Wayzata World Factbook 1996/The World Factbook - 1996 Edition - Wayzata Technology (3079) (1996).iso/mac/TEXT/backgrd/russia.bkh

Text File | 1996-01-11 | 24KB | 423 lines

U.S. Department of State
Background Notes:  Russia, October 1995
Bureau of Public Affairs


October 1995
Official Name:   Russian Federation

ECONOMY (CONTINUED)
Income.  Disposable income increased by 10% in 1993.  With the sharp
rise in consumer purchasing power, Russians spend a lower proportion of
their income for foodstuffs and essentials.  Consumers make 70% of their
purchases in the private sector to take advantage of better selection,
quality, and service.  Food availability and real per capita income have
improved or stabilized, but social welfare problems, such as increased
crime and health care shortages, are serious.  The gap between rich and
poor appears to have widened; about 20% of the population lives below
the official poverty level.

Law.  In 1993, Russia passed a new bankruptcy law prepared with the
assistance of the American Bar Association.  But lack of legislation in
most areas of economic activity is a pressing issue.  Taxation and
business regulation are unpredictable, and legal enforcement of private
business agreements is almost nonexistent.  Many government decisions
affecting business have been inconsistent.  An growing crime wave has
swept over Russia and has increased costs for local and foreign
businesses.

Natural Resources.  With the mineral-packed Ural mountains and the vast
oil, gas, coal, and timber reserves of Siberia and the Russian Far East,
Russia is rich in natural resources. Unfortunately, most are located in
remote and climatically unfavorable areas that are difficult to develop
and are far from Russian ports.  Oil and gas continue to be the main
sources of hard currency.  Russia is a leading producer and exporter of
minerals and gold and all major fuels.  The Russian fishing industry is
the world's fourth-largest-- behind Japan, the U.S., and China.  Russia
accounts for one-quarter of the world's production of fresh and frozen
fish and for about one-third of world output of canned fish.

Industry.  Russia is one of the most industrialized of the former Soviet
republics.  Besides its resource-based industries, it has developed
large manufacturing capacities, notably in machinery.  Russia inherited
most of the defense industrial base of the Soviet Union; converting it
to civilian use is the major goal of the present government.  The share
of defense-industrial output going to civil purposes reportedly
increased from 40% in 1988 to 80% in 1993, a result of sharp cut-backs
in weapons production.

Agriculture.  In 1993, agriculture accounted for about 13% of GDP and
about 13% of total employment.  Russia comprises roughly three-quarters
of the territory of the NIS, yet has relatively little fertile soil for
its great size since most of its territory is under permafrost and
unsuited for agriculture.  Droughts generally afflict Russia every three
years.  Northern areas concentrate mainly on livestock farming, and the
southern parts and western Siberia produce grain.  Agricultural
production, chiefly grain and potatoes, accounts for more than one-half
of that for the entire NIS.  Radical reform of agriculture comprises one
of the pillars of post-communist transformation in Russia.

Investment.  Cumulative foreign investment in Russia is estimated at $5
billion to $7 billion, with U.S. investment making up as much as $2
billion of the total.  In 1994 alone, total foreign investment was $3
billion to $4 billion (this includes both direct and portfolio
investment).  Although the ruble crisis in October 1994 and other
political and economic disruptions seemed to have a negative effect on
portfolio investment, direct investment remained stable.  Major areas of
interest for U.S. investors have been in energy, food processing,
telecommunications, and automobiles.  Joint ventures between Russian and
foreign firms account for an increasing share of Russian output and
trade and are concentrated in the services sector.

Trade.  By mid-1994, Russia had liberalized domestic trade and
dismantled virtually all non-tariff restrictions on foreign trade.
State-subsidized imports were phased out in 1994, as was the system of
quotas and licensing for exports except for a few commodities involving
international commitments.  To bolster future foreign trade, Russia
applied in June 1993 to the General Agreement on Tariffs and Trade
(GATT)--predecessor to the World Trade Organization (WTO).  Import
tariffs rose from zero to an average 7% to 8% in 1993; a tariff
averaging 15% was introduced in July 1994.

Russia has been running a trade surplus since 1993, due both to
increased exports (of commodities such as petroleum and aluminum) and
lower imports (including grain).  It has increased official foreign
exchange reserves from $4.5 billion in January 1994 to about $7 billion
as of September 1994.  Capital flight remains a serious problem.

Russia's trade is dominated by Europe; Germany and the countries of
Central and Eastern Europe hold the lead.  Japan and China are Russia's
largest Asian trading partners; the U.S. has overtaken Cuba in trade
with the Americas.  Trade with the other NIS states is overwhelmingly in
industrial products; Ukraine and Kazakhstan are by far the most
important trade partners.  Russia continues to supply large amounts of
energy to the NIS states at a discount, although it has tied government
credits to debt repayment.  Eurasian markets are of vital importance--
supplies sustain vulnerable Russian industries, and the countries are on
Russian transportation lines to hard-currency customers in Europe and
beyond.

Debt.  Russia assumed 61% of the Soviet Union's debt in 1991.  Total
foreign debt is more than $80 billion, $45 billion of which is owed to
the Paris Club, $25 billion to the London Club, and the remainder to
other countries and suppliers.  The government has rescheduled its
official debt payment obligations but has not yet done so with some of
its commercial creditors.  In 1993, the U.S. and other bilateral
creditors rescheduled about $15 billion of Russia's debt service
payments.  Paris Club creditors agreed to a one-year rescheduling of
$7.1 billion of debt service in 1994.  The Russian Government says that
it is owed $140 billion by other countries but acknowledges that much of
what was lent by the Soviet Union will never be repaid.  Russia expects
to receive $1.5 billion from its debtors in 1994, primarily in payments
in kind.

Banking.  The Russian commercial banking system has rapidly progressed
in the five years of its existence.  The largest banks are approaching
Western standards, offering a full range of services.  Many of the 2,000
registered commercial banks are small--only 10% have a capital base
exceeding $1 million--and 300 are authorized to deal with foreign
currency accounts.  Sixty Russian banks are members of the Society for
Worldwide Interbank Financial Telecommunication, and others have
correspondent relationships with U.S. and other foreign banks that allow
for electronic fund transfers between Russia and other countries.   In
1993, Citibank and Chase Manhattan Bank became the first U.S. banks to
receive a general license to open a subsidiary in Russia; there are now
12 Western banks with operating licenses.  Currency inconvertibility--
which used to be a major concern for Western traders, investors, and
tourists--largely  has been overcome by the opening of currency
exchanges and direct interbank trading through Russia.

Health.  Russia is experiencing serious public health problems whose
causes are related to the country's social and economic changes and a
health care system inherited from the Soviet era.  The life expectancy
from birth has declined, and the leading causes of death are
cardiovascular disease, cancer, accidents, and respiratory conditions.
With falling immunization coverage, preventable illnesses such as
diphtheria and tuberculosis are on the rise; plans are underway to
develop domestic production of vaccines as well as other
pharmaceuticals.  Environmental conditions for many Russians are also a
health concern.  These factors, along with underfunding and poor health
care management, are contributing to the public health problems in
Russia.

Multilateral Assistance.  Since 1990, the international community has
worked together to provide economic assistance on a scale unparalleled
since the end of World War II.  The United States is the largest source
of technical assistance.  The International Monetary Fund (IMF), World
Bank, and European Bank for Reconstruction and Development have large-
scale lending and investment programs in Russia amounting to billions of
dollars.  The Group of Seven industrialized nations also has committed
more than $12 billion in bilateral financing.  The European Union and
individual donor countries are also providing substantial technical
assistance and financial support for programs in the NIS.

Environmental Issues.  The Russian Government inherited serious
environmental problems.  Air pollution and inadequate supplies of
uncontaminated water affect the health of the population and contribute
to increased infant mortality rates.  Radioactive pollution--generated
by military nuclear testing and unsafe nuclear power plants, institutes,
and laboratories--is especially dangerous.  In cooperation with the
international community, Russia is working to develop sound
environmental policies.  It has established a Ministry of Environment
and has introduced a pollution-fee system by which taxes are levied on
air and water emissions and solid waste disposal, with the resulting
revenues channeled to environmental protection activities.  Russia also
aims to develop regional cooperation among the NIS on transborder
environmental problems.

========================================
Highlights From 1994 of Russian Infrastructure Projects

International Space Station.  Russia and the U.S. engaged in a joint
flight program to lead to the development of the inter-national space
station.  Key elements include:  U.S. astronauts on board the Mir space
station for approximately two years; up to 10 U.S. shuttle docking
missions; and $400 million contract for the provision of hardware, joint
technology, and on-board research support by U.S. firms.

Sakhalin Island Development.  The Marathon, McDermott, Mitsui,
Mitsubishi, and Shell Sakhalin II consortium planned to develop large
oil and gas fields offshore Sakhalin Island in a $10 billion project.

Timan Pechora Exploration.  Texaco was involved in a $2.5 billion
greenfield oil exploration project in the Timan Pechora region of the
Komi republic.

Civil Aviation.  Russian manufacturers were using Western engines and
avionics to bring the Russian civil fleet up to world standards.

Civil Shipbuilding and Harbor Modernization.  Russia sought to modernize
the St. Petersburg, Vladivostok, and other ports. Russian shipyards
built oil tankers, fishing trawlers, cargo ships, and pleasure craft.

Defense Conversion.  The Russian Government sought to turn Russian
defense firms into the major suppliers of consumer and industrial goods.
The defense sector has been producing nearly all of Russia's televisions
and other electronic equipment, plus most washing machines and vacuum
cleaners.

Telecommunications.  U.S. West was involved in a $40 million upgrade of
Russian telecommunications, involving 50,000 kilometers of fiber and
microwave lines and 50 digital exchanges in 50 Russian cities.
========================================

FOREIGN RELATIONS

On December 27, 1991, Russia assumed the seat formerly held by the
Soviet Union in the UN Security Council.  Russia also is a member of the
Organization for Security and Cooperation in Europe (OSCE) and the North
Atlantic Cooperation Council.  It signed the NATO Partnership for Peace
initiative on June 22, 1994.  On June 24, 1994, Russia and the European
Union (EU) signed a partnership and cooperation agreement that provides
for, inter alia, political dialogue at all levels; possible talks in
1998 on a free-trade area; EU support for eventual Russian accession to
the GATT (now WTO); and EU assistance on improving nuclear safety,
restructuring state-run enterprises, and developing economic efficiency.

Russia has played a constructive role in mediating international
conflicts through its cosponsorship of the Middle East peace process and
its support of UN and multilateral initiatives in the Persian Gulf,
Cambodia, Angola, the former Yugoslavia, and Haiti.  Russia has affirmed
its respect for international law and OSCE principles.  It has accepted
UN and/or OSCE involvement in instances of regional conflict on its
periphery, including the  dispatch of observers to Georgia, Moldova,
Tajikistan, and Nagorno-Karabakh.

DEFENSE

Since the breakup of the U.S.S.R., the Russians have discussed
rebuilding a viable, cohesive fighting force out of the remaining parts
of the former Soviet armed forces.  A new Russian military doctrine,
promulgated in November 1993, implicitly acknowledges the contraction of
the old Soviet military into a regional military power without global
imperial ambitions.  In keeping with its emphasis on the threat of
regional conflicts, the doctrine calls for a Russian military that is
smaller, lighter, and more mobile, with a higher degree of
professionalism and with greater rapid deployment capability.  Such a
transformation has proven difficult.

The challenge of this task has been magnified by difficult economic
conditions in Russia, which have resulted in reduced defense spending.
This has led to training cutbacks and severe shortages of housing and
other social amenities for military personnel, with a consequent
lowering of morale, cohesion, and fighting effectiveness.  The evidently
poor combat performance of the Russian armed forces in the Chechen
conflict in part reflects these breakdowns.

The current actual strength of the Russian armed forces probably falls
between 1.4 and 1.6 million, with authorized strength several hundred
thousand higher.  Weapons production in Russia has fallen dramatically
over the past few years; between 1988 and 1993, it fell by at least 50%
for virtually every major weapons system.  Weapons spending in 1992 was
approximately 75% less than in 1988.

About 70% of the former Soviet Union's defense industries are located in
the Russian Federation.  A large number of state-owned defense
enterprises are on the brink of collapse as a result of cuts in weapons
orders and insufficient funding to shift to production of civilian
goods, while at the same time trying to meet payrolls.  Many defense
enterprises are now preparing for privatization, some with the help of
private U.S. firms (see "Military Issues").

The Russian military, for the foreseeable future, will play a role in
determining Russia's internal stability and in formulating national
policies.  This role will be crucial to Russia in proceeding with
political and economic reform and establishing a durable pattern of
cooperation with the West.

========================================
U.S. Support for Russian Democracy and Development

The U.S. Government has been in the forefront of delivering
privatization assistance to Russia since October 1992.

U.S. Agency for International Development (USAID).  USAID has the
principal responsibility for implementing technical assistance to Russia
and the other New Independent States.  In FY 1994, USAID devoted over
$1.6 billion in assistance to help Russia develop democratic
institutions and transform its state-controlled economy to one based on
market principles.  Programs are active in the areas of privatization
and private sector development, agriculture, energy, housing reform,
health, environmental protection, economic restructuring, independent
media, elections, and the rule of law.  The U.S. recently pledged $30
million to help Russia in its fight against crime and to support a new
legal infrastructure.

U.S. Export-Import Bank (Eximbank).  Eximbank approved about $2 billion
in loans, loan guarantees, and insurance for transactions in Russia from
1991 to March 1995.  Of this total, more than $1 billion was approved
under its Oil and Gas Framework Agreement.

U.S. Overseas Private Investment Corporation (OPIC).  OPIC provides
loans, loan guarantees, and commercial and political investment
insurance to American companies investing in Russia.  As of FY 1994,
OPIC approved more than $720 million in investment financing and over
$1.4 billion in insurance for more than 40 projects.  The total
investment value of these projects is more than $2.2 billion.  OPIC has
reserved $500 million in finance and insurance assistance for Russia and
other NIS defense conversion efforts.

Trade and Development Agency (TDA) and Department of Commerce.  TDA has
approved more than $45 million in funding for feasibility studies on 114
investment projects.

Commerce Department.  American Business Centers have been opened in St.
Petersburg, Nizhnevartovsk, Novosibirisk, Volgograd, Nizhny Novgorod,
Yekaterinburg, Khaborovsk, Vladivostok, and Chelyabinsk to help U.S. and
Russian companies do business in Russia.  An additional center in
Yuzhno-Sakhalinsk was planned for opening in 1995.  The Commerce
Department has also established a Special American Business Internship
Program (SABIT) in Russia, and an NIS business information system.

Agricultural Credit.  For 1995, the U.S. has authorized $30 million in
export credit guarantees in connection with sales of U.S. agricultural
commodities under a private banking sector program in Russia as part of
the Commodity Credit Corporation's Export Credit Guarantee Program (GSM-
102).

U.S. Information Agency (USIA).  USIA continues diverse programs in
public administration, communications, business, and education in
Russia.  By 1995, more than 20,000 Russians will have participated in
U.S.-sponsored exchanges.

U.S. Department of Agriculture.  A variety of technical assistance
activities are coordinated by USDA under the Emerging Democracies
Program.  In March 1994, a U.S.-Russia Joint Commission for Agribusiness
and Rural Development was established to channel funds generated by the
sale of donated U.S. commodities to support private and social
initiatives in rural communities throughout Russia.

Eurasia Foundation.  The Foundation--a private, non-profit, grant-making
organization supported by U.S. funds--has disbursed more than $24
million in small grants to U.S. and indigenous organizations promoting
reform in Russia and the other NIS.
========================================

U.S.-RUSSIA RELATIONS

With the end of the Cold War and the reemergence of a Russian state,
U.S. relations with Moscow have evolved rapidly.  At meetings in
Vancouver, Tokyo, Moscow, and Washington, DC, Presidents Clinton and
Yeltsin laid the basis for a U.S.-Russian partnership.  Progress has
been made in several important fields, particularly in arms control.
While disagreements persist on individual issues, the U.S. and Russia
now consult on major issues of mutual and international interest.

The United States actively supports Russian efforts to develop
democratic institutions and a free market economy.  At summit meetings
in Vancouver, Moscow, and Washington, DC, Presidents Clinton and Yeltsin
reaffirmed the fundamental importance of U.S.-Russian cooperation and
agreed on a variety of bilateral initiatives to expand economic
relations between the two countries and promote democratic and market
reforms in Russia.

U.S. assistance to Russia funds a variety of programs in the following
key areas:  private-sector development, privatization and enterprise
restructuring, trade and investment, democracy initiatives, energy,
health care, housing, and environment.  Humanitarian assistance
represented a major portion of U.S. aid during the initial transition
phase in Russia, when there was a pressing need for food, medicine, and
other essential commodities.  U.S. efforts now concentrate on technical
assistance and direct support for trade and investment.

Congress has appropriated substantial resources to support U.S.
assistance to Russia and the other NIS.  In September 1993, Congress
approved a special one-time assistance package of $2.45 billion aimed at
helping all the NIS during the difficult period immediately following
the fall of communism and the breakup of the Soviet Union.
Approximately $1.6 billion of that amount was allocated for programs in
Russia.  In August 1994, Congress passed a $850 million legislative
package for assistance to the NIS in FY 1995, of which about 40% was
targeted for Russia.  Assistance activities in FY 1995 were to continue
ongoing programs to strengthen democratic practices and promote the
development of private enterprise and market institutions.  There was to
be a new emphasis in the 1995 program on direct support for U.S.-Russian
trade and investment, which has been growing with the successful
implementation of market reforms.  The 1995 program also was to include
new activities to expand cooperation on strengthening the rule of law
and fighting the rise in crime.

U.S. obligations under all assistance programs total $3.65 billion, of
which more than $2.6 billion has been expended.  Approvals for the
financing of investment and non-food exports under U.S. commercial
programs in Russia exceed $2.3 billion.

Bilateral Economic Issues

Gore-Chernomyrdin Commission.  Under the leadership of Vice President
Gore and Prime Minister Chernomyrdin, the U.S. and Russia are working
to advance bilateral cooperation through eight working committees known
collectively as the Gore-Chernomyrdin Commission.  The committees
address issues in the fields of science and technology, business
development, space, energy policy, environmental protection, health,
defense diversification, and agriculture.  The Commission last met in
Moscow in June 1995 and will again meet in January 1996.

Trade and Investment.  At the September 1994 summit in Washington, DC,
Presidents Clinton and Yeltsin agreed to place new emphasis on expanding
trade and investment.  They signed a joint statement on a "Partnership
for Economic Cooperation," which will serve as a framework for reducing
barriers to expanded economic cooperation.  President Clinton also
announced that $100 million in FY 1995 assistance to the NIS would be
used to provide direct support for trade and investment through the
Overseas Private Investment Corporation (OPIC), the Trade and
Development Agency (TDA),  and the Commerce Department (see box on "U.S.
Support for Russian Democracy and Development").

U.S.-Russia trade was about $5.8 billion in 1994.  The U.S.-Russia
Business Development Committee (BDC) was established June 1992 in Lisbon
and is co-chaired on the U.S. side by Commerce Secretary Ronald Brown.
The BDC helps remove impediments to trade and investment.  The 1992
U.S.-Russia trade agreement provides mutual most-favored-nation status
and offers intellectual property rights protection.  In 1992, the two
countries also signed treaties on the avoidance of double taxation and
on bilateral investment.  The Russian parliament, however, has not
ratified the bilateral investment treaty.

In October 1993, Russia received generalized system of preferences (GSP)
status under which more than $440 million of Russian goods will benefit.
The U.S. supports Russia's application to become a member of the World
Trade Organization.