberal forces: Yabloko and the URF Created in 1993, Yabloko is one of Russia s most established parties. Led by Grigory Yavlinsky, a former economic adviser to the Soviet president, Mikhail Gorbachev, the party has moved from staunch opposition to the Kremlin to co-operation with Mr Putin s liberal economics team. Its following is restricted to parts of the liberal intelligentsia in Moscow and St Petersburg, and in the 1999 election Yabloko polled just under 6% of the party-list vote, winning just 21 Duma seats compared with 45 in the previous parliament. Given its small size, the new law on political parties could endanger Yabloko, and the party has merged with the even smaller Democratic Alliance. The Union of Rightist Forces (URF) was formed by a loose coalition of liberal parties in 1999, when liberal political fortunes were at a low ebb. Its aim was to overcome the divisions on the right that had cost it so dearly in 1995, when Yabloko was the only liberal party to cross the 5% barrier. This new-found unity was rewarded with 8.52% of the list vote and a parliamentary faction of 32. Earlier discussions about transforming the URF from an umbrella organisation into a real political party were revived by the new law on political parties that would prevent political movements, such as the URF, from standing in elections. In 2001 the URF officially became a political party and elected Boris Nemtsov, a former deputy prime minister, as party leader. Given that Yabloko and the URF are the main liberal parties, a merger between the two would help to safeguard their position with regard to the new requirements for political parties. However, tentative plans to merge Yabloko and the URF have suffered from rivalries between the party leaderships. International relations and defence Balancing competition and co-operation with the West A temporary rapprochement after September 11th After the collapse of the Soviet Union, Russia moved steadily away from its initial strongly pro-western foreign policy towards one that combined elements of co-operation with the West (especially on economic issues) and attempts to reassert Russia s status as a great power with distinct interests. In the past Russia s chronic need for multilateral financial assistance and for Western goodwill in debt-restructuring talks acted as a restraining factor. This stopped in 2000, when economic recovery allowed Russia to dispense with outside financial aid. Mr Putin has been intent on restoring Russia s international status as a great power, but his foreign policy initially lacked focus, oscillating between courting the West and trying to counter the US s overwhelming power on the world stage. The attacks on the US of September 11th 2001 opened a window of opportunity for a fundamental redefinition of East-West relations. Mr Putin was quick to offer assistance to the US president, George W Bush, in the US-led campaign against international terrorism. Discarding long-standing foreign policy dogmas, Mr Putin accepted the build-up of a Western military presence in Central Asia (hitherto regarded as Russia s strategic backyard), the presence of US military advisors in the Caucasus, and NATO s enlargement to include former Soviet states. He also showed restraint when the US unilaterally abrogated the 1972 anti-ballistic missile (ABM) treaty that had hitherto helped to maintain the precarious nuclear balance between Russia and the US. Country Profile The Economist Intelligence Unit Limited 2003

17 Russia 13 In return for his co-operative stance, Mr Putin had hoped that Russia would be accepted as an equal in Western international forums. However, the US offered Russia little in return for its solidarity. It agreed to the establishment of a new NATO-Russia Council in 2002, but the body was of questionable value for Russia, especially at a time when NATO was increasingly sidelined on the world stage. The US also offered Russia a new strategic arms reduction treaty, which, however, left both sides free to store rather than destroy decommissioned nuclear weapons. The US has not thrown its weight behind Russia s bid for entry into the World Trade Organisation (WTO), and by early 2003 it had still not repealed the Soviet-era Jackson-Vanik amendment that stands in the way of normal trade relations. Despite all this, Mr Putin originally stuck to his pro-western stance, despite mounting criticism from his own military and security establishment. However, in early 2003 Russia joined France and Germany in opposing US military action against Iraq. Russia threatened to veto a second resolution in the UN Security Council backing US-led military action. During the subsequent war, bilateral relations deteriorated rapidly. Although both sides appeared to engage in damage limitation after the war, the rifts between them go well beyond Iraq. Russia is worried about US unilateralism and global dominance, and the derogation of the UN. Russia s Security Council veto is one of the few remnants of its former superpower status. It also disagrees with the US s stance on Iran and North Korea, both of which Russia considers partners rather than rogue states. Russia has few alternatives to US ties CIS relations changed by Afghan war At the same time, Russia has little alternative to repairing and maintaining cordial relations with the world s only remaining superpower and largest economic power. Russia s relations with the EU lack strategic focus and are often characterised by squabbles about visa requirements, trade barriers and other economic issues, and none of the larger EU countries could rival the US as a strategic partner. Although Mr Putin has resumed his courtship of Asian powers such as China and India, relations with these countries remain fragile. Trade relations are underdeveloped, with the exception of arms supplies. China could potentially become a major export market for Russian energy, but Russia remains wary of China s seemingly unstoppable ascent as an economic great power especially as some of China s fast-growing areas border on Russia s vast, resource-rich but depopulated eastern regions. In economic terms, Russia may also have much to gain by improving its relations with Japan, but the two countries remain deadlocked over a long-standing territorial dispute concerning the Southern Kuriles. In the aftermath of the Iraq war, Mr Putin also stepped up efforts to rebuild ties with the other members of the Commonwealth of Independent States (CIS). In 2002 Mr Putin subordinated Russia s traditional objective of controlling the region to the overall goal of improving relations with the West. He did not object when US troops moved into Central Asian states such as the Kyrgyz Republic, Tajikistan and Uzbekistan in preparation for the military campaign in Afghanistan. However, the use of US military advisors in Georgia was more problematic, and US reluctance to specify the duration of its military presence in Central Asia is becoming a source of contention. In 2003 Russia reinforced The Economist Intelligence Unit Limited Country Profile 2003

18 14 Russia efforts to forge closer military, economic and political links with its neighbours. For instance, the Russian military is now also to establish a base in the Kyrgyz Republic. Russia also retains a strong interest in the oil-rich Caspian region, and it is intent on maintaining the leverage it enjoys through controlling the pipeline infrastructure needed to bring Caspian oil and gas to Western markets. The army is in dire need of reform Although Russia remains the world s second major nuclear power, its military capability has shrunk greatly since the Soviet era. Its active armed forces totalled less than 1m in 2003, compared with 2.7m in June 1992 and an estimated 4m at the height of the Soviet Union s power. Defence spending has collapsed at a much faster pace than the head count, with the result that Russia s conscripts are poorly trained, equipped and motivated. In spite of this deterioration, military reform has in the past been blocked by vociferous opposition from Russia s generals. However, the army s inability to deal with Chechnya s rebel factions and the sinking of the Kursk nuclear submarine in August 2000 have created new political imperatives for military reform. In the course of 2000 and 2001 it became clear that piecemeal reforms, including a reorganisation of strategic forces and personnel cuts in the regular armed forces, would not address Russia s main military problems. Economic decline has left the army bereft of resources and equipment, as a result of which it is severely demoralised. Conscription, in particular, is deeply unpopular, as the loss of morale has been accompanied by increasing brutality within the army. The institutionalised culture of dedovshchina whereby more experienced soldiers bully and more often than not torture new recruits has made suicide a major problem for the army. In 2001 the military prosecutor s office admitted to dealing with some 2,000 conscript deaths a year, but independent human rights organisations put the annual toll at nearer 3,000. Consequently, more radical reform plans drawn up in ultimately aim at building a fully professional army over the next decade or so. Military forces, 2002 ( 000) Active Army 321 Navy 172 Air force a 185 Strategic nuclear forces 149 Total incl others 988 Paramilitary 409 Reserves 20,000 a Air force and air defence forces (the air defence troops and air force were amalgamated under one command in March 1998). Source: International Institute for Strategic Studies, The Military Balance, 2002/2003. Security risk Armed conflict Since 1999 Russian forces have been fighting separatist rebels in the republic of Chechnya, on Russia s southern border. The violence occasionally spills over into neighbouring republics in the north Caucasus, but it does not threaten stability in the Country Profile The Economist Intelligence Unit Limited 2003

19 Russia 15 rest of Russia. In March 2003 the Russian government held a referendum in the republic, the results of which endorsed proposals for political reform for Chechnya as part of the Russian Federation. However, the Russian-backed administration in Chechnya only controls the urban centres and the lowland plains, with the rebel insurgents still operating in the Caucasus mountains. A rapid solution to the conflict is therefore unlikely. The war has also complicated relations with Georgia, which Russia accuses of allowing rebels to use its territory, although international conflict is very unlikely. Terrorism There is a threat of terrorism related to the Chechen war. Outside the Caucasus terrorist incidents are rare, but in 1999 bombs planted in various Moscow apartment buildings (allegedly by Chechen terrorists) killed more than 200 people, and in 2002 more than 100 people died when Russian forces stormed a Moscow theatre where a group of Chechen rebels had taken 600 people hostage. There are links between Chechen extremists and Middle Eastern terrorist groups, but it seems unlikely that foreign Islamist extremists exercise a decisive influence on the main Chechen rebel groups. Russia s staunch opposition to US military action in Iraq in early 2003 has further reduced the threat of Islamist terrorist reprisals in Russia. Nevertheless, lax security in Russian cities, and in airports in particular, means that Russia will remain a relatively easy target for terrorists. Civil unrest Russia enjoys unprecedented political stability. The election of Vladimir Putin in 2000 ended chronic uncertainty over the presidential succession. Mr Putin has also proved to be a firmer leader than his sickly predecessor, Boris Yeltsin, and he enjoys considerable support from both the political elite and society at large. Russia also enjoys much greater economic stability than in the 1990s. Although there is always the possibility of future upsets, Russian society has proved remarkably passive, despite the severe economic dislocations of the 1990s. Mass demonstrations take place from time to time, although they are generally peaceful. Many of them are organised by the Communist Party of the Russian Federation (CPRF), which remains a significant (but declining) force and the main mouthpiece for social groups adversely affected by economic reforms. Despite the role played by left-wing and nationalist groups, Westerners and foreign businesses have not been the direct target of protests. Violent crime Crime of all descriptions is high in Russia, particularly in the larger cities. However, the threat is probably no greater than in most big cities around the world, and can be minimised through normal precautions. In Moscow both residential and commercial buildings tend to have fairly sophisticated security systems. Kidnapping of businessmen, especially foreign ones, is very rare. The exception is Chechnya, where kidnappings have been common. Drug smuggling and organised crime Russian organised crime is big and powerful, and a key security problem for Western governments as well as businesses. The mafia is not, however, quite as pervasive as sometimes depicted by sensationalist media reports. Most foreign investors are likely to run into it only peripherally in Moscow, in particular, the days of criminals The Economist Intelligence Unit Limited Country Profile 2003

20 16 Russia demanding protection money are largely over. Nonetheless, private security guards (okhrana) are a good precaution for ensuring trouble-free business operations. Outside Moscow and St Petersburg foreign investors may encounter more difficulties especially because they will certainly be more conspicuous. Good relations with the local authorities can be the key to ensuring a co-operative attitude from the police. Usually such goodwill is a matter of course, as investments generally take place where local administrations are keen to boost the local economy. Contract killings of Russian businessmen and officials are still a problem as shown by the assassination in April 2003 of Duma deputy Sergei Yushenkov but such overt violence has notably declined in recent years. In any case Western executives are not usually the target of violence although much depends on the nature of the business and the Russian partners involved. As violent crime is becoming less of a problem, more subtle forms of fraud such as counterfeiting or industrial espionage are on the increase. Computer hacking is a real threat: Russia is a world leader in information technology (IT) skills, and they are sometimes put to dishonest ends. Financial fraud is also a possibility, as Russian banks are notoriously poorly regulated. Intellectual property rights are also inadequately protected, although the issue is now receiving more attention from policymakers as Russia prepares to join the World Trade Organisation (WTO). Resources and infrastructure Population An unprecedented demographic crisis Male life expectancy has fallen According to preliminary results of the October 2002 census, Russia has a population of m a decrease of around 2m since the previous census, carried out in January The decline in the population would have been much more pronounced had it not been for considerable net immigration in the early 1990s, when many ethnic Russians left other former Soviet republics to resettle in the Russian Federation. Although the demographic crisis has been exacerbated by the strains of the transition process, it is not a purely postcommunist phenomenon: death rates for all age groups except those aged began to rise in the 1960s. Male life expectancy peaked at 70 in , and began to fall thereafter an unprecedented development in an industrialised country in peacetime. Infant mortality, comparable with Austrian and Italian rates in 1960, was above those of Jamaica and Fiji by the mid-1980s. These long-standing Soviet-era trends became far more pronounced in the 1990s, when death rates and infant mortality rates rose rapidly. After a secular decline since 1985, improving economic conditions in led to a rise in the birth rate from 8.3 per thousand population to 9.8, but this was still well below the death rate. By 2002, the mortality rate in Russia had reached 15.4 deaths per 1,000 population, compared to under 7 in China and just over 9 in Poland. Sharp falls in the birth rate primarily reflect depressed household incomes and economic uncertainty. The rising death rates are a product of environmental degradation, stress, and a deteriorating healthcare system. The decline of housing and public health standards has led to the reappearance of epidemic Country Profile The Economist Intelligence Unit Limited 2003

21 Russia 17 diseases such as diphtheria and cholera. Some 150,00 new cases of tuberculosis are recorded every year. The incidence of HIV has risen extremely rapidly in recent years, mainly as a result of increasing drug abuse. As of April 2002, Russia reported a cumulative total of 190,000 cases of HIV, but the actual number of people infected may exceed 1m. High alcohol and cigarette consumption and a poor diet have resulted in extreme death rates from cardiovascular diseases, especially among men. As a result, Russian women now live on average over a decade longer than Russian men. In the early years of transition average life expectancy plunged to levels not seen since the 1950s, and the recovery that started in 1994 was arrested by the 1998 economic crisis. By 2002 average male life expectancy had fallen to 58.5 years, whereas that for women was 72 years. The administration of the president, Vladimir Putin, has identified the demographic crisis as a major threat, but given the dearth of budgetary resources and the deep-seated nature of the social problems underlying the population decline, it is not in a position to halt the trend. Ageing population puts pensions under strain Despite the sharp fall in male life expectancy, the population is ageing, in common with those of most higher-income industrialised economies. Moreover, increasing numbers are drawing pensions before reaching normal pensionable age, mainly because of unemployment. Although pensions have declined in line with the economic collapse the average pension in 2002 was just Rb1,400 (US$45), below the official minimum subsistence level the pay-asyou-go (PAYG) pension system will be unable to cope with the ageing population. A pension reform package came into force at the start of 2002, which adds a second, fully-funded pillar to the PAYG system. Education Student numbers continue to rise Education is severely underfunded The Soviet industrialisation drive created the need for mass education, which the state provided generously, especially in engineering and science. Education is compulsory and free of charge, at least officially, for all children between the ages of seven and 17. Numbers of both students and institutions are well above the levels of 1990/91. In the academic year 2001/02 there were 5.4m students in higher education, up from 2.8m in 1991/92. With demand for commercially oriented qualifications outstripping the modest growth in state higher education places, private schools offering courses in economics, business, accountancy and law have expanded rapidly. Education spending has collapsed in line with the overall budget, and although the education budget has seen a rapid rise since Mr Putin took over the presidency, it amounted to only Rb80bn (US$2.5bn) in 2002, or 0.6% of GDP. As a result, state funding pays for less than one-third of the operating costs of state universities. The rest comes from fees it is estimated that around half of all students now pay for their education and bribes. Bribes are regularly required for students to pass the entry examinations to Russia s better higher-education institutes, with the result that financial prowess rather than academic excellence is now the main requirement for acquiring a university degree. Although the quality of Russian education is still generally high, and outstrips that of other countries with similar income levels, curriculums are often out of date and the The Economist Intelligence Unit Limited Country Profile 2003