Growth without Sustainability

But there are still considerable shortcomings in implementing comprehensive reforms of the economic structure by the Russian leadership. Corruption and inefficient administrative structures, including the increasing influence of the state on the economy, have hindered fundamental reforms. The high price of oil has contributed to delaying the readiness for more reforms in the short term. The Russian leadership did not use the years of growth to set important reform impulses. The major challenges for the Russian economic policy are to diversify its production structure, to stimulate private investment in all areas of the economy, and to increase public funding for infrastructure, the health system and education.

In terms of the international framework, Russia intends to integrate itself in all important economic institutions and be on equal footing with other members. At the same time, for instance in the energy sector, Russia aims to either renegotiate the rules or, like with the WTO-accession, slow down the process. This is due to the increasing misgivings of parts of the elite about international integration, the interest to negotiate better conditions and the delaying of important economic reforms. The intervention of politics in the economy linked with a high regulation requirement undermines the build-up of trust in Russian economic policies.

The global financial crisis has uncovered the shortcomings of the Russian economic structure and shows how Russia is dependent on international developments. Russia is affected by the crisis in two ways: first, the international credit markets have been closed off to Russian companies; additionally, the price of oil declined from its peak of $ 147 to less than $ 50 per barrel. Thus, the two Achilles heels of the Russian economic system have been hit: a significant dependency on foreign credits and a high international price of oil. If the Russian leadership is not able to resolve the problems emerging with the financial crisis, it can lose its legitimacy. Russia faces substantial modernization challenges in its domestic policy and will continue to depend largely on external factors.