Area: 17 million sq. km. (6.5 million sq. mi.); about 1.8 times the size of the United States.
Cities: Capital--Moscow (pop. 8.3 million). Other cities--St. Petersburg (4.6 million), Novosibirsk (1.4 million), Nizhniy Novgorod (1.3 million).
Terrain: Broad plain with low hills west of Urals; vast coniferous forest and tundra in Siberia; uplands and mountains (Caucasus range) along southern borders.
Climate: Northern continental, from subarctic to subtropical.
Nationality: Noun and adjective--Russian(s).
Population (2002 est.): 145 million.
Annual growth rate (2001 est.): -0.35%.
Ethnic groups: Russian 81%, Tatar 4%, Ukrainian 3%, other 12%.
Religion: Russian Orthodox, Islam, Judaism, Roman Catholicism, Protestant, Buddhist, other.
Language: Russian (official); more than 140 other languages and dialects. Education (total pop.): Literacy--98%.
Health: Life expectancy (2001 est.)--62 yrs. men, 73 yrs. women.
Work force (85 million): Production and economic services--84%; government--16%.
Independence: August 24, 1991.
Constitution: December 12, 1993.
Branches: Executive--president, prime minister (chairman of the government). Legislative--Federal Assembly (Federation Council, State Duma). Judicial--Constitutional Court, Supreme Court, Supreme Court of Arbitration, Office of Procurator General.
Political parties: Shifting. The 1999 elections were contested by Conservative Movement of Russia, Russian All-Peoples Union, Women of Russia, Stalin Bloc-For the U.S.S.R., Yabloko, Working Russia, Peace-Labor-May, Bloc of Nikolayev and Federov, Spiritual Heritage, Congress of Russian Communities, Peace and Unity Party, Party for the Protection of Women, Unity Interregional Movement, Social Democrats, Movement in Support of the Army, Zhirinovskiy's Bloc, For Civic Dignity, Fatherland-All Russia, Communist Party, Russian Cause, All-Russian Political Party of the People, Union of Right Forces, Our Home is Russia, Socialist Party of Russia, Party of Pensioners and the Russian Socialist Party.
Subdivisions: 21 autonomous republics and 68 autonomous territories and regions.
Suffrage: Universal at 18 years.
Economy (2002 est.)
GDP: $287.7 billion (purchasing power parity estimated at $1.27 trillion in 2002).
Growth rate (2002): 4.3%.
Per capita GDP: $2,320 (purchasing power parity estimated at $8,800 in 2002).
Natural resources: Petroleum, natural gas, timber, furs, precious and nonferrous metals.
Agriculture: Products--Grain, sugarbeets, sunflower seeds, meat, dairy products.
Industry: Types--Complete range of manufactures: automobiles, trucks, trains, agricultural equipment, advanced aircraft, aerospace, machine and equipment products; mining and extractive industry; medical and scientific instruments; construction equipment.
Trade (2002): Exports (f.o.b.)--$107.2 2 billion: petroleum and petroleum products, natural gas, woods and wood products, metals, chemicals. Major markets--EU, NIS, China, Japan. Imports (f.o.b.)--$60.96 billion: machinery and equipment, chemicals, consumer goods, medicines, meat, sugar, semi-finished metal products. Major partners--EU, U.S., NIS, Japan, China. U.S. exports (f.a.s)--$2.40 billion. Principal U.S. exports (2002)--oil/gas equipment, poultry, inorganic chemicals, tobacco, aircraft, medical equipment, autos/parts. U.S. imports (customs value)--$6.82 billion. Principal U.S. imports (2002)--oil, aluminum, chemicals, platinum, iron/steel, fish and crustaceans, knit apparel, nickel, nickel, wood, and copper.
Russia's area is about 17 million square kilometers (6.5 million sq. mi.). It remains the largest country in the world by more than 2.5 million square miles. Its population density is about 22 persons per square mile (9 per sq. km.), making it one of the most sparsely populated countries in the world. Its population is predominantly urban.
Most of the roughly 150 million Russians derive from the Eastern Slavic family of peoples, whose original homeland was probably present-day Poland. Russian is the official language of Russia and an official language in the United Nations. As the language of writers such as Pushkin, Tolstoy, Dostoevsky, Chekov, and Solzhenitsyn, it has great importance in world literature.
Russia's educational system has produced nearly 100% literacy. About 3 million students attend Russia's 519 institutions of higher education and 48 universities. As a result of great emphasis on science and technology in education, Russian medical, mathematical, scientific, and space and aviation research is generally of a high order. The number of doctors in relation to the population is high by American standards, although medical care in Russia, even in major cities, is far below Western standards.
The Russian labor force is undergoing tremendous changes. Although well-educated and skilled, it is largely mismatched to the rapidly changing needs of the Russian economy. Millions of Russian workers are underemployed. Unemployment is highest among women and young people. Many Russian workers compensate by working other part-time jobs. Following the collapse of the Soviet Union and the economic dislocation it engendered, the standard of living fell dramatically. The standard of living has been on the rise since 1999, but almost one-third of the population still does not meet the minimum subsistence level for money income. The Russian Ministry of Economic Development and Trade estimates that the percentage of people under the subsistence level will gradually decrease by 23%-25% in the period up to 2005.
Moscow is the largest city (population 8.3 million) and is the capital of the Federation. Moscow continues to be the center of Russian Government and is increasingly important as an economic and business center. Its cultural tradition is rich, and there are many museums devoted to art, literature, music, dance, history, and science. It has hundreds of churches and dozens of notable cathedrals; it has become Russia's principal magnet for foreign investment and business presence.
St. Petersburg, established in 1703 by Peter the Great as the capital of the Russian Empire, was called Petrograd during World War I and Leningrad after 1924. In 1991, as the result of a city referendum, it was renamed St. Petersburg. Under the Tsars, the city was Russia's cultural, intellectual, commercial, financial, and industrial center. After the capital was moved back to Moscow in 1918, the city's political significance declined, but it remained a cultural, scientific, and military-industrial center. The Hermitage is one of the world's great fine arts museums. Finally, Vladivostok, located in the Russian Far East, is becoming an important center for trade with the Pacific Rim countries.
Human experience on the territory of present-day Russia dates back to Paleolithic times. Greek traders conducted extensive commerce with Scythian tribes around the shores of the Black Sea and the Crimean region. In the third century B.C., Scythians were displaced by Sarmatians, who in turn were overrun by waves of Germanic Goths. In the third century A.D., Asiatic Huns replaced the Goths and were in turn conquered by Turkic Avars in the sixth century. By the ninth century, Eastern Slavs began to settle in what is now Ukraine, Belarus, and the Novgorod and Smolensk regions.
In 862, the political entity known as Kievan Rus was established in what is now Ukraine and lasted until the 12th century. In the 10th century, Christianity became the state religion under Vladimir, who adopted Greek Orthodox rites. Consequently, Byzantine culture predominated, as is evident in much of Russia's architectural, musical, and artistic heritage. Over the next centuries, various invaders assaulted the Kievan state and, finally, Mongols under Batu Khan destroyed the main population centers except for Novgorod and Pskov and prevailed over the region until 1480.
In the post-Mongol period, Muscovy gradually became the dominant principality and was able, through diplomacy and conquest, to establish suzerainty over European Russia. Ivan III (1462-1505) was able to refer to his empire as "the Third Rome" and heir to the Byzantine tradition, and a century later the Romanov dynasty was established under Tsar Mikhail in 1613.
During Peter the Great's reign (1689-1725), Russia began modernizing, and European influences spread in Russia. Peter created Western-style military forces, subordinated the Russian Orthodox Church hierarchy to the Tsar, reformed the entire governmental structure, and established the beginnings of a Western-style education system. His introduction of European customs generated nationalistic resentments in society and spawned the philosophical rivalry between "Westernizers" and nationalistic "Slavophiles" that remains a key dynamic of current Russian social and political thought.
Peter's expansionist policies were continued by Catherine the Great, who established Russia as a continental power. During her reign (1762-96), power was centralized in the monarchy, and administrative reforms concentrated great wealth and privilege in the hands of the Russian nobility.
Napoleon failed in his attempt in 1812 to conquer Russia after occupying Moscow; his defeat and the continental order that emerged following the Congress of Vienna (1814-15) set the stage for Russia and Austria-Hungary to dominate the affairs of eastern Europe for the next century.
During the 19th century, the Russian Government sought to suppress repeated attempts at reform from within. Its economy failed to compete with those of Western countries. Russian cities were growing without an industrial base to generate employment, although emancipation of the serfs in 1861 foreshadowed urbanization and rapid industrialization late in the century. At the same time, Russia expanded across Siberia until the port of Vladivostok was opened on the Pacific coast in 1860. The Trans-Siberian Railroad opened vast frontiers to development late in the century. In the 19th century, Russian culture flourished as Russian artists made significant contributions to world literature, visual arts, dance, and music.
Imperial decline was evident in Russia's defeat in the unpopular Russo-Japanese war in 1905. Subsequent civic disturbances forced Tsar Nicholas II to grant a constitution and introduce limited democratic reforms. The government suppressed opposition and manipulated popular anger into anti-Semitic pogroms. Attempts at economic reform, such as land reform, were incomplete.
1917 Revolution and the U.S.S.R.
The ruinous effects of World War I, combined with internal pressures, sparked the March 1917 uprising, which led Tsar Nicholas II to abdicate the throne. A provisional government came to power, headed by Aleksandr Kerenskiy. On November 7, 1917, the Bolshevik Party, led by Vladimir Lenin, seized control and established the Russian Soviet Federated Socialist Republic. Civil war broke out in 1918 between Lenin's "Red" army and various "White" forces and lasted until 1920, when, despite foreign interventions, the Bolsheviks triumphed. After the Red army conquered Ukraine, Belorussia, Azerbaijan, Georgia, and Armenia, a new nation was formed in 1922, the Union of Soviet Socialist Republics.
The U.S.S.R. lasted 69 years. In the 1930s, tens of millions of its citizens were collectivized under state agricultural and industrial enterprises. Millions died in political purges, the vast penal and labor system, or in state-created famines. During World War II, as many as 20 million Soviet citizens died. In 1949, the U.S.S.R. developed its own nuclear arsenal.
First among its political figures was Lenin, leader of the Bolshevik Party and head of the first Soviet Government, who died in 1924. In the late 1920s, Josif Stalin emerged as General Secretary of the Communist Party of the Soviet Union (CPSU) amidst intraparty rivalries; he maintained complete control over Soviet domestic and international policy until his death in 1953. His successor, Nikita Khrushchev, served as Communist Party leader until he was ousted in 1964. Aleksey Kosygin became Chairman of the Council of Ministers, and Leonid Brezhnev was made First Secretary of the CPSU Central Committee in 1964. But in 1971, Brezhnev rose to become "first among equals" in a collective leadership. Brezhnev died in 1982 and was succeeded by Yuriy Andropov (1982-84), Konstantin Chernenko (1984-85), and Mikhail Gorbachev, who resigned as Soviet President on December 25, 1991. On December 26, 1991, the U.S.S.R. was formally dissolved.
The Russian Federation
After the December 1991 dissolution of the Soviet Union, the Russian Federation became its largest successor state, inheriting its permanent seat on the UN Security Council, as well as the bulk of its foreign assets and debt.
Boris Yeltsin was elected President of Russia by popular vote in June 1991. By the fall of 1993, politics in Russia reached a stalemate between President Yeltsin and the parliament. The parliament had succeeded in blocking, overturning, or ignoring the President's initiatives on drafting a new constitution, conducting new elections, and making further progress on democratic and economic reforms.
In a dramatic speech in September 1993, President Yeltsin dissolved the Russian parliament and called for new national elections and a new constitution. The standoff between the executive branch and opponents in the legislature turned violent in October after supporters of the parliament tried to instigate an armed insurrection. Yeltsin ordered the army to respond with force to capture the parliament building (known as the White House).
In December 1993, voters elected a new parliament and approved a new constitution that had been drafted by the Yeltsin government. Yeltsin has remained the dominant political figure, although a broad array of parties, including ultra-nationalists, liberals, agrarians, and communists, have substantial representation in the parliament and compete actively in elections at all levels of government.
In late 1994, the Russian security forces launched a brutal operation in the Republic of Chechnya against rebels who were intent on separation from Russia. Along with their opponents, Russian forces committed numerous violations of human rights. The Russian Army used heavy weapons against civilians. Tens of thousands of them were killed and more than 500,000 displaced during the course of the war. The protracted conflict, which received close scrutiny in the Russian media, raised serious human rights and humanitarian concerns abroad as well as within Russia.
After numerous unsuccessful attempts to institute a cease-fire, in August 1996 the Russian and Chechen authorities negotiated a settlement that resulted in a complete withdrawal of Russian troops and the holding of elections in January 1997. The Organization for Security and Cooperation in Europe (OSCE) played a major role in facilitating the negotiation. A peace treaty was concluded in May 1997. Following an August 1999 attack into Dagestan by Chechen separatists and the September 1999 bombings of two apartment buildings in Moscow, the federal government launched a military campaign into Chechnya. Russian authorities accused the Chechen government of failing to stop the growth of the rebels activities and failure to curb widespread banditry and hostage-taking in the republic. By spring 2000, federal forces claimed control over Chechen territory, but fighting continues as rebel fighters regularly ambush Russian forces in the region.
GOVERNMENT AND POLITICAL CONDITIONS
In the political system established by the 1993 constitution, the president wields considerable executive power. There is no vice president, and the legislative is far weaker than the executive. The president nominates the highest state officials, including the prime minister, who must be approved by the Duma. The president can pass decrees without consent from the Duma. He also is head of the armed forces and of the national security council.
Duma elections were on December 19, 1999 and presidential elections March 26, 2000. While the Communist Party won a narrow plurality of seats in the Duma, the pro-government party Unity and the centrist Fatherland-All Russia also won substantial numbers of seats in the legislature. In April 2002, the Communist Party lost eight top posts when the State Duma voted to reassign the chairmanships of nearly one-third of its committees, leaving greater power in the hands of centrist and liberal factions. In the presidential election of March 2000, Vladimir Putin, named Acting President following the December 31 resignation of Boris Yeltsin, was elected in the first round with 53% of the vote. Both the presidential and parliamentary elections were judged generally free and fair by international observers.
Russia is a federation, but the precise distribution of powers between the central government and the regional and local authorities is still evolving. The Russian Federation consists of 89 components, including two federal cities, Moscow and St. Petersburg. The constitution explicitly defines the federal government's exclusive powers, but it also describes most key regional issues as the joint responsibility of the federal government and the Federation components.
Russia's judiciary and justice system are weak. Numerous matters which are dealt with by administrative authority in European countries remain subject to political influence in Russia. The Constitutional Court was reconvened in March 1995 following its suspension by President Yeltsin in October 1993. The 1993 constitution empowers the court to arbitrate disputes between the executive and legislative branches and between Moscow and the regional and local governments. The court also is authorized to rule on violations of constitutional rights, to examine appeals from various bodies, and to participate in impeachment proceedings against the president. The July 1994 Law on the Constitutional Court prohibits the court from examining cases on its own initiative and limits the scope of issues the court can hear.
In the past few years, the Russian Government has begun to reform the criminal justice system and judicial institutions, including the reintroduction of jury trials in certain criminal cases. Despite these efforts, judges are only beginning to assert their constitutionally mandated independence from other branches of government.
The Duma passed a Criminal Procedure Code and other judicial reforms during its 2001 session. These reforms help make the Russian judicial system more compatible with its Western counterparts and are seen by most as an accomplishment in human rights. The reforms have reintroduced jury trials in certain criminal cases and created a more adversarial system of criminal trials that protect the rights of defendants more adequately.
Russia's human rights record remains uneven and worsened in some areas. Despite significant improvements in conditions following the end of the Soviet Union, problem areas remain. In particular, the Russian Government's military policy in Chechnya is a cause for international concern. Government forces have killed numerous civilians through the use of indiscriminate force in Chechnya. There have been credible allegations of violations of international human rights and humanitarian law by Russian forces. Chechen groups also have committed abuses as well as acts of terrorism. Although the government has made progress in recognizing the legitimacy of international human rights standards, the institutionalization of procedures to safeguard these rights has lagged. Implementation of the constitutional provisions for due process and timely trials, for example, has made little progress. There are indications that the law is becoming an increasingly important tool for those seeking to protect human rights; after a lengthy trial and eight separate indictments, environmental whistleblower Alexander Nikitin was acquitted of espionage charges relating to publication of material exposing hazards posed by the Russian Navy's aging nuclear fleet. On September 13, 2001, the Presidium of the Supreme Court dismissed the prosecution's last appeal against the December 29, 1999 acquittal of Nikitin. Nonetheless, serious problems remain.
The judiciary is often subject to manipulation by political authorities and is plagued by large case backlogs and trial delays. Lengthy pretrial detention remains a serious problem. Russia has the highest prison population rate in the world, at 685 per 100,000. There are credible reports of beating and torturing of inmates and detainees by law enforcement and correctional officials. Prison conditions fall well below international standards. In 2000, human rights Ombudsman Oleg Mironov estimated that 50% of prisoners with whom he spoke claimed to have been tortured. Human rights groups estimate that about 11,000 inmates and prison detainees die annually, most because of overcrowding, disease, and lack of medical care. In 2001, President Putin pronounced a moratorium on the death penalty. However, there are reports that the Russian Government might still be violating promises they made upon entering the European Council, especially in terms of prison control and conditions.
Human rights groups are very critical of cases of Chechens disappearing in the custody of Russian officials. Russian authorities have introduced some improvements, including better access to complaint mechanisms, the formal opening of investigations in most cases, and the introduction of two decrees requiring the presence of civilian investigators and other nonmilitary personnel during all largescale military operations and targeted search and seizure operations. Human rights groups welcome these changes but claim that most abuses remain uninvestigated and unpunished.
Efforts to institutionalize official human rights bodies have been mixed. In 1996, human rights activist Sergey Kovalev resigned as chairman of the Presidential Human Rights Commission to protest the government's record, particularly the war in Chechnya. Parliament in 1997 passed a law establishing a "human rights ombudsman," a position that is provided for in Russia's constitution and is required of members of the Council of Europe, to which Russia was admitted in February 1996. The Duma finally selected Duma deputy Oleg Mironov in May 1998. A member of the Communist Party, Mironov resigned from both the Party and the Duma after the vote, citing the law's stipulation that the Ombudsman be nonpartisan. Because of his party affiliation, and because Mironov had no evident expertise in the field of human rights, his appointment was widely criticized at the time by human rights activists. International human rights groups operate freely in Russia, although the government has hindered the movements and access to information of some individuals investigating the war in Chechnya.
The Russian Constitution provides for freedom of religion and the equality of all religions before the law as well as the separation of church and state. Although Jews and Muslims continue to encounter prejudice and societal discrimination, they have not been inhibited by the government in the free practice of their religion. High-ranking federal officials have condemned anti-Semitic hate crimes, but law enforcement bodies have not effectively prosecuted those responsible. The influx of missionaries over the past several years has led to pressure by groups in Russia, specifically nationalists and the Russian Orthodox Church, to limit the activities of these "nontraditional" religious groups. In response, the Duma passed a new, restrictive, and potentially discriminatory law in October 1997. The law is very complex, with many ambiguous and contradictory provisions. The law's most controversial provisions separates religious "groups" and "organizations" and introduce a 15-year rule, which allows groups that have been in existence for 15 years or longer to obtain accredited status. Senior Russian officials have pledged to implement the 1997 law on religion in a manner that is not in conflict with Russia's international human rights obligations. Some local officials, however, have used the law as a pretext to restrict religious liberty.
The constitution guarantees citizens the right to choose their place of residence and to travel abroad. Some big-city governments, however, have restricted this right through residential registration rules that closely resemble the Soviet-era "propiska" regulations. Although the rules were touted as a notification device rather than a control system, their implementation has produced many of the same results as the propiska system. The freedom to travel abroad and emigrate is respected although restrictions may apply to those who have had access to state secrets. Recognizing this progress, since 1994, the U.S. President has found Russia to be in full compliance with the provisions of the Jackson-Vanik Amendment.
Principal Government Officials
Prime Minister--Mikhail Kasyanov
The Russian Federation maintains an embassy at 2650 Wisconsin Ave., NW, Washington, DC 20007 (tel. 202-298-5700) and a consular section at 2641 Tunlaw Road, Washington DC (tel. 202-939-8907/8913/8918). Russian consulates also are located in New York, San Francisco, and Seattle.
The Russian economy underwent tremendous stress as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid decline and steep (60%) in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.
Russia, however, appears to have weathered the crisis relatively well. The following year real GDP increased by the highest percentage since the fall of the Soviet Union, the ruble stabilized, inflation was moderate, and investment began to increase again. Russia is making progress in meeting its foreign debts obligations. During 2000-01, Russia not only met its external debt services but also made large advance repayments of principal on IMF loans but also built up Central Bank reserves with government budget, trade, and current account surpluses. Russia remains current on its foreign debt. Service of the official foreign debt service amounted to about $14 billion in 2002. Large current account surpluses have brought a rapid appreciation of the ruble over the past several years. The appreciation affect has been reduced by channeling some of this money into a government stabilization fund which will help cushion Russia from price shocks should energy prices remain low for an extended period. The ruble appreciation of the past several years has given back much of the terms-of-trade advantage that Russia gained when the ruble fell by 60% during the debt crisis. Oil and gas dominate Russian exports, so Russia remains highly dependent upon the price of energy. Loan and deposit rates at or below the inflation rate inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise.
In 2003, the debt will rise to $19 billion due to higher Ministry of Finance and Eurobond payments. However, $1 billion of this has been prepaid, and some of the private sector debt may already have been repurchased. Russia continues to explore debt swap/exchange opportunities.
In the June 2002 G8 Summit, leaders of the eight nations signed a statement agreeing to explore cancellation of some of Russia's old Soviet debt to use the savings for safeguarding materials in Russia that could be used by terrorists. Under the proposed deal, $10 billion would come from the United States and $10 billion from other G-8 countries over 10 years.
Gross Domestic Product
Russia's GDP, estimated at $287.9 billion at 2002 exchange rates, increased by 4.3% in 2002 compared to 2001. High oil prices, relatively low inflation (15.1%), and strict government budget led to the growth, while real ruble appreciation slowed it. During 2002, the unemployment rate fell from 9.0% to 7.1%. Combined unemployment and underemployment may exceed those figures. Industrial output in 2002 grew by 3.7% compared to 2001.
The exchange rate stabilized in 1999; after falling from 6.5 rubles/dollar in August 1998 to about 25 rubles/dollar by April 1999, one year later it had further depreciated only to about 28.5 rubles/dollar. As of January 2003, the exchange rate was 31.9 rubles/dollar, down from 29.2 rubles/dollar the year before. After some large spikes in inflation following the August 1998 economic crisis, inflation has declined steadily. The consumer price index (CPI) rose 15.1% during 2002, slightly below the 18.6% inflation rate of the previous year but above the inflation target of 12% set in the 2002 budget. The Central Bank's accumulation of foreign reserves drove inflation higher, and that trend is expected to continue.
Central and local government expenditures are about equal. Combined they come to about 38% of GDP. Fiscal policy has been very disciplined since the 1998 debt crisis. The overall budget surplus for 2002 was 2.3% of GDP. Much of this growth, which exceeded most expectations for the third consecutive year, was driven by revenue from higher oil prices. Analysts remain skeptical that high rates of economic growth will continue, particularly since Russia's planned budgets through 2005 assume that oil prices will steadily increase. Low oil prices would mean that the Russian economy would not achieve its projected growth. However, high oil prices also would have negative economic effects, as they would cause the ruble to continue to appreciate and make Russian exports less competitive.
Russia's population is falling. Lower birth rates and higher death rates reduced Russia's population at a 0.5% annual rate during the 1990s. By comparison, although in many developed countries birth rates have dropped below the long-term population replacement rate, in only a few countries is the population actually declining. Population decline is particularly drastic in Russia, with higher death rates, especially among working-age males due to poverty, abuse of alcohol and other substances, disease, stress, and other afflictions. Russians generally disapprove of permanent or temporary immigration of workers from countries other than the Russian-speaking former Soviet states that might help solve economic problems brought on by its declining population.
Russia and Ukraine are said to have the highest growth rates of HIV infection in the world. In Russia HIV seems to be transmitted mostly by intravenous drug users sharing needles, although data is very uncertain. Data from the Federal AIDS Center shows that the number of registered cases is doubling every 12 months and by November 2002 had reached 220,000 persons. When this number is adjusted to include people who have not been tested for the disease, estimates of the actual number of infected persons vary from 1-2 million. The high growth rate of AIDS cases will have negative economic consequences. Investment will suffer from the diversion of private and government funds to AIDS treatment. The problems of population aging will be magnified, especially since about 60% of infected individuals in Russia are between 20 and 30 years of age.
Lack of legislation and, where there is legislation, lack of effective law enforcement, in many areas of economic activity is a pressing issue. During 2000 and 2001, changes in government administration increased the power of the central government to compel localities to enforce laws. Progress has been made on pension reform and reform of the electricity sector. Nonetheless, taxation and business regulations are not very predictable, and legal enforcement of private business agreements, especially outside of Moscow and St. Petersburg, is weak. Attitudes left over from the Soviet period will take many years to overcome. Local officials in some areas interfere in business. Government decisions affecting business have often been arbitrary and inconsistent, and corruption remains a serious problem. Crime has increased costs for both local and foreign businesses. On the positive side, Russian businesses are increasingly turning to the courts to resolve disputes. The passage of an improved bankruptcy code in January 1998 was one of the first steps. In 2001, the Duma passed legislation for positive changes within the business and investment sector; the most critical legislation was a deregulation package. A new flat tax boosted income tax collections considerably. This trend in legislation continued through 2002 when the new corporate tax code went into effect.
The mineral-packed Ural Mountains and the vast oil, gas, coal, and timber reserves of Siberia and the Russian Far East make Russia rich in natural resources. However, most such resources are located in remote and climactically unfavorable areas that are difficult to develop and far from Russian ports. Oil and gas exports continue to be the main source of hard currency, but declining energy prices have hit Russia hard. Russia is a leading producer and exporter of minerals, gold, and all major fuels. The Russian fishing industry is the world's fourth-largest, behind Japan, the United States, and China. Russia accounts for one-quarter of the world's production of fresh and frozen fish and about one-third of world output of canned fish. Natural resources, especially energy, dominate Russian exports. Ninety percent of Russian exports to the United States are minerals or other raw materials.
Russia is one of the most industrialized of the former Soviet republics. However, years of very low investment have left much of Russian industry antiquated and highly inefficient. 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, so armaments are the single-largest manufactured goods export category for Russia. Efforts have been made with varying success over the past few years to convert defense industries to civilian use.
Russia comprises roughly three-quarters of the territory of the former Soviet Union but has relatively little area suited for agriculture because of its arid climate and inconsistent rainfall. Northern areas concentrate mainly on livestock, and the southern parts and western Siberia produce grain. Restructuring of former state farms has been an extremely slow process. The new land code passed by the Duma in 2002, which makes it easier for Russians to buy and sell farmland, should speed restructuring and attract new domestic investment to Russian agriculture. Foreigners are not allowed to own farmland in Russia. Private farms and garden plots of individuals account for over one-half of all agricultural production.
During 2002, cumulative foreign investment increased by 20%. This was mostly due to increases in loans and trade credits since the "other" category accounted for $15.3b out of $19.8b in new 2002 foreign investment in Russia. Russia does poorly in the international competition for foreign investment. Russian investment in their own country also is low. Indeed, $15-$20 billion of Russian capital leaves Russia every year for want to attractive investment opportunities at home. Over the medium to long term, Russian companies that do not invest to increase their competitiveness will find it harder either to expand exports or protect their recent domestic market gains from higher quality imports.
Foreign direct investment, which includes contributions to starting capital and credits extended by foreign co-owners of enterprises, rose slightly in 1999 and 2000, but decreased in 2001 by about 10%. FDI rose during 2002 by 20% to a total of $20.4 billion. Foreign portfolio investment, which includes shares and securities, decreased dramatically in 1999, but has experienced significant growth since then. During 2002 , foreign portfolio investment grew by 20% to reach $1.47 billion in January 2003. Capital flight seems to have slowed, although very large trade surpluses owing to high energy prices are pushing it up again. Inward investment from Cyprus and Gibraltar, two important channels for capital flight from Russia in recent years, suggest that some Russian money is returning home.
A significant drawback for investment is the banking sector, which lacks the resources, the capability, and the trust of the population that it would need to attract substantial savings and direct it toward productive investments. Russia's banks contribute only about 3% of overall investment in Russia. While ruble lending has increased since the October 1998 financial crisis, loans are still only 45% of total bank assets. The Central Bank of Russia reduced its refinancing rate five times in 2000, from 55% to 25%, signaling its interest in lower lending rates. Interest on deposits and loans are often below the inflation rate providing little incentive for depositors. Many Russians prefer to keep their money outside the banking sector. The poorly developed banking system makes it difficult for entrepreneurs to raise capital as well as to permit capital transfer from a capital-rich sector such as energy to capital-poor sectors such as agriculture and manufacturing and to diversify risk. Banks still perceive commercial lending as risky, and some banks are inexperienced with assessing credit risk.
Money on deposit with Russian banks represents only 7% of GDP. Sberbank receives preferential treatment from the state and holds 73% of all bank deposits. It also is the only Russian bank that has a federal deposit insurance guarantee. Sergei Ignatiev recently replaced Vikto Gerashchenko as Chairman of the Russian Central Bank. Under his leadership, necessary banking reforms, including stricter accounting procedures and federal deposit insurance, are likely to be implemented although the switch to International Accounting Standards was recently pushed back from 2004 to 2007.
During 2002, Russian goods exports rose 5% to $107b while imports grew 12% to $60.9b. World prices continue to have a major effect on export performance, since commodities, particularly oil, natural gas, metals, and timber comprise 80% of Russian exports. Russian GDP growth and the surplus/deficit in the Russian Federation state budget are closely linked to world oil prices.
The combination of import duties, a 20% value-added tax and excise taxes on imported goods (especially automobiles, alcoholic beverages, and aircraft) and an import licensing regime for alcohol still restrain demand for imports. Frequent and unpredictable changes in customs regulations and great variations in enforcement practices from one customs terminal to another also have created problems for foreign and domestic traders and investors. Uncertainty over Russian veterinary regulations cut U.S. poultry exports to Russia by 40% during 2002. Quotas to be introduced for poultry, pork, and beef in spring 2003 will likely keep U.S. poultry exports below their 2001 peak.
Russia has taken important steps to become a full partner in the world's principal political groupings. 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 (NACC). It signed the NATO Partnership for Peace initiative on June 22, 1994. On May 27, 1997, NATO and Russia signed the NATO-Russia Founding Act, which provides the basis for an enduring and robust partnership between the Alliance and Russia--one that can make an important contribution to European security architecture in the 21st century. This agreement was superseded by the NATO-Russia Council that was agreed at the Reykjavik Ministerial and unveiled at the Rome NATO Summit in May 2002. On June 24, 1994, Russia and the European Union (EU) signed a partnership and cooperation agreement.
Russia has played an important role in helping mediate international conflicts and has been particularly actively engaged in trying to promote a peace following the conflict in Kosovo, although it announced it would withdraw its peacekeeping contingent from Kosovo by the summer of 2003. Russia is a co-sponsor of the Middle East peace process and supports UN and multilateral initiatives in the Persian Gulf, Cambodia, Angola, the former Yugoslavia, and Haiti. Russia is a founding member of the Contact Group and (since the Denver Summit in June 1997) a member of the G-8. In November 1998, Russia joined the Asia-Pacific Economic Cooperation Forum (APEC). Russia has contributed troops to the NATO-led stabilization force in Bosnia and has affirmed its respect for international law and OSCE principles. It has accepted UN and/or OSCE involvement in instances of regional conflict in neighboring countries, including the dispatch of observers to Georgia, Moldova, Tajikistan, and Nagorno-Karabakh.
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, wage arrears, and severe shortages of housing and other social amenities for military personnel, with a consequent lowering of morale, cohesion, and fighting effectiveness. The poor combat performance of the Russian Armed Forces in the Chechen conflict in part reflects these breakdowns.
The Russian military is divided into the following branches: ground forces, navy, air force, and Strategic Rocket Forces. The available manpower for the various branches of the Russian Armed Forces was estimated at 38.9 million in 2001. According to Russian reports, in FY 2002, there will be about a 40% increase in arms procurement spending. However, even this increase is not enough to make up for the budget shortfalls of the previous decade. Russia's struggling arms producers will, therefore, intensify their efforts to seek sales to foreign governments.
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 firms have been privatized; some have developed significant partnerships with U.S. firms.
Cooperative Threat Reduction (CTR)
Often called Nunn-Lugar assistance, this type of assistance is provided to Russia to aid in the dismantling of weapons of mass destruction and to prevent the proliferation of such weapons. The FY 2003 budget for CTR programs in Russia is $288.3 million, up from $262.7 million in FY 2002. Through CTR assistance, the United States is assisting Russia to meet START elimination levels earlier than Russia could do so unassisted.
In Russia, CTR has helped to upgrade the security and safety of nuclear weapons transport vehicles; is improving safeguards for fissile material; assisting with the design and construction of a secure, central storage facility for fissile material from dismantled nuclear weapons; providing assistance to eliminate Russian ICBMs, SLBMs, and strategic bombers; assisting with planning for destruction of chemical weapons and evaluating possible destruction technology; and supporting conversion of weapons of mass destruction to civilian production.
Under the highly enriched uranium (HEU) agreement, the United States is purchasing uranium from Russian weapons for use in power reactors. Also, both the United States and Russia will cooperate to dispose of excess military plutonium. The United States also is assisting Russia in the development of export controls, providing emergency response equipment and training to enhance Russia's ability to respond to accidents involving nuclear weapons, and attempting to increase military-to-military contacts.
In a multilateral effort (the European Union, Japan, and Canada also are involved), the United States also has provided approximately $148 million to support Russian projects funded through the International Science and Technology Center (ISTC), which provides alternative peaceful civilian employment opportunities to scientists and engineers of the former Soviet Union involved with weapons of mass destruction and their delivery systems.
U.S. Assistance to Russia
Cumulative U.S. assistance figures. Since 1992, the U.S. Government has allocated more than $11.6 billion in assistance to Russia, funding programs in four key areas--security programs, humanitarian assistance, economic reform, and democratic reform--as well as in other high-priority areas such as nuclear reactor safety and public health. The $11.6 billion in assistance provided through Fiscal Year 2003 can be broken down roughly as follows:
For more detailed information on U.S. Government assistance to Russia, please see the Annual Reports to Congress on U.S. Government Assistance to and Cooperative Activities with Eurasia, which are available in the Bureau of European and Eurasian Affairs section on the State Department's website.
How U.S. assistance has evolved. The U.S. Government's strategy for assistance to Russia is based on the premise that Russia's transition to a democratic, free-market system will be a long-term process. The United States will need to remain engaged throughout this process, and, therefore, U.S. assistance emphasizes activities that promote the establishment of lasting ties between Russians and Americans at all levels of society. Over the past few years, the U.S. assistance program has moved away from technical assistance to the central government, although such assistance is still provided when it is appropriate and will help to advance reform. An increasing proportion of U.S. assistance is focused at the regional and municipal level, where programs are helping to build the infrastructure of a market economy, remove impediments to trade and investment, and strengthen civil society.
In general, U.S. assistance programs in Russia are working at the grassroots level by bolstering small business through training and enhanced availability of credit; expanding exchanges so that more Russian citizens can learn about America's market democracy on a first-hand basis; and increasing the number of partnerships between Russian and U.S. cities, universities, hospitals, business associations, charities, and other civic groups.
U.S. security assistance programs help eliminate weapons of mass destruction and prevent proliferation of weapons, weapons materials, delivery systems, technology and weapons expertise, counter terrorism, and promote regional stability and security. The United States has provided Russia assistance to improve physical security at key nuclear weapons storage sites, demilitarize facilities, as well as help enable compliance with arms accords. Since the September 11, 2001 terrorist attacks, cooperation in anti-terrorism efforts increased between the United States and Russia. The Administration's "Review of Nonproliferation Assistance to Russia" in FY 2001 resulted in changes to some U.S. security programs and reconfirmed the high priority of security assistance, which was increased to more than $800 million in FY 2002 to Russia.
The amount of U.S. Government-funded humanitarian assistance being provided to Russia peaked at more than $1.1 billion in FY 1999 but declined to about $24 million in FY 2002. This assistance has included the provision of food commodities by the U.S. Department of Agriculture (USDA) and medical and other humanitarian commodities provided by the Department of State Humanitarian Transport Program. The U.S. Government has provided humanitarian commodities for internally displaced persons in the North Caucasus resulting from the conflict in Chechnya. Commodities such as medical supplies and food and clothing are being shipped and distributed to needy individuals, families, and institutions through the Department of State Humanitarian Transport Program.
Increasingly, U.S. Government-funded economic reform programs are focused in Russia's regions. A limited amount of assistance is targeted at promoting reforms at the national level, particularly with regard to tax administration and Russia's efforts to accede to the World Trade Organization (WTO).
Democratic reform programs are helping Russians develop the building blocks of a democratic society based on the rule of law by providing support to non-governmental organizations (NGOs), independent media, the judiciary, and other key institutions. To support this long-term generational transition, the U.S. Government is increasingly promoting links between U.S. and Russian communities and institutions, including universities, hospitals, and professional associations, and is establishing public-access Internet sites throughout Russia. In addition, the U.S. Government is helping Russia combat crime and corruption through cooperation with U.S. law enforcement agencies and community-based groups. A 2001 interagency review of U.S. assistance to Russia, initiated by the National Security Council (NSC) and conducted by the Department of State and NSC, recommended greater focus on supporting entrepreneurs, strengthening civil society and independent media, and improving Russians' health. Special emphasis also was given to working with Russia's younger generation.
Regional Initiative (RI). The RI concentrates an array of U.S. Government technical assistance, business development, and exchange programs in a small group of progressive Russian regions, with the goal of helping to create successful models of economic and political development at the regional level. Over time, it is hoped that these regions will achieve broad-based economic growth, attract outside investment, and build a strong civil society, and that they will participate in efforts to disseminate their experience to other regions of Russia. Three RI sites are operating in Samara, Tomsk, and Khabarovsk/Sakhalin in the Russian Far East. A fourth site, in Novgorod, was graduated successfully in early 2001.
Department of Defense Cooperative Threat Reduction (CTR) Program. The Defense Department's (DoD) CTR or "Nunn-Lugar" Program was initiated in FY 1992 to reduce the threat posed to the United States by weapons of mass destruction (WMD) and other weapons remaining on the territory of the former Soviet Union. CTR assistance is provided to Russia--as well as Belarus, Kazakhstan, and Ukraine--to aid in storing, safeguarding, and dismantling weapons of mass destruction and to prevent proliferation of such weapons. The United States provided an estimated $2.6 billion in CTR assistance to Russia from FY 1992 through FY 2002. Key projects have included assistance in the elimination of strategic offensive arms, design and construction of a fissile material storage facility, provision of fissile material containers, material control and accounting and physical protection of nuclear materials, and development of a chemical weapons destruction facility and provision of equipment for a pilot laboratory for the safe and secure destruction of chemical weapons.
Nonproliferation assistance. Since the early 1990s, a number of security assistance programs started under the DoD CTR program have been transferred to other agencies to implement and fund.
Economic and Democratic Reform Programs
U.S. Agency for International Development (USAID). USAID has implemented the lion's share of U.S. Government-funded technical assistance to Russia--more than $2 billion since 1992. USAID has devoted its assistance efforts to helping Russia develop democratic institutions and transform its state-controlled economy to one based on market principles. USAID has been active in the areas of privatization and private-sector development, agriculture, energy, housing reform, health, environmental protection, economic restructuring, independent media, and the rule of law.
U.S. Department of State--Public Diplomacy Exchanges (formerly the U.S. Information Agency). More than 32,000 Russians have traveled to the United States on public diplomacy exchanges since 1992. Public diplomacy exchanges promote the growth of democracy and civil society and encourage economic reform and growth of a market economy in Russia. Professional and academic exchanges under this program cover such diverse fields as journalism, public administration, local government, business management, education, political science, and civic education.
Library of Congress. Through FY 2002, the Open World Russian Leadership Program (formerly known as the Russian Leadership Program) has brought almost 5,500 Russians from throughout Russia to the United States for short-term study tours, including up to 150 members of the Russian Parliament for meetings with their counterparts in the U.S. Congress.
U.S. Department of Commerce. The Special American Business Internship Training (SABIT) Program places Russian managers for short-term internships with U.S. companies. To date, more than 1,200 Russians have participated in the SABIT Program. The Commerce Department also operates the Business Information Service for the New Independent States (BISNIS), which provides market information, trade leads, and partnering services to U.S. companies interested in the Russian market.
U.S. Export-Import Bank (Eximbank). Eximbank has approved more than $3.8 billion in loans, loan guarantees, and insurance for transactions in Russia since 1991. Of this total, more than $1 billion was approved under its Oil and Gas Framework Agreement.
U.S. Overseas Private Investment Corporation (OPIC). OPIC has provided more than $3.8 billion in loans, loan guarantees, and political investment insurance to American companies investing in Russia.
Trade and Development Agency (TDA). TDA has approved approximately $5.7 million in funding for feasibility studies on more than 140 investment projects.
U.S. Department of Agriculture (USDA). In FY 2001, in response to a request by the Russian Government, USDA provided more than 184,000 metric tons of food valued at more than $60 million on a concessional basis under USDA's PL 480, Title I program. The assistance included 100,000 metric tons of nonperishable food donated through U.S. private voluntary organizations (PVOs), 1.7 million tons of wheat on a grant basis, and 1.55 million tons of commodities--including beef, pork, poultry, corn, rice, wheat, and soybeans--on a concessional basis under USDA's PL 480, Title I program. USDA also donated 15,000 tons of corn and vegetable seeds to the Russian Government for the 1999 planting season. In addition, USDA provides training to Russian agriculturists and agricultural faculty through its Cochran Fellowship and Faculty Exchange Programs, with the goal of helping to familiarize the Russian agricultural sector with Western-style agribusiness management, marketing, and other issues, while at the same time increasing U.S. agricultural exports to Russia. Since 1992, more than 600 Russians have traveled to the United States under these two programs.
U.S. Department of Defense (DoD). DoD implements the majority of the U.S. Government's security-related assistance programs through its Cooperative Threat Reduction (CTR) Program (see above). DoD also implements the Foreign Military Financing (FMF) and International Military Education and Training (IMET) programs in support of the Partnership for Peace. However, these programs were suspended in May 2001 by the State Department in accordance with legal limitations on assistance that went into effect due to Russian arms transfers to nations on the U.S. list of nations sponsoring international terrorism.
U.S. Department of Energy (DOE). DOE funds and implements a wide range of programs in the security area, including the provision of Material Protection Control and Accounting (MPC&A) assistance to secure and prevent proliferation of nuclear materials and plutonium disposition assistance. DOE also is focusing on preventing proliferation of weapons expertise, facilitating the downsizing of Russia's nuclear cities, and improving the safety of Russia's nuclear reactors (see above).
Eurasia Foundation. The Eurasia Foundation, a private, nonprofit, grant-making organization supported by the U.S. Government and private foundations, has awarded more than 3,100 grants totaling more than $62 million to Russian NGOs and U.S.-Russian NGO partnerships since 1993. The foundation's grants have been targeted in three main programmatic areas: private enterprise development, civil society and public administration, and policy. The foundation also has implemented targeted grant initiatives to address specific issues, such as media development and economics research.
Principal U.S. Embassy Officials
Deputy Chief of Mission--John R. Beyrle
Counselor for Political Affairs--Bruce Donahue
Counselor for Economic Affairs--Mary Warlick
Counselor for Commercial Affairs--Stephen Wasylko
Counselor for Consular Affairs--Jim Pettit
Counselor for Administrative Affairs--Edward Alford
Counselor for Public Affairs--Laurence Wohlers
Counselor for Science and Technology--Deborah Linde
Director, U.S. Agency for International Development--Carol Peasley
Immigration and Naturalization Service--Karen Landsness
Department of Energy--Andrew Beniawski
National Aeronautics and Space Administration (NASA)--Dennis McSweeney
See also the Key Officers List
The U.S. Embassy is located in Russia at Bolshoy Devyatinskiy Pereulok, Number 8, 121099 Moscow (tel. (095) 728-5000; fax: (095) 728-5090).
Consulate General, St. Petersburg (Furshtadtskaya Ulitsa 15, tel. (812) 275-1701--Rusty Hughes, Consul General
Consulate General, Vladivostok (Mordovtseva Ulitsa 12, tel.  (4232) 268-458/554--Pamela Spratlen, Consul General
Consulate General, Yekaterinburg (Ulitsa Gogolya 15A, tel. (3432) 60-11-43--Tom Niblock, Consul General
In Moscow, the U.S. Commercial Office is located at Bolshaya Molchanovka 23/38 (tel. (095) 737-5030, fax: (095) 737-5033)
In St. Petersburg, the U.S. Commercial Office is located at Nevsky Prospekt 25 (tel. (812) 326-2560, fax: (812) 326-2561)