Reforming the Russian economy

Though Russian President Vladimir Putin has sometimes ruled as an autocrat – clamping down on the media, skewing elections and re-nationalising property – he has also been a staunch advocate of reform policies that have contributed to Russia’s economic growth of 38 percent over the last five years.

Under Putin, the government has kept a lid on expenses, using gains from high oil prices to pay off its debt. But the country is not solely dependent on oil – Russia’s growth is being driven by a surge in productivity, which has increased by 14 percent each year.

Consequently, Putin’s reforms laid the foundation for Russia’s economic boom, say observers:

Putin slashed personal income taxes in favour of a 13 percent flat tax; a policy that has inspired entrepreneurship and encouraged millions of citizens out of the shadow economy and onto the tax rolls.

The government abolished serious restrictions on private land ownership – farmland can now be bought, sold or mortgaged for the first time since 1917.

Putin designed a new pension system to encourage private pension funds and generate long-term capital for Russia’s financial markets.

In addition, Putin overhauled commercial legislation and reformed the court system, creating a clearer legal environment for businesses. Businesses are also less exposed to mob violence: the number of contract killings declined from 700 a few years ago to 70 in 2002.

In his second term, Putin wants to continue his economic reform agenda: cutting the number of government employees by 20 percent, partially privatising the electricity and railroad industries, and moving Russia’s army towards an all-volunteer force.

Source: Patricia Kranz and Jason Bush, Putin’s Game, Business Week, June 7, 2004.

For text http://www.businessweek.com/magazine/content/04_22/b3885096_mz054.htm
For more on Russia http://www.ncpa.org/iss/int/

FMF Policy Bulletin/ 14 June 2004