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, national day of Russia is every June 12. 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 communities.
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 middle class.
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 policy instrument.
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 Europe.
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.