Economy of Russia Essay

Russia as a country has transformed importantly since the hand of the Soviet Union. The parsimoniousness has changed from a world-widely-isolated, centrally-planned parsimony to a to a greater extent globally-integrated market based prudence. The thriftiness of Russia has gone through fluctuations since then to go away as the eight largest by its purchasing power parity (PPP) in 2009 estimates (CIA, 2010). The Russian economy is largely dependent on the export of cranky materials and natural resources, specifically cover and gas. Other resources include precious minerals, fishing, and agriculture.Since the collapse of the Soviet Union, Russia has undergone deuce major frugal crises. They are the 1998 Russian pecuniary Crisis and the 2008 Russian Financial Crisis which was a part of the 2008 Global Economic Crisis. This name will examine the performance of the Russian economy after the ii crises. In addition, the article will evaluate the current performance of the econom y of Russia. The 1998 Russian Economic Crisis subsequently the collapse of the Soviet Union, Russia undertook major sparing reforms to transform its economy closed centrally planned socialist economy into a capitalistic market economy. check to the CIA Factbook, the most notable economic reforms in the 1990s were the privatization of enterprises that belonged to the state and the removal of Soviet price controls. The CIA notes advance that the rapid privatization of the state enterprises (except in defense and energy related sectors) essentially handed over the enterprises to a few politically connected individuals popularly referred to as the Russian oligarchs making equity ownership concentrated to a few.It was during this time that Pinto, Gurvich, and Ulatov noted that the country was plagued with corruption, financial manipulations, and capital looting (capital flight). In 1997, the Asiatic Financial Crisis began and this led to the fall in commodity prices. As the crisis spread economies heavily dependent on exports were exceedingly affected. Russias economy being heavily dependent on world prices was hit hard. Pinto et al point out that the exchange rate of the ruble against the overseas property was artificially fixed and the subsequent fiscal deficit quicken the crisis.During the Asian Financial Crisis, the ask for oil and minerals declined and this affected the foreign currency militia for the country. Poor management of the situation such as Russias of import Bank maintenance of the Ruble within a narrow hightail it in the middle of the crisis by using the available foreign reserves make the situation worse. The poor measures resulted in the investors pulling off and lump rising to over 80 per cent. The bail out offered by the planetary Monetary Fund and the World Bank did not help the situation. some(prenominal) banks closed and the organization debt increased considerably. The 2008 Russian Economic CrisisThe Russian economic cri sis of 2008 was an extension of the global economic crisis 2008-2009. A report disposed(p) by the World Bank pointed out that although the Russian economy was better prepared to withstand the financial crisis, its dependence on export of limited commodities made it succumb to the crisis. According to the report, the crisis caused a decrease in capital flows as investors withdrew across the world markets, the credit crunch affected the banking system in Russia, the decrease in demand for oil eroded the fiscal and foreign reserves of the country, and the stock market suffered from the uncertainty of demand for oil (4).The planetaryistic Monetary Fund noted that anti-crisis measures such as the states guarantee on loans to support the banking sector, the cutting of the interest rate by the Russian of import Bank, and the states support for the housing and car manufacturing helped in managing the crisis. Recession of the Russian economy slowed down and the economy has shown positive signs for recovery although slower than before the crisis. After going through the 1998 economic crisis, Russia undertook some policy and structural reforms with function of cushioning the Russian economy against such a crisis as hearty as promoting economic festerth and development.The structural reforms were necessary to create regulatory and institutional conditions for business and reduce the administrative risks. Some of the measures that were taken to take the crisis, according to the World Bank (18- ) include devaluation of the ruble, gold infusion in to the market, levy reforms, privatization, and review of international trade policy. When the ruble was devalued, there was a sudden increase in the price of imported commodities but the campaign benefited the local industries and they were able to pay off their debts.The local enterprises also benefited from the cash infusion by the state, which in turn led to an increase in the demand for Russian commodities and servic es. The tax reforms were aimed at creating an enabling environment to sire the resumption of economic growth by reducing the tax burden. The reforms were aimed at corporate profit tax, VAT, and the removal of tax privileges that were not justified. The privatization process place corporations that were to be privatized in 1999 and others in 2000.The international trade policy involve reviewing to take into account the devalued ruble and the fluctuating price and demand for oil and raw materials. The Russian government also introduced the stabilization stock certificate to hedge against the fluctuating international oil prices. The recovery from the crisis was however accelerated by the rise in international demand and price of oil. The Russian economy had fallen due to decrease in demand for oil and when the demand rose, the economy started to recover. 2008 Economic CrisisThe government of Russia undertook intervention measures to manage the modern economic crisis and ensure th at the country was on the way back to economic growth that had been achieved front to the crisis. Some of the measures taken by the government were injecting property and supporting the market. The government also offered bail outs for local corporations that relied heavily on foreign investment and hence highly susceptible to the changes in the global market. In addition, the government undertook further tax measures that saw the profit tax reduced to enable the corporations to remain operational.The government lifted import tariffs on industrial equipments to enable the rejuvenation of the affected companies. In a exchangeable scenario to the 1998 crisis, the comeback of the Russian economy occurred after the increase in the international demand for oil. Current Russian Economic Status and Future Prospects According to the IMF, the economy of Russia has recovered from decline but is yet to recover to the levels that it had achieved prior to the crisis. The IMF projects that the Russian economy will 3. 6 per cent in 2010 up from a low of negative 7. 5 per cent.Russian economy is highly susceptible to economic crises due to its overdependence on the commodity markets. This has been evident from the two economic crises that have hit the country since the fall of the Soviet Union. Therefore, for the Russian economy to grow and cushion itself against the fluctuating international prices for commodities there is an imperative need to diversify the composition of the economy. The government of Russia has already taken measures such as investing in the information sector and has risen to run low the world third largest software exporter as well as outsourcing.In addition, the government has encouraged the development of agriculture and manufacturing industry through expert and organizational modernization. The agriculture has improved with Russia becoming a net texture exporter rather than a net grain importer as was the case a few years ago. The economic ref orms that have been undertaken by the Russian government have the ability to promote the development of a stable economy in the future. Russia is set to gain from the structural reforms that have been instituted and with the vast birthrate in natural resources and economic diversification, the Russian economy is set to grow and stabilize.References Pinto, B, Gurvich, E and Ulatov, S. Lessons from the Russian Crisis of 1998 and Recovery The World Bank. 2004 Russia CIA World Factbook. 28 April, 2010. 11 whitethorn, 2010. Russian Federation The International Monetary Fund. N. d 11 may 2010. http//www. imf. org/external/country/rus/rr/ Russian Federation The World Bank. 2010. 11 May 2010. http//web. worldbank. org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/RUSSIANFEDERATIONEXTN/0, menuPK 305605pagePK 141159piPK 141110theSitePK 305600, 00. html