South-Western College Publishing - Economics  
Putin In, Policy Out?
Subject Economic Policy
Topic International Finance
Key Words Foreign Investment, Foreign Debt, Economic Growth
News Story

Vladimir V. Putin, the Acting President of Russia after the resignation of Boris Yeltsin, has made many foreign policy statements but has been noticeably silent about his economic views. The Russian economy is clearly in trouble. Russia's foreign debt is enormous and foreign investors are avoiding Russia in part because of reputed widespread cronyism and favoritism. Poverty and unemployment are at very high levels. Many Russians believe that Mr. Putin's economic policies will be an improvement over Mr. Yeltsin's. They hope that Putin will apply the same resoluteness to the nation's economic problems that he has shown in the war in Chechnya.

Because of Mr. Putin's silence on economic matters, there is a great deal that is unknown about his views. The U.S. Russia Business Council believes that Putin is a strong proponent of a market economy. Whether that includes welcoming foreign investment or favoring economic nationalism is not certain. Three days before he replaced Yeltsin, Putin issued a broad policy statement which alleged that the success of Russia's economic transformation will be based upon the same economic policies such as a sound tax code, banking reform and foreign investment, found in other countries.

President Putin has made some changes since he came to office. He has just signed an order that could increase exports of platinum, an important generator of foreign currency. In an effort to increase Russian holding of foreign currency, he also ordered Russian exporters to repatriate 100 percent of revenues earned abroad, an increase from the current 75 percent level. Other changes include a suspension of the export tax on aluminum and the imposition of restrictions on oil companies that are delinquent in their taxes. The clearest indication of Putin's economic policy will be seen in his cabinet appointments should he win the Russian election this spring.

(Updated February 1, 1999)

Questions
1. Explain the major differences between a market and a command economy.
2. Economic inefficiency characterized virtually all of Russia industry. What happens in a market economy to inefficient firms? How?
3. What are some of the difficulties in transforming a command-based economy to a market economy?
Source Neela Banerjee, "Russian Chief Keeps Plans for Economy Under Wraps;" The New York Times, January 7, 2000.

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