A timely set of recommendations for addressing the highly complex issues that have complicated American-Russian relations. Rightly critical of the overly personalized style of the previous US administration's policy, the authors advocate a less ambitious and a more realistic approach in the hope that it will yield a balanced quid pro quo in mutual accommodation. --Zbigniew Brzezinski, former US national security adviser

Germany's Chancellor Otto von Bismarck said that Russia is never as strong as it seems, nor as weak at it seems. The Russia Balance Sheet is striking evidence that this statement has not lost its validity after many years. In this balanced and well-documented book, the authors show that the United States cannot allow itself not to have a consequent and comprehensive Russia policy. --Yegor Gaidar, former Russian Prime Minister

The Russia Balance Sheet is a one-stop shopping source for understanding the factors driving contemporary Russia. The analysis and recommendations of Anders Aslund and Andrew Kuchins are thoughtful, incisive, and provocative. This book is a must-read for anybody trying to unravel the riddle of Russia. --Sam Nunn, former senator

Russia projects a sense of renewed power and prominenence on the world stage; by 2020 it's expected to emerge as the fifth-largest economy in the world. Going forward, how the United States and Russia deal with each and with issues of mutual interest will have a significant impact around the globe.

The Russia Balance Sheet sets forth a primer on Russia's current governmental and political infrastructure as well as its opportunity for growth. This important new book provides comprehensive, balanced, and accurate information on all key aspects of Russia and discusses what its status means for the US and other nations.

To that end, the authors develop a cohesive, overarching framework that analyzes the nexus point of such areas as economic reforms and integration, domestic politics and society, foreign business partnerships, and energy demands. Based upon this foundation, the book capably suggests constructive policies for Russia and the next US administration that will take office in 2009.

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Paperback: 192 pages
Publisher: Peterson Institute for International Economics; 1 New edition (April 30, 2009)
Language: English
ISBN-10: 0881324248
ISBN-13: 978-0881324242

The Russia Balance Sheet

First book from the Russia Balance Sheet Project of the Peterson Institute for International Economics and
Center for Strategic and International Studies
Anders Åslund and Andrew C. Kuchins • April 2009 • 207 pp • ISBN 978-0-88132-424-2 • $24.95

Russia’s 1,000-year history is replete with revolutions, global and continental wars, economic crises, colorful leaders, and a brilliant cultural heritage. Its journey since the fall of the Soviet Union has been tumultuous. Russia rose from the ashes of a collapsed empire and nearly failed state in the 1990s to become an energy superpower during the past eight years.

Its remarkable oil-fueled economic recovery boosted its GDP almost nine times from $200 billion in 1999 to nearly $1.7 trillion in 2008, making it the eighth largest economy in the world. The stock exchange reached an all-time high in mid-2008 after 10 years of remarkable economic growth. But as so often happens in Russian history, shocking events in the form of a war followed by economic crisis intervened in the second half of 2008.

The August 2008 Russia-Georgia war and the January 2009 natural gas conflict with Ukraine battered Russia’s international reputation, and the global economic and financial crisis, which reached dizzying heights in September 2008, hit Russia hard. Growth slowed in 2008 to 5.6 percent and even started falling in December.

Foreign exchange reserves, which had peaked at $598 billion in early August 2008 thanks to soaring world oil prices, fell to $386 billion at the end of February 2009 as oil prices plunged. Unemployment has spiraled, the ruble has plummeted, and industrial production has sharply declined. The country now suffers a severe downturn in an astounding reversal of nearly a decade of robust economic growth fueled by high oil prices and a consumer boom.

The economic crisis is putting a lot of pressure on the Putin-Medvedev regime. Vladimir Putin’s presidency occurred during Russia’s most felicitous conditions for economic growth, the dramatic increase in world oil prices and the “global money party” that occurred during his tenure. Especially from 2003 on, the Russian government needed to do little but float on the high oil prices to maintain robust growth, and the structural economic reform agenda went into hibernation.

Since Dmitri Medvedev took over as president in May 2008 and Putin moved to the position of prime minister, however, those beneficial economic circumstances have dramatically changed. The commodity price cycle has peaked and credit markets have become very tight around the world. Public discontent with the devastated economy has spilled onto the streets, prompting the leadership—which was in denial—to finally admit that the crisis is seriously affecting Russia. Sustaining economic growth for the country’s population will have a direct influence on popular support for the government.

As impressive as Russia’s economic recovery has been over the last decade, if the country wants to rejoin the
ranks of the world’s great powers, it has a long way to go. The Russian government’s “Russia 2020” economic growth plan, unveiled in February 2008, has set ambitious goals including raising the per capita income from $12,000 in 2008 to $30,000 in 2020 and making Russia the fifth largest economy in the world. But the leadership has thus far ignored the need for critical reforms, and the economy remains highly vulnerable to external circumstances beyond its control, primarily the oil price.

Russia cannot continue to depend to such an extent on its resource wealth, which is prone to booms and busts. The lower oil prices are, the more difficult it will be for Russia to achieve its ambitious Russia 2020 goals by maintaining the status quo and the more vital new reforms become.

For the country to reemerge as an economic power, it will have to swiftly implement substantial and comprehensive economic reforms. First, Russia should accede to the World Trade Organization (WTO) to secure its successful international integration and an improvement of its legal standards.

Russia suspended its application to join the WTO in anticipation of Western sanctions against its war in Georgia, which never materialized. Hopefully, it will reinstate its application soon. Second, to ease infrastructure bottlenecks, the Kremlin needs to introduce transparent procurement procedures for major investments. Third, property rights must be reinforced and renationalization stopped to ease the problems in banking and energy production. ...

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