In the July/Aug 2010 issue...

The price of authoritarianism

Things are not rosy in Russia. Chechen terrorism, political dissent and economic downturn are all combining to place the country firmly on the global stage for all the wrong reasons. But ten years ago, newly elected president Vladimir Putin was a very lucky man. Russia, with its oil and gas exports, benefited greatly from a buoyant international demand for hydrocarbons. From 2000, Russia increased its oil and gas output by 50 per cent, but this was accompanied by a very heavy tax burden as the central government levied tariffs on exports to compensate for its failure to overhaul domestic revenues its inability to squeeze money from collapsing manufacturing. In 2008, the Russian Ministry of Finance relied on the oil and gas industries to provide 37 per cent of federal revenue, of which two thirds came from taxation on exports. This heavy reliance on the hydrocarbon industry was all well and good when the oil price was strong and markets were robust. But, with the global downturn, demand has shrunk while other aspects of the Russian economy, such as consumer spending, have withered too.

In order to combat the global downturn, Russia has adopted tax relief for many industries; a whole raft of measures introduced in 2008 to stop a total meltdown are still in force in 2010. In 2009, overall GDP shrank by a startling 8.5 per cent, and the global financial crisis forced a gradual devaluation of the Rouble amid capital fleeing the country and a fall in global oil prices from a peak of $147 a barrel in 2008 to $40 in early 2009. Although the IMF remains optimistic about a return to growth in 2010, it looks likely to be a weak and hesitant recovery.

In the July/Aug 2010 issue...

Scare tactics

Protection as standard