The Winter Olympics in Sochi are the first to be hosted by Russia since the Cold War-era Moscow Summer Games in 1980. Obviously, much has changed politically in the interim, but these Games created an opportune moment to look back at Russia’s recent economic history — and to peer forward as well.
Many people who remember the collapse of the Soviet Union in 1991 and its tumultuous aftermath believe that the Russian economy today must be impoverished and unstable — and far behind booming China. They are wrong.
According to the IMF, Russia’s per capita income last year, measured in terms of purchasing power parity, was about US$18,600, nearly double China’s per capita income of about US$10,000. And, according to World Bank data, extreme poverty is close to zero, compared with 11.8 percent in China in 2009 (the most recent year for which data are available).
Yes, Russia’s economy has been buoyed recently not only by sound macroeconomic policies, but also by high world oil and gas prices. The collapse of world oil prices after 1985 contributed to the severe economic crisis in the Soviet Union and Russia in the late 1980s and early 1990s. This is an important point, given that the economic reforms implemented by former Soviet president Mikhail Gorbachev and former Russian president Boris Yeltsin confronted powerful headwinds.
In 1992 and 1993, I was a macroeconomic adviser to then-Russian prime minister Yegor Gaidar and then-Russian minister of finance Boris Fyodorov, trying to help Russia to end the high inflation and extreme shortages that characterized the final years of the Soviet era, and to begin Russia’s transition to a market economy. I recommended a macroeconomic stabilization strategy that had been highly successful in Poland, and that called for timely financial assistance from the US, Europe and the IMF, just as Poland had received.
Unfortunately, the West did not provide the needed financial assistance, contrary to my (and many other people’s) recommendations, and the Russian economic and financial calamity was more severe as a result.
At the time, I attributed Western inaction to incompetence on the part of the US government and the IMF. Looking back, it is clear that there was also a deliberate strategy by US neoconservatives, such as then-US secretary of defense Dick Cheney, to weaken the new Russian state. The US government was also complicit during the mid-1990s in the plundering of Russian state-owned property, including oil assets that were unscrupulously privatized.
The good news is that Russia was able to bounce back from those terrible years, no thanks to the West or the US government. Russia’s market economy, albeit marred by corruption, took root. After several years of political infighting and unnecessary delay, macroeconomic stabilization was achieved and Russia’s economic growth was restored, especially as world oil and gas prices began to rise. From 2001 to last year, Russia’s GDP grew at a robust 4.4 percent average annual rate.
Russia achieved a good measure of financial stability as well. The IMF put Russia’s inflation rate at 6.9 percent last year, with unemployment at 5.5 percent, while the budget deficit was just 0.3 percent of GDP. Moreover, Russia’s foreign-exchange reserves stand at a healthy US$500 billion.