Facts on Russia

Map of Russia and its major cities

During the 19th century, more territorial acquisitions were made in Europe and Asia. Defeat in the Russo-Japanese War of 1904-05 contributed to the Revolution of 1905, which resulted in the formation of a parliament and other reforms. Repeated devastating defeats of the Russian army in World War I led to widespread rioting in the major cities of the Russian Empire and to the overthrow in 1917 of the imperial household. The Communists under Vladimir LENIN seized power soon after and formed the USSR. The brutal rule of Joseph STALIN (1928-53) strengthened Communist rule and Russian dominance of the Soviet Union at a cost of tens of millions of lives.

The Soviet economy and society stagnated in the following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an attempt to modernize Communism, but his initiatives inadvertently released forces that by December 1991 splintered the USSR into Russia and 14 other independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the social, political, and economic controls of the Communist period. In tandem with its prudent management of Russia's windfall energy wealth, which has helped the country rebound from the economic collapse of the 1990's, the Kremlin in recent years has overseen a recentralization of power that has undermined democratic institutions. Russia has severely disabled the Chechen rebel movement, although sporadic violence still occurs throughout the North Caucasus.

Note: administrative divisions have the same names as their administrative centers (exceptions have the administrative center name following in parentheses)

Over the last five years, fixed capital investments have averaged real gains greater than 10% per year and personal incomes have achieved real gains more than 12% per year. During this time, poverty has declined steadily and the middle class has continued to expand. Russia has also improved its international financial position since the 1998 financial crisis. The federal budget has run surpluses since 2001 and ended 2006 with a surplus of 9% of GDP.

Over the past several years, Russia has used its stabilization fund based on oil taxes to prepay all Soviet-era sovereign debt to Paris Club creditors and the IMF. Foreign debt has decreased to 39% of GDP, mainly due to decreasing state debt, although commercial debt to foreigners has risen strongly. Oil export earnings have allowed Russia to increase its foreign reserves from $12 billion in 1999 to some $315 billion at yearend 2006, the third largest reserves in the world. During PUTIN's first administration, a number of important reforms were implemented in the areas of tax, banking, labor, and land codes. These achievements have raised business and investor confidence in Russia's economic prospects, with foreign direct investment rising from $14.6 billion in 2005 to an estimated $30 billion in 2006.

In 2006, Russia's GDP grew 6.6%, while inflation was below 10% for the first time in the past 10 years. Growth was driven by non-tradable services and goods for the domestic market, as opposed to oil or mineral extraction and exports. Russia has signed a bilateral market access agreement with the US as a prelude to possible WTO entry, and its companies are involved in global merger and acquisition activity in the oil and gas, metals, and telecom sectors. Despite Russia's recent success, serious problems persist. Oil, natural gas, metals, and timber account for more than 80% of exports and 32% of government revenues, leaving the country vulnerable to swings in world commodity prices.

Russia's manufacturing base is dilapidated and must be replaced or modernized if the country is to achieve broad-based economic growth. A 20% appreciation of the ruble over 2005-06 has made attracting additional investment more difficult. The banking system, while increasing consumer lending and growing at a high rate, is still small relative to the banking sectors of Russia's emerging market peers. Political uncertainties ahead of the elections, corruption, and widespread lack of trust in institutions continue to dampen domestic and foreign investor sentiment.

From 2002 to 2005, the government bureaucracy increased by 17% - 10.9% in 2005 alone. President PUTIN has granted more influence to forces within his government that desire to reassert state control over the economy. Russia has made little progress in building the rule of law, the bedrock of a modern market economy. The government has promised additional legislation to make its intellectual property protection WTO-consistent, but enforcement remains problematic.