Lucky Putin, Unlucky Yeltsin

Russian President Vladimir Putin’s assertive foreign policy stance of recent years reflects the confidence that comes with a booming economy. In 1999, the year before Putin succeeded Boris Yeltsin as president, Russia’s GDP was a paltry $200 billion. By last year, it had reached $1 trillion. Real growth has averaged 7% for eight years, and real incomes have grown by roughly 10% per year. Russia’s budget surplus has stood at more than 7% of GDP in the last two years, public debt has dwindled to only 8% of GDP, from 100% in 1999, and the current account surplus has averaged at 10% of GDP for the last eight years.

But Russia’s stellar economic performance has little to do with Putin’s policy, and a lot to do with the reforms Yeltsin embraced. By 1998, Russia already had achieved a critical mass of markets and private enterprise, while the financial crash of that year worked like a catharsis, forcing the government to abolish enterprise subsidies that underpinned a devastating budget deficit of some 9% of GDP. Moreover, world oil prices that had fallen to $10 a barrel started rising toward the stratosphere. The whole success story thus was in place in early 1999, one year before Putin entered the stage.

To be sure, Putin should be praised for substantial economic reforms during his first three years. A new tax code was adopted, with lower and fewer taxes, notably a flat income tax of 13%. The civil code was completed, a new customs code was enacted, and substantial judicial reform was implemented.

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