Russia Has Some Good News, Despite the Grim Headlines
Few people may have noticed, but this month marks the two-year anniversary of the 1998 Russian default crisis. Maybe not an event worth celebrating, but it is worth noting.
With everything Russia has endured during the past few months, it is tempting to think the country is again in crisis. The tragic loss of the nuclear submarine Kursk exposed Russia's deteriorating military and, in a larger sense, the country's weak infrastructure. Meanwhile, the war in Chechnya may have slowed, but has certainly not ended. Even the fire this week in the Ostankino TV tower, the second tallest free-standing structure in the world, seems to point to a country tottering on the brink of disaster.
Nonetheless, it is worth remembering that Russia actually is improving, albeit at a snail's pace. The country may not exactly be a poster child of economic reform, but it is slowly moving down the path toward a market economy.
Since his election in March, Russian President
Vladimir Putin has pressed through a number of reforms that will help push the country down the free-market path. He has reorganized Russia's chaotic federal structure, a legacy of the Yeltsin years, and tackled the country's confusing taxation system. (Read
Oil Is KingBut make no mistake, the market rally is connected to one thing and one thing only: the price of oil. Whether one thinks Russia is on the path toward a market economy and democracy, or that Putin represents a slip back into authoritarianism, the strength of Russia's economy and the rise in its stock markets are quite simply rooted in the rise of oil prices the last couple of years. At the time of Russia's default in 1998, oil sold for around $12 a barrel. Now it is going for around $30. That may cause a lot of griping among SUV drivers in this country, but it has been a blessing for Russia, since oil is still the country's largest export. The challenge for Russia, then, is to seize the opportunity that the revenue from high oil prices provides to put in place the framework for a market system. If the country can't do that, it risks a repeat of the crisis of 1998. In the meantime, more and more analysts are predicting that oil prices are not going to go down over the next few months. That gives the country more time to get its act together -- and is good news for the Russian market in the near term.
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