Russian Federation. The hostage drama at a Moscow theater
in October put international focus on the war between the
Russian army and the separatists in the breakaway republic
of Chechnya. According to
Countryaah website, some 40 armed Chechens took more than 700
hostages and demanded that all Russian military leave
Chechnya. However, the Russian leadership did not give in,
the theater stormed, the terrorists were killed and over 120
hostages died of the gas used by the security forces.
The Chechen terror campaign made the Kremlin's attitude
harden. Moscow considered that the so-called anti-terrorist
operation in Chechnya had finally been legitimized before
the world community. The military went on a renewed
offensive in Chechnya, tightening control over Russian media
reporting on the war was tightened, and Chechen President
Aslan Maschadov was completely rejected as a negotiating
partner. Maschadov's representative Ahmed Zakayev was
requested to be extradited after he was arrested after a
Chechen exile congress in Denmark accused by the Russian
Federation of terrorist involvement. However, the evidence
was insufficient, according to the Danes, and Zakayev was
released, which led to strained relations between the
Russian Federation and Denmark.
The Chechnya War (see further under Chechnya) also
increased tensions between the Russian Federation and
Georgia. The Russian Federation threatened to intervene
militarily in neighboring countries unless Chechen rebels
among refugees were extradited. During the year, the United
States placed military advisers in Georgia and warned Moscow
of intervention. The Russian Federation was accused of being
behind bombings of Georgian areas.
The upswing of the Russian economy due to high oil prices
continued. Although growth had slowed somewhat, the
International Monetary Fund (IMF) predicted a Russian GDP
increase of 4.4% during the year. However, the business
community had major problems with organized crime and
corruption. In education and health care too, people were
often forced to pay bribes. Other notable societal problems
were increasing racism, as was the intolerance of the
Orthodox Church and the authorities towards small religious
New labor law laws came into force. The right to strike
was curtailed and it became easier for private employers to
dismiss workers. Collective bargaining became mandatory,
reducing the importance of small, independent unions that
also criticized the laws. At the same time, a 40-hour work
week was stipulated and the employees were entitled to four
weeks' holiday each year. The official minimum wage for one
month was raised during the spring from 300 rubles
(corresponding to just over SEK 90) to 450 rubles. The State
Duma passed a law that opened for the sale and purchase of
agricultural land. The Communists tried to stop the law,
which, for the first time since the Russian Revolution of
1917, allows ordinary peasants to own their own land.
Reports during the year showed that the Russian
Federation and Eastern Europe have the world's fastest
growth rate of HIV. The UN counted at least 700,000
HIV-infected people in the Russian Federation. Experts
warned that the country could get the same high proportion
of infected as parts of Africa.
The Russian Federation's relations with the West were
strengthened during the year. In May, a new NATO-Russia
Council was created. terrorism, peacekeeping operations and
arms control. Prior to the agreement, President Putin had
accepted the idea of America's new national missile defense,
which he previously criticized harshly.
During the spring, the Russian Federation and the United
States also agreed to reduce the number of strategic nuclear
weapons by about one-third to between 1,500 and 2,200 each.
The agreement was signed when US President George W. Bush
visited Putin in Moscow. According to Bush, the settlement
meant that the remnants of the Cold War were removed.
The Russian Federation's relationship with Belarus
deteriorated during the year, after President Putin proposed
a union built on the Russian Federation's constitution, in
which Belarus would largely be a part of the Russian
Federation. Instead, relations with the new NATO country
Poland were improved through Putin's visit to Warsaw. It
probably contributed to the Kremlin's final acceptance of
NATO enlargement as far as the borders of the Russian
Federation, announced in Prague in November. Estonia,
Latvia, Lithuania and four other Eastern European countries
will become NATO members from 2004.
Relations with the United States were put to the test
through the United Nations' tug of war on US plans to attack
Iraq. The Russian Federation, which has oil interests in
Iraq, opposed the US plans and in November, the UN Security
Council agreed on a resolution where the weapons inspection
would precede a possible UN-sanctioned attack.
Relations with the EU were tested in connection with the
acceptance of the three Baltic states and several other
former Eastern Bloc countries in December as new EU members
from 2004. The Russian Federation's demand for future visa
freedom for travel to and from the Russian enclave
Kaliningrad was not accepted by the EU. The tough
negotiations led to a compromise on a flexible form of
transit document, while the EU is exploring the possibility
of visa-free travel on direct trains from Russia to
Kaliningrad through Lithuania.
In August 1992, the privatization of state property began
as part of the transition to a market economy. All citizens
were given a voucher that could be exchanged for state
property. The Russian privatization campaign is the fastest
and most comprehensive ever undertaken: in 3.5 years, the
non-governmental share of GDP went from close to zero to 70
percent. However, the process was far from unproblematic.
The voucher privatization did not provide the state with new
capital and the treasury was scrapped.
The next phase of privatization, the period 1995-1996,
was therefore known as "loan for shares": Russian
authorities borrowed money from private players for security
in state property. When the loans, which had a very short
maturity, matured, the shares were transferred to the
lenders. The "loan for shares" privatization laid the
foundation for a small group of business leaders, the
so-called oligarchs, to build huge fortunes in no time.
The state's financial problems continued throughout the
1990s with steadily falling GDP and insufficient tax
revenues. To cover current expenses, the government began
issuing short-term high-yield government bonds. The bonds
were redeemed through the issuance of new government bonds.
This policy, combined with the Asian crisis in the fall of
1997, which led to falling oil, gas and metal prices on the
international market, threw Russia into an acute crisis in
August 1998. On August 17, the Russian state had to declare
interim payment and releasing the ruble exchange rate, which
led to a sharp devaluation. The crisis led to investor
retreat and the eradication of large parts of the Russian
In the longer term, however, the August crisis had a
positive impact on the Russian economy. The devaluation gave
Russian-produced goods a competitive advantage over imported
goods. In addition, the economy was helped by price
developments in the international energy market. The Russian
economy therefore recovered surprisingly quickly after the
August crisis. While in the period 1991-1998 there was a
significant decline in GDP and in Russian production, after
1999 a strong and sustained growth in the economy was noted.
Russia is today the world's largest oil and gas producer,
and energy exports account for about 55% of Russian exports.
Record high oil prices have led to a significant surplus on
the trade balance. In recent years, Russian authorities have
secured greater control over the energy sector through a
majority stake in the Gazprom gas monopoly and the
acquisition of oil companies. The state also controls the
pipeline system for export, and has on several occasions
shown that it is willing to use energy exports as a foreign
The political and social stabilization that followed the
election of Putin as president in 2000 has been combined
with high commodity prices. Russia has experienced growth
and the public has been able to continuously increase
budgets for transport, school, health and culture throughout
the 2000s. Some of the decay since the 1980s and 1990s has
been rectified, but there are still large population groups
that do not participate in the development of prosperity,
especially in rural areas. Employee rights are very low.
Much indicates that growth is slowing down.
Russia used the upturn in the economy to get rid of much
of the government debt and thus became more independent of
the international IMF money market.
The international financial crisis hit Russia in
2008–2009, but did less damage than feared. This is due to a
stabilization fund that had been established in 2004 and
could cover deficits in the state budget.
Although Russia has seen an economic upswing since 2000,
and very many have received noticeably better advice, the
country faces some challenges. Production and export are
still highly dependent on certain raw materials, especially
oil and gas. Thus, Russia becomes vulnerable to price
fluctuations. In contrast, Russia has very large reserves,
and thanks to its geographical location, the country has
pipeline systems to major consumer countries in Asia and
Falling oil prices, the imposition of sanctions in
connection with the Ukraine crisis and high military
spending, partly because of the involvement in the Syria
crisis, have greatly affected the Russian economy.