- The Washington Times - Tuesday, June 20, 2000

A string of upbeat economic reports has given Russia and its new president, Vladimir Putin, political breathing room after a decade of decline.

The nation said yesterday it will be able to meet its foreign debts without any new international loans this year, just the latest sign that the economy has reversed a 10-year economic skid.

Bolstered by oil and weapons sales abroad and a weak ruble at home, Russian domestic output increased 3.2 percent in 1999, and Prime Minister Vladimir Kasyanov told a St. Petersburg conference last week that growth this year was running at a 10 percent annual clip twice the U.S. pace.

"To say that the Russian economy is ready to charge into the future would be a gross overstatement," said Stephen Gardner, an instructor in economics and Russia studies at Baylor University and head of the school's McBride Center for International Business.

"But I think most people who are watching the situation are more optimistic about the Russian economy than they have been for several years now," Mr. Gardner said.

"It's pretty clear that Russian industry continues to benefit very strongly from the [1998 ruble] devaluation," said Roland Nash, director of research in the Moscow office of Renaissance Capital, which sponsored the conference where Mr. Kasyanov spoke.

The positive economic news in sharp contrast to the disastrous retreats of the Boris Yeltsin years could prove a boon to Mr. Putin, extending his political honeymoon at home and increasing his options abroad.

While public health and personal consumption figures have not turned around, a number of key economic indicators are moving in the right direction, including unemployment, inflation and foreign-debt reserves.

The prime minister said Russia's hard-currency reserves have reached about $20 billion, their highest level since the August 1998 collapse, when the government let the ruble plunge and defaulted on some of its debts.

Mr. Gardner said that the economic boost has not reached the average Russian, but that companies in several sectors are displaying a new competitiveness.

"I don't know if you'd call it a leaner, meaner Russia, but you do get the sense that Russia has finally made the basic economic adjustments that it had to make if it was ever to take off," he said.

Mr. Putin has tried to walk a fine line on the economy, telling potential foreign investors that his country is an emerging Eurasian tiger while warning his constituents at home that Russia will need more than a decade of double-digit growth to achieve broad-based prosperity.

He told Spanish business leaders during a European tour last week that Russia had recouped all of the economic losses that followed the surprise ruble devaluation of 1998.

The 77-percent drop in the value of the ruble since 1998 has made Russian exporters more competitive abroad and Russian domestic producers better able to compete with foreign consumer goods. For example, Baltika, a Russian-made brand, has replaced imported rivals as the market leader in the booming Russian beer market.

Yesterday's announcement concerning Russia's foreign debts shows how the economy's surge has given Mr. Putin new leverage.

Relations between the Russian government and the International Monetary Fund have been notoriously prickly over the years, with Moscow desperate for foreign cash infusions even as multiple scandals broke out over the government's handling of IMF money.

But the Russian treasury has benefited from higher oil prices abroad and improved domestic tax receipts, giving Mr. Putin room to maneuver with foreign creditors that Mr. Yeltsin and his policy team never enjoyed.

Russian economic experts say the country's recovery remains fragile.

A much-touted economic reform program being drafted by Putin adviser German Gref has been repeatedly delayed and now is not expected to reach the president's desk until the end of this month.

The arrest of business "oligarch" Vladimir Gusinsky, chairman of the Media-Most media empire, sent prices falling on the Russian stock exchange as it raised doubts about the new president's commitment to democracy and free markets.

Even Mr. Kasyanov conceded in St. Petersburg last week that banks and other basic industries still face painful reforms if the Russian recovery is to be sustained.

Charles Frank, acting president of the European Bank for Reconstruction and Development, told the St. Petersburg conference that the country's oligarch-dominated gas and electricity monopolies must be broken up, and that insolvent banks had to be closed down.

"Economic growth will not be sustained over the long term unless the government begins now to implement a credible program of reform in energy, banking and industry," Mr. Frank said.

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