Monday, October 29, 2007

Russia will be the fifth largest economy in the world in 2020, with a $2 trillion economy in 2010 thanks to its progressing “macroeconomic breakthrough,” said Charles Ryan, chief country officer and chief executive of Deutsche Bank in Russia.

“One of the things I am always struck by is how the history of prediction in the West about what’s going to happen in Russia has been so poor,” Mr. Ryan told the Heritage Foundation last week. “No one could have predicted in 1998, in the very dark days of the utter collapse of the Russian economy, that we would be sitting here today with such an optimistic nature about the current state of the Russian macroeconomic story.”

Russia is accumulating a vast amount of capital, with 400 billion rubles being flooded into the economic system for the latter part of October, 1 trillion rubles in November and another trillion rubles in December, Mr. Ryan said. The Russian budget policy legally requires the government to spend all of its money by the end of the year; this will produce inflation that will help “lubricate the economy for the election,” he said.

Despite Russia’s economic growth, corruption remains a problem, said Andrew C. Kuchins of the Center for Strategic and International Studies. Russia ranked 54th in business efficiency out of 61 countries in the World’s Competitiveness Yearbook, Mr. Kuchins said.

Russia’s other problem of “massive consumerdom is a doozie,” Mr. Ryan said. “This is one of the other stories that doesn’t seem to get told a lot … because the news about Russia is typically about missiles.”

The rapid economic expansion is partly attributable to Russia’s 13 percent flat tax, Mr. Kuchins said. “This transformation of Russia from an economic basket case to an emerging market powerhouse is very much underappreciated,” he said.

Growing commercial ties between the U.S. and Russia “is an important strategic interest for the United States. It will make the relationship more stable,” said James F. Collins, director and senior fellow of the Russia and Eurasia Program of the Carnegie Endowment for International Peace.

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