The Russian economy under Putin is characterized as a transition economy since the fall of the socialist system in the beginning of the 1990’s.

In principle the Russian economy is a market economy adhering to the basic freedom of enterprise and market based pricing mechanisms but the characterization of a transition economy refers to the many features that constitute the inherited socialist institutions still influencing the economy’s operation. Putin as Prime Minster is expected to call the shots in Russia just as forcibly as during his eight year highly successful term as President.

The new Russian economy is booming, and economic statistics indicate that despite what many people believe, the booming economy really is not solely dependent upon oil or military sales. I think Putin read Niel Boortz’s book, because the adaptation of the fair tax represents the largest economic factor in the change in the turn of the Russian economy. The Russian economy is rich in natural resources and human capital, and Russian firms have grown more efficient at exploiting them. Foreign debt is low, reserves are high, and Russia can bridge whatever deficits arise by borrowing abroad at low rates.

The Russian economy is still in the mode of energy-dominated economic growth, while the government’s role in the economy is increasing. No doubt, the Russian economy does have an important energy sector. This has raised concern in academic circles as to whether Russia may be to some degree overly affected by the growth rate in other developed nations. However, Russia is rich in natural resources and is the largest or one of the largest producers of numerous raw materials including petroleum, natural gas, diamonds, gold, copper, manganese, uranium, silver, graphite, and platinum. Russia is the second largest steel producer in the world, after Japan, and has an enormous timber reserve. All of this bodes well for the Russian economy in a growing world of natural resource shortages.

Prior to Putin taking charge Russia was not just a sinking ship. It was a sinking ship with all hands employed either bailing more water on board or puncturing additional holes in the hull. Now after eight years of Putin rule Russia has paid off its foreign debt. The oil fund ($157bn) and foreign reserves ($470bn) are enough to deflect anything short of financial cataclysm. Russia attained considerable growth of forex reserves, that at present exceed the current external sovereign debt and amount to $150 bn. The availability of such reserves provides leverage for managing the national debt (which has reduced dramatically in the recent years), the federal budget as a whole, and the tax burden on the economy.

Russia is the second largest oil exporter in the world, behind Saudi Arabia. And with 40 per cent of the world natural gas reserves, the Russian Federation will remain a major exporter of energy products for years to come. If a world wide recession comes, oil prices will surely fall, if not now, then in several months’ time, but is unlikely in an age of peak oil that oil prices would approach anywhere near even year ago levels. Strong demand continues to come from India and China. China depends less and less on export sales to keep its economy booming and India has never exported much other than services. Domestic growth will probably keep their economies strong even if the US experiences a severe downturn.

Russia provides 50% of the funding for the coordinating institutions of the CIS. Russian society is suffering from chronic reform fatigue after enduring countless initiatives that produced many losers and just a handful of winners. Among Russians, stability and order are the preferred options, suggesting the possibility of yet another reformist experiment in Russia. Putin, still in control as Prime Minister, may opp for harsh authoritarianism.

The development and day-to-day use of information technologies in Russia plays a key role in the creation of efficient and transparent government all the way to the municipal level. It is a cornerstone in building tax, customs and banking systems. Developments since the financial crisis of 1998 are reviewed, including growth performance and macro-economic management. There is an analysis of the nature and extent of Russian economic dependence on exports of oil and gas and the direction towards state control since 2003 is described.

Banks have never played an orthodox role as financial institutions in the Russian economy. After 1992 and the breakup of the Gosbank monopoly, the new private banks focused on speculative activities, linked at first to the high level of inflation, and then to the high real interest rates provided by the well-known GKO state bonds, instead of building an active intermediary position between savers and borrowers and transforming the quality and the duration of financial resources. Banks are central components of ROC activity both as a primary target for extortion and as the main vehicle for extensive money laundering. These activities are initiated on a transnational basis as evidenced by the appearance of ROC activity in Cyprus, the Caribbean Islands, and other offshore banking centers the world over.

Following the crisis of 1998 and the careful government of President Putin the Russian economy is one of the few in the world that can record encouraging growth. More and more Russian people now have disposable income. With oil prices at $125 a barrel and probably heading even higher Russia will become ever stronger and more influential in world affairs as it rebuilds its military and adds more foreign exchange to its treasury.

America will probably find that Russia will once again become a super power. Like it or not America will have to adjust its policies on many issues, including Iran, one of Russia’s major clients.

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