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Type: Federal Republic
President: Vladimir Putin
Prime Minister: Mikhail Kasyanov
(% Of Growth)
(US$ in Billions)
(US$ in Billions)
|Current Account Balance
|Debt Service Ratio
In his first year of office, Russia's President Vladimir Putin has made substantial progress in consolidating the power of the central government. Putin has faced little opposition from the Duma due in part to the triumph of the Unity party and other pro-presidential groups in the 1999 parliamentary elections and to recent legislation passed strengthening requirements for party formation. These political developments have altered the antagonistic nature of the relationship between the legislature and the executive. Putin has also amalgamated Russia's regions into seven "super regions" under newly-appointed leadership and reformed the Federation Council in order to shift the balance of power from peripheral regions to Moscow. Previously, each regional leader had a right to sit on the Federation Council. As a member of parliament, each had a lobbying platform in Moscow and immunity from criminal prosecution. Putin's reforms have stripped governors of the right to sit on council, giving regional assemblies instead the right to dismiss local governors. The business tycoons who had enjoyed considerable influence under the Yeltsin regime have effectively been disenfranchised, although it is not clear to what extent their business activities have been impaired. According to sources in Moscow, this new policy leaves business interests alone provided that oligarchs refrain from overt political interference. The only oligarchs who have suffered as a result of this new policy were Gusinsky and Berezovsky-both of whom refused to toe the Kremlin line.
Having regained some control of Russia's political environment, Putin's team which consists primarily of economic liberals and former security service personnel remains poised to undergo necessary economic reforms. Since the August 1998 financial crisis, economic conditions in Russia have improved considerably as a result of higher commodity prices and Russia's devaluation of the ruble. Although this recovery trend will continue for the remainder of this year, it is not sustainable since oil prices will recede and the effects of currency depreciation will fade. To lay the basis for sustainable economic growth, Russia must undergo substantial structural reforms to its legal and tax systems. It is not clear when Putin will undergo such reforms as he currently faces insurmountable opposition from the government bureaucracy, the judiciary, and the upper echelons of Russia's natural monopolies-all of whom have been long-standing beneficiaries of corruption. One symbolic step in the direction of reform was the May 2001 replacement of Rem Vyakhirev, the controversial head of Russia's most powerful corporation-Gazprom-which controls the vital inputs of both industrial and domestic consumers and is a leader of Russia's export industry.
International security will be the central component of Russia's platform in Genoa due in large part to continuing skirmishes in Chechnya and Islamic militancy in Central Asia. Putin has played an active role in promoting international security at the 2000 Okinawa Summit by bringing to the table an agenda to enhance security in Asia and the Middle East, conceived in part through preparatory meetings with the Chinese and North Korean delegations. This trend of continuing Russian participation in international security has continued throughout the past year with a special Russian envoy deployed to the Middle East, and most recently, active Russian participation in a security and economic summit in Shanghai, China. The six-nation summit (consisting of China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan) was aimed at combating Islamic militancy in Central Asia. Of principal concern to most member states is the Islamic Movement of Uzbekistan which has led armed incursions across the region over the last two years. As a result of the meetings, agreements were signed to establish a new organisation and to boost cross-border cooperation to combat separatist terrorist movements. Russian and German security intelligence has proved most useful in the past few weeks where Russia has been cooperating with the United States to secure the Genoa summit site against possible leader assassination attempts. Putin's continuing leadership in the area of international security coupled with an on-going diplomatic dialogue with North Korea should place Russia in a strategic negotiating position in Genoa.
Russia's long-standing opposition to the American National Missile Defence Initiative will continue. The Chinese president and his Russian counterpart continue to show a united front against American plans to build a national missile defence system. Kremlin officials said that Bush's NMD plan posed a threat to global security, supporting China's frequent warnings that the plan could trigger a new global arms race. If the US proceeds on its own to construct a missile defence shield over its territory and that of its allies, Russia threatened to upgrade its strategic nuclear arsenal with multiple warheads-reversing an achievement of arms control in recent decades. Russia threatened to negate both the START-1 and START-2 treaties if a US decision to build missile defences in violation of the Anti-Ballistic Missile Treaty of 1972 were to go ahead.
Do not expect a major arms control accord in Genoa, though some defence cooperation may emerge such as shared work on early warning of accidental missile launches. Disagreement still exists between the Americans and Russians on the extent of cooperation. Bush wants to discard the ABM as an impediment to an anti-missile shield while Putin prizes it as a foundation for controlling nuclear weapons. Spurgeon Keeny, president of the private Arms Control Association, says that the United States is asking Russia for a "blank check" on missile defence. This American attitude is likely to prevent any constructive developments to emerge in Genoa.
Russia will have to address the issue of nuclear proliferation in Genoa because of growing concerns about the spread of Russian weapons and related technologies to China and "rogue states" such as North Korea, Iran, and Iraq. This issue has been already raised by the American President during the Slovenia summit where he focussed on possible Russian involvement in the shipment to Iran of high-strength aluminum that is useful in nuclear weapons development. Putin assured Bush that Russia was committed not to supply nuclear or ballistic missile technologies to Iran but would continue to sell defensive arms to Tehran. Putin in turn complained that the US was guilty of "unfair competition in the arms market", and to prove his point, provided Mr. Bush with the names of US companies that have recently been in Iran offering "large scale" cooperation. Expect a continuing dialogue on this issue to emerge in Genoa, although it is unclear whether a commitment will emerge to monitor and police such activities.
Progress is being made on the chemical weapons front, with the Russian Cabinet recently approving a new cheaper plan for destroying chemical weapons. In turn, Russia is asking for an extra five years to eliminate the world's largest arsenal of deadly munitions. Russia ratified the international Convention on Chemical Weapons in 1997 and thereby committed itself to destroy the 44,000-ton stockpile within a decade. But it has not begun the destruction, saying it could not afford the estimated $7 billion program despite pledges of aid from the United States, Europe, and Canada. Although the Russians have been slow in this initiative, this new plan is a step in the right direction. Prime Minister Casanova wants to clarify the program of destroying chemical weapons stockpiles and be certain the program will be fulfilled. The new plan provides for 1 percent of Russia's chemical weapons stock to be destroyed in 2003, 20 percent by 2007, 45 percent by 2008 and 100 percent by 2012. The plants that were used in the destruction program will be destroyed or converted to civilian use.
Russia along with Israel, Lebanon, and a string of islands from the Bahamas and the Caymans in the Caribbean were blacklisted as "uncooperative jurisdictions" a year ago and given 12 months to change their ways. Money laundering is likely to resurface in Genoa and Russia is likely to be reprimanded for not acting more aggressively on this initiative. Expect a renewed commitment for cooperation and a possible structural contingency plan to emerge to help Russia combat this problem. It is in Putin's vested interest to be as cooperative on this issue as possible since Russia is actively bidding to host the 2003 G8 Summit and thereby needs to assure other G8 members that it has a strong enough economic and financial infrastructure to do so.
Russia has been unsuccessful in reaching agreement with the IMF on the terms of a new fund facility to replace the US$4.5 billion Stand-by that expired in December 2000. The previous fund accord was followed by a Paris Club rescheduling of Soviet-era debt due between August 1998 and December 2000. London Club negotiations resulted in the forgiveness of 36.5% of the pre-Russian debt of $32 billion. Although Russia's debt servicing capacity has improved due to higher oil prices and debt rescheduling, the conditions for sustainable economic growth have not been met. While the focus at the Genoa summit will be on the continued HIPC initiative, expect Russia's debt restructuring issue to come to the forefront in 2003 when Russia's debt servicing commitments increase US $5 billion from $13 billion (as it stands now in 2001) to $18 billion.
Prepared by Diana Juricevic, University of Toronto G8 Research Group, June 2001.
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