Russia Essay Example | Topics and Well Written Essays - 2500 words

Russia - Essay Example Russia's transition from communism to capitalism has been a slow, albeit a positive, step. And while Russia is experiencing the pains of creating a new economic system, some progresses are already underway. It was in 1991 that the communist Soviet Union was dismantled and the Russian government proposed numerous radical reforms designed to transform the economy from one that was centrally planned and controlled to one based on capitalist principles. The Encyclopdia Britannica (2007) summed up that the major components of the reforms included establishing privately owned industrial and commercial ventures (using both foreign and Russian investment) and privatizing state-owned enterprises. Furthermore, the Russian government issued vouchers to citizens that enabled them to purchase of shares in privatized firms to promote privatization, though in practice these vouchers frequently were sold for cash and were accumulated by entrepreneurs. Moreover, a commodity- and stock-exchange system was also established to uplift the economic transition of a country fraught in political instability. Dolinskaya (2002) maintained that Russia's growth performance had already worsened before the beginning of economic transformation. The fundamental reason for the slowdown was the nature of Soviet economic growth, which was based on mobilization of resources rather than increases in productivity. However, at present, is Russia still struggling to get its economy on the right track How does Russia cope with the onset of globalization Does Russia deserve the attention of international investors This paper will attempt to find answers to these questions by sifting through current economic data and analyzing the potentials of the Russian market. II. Environmental Overview A. Economic Factors During the 1990s, the Russian economy experienced severe disruption as it moved from a centrally-plannedmodel 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. In addition, lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence exacerbated the financial problems (Spulber, 2003, p. 206). The result was a rapid and steep decline in the value of the ruble, the flight of foreign investment, a breakdown of commercial transactionsvia the banking system, and the threat of runaway inflation. Nevertheless, Russia weathered the crisis well. Russia's economic performance has been strong in recent years, reflected in robust Gross Domestic Product (GDP) growth, strong external and fiscal positions, and growth in productivity and consumption. These achievements are attributed not only to favorable commodity prices, especially high oil prices, but also to generally prudent macroeconomic policies. In fact, Russia is presently in its eighth year of strong growth and now has the world's fifth largest foreign exchange reserves (Euromonitor International, 25