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What did Putin bring to the Russian economy after 20 years in office?

What did Putin bring to the Russian economy after 20 years in office?

by YCPress

On December 31, 1999, Yeltsin announced his resignation as president, and Putin became the acting president. On March 26, 2000, Putin was elected President of the Russian Federation and officially took office on May 7. For the 20 years up to 2020, Putin has been president except for the Prime Minister from 2008 to 2001. In fact, Putin has been in charge of Russia for 20 years.

Check here Putin started time Yeltsin time

During the past 20 years, Russia’s economy has developed, reformed and stagnated, and has never really achieved stable and sustainable development. This article tries to make a brief analysis of Russia’s economic development and its reasons in the past 20 years.

Putin took over a mess.

Yeltsin’s economic transformation in the past eight years has made some progress from the perspective of institutional construction, forming the basic framework of the market economy system. But from the perspective of economic development, the reform has not been successful. The economic transformation during this period not only failed to achieve the goal of revitalizing the economy, but also had a serious transformation crisis. Russian scholar Bogomorov once commented on the transformation during the Yeltsin period, “On the political side, this era pushed us forward, but on the economic side, we took a road to disaster.” (The Russia’s Transition Age, [Russia] by O.T. Bogomolov, translated by Zhang Yi, Liaoning University Press 2002, pp. 113-114)

In the eight years from 1992 to 1999, the Russian economy grew negatively in all six years except for 0.9 percent and 5.4% in 1997 and 1999, respectively. Since the economic transformation, Russia’s GDP has fallen by 40%. Therefore, when Putin took office as President of Russia in 2000, Russia was in the most difficult historical period in centuries. It is probably the first time in nearly 200-300 years that Russia is truly in danger of becoming a second-class country or even a third-rate country in the world.

The situation facing Putin is very complex, and economic problems are particularly prominent. It is for this reason that Putin put forward the campaign platform for enriching the people and strengthening the country, shouting: to overcome poverty, improve people’s lives, wash away the stigma of national poverty, and return the country with economic dignity. In order to realize the economic program of enriching the people and strengthening the country put forward during his presidential election, Putin, on the one hand, adheres to the general direction of Yeltsin’s transformation, that is, political democratization and economic marketization. On the other hand, in view of the problems existing in the Yeltsin period of transformation, he puts forward new ideas and new policies on political and economic transformation. Needle, shift the focus of transformation from the main destruction of the old system in the past to the main construction of the new system.

When Putin comes to power, he needs to choose and adjust in a series of major policies, because “he took over is a mess” or, as Roy Medvedev, a famous Russian historian and biographer and political writer, said: “Vladimir Putin came to power under extraordinary conditions in the country. Ruling. Russia’s weak economy, political weakness of the country, and the danger of the dissolution of the federation combine into a danger – it seems that few things can revive the country, and the people are tired of the many attempts made in the 20th century. In this case, President Putin and his team have a special responsibility.” The Putin Era, [Russia] by Roy Medvedev, translated by Wang Guixiang, World Publishing House, 2001 edition, p. 14)

In response, Putin said: “We should ensure that the long-standing crisis will be eliminated in a relatively short historical period and conditions should be created for the rapid and stable economic and social development of the country. I want to emphasize that it must be rapidly developed as soon as possible, because Russia no longer has time to swing around.” Reaching the rate of growth as it should be is not only an economic problem, but also a political issue.” Putin’s Collection of Essays, China Social Science Press 2002, pp. 6-7)

During the first two presidents: rapid economic growth

The period 2000-2007 was Putin’s first two presidential terms. These eight years are the best period of economic development since Russia’s transformation. Over the past eight years, Russia’s GDP has grown at an average annual rate of 6.9%, which is faster than the average growth rate of the world economy. Putin said in his 2007 State of the Union address that “At present, Russia has not only completely passed a long period of production recession, but also entered the ranks of the world’s top ten economies.”

During the four years of Putin’s first term, GDP has increased by nearly 30%. Russia’s past lost economic potential has been compensated by 40% as the economy has emerged from the crisis and continued growth.

The living standards of the people have improved significantly: in 1999, the average monthly wage of employees was $64, pensions were only $16, and they were often not paid on time. By 2003, the two indicators had increased to $180 and $60, respectively; residents living below the poverty line accounted for 29.1% of the total population fell to 22.5% in 2003; the unemployment rate decreased from 12.66% in 1999 to 8.4% in 2003;

Some important macroeconomic indicators have also improved: during Putin’s first term, the repayment of foreign debt of more than $50 billion did not cause fiscal tension; there were budget surpluses for several consecutive years, with a budget surplus of 2.5% of GDP in 2003; inflation rates were controlled; after the 1998 financial crisis, almost Depleted foreign exchange reserves reached an all-time high of 79 billion US dollars in 2003, an increase of 30 billion US dollars in 2003 alone, and 120 billion US dollars in 2004.

During Putin’s second term, the Russian economy continued to maintain a relatively fast growth rate: GDP growth rate was 7.2% in 2004; in 2005, it was 6.4%, with per capita GDP exceeding $5,300; GDP growth in 2006 was 6.9%, and inflation has dropped to single digits (9%). Real disposable income of the population increased by 11.5% and the unemployment rate fell to 7.4%. In 2007, GDP grew by 8.1%, industry grew by 6.3%, agriculture grew by 3.35%, and fixed asset investment grew by 21.1%.

The government’s external debt has also been greatly reduced. After repaying $15 billion in Paris Club in 2005, $33.7 billion in external debt was repaid in 2006, with the foreign debt balance accounting for 5% of GDP.

During the first eight years of Putin’s two terms, Russia’s economy has been rebounding and there has been a relatively rapid development trend, which is the result of a combination of many factors.

Judging from Putin’s dominant ideology of governing the country, when he took office as Russia’s first president in May 2000, he repeatedly stressed that the main task of the country in the future is to develop the economy in the face of the extremely serious economic situation in China. In a speech in March 2000, he pointed out that “stabilizing the economy is the country’s top priority”. In his 2002 State of the Union address to the Russian Federation, Putin stressed that “Russia now needs ambitious goals and higher growth rates” in response to the improvement in the Russian economy in the previous two years. In his 2003 State of the Union address, Putin proposed to double Russia’s GDP within 10 years. In the State of the Union address in 2004, it was also proposed to double the per capita GDP in 2010.

Judging from the main ideas of economic system transformation, Putin stressed that the problem that should be solved is to make Russia a powerful country. To this end, the main way is to ensure, on the one hand, to ensure that Russia continues to implement market economy reforms; on the other hand, to adjust the economic system transformation policy and implement some new reform measures.

In the past eight years, the following economic transformation and institutional reform policies have had a positive impact on economic development:

(1) Strengthen the state’s economic regulation. This is in response to the policy of adopting the state’s maximum exit from the market economy during the Yeltsin period. Putin pointed out: “Russia must establish a complete state regulatory system in the economic and social fields. This is not to reimpose the mandatory plan and management system, so that the all-encompassing country can formulate working rules for each enterprise from top to bottom, but to make the Russian state an effective coordinator of the country’s economic and social forces, balance their interests, set the best goals and reasonable parameters for social development, and To achieve this goal, create conditions and establish mechanisms. He also stressed: “In determining the scale and mechanism of the national regulatory system, we should follow this principle: ‘Where state regulation is needed, there is state regulation; where freedom is needed, there is freedom’.”

(2) In terms of the method of economic transformation, “it can only be implemented in a gradual, gradual and prudent approach”, avoid the wrong practice of mechanically adapting to Western experience in the 1990s, and emphasize that Russia must find a way of reform that is in line with its own national conditions.

(3) Pay attention to social policies. In response to the very widespread poverty in Russia, Putin proposed that the Russian government should formulate a new income policy aimed at ensuring a steady increase in the wealth of residents on the basis of increasing the real income of the residents.

(4) Oppose the renationalization.

(5) There should be an economic development strategy. In response to the lack of practical long-term economic development strategy in the past, Putin stressed that in order to make Russia confident to get out of the crisis, move towards the road of revitalization, and strengthen domestic cohesion, it is necessary to formulate a 15-20-year economic development strategy.

(6) Actively promote the reform of the agricultural system and promote modern agricultural policies. Under Putin’s active promotion, the new land code of the Russian Federation was adopted in October 2001, which allowed land to enter the market circulation. Putin has also made major adjustments in the development of agricultural policies, deciding to engage in large agriculture, that is, to develop large-scale agricultural complexes.

(7) Reform and improve the macro system. In terms of tax system, after Putin took office in 2000, the basic ideas of tax reform are: reduce the tax burden without reducing the national fiscal revenue; simplifying the tax system and reducing taxes, we should expand the tax base and strengthen tax collection and management to improve the tax collection rate; the tax reform is combined with the reform of the budget system. Mutual promotion. The main measures are: reduce the enterprise profit tax rate; change the natural person income tax rate from the original progressive tax rate to the unified tax rate of 13%. In terms of the banking system, after Putin took office, he actually did two things: first, the rectification work, the main measure is to clean up the banks, which belongs to the liquidation exit of the hopeless rescue and can not continue to operate, and the operating licenses of 250 banks have been revoked; second, to improve the banking system to solve the problem of the excessive number of small banks. Serious shortage of capital, chaotic financial order, participation of banks in speculation and money laundering, monopoly position of state-owned commercial banks in the financial market and poor bank reputation.

From the perspective of improving the international environment for economic development, Putin emphasizes the active integration of the Russian economy into the world economy. Due to the improvement of foreign economic relations, Russia’s foreign trade volume increased significantly, from $149.9 billion in 2000 to $577.9 billion in 2007, and exports increased from $105.5 billion to $354.4 billion during the same period.

In addition, in order to eliminate the socio-economic interference of the oligarchs formed during the Yeltsin period, on July 28, 2000, Putin convened a meeting of more than 30 oligarchs in the Kremlin, which had three chapters: law-abiding business, paying taxes in accordance with the law and not being involved in politics.

But it must be noted that the economic growth of this period also has a lot to do with the sharp rise in the price of raw material products such as energy.” After the September 11th incident, the price of crude oil and other raw materials rose sharply on the international market, which played a great role in the Russian economy. The price of crude oil on the international market rose from $15.9 per barrel in 1999 to $64.28 in 2007. Although oil prices surged and plummeted in 2008, the average annual price was still as high as $90.68 per barrel. The rise in crude oil prices on the international market has contributed a high contribution to Russia’s GDP growth. For example, in 2000, Russia exported 145 million tons of oil, an increase of 7.1% over the previous year, but oil export revenue increased by 78.8%, to $25.33 billion over the previous year. After eight years in power, oil and gas exports brought trillions of dollars in revenue. This also reflects the structural characteristics of Russia’s over-reliance on energy and the vulnerability of its economy.

In addition, it should be pointed out here that the rapid growth of the Russian economy during this period is based on the sharp contraction of the economy during the Yeltsin period, and it is a restorative growth.

2008 to 2020: ups and downs of economic development

On March 2, 2008, Russia held a presidential election. On May 7, Medvedev was sworn in as president. On May 8, the State Duma passed the appointment of Putin’s prime minister with a high vote, and the “Maip Combination” was formed. Putin, who has been prime minister for four years, returned to the Kremlin as president in 2012 and Medvedev as prime minister. In 2018, Putin was re-elected president, and Medvedev continued to be prime minister. Over the years, Russia has experienced a period of alternating combinations of “Mapu” and Pumei.

During this period, Russia’s economic development has twists and turns, and the growth rate has slowed down, and even negative growth has occurred in the middle. This recession is caused by many factors.

In terms of the international economic environment, as soon as Medvedev came to power in 2008, he encountered the global financial crisis caused by the subprime mortgage crisis in the United States, which had a huge impact on the Russian economy. In 2009, Russia experienced its first negative economic growth since 2000 and was a major decline, with GDP falling 7.9% year-on-year. In the following years, the growth rate was also low. During this period, the global economy is still shrinking, which has a clear negative impact on Russia, which is deeply integrated into the world economy. For example, Russia’s foreign trade volume fell by 37% in 2009 compared with the previous year. As a result of the Crimea problem in Ukraine in 2014, Russia was subject to economic sanctions from the Western countries led by the United States. GDP growth that year was only 0.7% that year, and the growth in 2015 was negative.

From 2009 to 2018, Russia’s GDP grew at an average annual rate of only 0.9%, which is much lower than the average annual growth rate of 3.2% of the world economy. Russia’s total economy has shrunk from a peak of $2.29 trillion in 2013 to $1.69 trillion in 2019, accounting for 2.0% of the global economy, and has fallen from 6th to 11th.

In addition to external influences, when analyzing the reasons for the recession, low growth and even negative growth of the Russian economy during this period, we should also see the structural problems of the Russian economy itself.

How to ensure stable and sustainable growth of the Russian economy and improve economic efficiency and quality, whether Putin or Medvedev, have repeatedly stressed the need to solve the transformation of the Russian economy from the current resource-based to the innovative. Putin made it clear in his “Development Strategy for Russia to 2020” on February 8, 2008 before leaving the second president that innovative development of the economy is Russia’s “only option” and that “innovation must fundamentally develop faster than we have today”; increase Add human capital investment, “to transition to the road of innovation and development, first of all, to invest in human capital on a large scale”; actively develop high and new technologies, because this is the navigator of the “knowledge economy”; adjust the economic structure. Although Russia has made some achievements in recent years, the economy has not shaken off its inertial compliance. Depending on the development of the version of energy raw materials, this situation will inevitably lead to Russia’s continuous reliance on imports of goods and technologies as a vassal to raw materials in the world economy.

The above transformation is necessary, but the development process is slow. For a considerable period of time, Russia has been unable to escape its dependence on raw materials such as energy. In the 20 years since Putin came to power, he has not solved the problem of economic transformation from resource-based to innovative. In 1999, Russia’s oil and gas exports accounted for 39.7% of the total exports, and in 2018, exports of “resource-based products” accounted for 83% of the total exports.

There are also some basic conditions affecting the stable development of the economy, such as the serious decline of manufacturing and processing industries. In 1990 before the collapse of the Soviet Union, energy and raw materials accounted for 33.5% of the industry and 66.5% in manufacturing. By 2014, the proportion of the two was reversed, with 67.2% of the former and 32.8%. Today, the vast majority of products in Russia’s industrial sector depend on imports, which is why on November 5, 2020, Russian Prime Minister Mishustin signed a government decree on the Development Strategy for the Machine Tool Industry by 2035, requiring that the industrial products of machine tools be 2.4 times higher than in 2035 compared with 2019. . Due to the backward processing industry, Russia exports a large amount of grain while importing a large amount of food and food raw materials. In addition, there are also problems such as slow development of small and medium-sized enterprises, failure to change backward and inefficient economic growth patterns, backward infrastructure and outdated equipment. The solution of these problems not only takes time, but also requires a lot of investment, and the lack of funds is also a major economic problem Russia is currently facing.

Economic development prospects

In January 2020, Medvedev resigned and Mikhail Mishustin became Prime Minister, ending the alternating combination of “Mapu” and “Pumei”.

Entering 2020, the Russian economy is facing the double attack of the coronavirus epidemic and the collapse of oil prices before the economic situation improves significantly. From January to September, GDP fell 3.6%, industrial production fell 2.9%, fixed asset investment fell 6.6%, transportation industry fell 5.9%, retail merchandise sales fell 4.8%, residential labor expenditure fell 18.7%, and the number of unemployed increased from 3.482 million in January to 477 in September. 7,000 people, an increase of 41.7% over the same period last year, the unemployment rate is 6.3%, and foreign trade volume is down 18.2%, including exports falling 24.4%, imports falling 7.9%, and inflation is 3%.

In the face of the serious impact of the epidemic on the economy, Russia’s main policy is to implement active epidemic prevention measures to control the development of the epidemic; on the other hand, to implement loose fiscal policies to provide financial support for economic recovery and development. The Russian Ministry of Finance has set aside a total of 1.4 trillion rubles to support and rescue Russian enterprises affected by the epidemic. Russia has now determined that the total funds used to support the economic response to the crisis have exceeded 5% of Russia’s GDP in 2019. First of all, we should support the industries hardest hit by the epidemic. In addition, it is determined that small and medium-sized enterprises should be the focus of support. Measures include reducing the social insurance rate payable by small and medium-sized enterprises from 30% to 15%, suspending the collection of taxes payable by small and medium-sized enterprises for six months, and providing preferential loans to small and medium-sized enterprises.

From the perspective of long-term economic development policy, Russia will continue to implement import substitution policy, strengthen the development of manufacturing industry, take various measures such as continuous interest rate cuts and benchmark interest rates, stimulate the investment enthusiasm of enterprises, and provide financial support for large-scale infrastructure projects.

Considering the economic impact of the epidemic, Russia has to adjust its economic development goals. On July 21, 2020, Russian President Putin signed the decree on the National Development Goals of the Russian Federation by 2030. This presidential decree puts forward the following five goals for Russia’s development in the next decade. First, to maintain the population and maintain the health and well-being of the people. Efforts should be made to increase the population, improve the physical quality of citizens and extend life expectancy. Second, ensure that citizens realize their self-worth and obtain opportunities to display their talents. The purpose is to improve the quality of human capital and make Russia’s scientific research level among the top ten leading countries in the world by establishing an efficient education system. Third, provide a comfortable and safe living environment for the people. This is mainly achieved by increasing investment in infrastructure such as housing, and driving growth through investment in infrastructure construction such as housing. Fourth, improve economic efficiency and clearly propose that in the next decade, while maintaining macroeconomic stability, Russia should ensure that the specific goals are: GDP growth should exceed the world average; the growth rate of residents’ income and pensions should not be lower than the inflation rate; the real growth of fixed asset investment will not be less than 70% by 2030, non- The real growth of energy and non-raw material exports is not less than 70%; the number of employees of small and medium-sized enterprises has increased to 25 million. Fifth, develop the digital economy and realize the digitalization of major industries in the economic and social fields.

The July presidential decree signed by Putin this time does not require Russia to become the fifth largest economic economy by 2024, as the presidential decree on Russia’s National Strategic Development Mission and Goals to 2024 signed on May 17, 2018, hours after the swearing-in of the seventh president. Relief body. Obviously, this goal is basically impossible to achieve.

According to the forecast of the Russian Central Bank, Russia’s economy will decline by 4% to 6% in 2020. The forecast of the Russian Ministry of Economic Development is 5%, and the growth rate will be 3.3%, 3.4% and 3.0% respectively from 2021 to 2013. The author believes that it is difficult to predict the development prospects of Russia’s economy, and it is difficult to grasp both the epidemic and the development trend of oil prices. As far as the epidemic is concerned, Russia is far from completely under control. Even if the epidemic in Russia stabilizes, if the epidemic situation in the world, especially in some major countries, cannot be controlled, the Russian economy will also be affected. As for oil prices, because the situation of oversupply in the international market not only continues in the short term, but also is larger than expected, so oil prices cannot rise significantly.

Most of the measures we have taken in Russia’s response to the epidemic mentioned earlier are temporary emergency measures and cannot solve the basic conditions that support economic development. The structural factors that hinder Russia’s economic development are difficult to change in the short term. In addition, in the short and medium term, the international factors that are not conducive to Russia’s economic development have not decreased. Russia’s relations with the West, especially the United States, are difficult to improve in the short term. Economic sanctions against Russia will continue to live, which greatly affects the introduction of foreign capital. Judging from the world economic situation, the recovery is still weak and not optimistic. In recent years, international economic policy has become increasingly politicized, which is highlighted by the development of trade protectionism, competitive monetary policy and exchange rate policy.

In short, the Russian economy has entered a period of structural recession, during which the economy is growing at a low speed, which varies from year to year. In some years, the growth may be slightly higher, but the possibility of negative growth in individual years is not ruled out. It should be said that the economic situation in Russia is grim today and in the coming period, and there is no basic conditions for sustained, stable and rapid economic growth.