Russia Economic and Financial Policy Between 1999 and 2007

Russia Economic and Financial Policy Between 1999 and 2007

To cope with the effects of the heavy crisis in the financial markets that hit the Russia at the end of the 20th century, the government gave greater impetus to economic policies, in order to ensure the country sustained growth (which was marked by the expansion of internal consumption and, starting from 2003, of investments), the consolidation of public finances and a significant containment of inflationary pressure. A favorable external situation, in terms of rising oil prices and energy products in general, and the exceptional weakness of the ruble against other currencies following the 1998 devaluation, made it possible to carry out a maneuver aimed at creating an economic environment favorable to development.

Particular effort was spent in the effort to consolidate the state accounts. Thanks to the increase in the prices of exported products and to greater rigor in the management of public finances, especially before 2005, the state accounts showed a positive budget balance starting from 2000. This success was also achieved through the creation of a stabilization fund – financed by budget surpluses – able to offset, at least in part, the negative effects on public accounts of any adverse fluctuations in prices and prices on international markets. The government made significant progress in the reform of the tax system, in the administration of public accounts and in the process of gradually conferring fiscal responsibilities on local administrations, although with regard to the latter remained widespread informal control by the central authorities. Despite the planned increases in transfers to local administrations and the promise to double the real value of pensions and public wages over the three-year period 2005-2007, the government wanted to keep faith with the commitment not to increase the incidence of expenditure on GDP. A more careful and efficient use of public money and the start of a complex plan to fight corruption helped him in this enterprise, which nevertheless remained unfinished, albeit tightened up starting in 2004 with rules to protect the principles of good administration and with use of international cooperation. In addition, the authorities continued the work of reorganizing the tax system, with the aim of creating a more equitable and simple system and streamlining tax collection operations.

To promote the modernization of the country’s entrepreneurial fabric, the authorities tried to guarantee certain conditions necessary for the expansion of the activity of private companies. The development of a healthy competitive environment, a declared goal since 2003, however, the greater in the fight against unfair competition, the timely control of compliance with advertising legislation. The revision of the structure of the state apparatus also contributed to the improvement of the context in which the companies operated, which led, among other things, to the reorganization of the competences between the various authorities (central and territorial) for the protection of competition, to the consolidation of the framework regulation, to the reduction of administrative barriers that weighed heavily on the activity of companies.

To cope with the extreme vulnerability of the country’s economy, whose growth was excessively linked to the dynamics of the quantities and prices of energy resources exported, the government launched a process that in the long term should have ensured economic diversification. Furthermore, to encourage the development and diffusion of technological progress, it ensured greater legal protection for investors and initiated the restructuring of sectoral research centers.

Aware that the energy sector would still have maintained a central role in the development of the Russian economy, the government undertook a complex restructuring of the sector in 2003, with the aim of gradually introducing greater competitive forces, opening up the production and energy market to other companies. supply of electricity, while maintaining the monopoly of distribution. Furthermore, as a minimum guarantee to attract domestic and foreign private investors, the development of a clear, transparent and stable framework of laws and regulations was envisaged, the actual application of which however remained limited, also due to an obsolete judicial system.

Another important sector, considering the immense extension of the country’s territory, was that of rail transport, whose restructuring – started with the ten-year program 2001-2010 – envisaged in a first phase the redefinition of the organizational and legal framework, and subsequently the entry of private operators, which would have allowed the complete privatization of the sector. The restructuring program also contemplated improving accessibility, safety and quality of service, reducing costs and tariffs, and defining a unified management system.

Especially starting from 2002, the government took decisive steps to improve the banking sector: operators were asked for greater transparency in the performance of activities towards customers (in particular, legislation was introduced relating to deposit insurance), banking supervision was strengthened and important steps were taken to harmonize the financial system with international supervisory standards.

The development of social policies remained among the priorities of the government, which undertook to remove the enormous disparities in the living conditions that still existed within the Russia and, from an international point of view, between the Russia and the others. developed economies. In order to raise the level of professional qualification of human capital, the government carried out a more careful and transparent management of funds for education, ensuring a more equitable distribution. The reform of the social security system – started in 2002-03- was the object of particular attention by the authorities, due to the enormous implications it would have in terms of sustainability of fiscal policies and development of the financial market. Among its priorities, the reform included the consolidation of the capacity, reliability and transparency in the management of the social security system, the strengthening of the supervisory functions by public and private bodies on the management of pensions, the dissemination of information on the private social security system. However, the insufficient development of the financial market and the lack of appropriate financial investment instruments hampered the start of the reform. The health system was also the object of attention from the authorities, who intended to gradually improve its efficiency and guaranteeing access to the service to the truly needy classes of the population. Finally, with the aim of ensuring that the wealth produced by the economy was more distributed to workers, the government promoted the adoption of contractual instruments capable of guaranteeing greater flexibility to the labor market, and at the same time tried to protect the rights of busy with the signing of social agreements.

During the period 1999-2005, monetary policy was oriented towards the achievement of two fundamental objectives: to contain inflation and to keep the appreciation of the real exchange rate under control. During the period under consideration, the Central Bank was forced to intervene on the foreign exchange market to curb the increase in the value of the ruble against other currencies, while at the same time keeping the effects of these interventions on the domestic market under observation, with the aim of moderating the consequent increase. of prices. However, during 2006 the central authority limited its intervention and the ruble appreciated slightly.

Commercial policy was conditioned by the negotiations for the entry of Russia into the WTO (World Trade Organization) and, more generally, by the desire to favor its integration into the world trading system. Consequently, particular attention was paid to the role that local authorities had to assume in promoting trade, while the use of behaviors inspired by principles of transparency in trade with foreign goods and services was favored.

Russia Economic and Financial Policy Between 1999 and 2007