Carnegie Moscow Center
Twelve years after defaulting on its debt, Russian policy makers are again facing difficult choices regarding public spending. With debt remaining at relatively low levels, however, the government should focus on economic recovery, not deficit reduction.
Russia weathered the global recession better than initially feared, but the crisis has emphasized the country’s long-standing need to modernize its public sector, strengthen its financial sector, and improve its investment climate.
Though Russia's GDP contracted by less than expected in 2009, exports appear to nearing their maximum level and the banking system is facing a debt crisis, raising important questions about the future of Russia's fiscal policy and economic growth.
The global economic crisis emphasized Russia’s need to modernize or face marginalization. The current brand of conservative modernization, however, is unlikely to succeed, leading to a showdown between true modernizers and conservatives.
Obama is trying to position himself as the ‘president of all Americans,’ to modernize the United States, and to resolve pressing problems such as unemployment, health care, and the budget deficit.
Russia’s recovery remains slow. With domestic demand still weak, oil and natural gas producers—critical players in the Russian economy—are looking for markets outside of Russia.
Russia’s accession to the WTO—which would benefit both Russia and the global trading system—has been stalled since June. To move forward, Russia must clarify its accession plan and prove its commitment to the WTO.
As Asian countries seek to maintain trade advantage by manipulating their currencies, the United States and Europe, who have little room to devalue, may respond with protectionist measures that will hurt global trade.
Signs of strength are emerging in the Russian economy, aided by increasing exports, oil prices, and industrial production. However, weak domestic demand may hamper the recovery’s sustainability.
Russia retains interests throughout the post-Soviet regions, but Moscow’s considerable influence is no longer dominant.