Russia. Country Profile 2005

Transcription

1 Country Profile 2005 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) newyork@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 2005 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.

3 FINLAND Murmansk Barents Sea Kaliningrad POL. LITH. LAT. EST. St Petersburg Arkhangelsk BELARUS UKRAINE Oryol Voronezh Smolensk MOSCOW Tula Kursk Tambov Penza Saratov Rostov-on-Don Krasnodar Volgograd Novorossisk ossisk Vologda Yaroslavl Ivanovo Nizhny Novgorod Samara Kazan Kirov Ufa Chelyabinsk Orenburg Perm Yekaterinburg Tyumen GEORGIA ARMENIA IRAN Astrakhan Grozny Caspian Sea AZERBAIJAN KAZAKHSTAN East Siberian Sea Kara Sea Laptev Sea RUSSIAN FEDERATION Omsk Krasnoyarsk Novosibirsk Bratsk L. Baykal Chita Barnaul Irkutsk Ulan-Ude Yakutsk Skovorodino MONGOLIA CHINA Chukchi Sea Bering Sea Kamchatka Magadan Petropavlovsk- Kamchatsky Sea of Okhotsk r R. Am u Baltic Sea Aral Sea ARCTIC OCEAN Khabarovsk Sovetskaya Gavan Yuzhno- Sakhalinsk Vladivostok Sea of Japan JAPAN N. KOREA S. KOREA Yellow Sea R. Indi girka R. Lena S i b e r i a n Plain Y a b l o n o v yy Mountains Middle S i berian Plateau R. Tun guska R. O b W e s t R. Yenisei. Amur R Mountains Altai NORWAY SWEDEN M o u n t a i n s U r al lga R. Vo R. Don UZBEKISTAN 0 km ,000 Main railway Main road International boundary Main airport Capital Major town TURKMENISTAN 0 miles ' The Economist Intelligence Unit Limited 2005 Other town April 2005

4 Comparative economic indicators, 2004 Russia Poland Czech Republic Hungary Romania Ukraine Slovakia Kazakhstan Croatia Slovenia Bulgaria Belarus Serbia and Montenegro Lithuania Latvia Estonia Uzbekistan Azerbaijan Albania Bosnia and Hercegovina Georgia Turkmenistan Macedonia Armenia Moldova Kyrgyz Republic Tajikistan Gross domestic product US$ bn Slovenia Czech Republic Hungary Estonia Croatia Slovakia Lithuania Poland Latvia Russia Romania Bulgaria Kazakhstan Albania Macedonia Belarus Serbia and Montenegro Bosnia and Hercegovina Ukraine Georgia Armenia Azerbaijan Turkmenistan Moldova Kyrgyz Republic Uzbekistan Tajikistan Gross domestic product per head US$ Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources. Ukraine Belarus Tajikistan Azerbaijan Armenia Kazakhstan Romania Turkmenistan Latvia Uzbekistan Moldova Russia Georgia Serbia and Montenegro Lithuania Kyrgyz Republic Estonia Albania Bulgaria Slovakia Poland Bosnia and Hercegovina Slovenia Czech Republic Hungary Croatia Macedonia Gross domestic product % change, year on year Belarus Moldova Romania Russia Serbia and Montenegro Ukraine Turkmenistan Kyrgyz Republic Slovakia Tajikistan Armenia Kazakhstan Hungary Azerbaijan Latvia Bulgaria Georgia Slovenia Poland Estonia Albania Czech Republic Croatia Uzbekistan Lithuania Bosnia and Hercegovina Macedonia Consumer prices % change, year on year Sources: Economist Intelligence Unit estimates; national sources. Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2005

5 Russia 1 Contents Russia 3 Basic data 4 Politics 4 Political background 5 Recent political developments 10 Constitution, institutions and administration 12 Political forces 16 International relations and defence 21 Resources and infrastructure 21 Population 22 Education 23 Health 24 Natural resources and the environment 24 Transport, communications and the Internet 29 Energy provision 34 The economy 34 Economic structure 36 Economic policy 43 Economic performance 46 Regional trends 47 Economic sectors 47 Agriculture 49 Mining and semi-processing 50 Manufacturing 51 Construction 52 Financial services 54 Other services 55 The external sector 55 Trade in goods 58 Invisibles and the current account 58 Capital flows and foreign debt 61 Foreign reserves and the exchange rate 62 Regional overview 62 Membership of organisations 65 Appendices 65 Sources of information 66 Reference tables 66 Population 66 Unemployment 66 Transport statistics 67 National energy statistics The Economist Intelligence Unit Limited Country Profile 2005

6 2 Russia 67 Consolidated budget 67 Money supply 68 Interest rates 68 Banking statistics 68 Gross domestic product 69 Nominal gross domestic product by expenditure 69 Real gross domestic product by expenditure 69 Prices and earnings 70 Agricultural production 70 Industrial production 70 Main trading partners 71 Main composition of trade 71 Balance of payments 72 External debt, World Bank series 72 Foreign reserves 72 Exchange rates Country Profile The Economist Intelligence Unit Limited 2005

7 Russia 3 Russia Basic data Total area Population Main towns Weather in Moscow (altitude 156 metres) Languages Weights and measures Currency Time Fiscal year Public holidays 17,075,400 sq km 145.3m (Goskomstat census, October 2002) Population ('000; Goskomstat census, October 2002) Moscow (capital) 10,102 St Petersburg 4,669 Novosibirsk 1,426 Nizhny Novgorod 1,311 Yekaterinburg 1,293 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 April 7th 2005: Rb27.87: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 (Victory Day); June 12th (Independence Day); November 7th (Reconciliation Day); December 12th (Constitution Day) The Economist Intelligence Unit Limited Country Profile 2005

8 4 Russia Politics The Russian Federation, composed of 89 federal subjects, is a presidential system with a bicameral parliament. Vladimir Putin, re-elected in March 2004 for a second presidential term, has consolidated power in the Kremlin, at the expense of parliament, political parties and regional administrations. Russia's political system is characterised by a mixture of authoritarian tendencies the state controls the nationwide mass media, for example and democratic principles: elections are free, if not always fair, and Russians can speak and travel freely. 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 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 output, the defeat of Nazi Germany and the emergence of the Soviet Union as the world's second superpower. Country Profile The Economist Intelligence Unit Limited 2005

9 Russia 5 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 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 consolidates power in the Kremlin 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 in March He appointed Mikhail Kasyanov as prime minister, and a The Economist Intelligence Unit Limited Country Profile 2005

10 6 Russia 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. While Mr Putin's team set to work to address some of the worst flaws in the Russian economy, including the tax system, business regulations and the labour market, Mr Putin concentrated on consolidating power in the Kremlin. He placed former colleagues from the St Petersburg administration in key positions, curbed the influence of business "oligarchs" and curtailed the powers of Russia's regional leaders. The Kremlin also clamped down on the independent media all nationwide TV stations are now under state control interfered in regional elections and used a new law to streamline the system of political parties. Mr Putin s democratic credentials are unconvincing Mr Putin's actions reflect a sense of insecurity and dislike of political opposition, as well as a tendency to tighten control in response to any political crisis or challenge. Concerns about the erosion of democracy were heightened in the run-up to the Duma and presidential elections. The arrest of oil magnate Mikhail Khodorkovsky in October 2003 then served as a warning to any potential challenger to Mr Putin. Although officially charged with embezzlement and tax fraud, Mr Khodorkovsky's main transgressions appear to have been his outspoken criticism of the Putin administration, his political ambition and the use of his personal fortune to sway Duma votes in favour of policies designed to benefit his oil company, Yukos. Mr Putin s preference for centralised and absolute authority became evident again in the aftermath of a major crisis in September 2004, when Chechen terrorists attacked a school in Beslan, North Ossetia. The siege ended in some 400 deaths, including many children. In the aftermath of the crisis, Mr Putin announced a series of security measures that unexpectedly included a decision to abolish direct elections for regional governors, replacing them with presidential nominees. Terrorism in Russia A sequence of attacks Russia has suffered from periodic terrorist attacks by Chechen radicals since the start of the second Chechen war in 1999, but these actions reached new heights in the third quarter of 2004 as three suicide explosions, which together claimed the lives of over 100 people, were followed by an assault on a school in Beslan, North Ossetia, where some 1,200 people around half of them children were taken hostage. The siege of the school ended in heavy casualties, bringing the total dead from all four actions to more than 300. The initial fears that two Tupolev jetliners that crashed on August 24th, killing some 90 people, had been the targets of a terrorist attack were confirmed when traces of explosives were found on both planes. The suspicion that the terrorists were connected with Chechnya was also fuelled by the presence of two unidentified Chechen women passengers on each aircraft. The suspects shared accommodation with two other Chechen women, whose disappearance triggered fears of further explosions in Moscow. These fears were soon justified, when a female suicide bomber caused an explosion outside a metro station in Moscow on August 31st. The existence of female terrorists among the Chechen rebels came to prominence during Country Profile The Economist Intelligence Unit Limited 2005

11 Russia 7 the Moscow theatre siege of October Such women, known as "black widows", have usually lost husbands or other relatives in the conflict. Elections are free, but unfair Beslan The sequence of terrorist attacks came to a head dramatically when an armed group of men and women assaulted a school in Beslan, North Ossetia, on September 1st The large number of children in the building prompted a different stance from the authorities than had been taken during the Moscow theatre siege in October The president, Vladimir Putin, personally ruled out an armed solution, and stressed that the priority was "to save the life and health of those who have been taken hostage". However, after two days in which Russian special forces appeared to be settling down for a lengthy siege, on September 3rd an explosion inside the school building, and the terrorists' subsequent firing on fleeing hostages, forced the Russian units to storm the school. Chaos ensued as some of the hostage-takers sought their escape shooting their way through the crowds outside while others among them retrenched. In the aftermath of the conflict, confusion continued to reign. The number of both hostages and hostage-takers proved to be much higher than initially reported by officials at around 1,200 and over 30, respectively. The identity of the attackers was also subject to conflicting news reports, with the authorities initially claiming that there were at least ten foreigners among the fighters. Two of the identified hostage-takers were said to have known links to Shamil Basayev, leader of the Islamist fundamentalist wing of Chechen separatism. The Chechens Mr Basayev has claimed responsibility for a long list of high-profile terrorist acts, among them the Moscow theatre siege, and, in June, a simultaneous attack on 15 key installations in Ingushetia, where the rebels seized control of the targets for several hours. This co-ordinated assault resulted in the deaths of over 90 people. Alan Maskhadov, the nominal leader of the Chechen rebellion, was killed in March 2005 by the Russian security services. His disappearance will do little to quell the separatist movement. On the contrary, separatist factions are likely to stage further operations, contributing to the mounting death toll and adding more civilians to the 6,000 federal troops that have died thus far in the conflict according to the Ministry of Interior. International observers judged the last rounds of elections (to the Duma in December 2003 and the presidency in March 2004) as mostly free, but not fair. The state's control over the mass media and the administrative apparatus clearly worked in favour of Mr Putin and the "party of power", United Russia. Some candidates alleged open intimidation or smear campaigns. Nevertheless, there is little doubt that Mr Putin owed his victory to his genuine popularity, the absence of viable alternative candidates and the fact that his first term coincided with the first sustained economic upswing in decades. Mr Putin used the run-up to the election to purge his administration of the last hold-overs from the Yeltsin-era political elite, widely known as the Family. The sacking of Mr Kasyanov and the Kremlin's chief of staff, Alexander Voloshin, ended a long-running feud within the Kremlin between Family members, aligned with the business elite, and the so-called siloviki, highranking officials from the security services. However, the removal of the The Economist Intelligence Unit Limited Country Profile 2005

12 8 Russia Yeltsin faction did not mark the end of government infighting. A pronounced division emerged over the course of 2004 between the prime minister, Mikhail Fradkov who has clear statist tendencies and the more liberal minister of finance, Aleksei Kudrin, and the minister of economy and trade, German Gref. Tensions between the two sides have emerged repeatedly: over the treatment of the Yukos oil company, over the use of the stabilisation fund, and over industrial policy. Mr Putin has not taken any steps to resolve these differences, and instead appears to pick and choose, at times supporting the dirigiste policies of Mr Fradkov, and at others taking the more liberal line or Mr Gref and Mr Kudrin. Presidential election results, 2004 (% of votes) Vladimir Putin (independent) 71.3 Nikolai Kharitonov (CPRF) 13.7 Sergey Glazyev (Motherland) 4.1 Irina Khakamada (independent) 3.8 Oleg Malyshkin (LDPR) 2.0 Against all 3.5 Note. Figures do not sum to 100 owing to spoiled ballots. Source: Electoral Commission. Authoritarian drift is a concern Opinion polls show that three-quarters of all Russians think that democracy in Russia is deeply flawed. Yet more than 70% voted for the architect of "managed democracy", and the political party most closely associated with him, namely United Russia, carried the day in the Duma election. After the chaotic Yeltsin years, Russians seem to crave stability above all. Russia's drift towards authoritarianism is eroding the few and already weak checks and balances that existed under Mr Yeltsin. The execution of power is heavily concentrated in the hands of the president. Both houses of parliament, most of the press, the majority of regional administrations and most business oligarchs are loyal followers of the president. Russia's political system, although stable and not overly oppressive by the country s historical standards, is geared towards the preservation of the status quo. It represents the key obstacle to Mr Putin's agenda of economic rejuvenation and growth. The lack of accountability in politics and the absence of an independent judiciary means that property rights still ultimately depend on the will of the Kremlin, or on the power of local administrations. This, together with widespread corruption and bureaucratic interference, stifles investment, risk-taking and entrepreneurship. Russia's growing dependence on hydrocarbon exports goes hand-in-hand with an increasing concentration of wealth and tight links between big business and the state bureaucracy. Country Profile The Economist Intelligence Unit Limited 2005

13 Russia 9 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 of the Russian Federation (CPRF) and its allies in the State Duma (the lower house of parliament). August 1999 Mr Yeltsin 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 gas giant, Gazprom, in April July 2003 The Kremlin launches its campaign against the key shareholders of the Yukos oil company with the arrest of Platon Lebedev. Yukos's chief executive officer (CEO), Mikhail Khodorkovsky refuses to renounce his political opposition to the Kremlin and is incarcerated in October. December 2003 The parliamentary election gives the pro-kremlin United Russia party a two-thirds majority in the new Duma. Nationalist forces perform surprisingly well in the election, as the CPRF loses more votes than had been expected. March 2004 Mr Putin gains more than 70% of the votes in what is best described as a plebiscite on his presidency rather than an election. The West expresses concerns about authoritarian tendencies in Russia. The Economist Intelligence Unit Limited Country Profile 2005

14 10 Russia September 2004 A school in Beslan, North Ossetia, is attacked by Chechen terrorists, resulting in over 300 dead, including many children. The crisis is used by Mr Putin to justify a further centralisation of power, abolishing direct elections for regional governors. December 2004 The forced sale of Yukos s main asset, Yuganskneftegaz (YNG), in effect marks the end of the company. YNG is bought by the Baikalfinans Group (BFG), about which nothing is known. The company is in turn immediately acquired by the state-owned oil company Rosneft. The opaque sale process is viewed as a signal of the government s intention to strengthen its position in the oil sector. January 2005 The introduction of a new system of welfare payments replacing in-kind benefits sparks large protests across the country, an unprecedented sign of popular discontent with Mr Putin s presidency. Constitution, institutions and administration A strong presidency The government and the administration 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. Mr Putin has also abolished direct elections for regional governors, who are now to be nominated by the president and subject to approval by regional parliaments. If the regional parliaments vote against the presidential nominee twice, there is to be a month-long consultation period, after which the president will either present a new nominee, appoint a temporary nominee for six months or dissolve the assembly. If the presidential nominee is rejected for a third time, the president has the right to dissolve the assembly without further negotiation. During Mr Putin's presidency the government has been chiefly responsible for carrying out the president's orders. The main function of the former prime minister, Mikhail Kasyanov, was to balance different factions within the government, and Mr Fradkov has had to achieve the same objective, although under his stewardship the internal divisions within the cabinet have become more apparent. The Ministry of Economic Development and Trade and the Ministry of Finance, headed by Mr Gref and Mr Kudrin, respectively, have a Country Profile The Economist Intelligence Unit Limited 2005

15 Russia 11 degree of independence from the Kremlin, although the final decision about reforms rests with Mr Putin. Mr Putin used the 2004 government reshuffle to streamline the government, reducing the number of ministers from 30 to 17 and the number of deputy prime ministers from five to one. Mr Putin also merged several ministries and agencies, and sought to separate the ministries that draw up laws from those bodies that implement and enforce them. The streamlining of the government was only part of more wide-ranging attempts to make Russia's state apparatus more efficient and accountable. Russia now has roughly 1.2m bureaucrats, twice as many as at the end of the Soviet Union. Businesses regularly cite the "state mafia" bribe-seeking inspectors and corrupt bureaucrats as the main impediment to investment and expansion. The Putin government has started to address these problems by simplifying and reducing regulations and by limiting the number of inspections that businesses (especially smaller ones) must endure. The government has also raised public-sector salaries repeatedly most aggressively in early 2004, when top officials' salaries went up by several hundred percentage points to make officials less prone to bribe-taking. The salary rise was supposed to be followed by significant cuts in staffing levels, with the number of civil servants in Moscow alone to fall from 25,000 to 18,000. A weak legislature Gubernatorial elections have been abolished 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. 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. These measures were taken to their conclusion in late 2004 with the abolition of direct elections for regional governors, prompted by the Beslan school hostage crisis. The terrorist attacks in late 2004 prompted further intensification of the centralisation drive, with president Putin s proposals to abolish the system of direct elections of regional governors. Effective in early 2005, the new law gives the president the power to nominate regional governors, with regional assemblies required to approve his nominations. The new law represents the most radical step taken so far in president Putin s attempt to bring Russia s regions under federal control, but it is questionable whether this will solve the central problem of control and enforcement. The Economist Intelligence Unit Limited Country Profile 2005

16 12 Russia Although the regional governors have put up remarkably little opposition to the centralisation drive, Mr Putin has deemed it necessary to make a number of concessions most importantly, allowing the governors to stand for a third or even a fourth term, and to continue to run their regions as personal fiefdoms. Attempts by the Kremlin to influence regional elections have had mixed results. In some cases, the (often Soviet-era) incumbent has been successfully removed, but, rather than his being followed by the Kremlin's chosen candidate, the region has fallen into the hands of politicians with close ties to the area's largest enterprises. The judiciary The independence of the judiciary was severely compromised under communism, and its authority is still comparatively weak. The Yukos affair, which unfolded over the course of , showed that telephone justice where verdicts are delivered according to political instructions still exists. 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. Political forces Parties tend to be weak and poorly institutionalised Political clans are wellestablished in the Kremlin The party political scene in Russia was highly volatile and fragmented throughout the 1990s but has begun to settle. Rather than consolidating into a Western-style party political system with parties offering competing programmes to distinct social groups Russia's parties define themselves mainly by their support or opposition to the Kremlin. Although the 2001 law on political parties requires all registered parties to have a programme and local offices, only two of the 23 parties registered for the 2003 Duma election have a distinct ideology, a loyal following and a well-established branch network, namely the pro-western Yabloko party and the CPRF. Other parties tend to be loose groupings, which fall into one of two categories: they are either artificial creations to provide the Kremlin with a power base in the Duma (United Russia is the most prominent current example), or they serve as political platforms for ambitious individuals, with little programmatic content. Vladimir Zhirinovsky's Liberal Democratic Party of Russia (LDPR) neither liberal nor particularly democratic is the longest-standing example. A number of political clans, rather than political parties, act as distinct and independent political forces in Russia. After Mr Putin removed the last highprofile members of the Yeltsin-era "Family" from power, the siloviki became by far the most prominent political class. According to a study published in 2003, the siloviki members of the security services, the military and the police occupy almost 60% of all power positions in Russia, compared with less than 5% Country Profile The Economist Intelligence Unit Limited 2005

17 Russia 13 during Mikhail Gorbachev's rule. Although the siloviki do not constitute a coherent group, they share a belief in the need for a strong state and a distaste for the wealth and influence acquired by Russia's business oligarchs. Another, smaller political group comprises the so-called St Petersburg liberals, led by Mr Kudrin and Mr Gref, the ministers for finance and for economic development and trade, respectively. Kremlin-watchers have tried to infer Mr Putin's political plans from the shifting balance of power between all these political groups. However, the appointment of Mr Fradkov and other high-level officials that do not belong to either group indicates that Mr Putin's main objective is to balance these groups' competing influence, and to stand above them. 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 efficiency, Mr Putin became prime minister in August 1999 and acting president in December, before he stood for election in March Mr Putin quickly replaced the erratic rule of the Yeltsin years with tightly controlled and highly centralised management. Mr Putin has also presided over a reining in of political and media freedoms, accompanied by a cautious approach to economic reform. He was reelected by an overwhelming majority (with 73% of the vote) in March Mikhail Fradkov Mr Fradkov's appointment as prime minister in March 2004 surprised foreign observers and Russia's political establishment. A diligent technocrat rather than a skilful politician, the 53-year old Mr Fradkov had worked his way up in the Russian state apparatus. He had been head of the Russian tax police, trade minister and a member of Mr Putin's security council, before becoming Russia's envoy to the EU in Brussels. Since Mr Fradkov lacks an independent power base and a political agenda of his own, his main function is to implement Kremlin policies and balance the different factions in the government. 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. Aleksei Kudrin A protégé of the former first deputy prime minister Anatoly Chubais, and a longserving Ministry of Finance 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. The Economist Intelligence Unit Limited Country Profile 2005

18 14 Russia Sergei Ignatiev Mr Ignatiev took over as chairman of the Russian Central Bank (RCB) following the forced resignation of Viktor Gerashchenko in March A career official from the finance ministry, Mr Ignatiev is known for his diligence and honesty rather than his political leadership. United Russia wins nearcomplete control of the Duma The Communist Party is in decline 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. United Russia's main attraction is its close association with Mr Putin. Although United Russia lacks internal discipline and coherence, the absence of a distinct political programme allows it to attract Putin-supporters from vastly different parts of the population. United Russia received a 38% share of the party list vote in the 2003 Duma election and won 102 single-mandate seats. The Communist Party of the Russian Federation (CPRF), successor to that of the Soviet Union, was launched in February Despite internal splits and an ageing and shrinking membership, the CPRF remains Russia's largest and bestorganised political party. In the late 1990s the CPRF claimed to have 550,000 members, organised through 20,000 local party offices across the entire Russian territory. Although the CPRF is more programmatically distinct than most other Russian parties, it contains an ideologically incoherent coalition of social democrats, Stalinists and nationalists. However, damaging divisions in recent years have owed more to the clashing personal ambitions of party leaders than to their ideological disagreements. Parliamentary election results (% unless otherwise indicated) In 2002 the CPRF expelled Duma Speaker Gennady Seleznev and a number of other party leaders who had refused to follow the party's turn towards greater opposition to the Kremlin. In 2003 the prominent left-wing leader Sergei Glazev defected to set up his own party. The CPRF could traditionally rely on a loyal support base of around 30% of the electorate, but in the 2003 Duma election it received a mere 13% of the party-list vote, which cut the number of its Duma seats in half. Around 40% of the CPRF's supporters are over the age of 55. The party's unreconstructed ideas and uncharismatic leaders in particular CPRF leader Gennady Zyuganov and 2004 presidential candidate Nikolai Kharitonov have little appeal for younger people or the emerging middle class Party List vote (%) List vote (%) List vote (%) List vote (%) No. of seatsa No. of seatsb % of total seats United Russia (a merger of Unity & Fatherland-All Russia) Unity 23.3 Fatherland-All Russia 13.3 Russia's Choice Communist Party (CPRF) Motherland (Rodina) Liberal Democratic Party of Russia (LDPR) Country Profile The Economist Intelligence Unit Limited 2005

19 Russia 15 Parliamentary election results (% unless otherwise indicated) Party List vote (%) List vote (%) List vote (%) List vote (%) No. of seatsa No. of seatsb % of total seats Agrarian Party (APR) Yabloko Our Home is Russia Women of Russia Party of Russian Unity & Accord Democratic Party of Russia 5.5 Union of Rightist Forces Others Independents a Party-list seats. b Single-mandate seats. Source: Central Electoral Commission. Nationalists are the surprise winners in 2003 Liberal forces: Yabloko and the SPS Russia's nationalist parties did surprisingly well in the 2003 parliamentary election. The Liberal Democratic Party of Russia (LDPR), led by the controversial Vladimir Zhirinovsky, obtained almost as many list votes as the CPRF. During its heyday in the mid-1990s, the LDPR had around 200,000 members. The party has since lost much of its following and credibility, but Mr Zhirinovsky's populist and xenophobic outbursts still appeal to protest voters. Similarly, the Motherland (Rodina) party, a newcomer on the political scene, polled a betterthan-expected 9% in the list vote, on the back of the nationalist rhetoric of its leaders, Sergei Glazyev, a former communist, and Dmitry Rogozin, a foreign policy advisor who was once Mr Putin's special envoy to Kaliningrad. The large share of votes for the nationalists represents a broader trend in the Russian population. Young Russians, in particular, are rediscovering national pride which often goes alongside anti-western sentiment and racial hatred of people from the Caucasus and Central Asia. However, neither the LDPR nor Rodina is an independent political force that could ride the wave of growing nationalism. None of their leaders dared to criticise the Kremlin during the election campaign. Indeed, critics say that the Kremlin first set up Rodina to take votes from the CPRF and then encouraged Mr Glazyev to stand against Mr Putin in order to add legitimacy to a predetermined presidential election. Rodina's two leaders fell out almost immediately after their party entered the Duma, and the party is expected to vote along Kremlin lines. The LDPR will be equally loyal to the Kremlin, as it was during previous legislatures. Russia's two main liberal parties were in disarray after failing to pass the 5% of the vote threshold for parliamentary representation in the 2003 Duma election. Although they did gain a number of single-mandate seats, most of their deputies subsequently joined the United Russia faction. Observers said that the two parties, Yabloko and the Union of Rightist Forces (SPS), could have avoided defeat by pooling their resources ahead of the election. However, personal animosity between party leaders in particular Yabloko's intransigent Grigory Yavlinsky and the SPS's unpopular Anatoly Chubais spoilt any merger attempts. There are also more profound differences that have kept the two parties, and their electorates, apart. Yabloko, which dates back to 1993, represents Russia's impoverished and disillusioned intelligentsia, whereas the The Economist Intelligence Unit Limited Country Profile 2005

20 16 Russia SPS is widely seen as the party of oligarchs, partly because the 2003 election campaign was headed by Anatoly Chubais (once a reformer in Mr Yeltsin's cabinet and now head of Russia's electricity monopoly) and partly because it enjoyed the active and financial support of Mr Khodorkovsky, the jailed oil tycoon. In practice, most SPS members belong to the young, urban and Western-oriented middle class set apart from the traditional intelligentsia by dint of its entrepreneurial ambitions. International relations and defence Balancing competition and co-operation with the West Pro-Western turn after September 11th disappoints 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. Mr Putin regarded the terrorist attacks on the US of September 11th 2001 as window of opportunity for a fundamental redefinition of East-West relations. He was quick to offer assistance to the US president, George W Bush, in the USled 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. 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 and signed a new strategic arms reduction treaty in 2002, but both moves offered Russia more in the way of symbolism than substance. The US has not thrown its weight behind Russia's bid for entry to the World Trade Organisation (WTO), although bilateral negotiations are making progress. The US has also still not repealed the Soviet-era Jackson-Vanik amendment, which stands in the way of a normalisation of trade relations. In early 2003 Russia joined France and Germany in opposing US military action against Iraq, which led to a rapid deterioration in US-Russian relations. Although the US administration quickly decided to "forgive" Russia, the rifts between the two countries 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. The US, for its part, has become more openly critical of Russia's internal developments in Country Profile The Economist Intelligence Unit Limited 2005