THE NECESSARY FASCIST INTERLUDE:

Russia brings revitalized economy to the table (David J. Lynch, 7/13/2006, USA Today)

Thanks to high oil prices and prudent fiscal policy, Russia today is flush with cash and brimming with confidence.

Eight years after it bottomed out in the aftermath of the Asian financial crisis, the Russian economy is in its fourth consecutive year of 6% annual growth. Unemployment has been roughly halved and inflation tamed. "In financial and economic terms, it's just a totally different country than it was eight years ago," says Roland Nash, Moscow-based head of research for investment bank Renaissance Capital.

Russia's economic rebound is minting money for investors from Novosibirsk to New York. The past 12 months, the Russian Trading System (RTS) index galloped ahead 106%. This weekend, Russian President Vladimir Putin will publicly celebrate his country's resurgence by hosting President Bush and other world leaders at the G8 summit in St. Petersburg. [...]

The ruble's steep devaluation acted like a giant price cut, making Russian factories more competitive while discouraging imports of suddenly more expensive foreign goods.

The crisis also forced the Russian government to address long-standing structural problems by slashing subsidies for inefficient state enterprises. Some factories closed. Others were sold to private managers who whipped them into shape. By 2000, government spending was 16% lower and the budget was back in balance — where it has stayed for seven consecutive years. Meanwhile, industries from food processing to metallurgy surged.

"The crash of '98 really cleaned out the macroeconomy," says Anders Aslund of the Institute for International Economics.

In 2000, Putin, 53, replaced Boris Yeltsin as president and inaugurated tax and judicial reforms that helped spur the recovery. But the biggest factor fueling the economy, once the initial post-recovery bounce faded, was a welcome rise in oil prices. From their 1998 lows near $12 a barrel, prices rose to current levels of about $75. For Russia, the world's second-largest oil producer, that meant a financial bonanza: oil export revenue jumped from $8.8 billion in 1998 to more than $58 billion in 2004.

Since 2004, Moscow has banked much of its windfall in a dedicated stabilization fund as insurance against a sudden drop in oil prices. That account already holds about $70 billion and will top $600 billion by 2013, according to the World Bank. Eventually, investment income from the fund could finance much-needed health and pension expenses. Along with Russia's massive foreign exchange reserves, it goes a long way toward explaining the Kremlin's newfound indifference to foreign pressure.

Today, the robust economy is attracting foreign investors at a quickening pace. Russia last year took in $13.1 billion in foreign direct investment — more than three times as much as in 2002, according to the World Bank. Already in just the first half of this year, the 2005 figure has been exceeded.

But the investment flows could be even larger if investors weren't so worried about the Russian state's growing role in the economy.

Bush Urged to Be Cautious of Russia Joining WTO (Paul Blustein, 7/13/06, Washington Post)

Joining the WTO has been a priority of Russia for years. Membership in the Geneva-based trade body, which sets the rules for most international commerce, would protect Russian exports against arbitrary sanctions by other countries.

The United States is the only nation among the 149 members that is balking at approving Russia's entry, in part because of concerns that the Russian economy is still autocratically run with too much favoritism shown to state-run companies and other powerful interests. U.S. business groups and policymakers are also upset about Russia's use of food safety rules to block imports of American meat and poultry, and the rampant pirating of music, movies and other forms of intellectual property in Russia. One fear is that Russia would follow the path of China in failing to crack down on the piracy problem once it gains WTO protection. China joined the WTO in 2001.

The Bush administration's stance has been a major source of irritation for President Vladimir Putin and his government, which complains that Russia is being held to a higher standard than other countries. In an effort to prod the United States into a deal, Moscow has played hardball by holding up bids by American companies, including ConocoPhillips Co. and Chevron Corp., to drill for natural gas in a major field in the Barents Sea.

U.S. officials, while expressing the hope that WTO membership will advance the rule of law in Russia, have vowed that they will insist on tough terms. They say they are keenly aware that any deal must pass muster in Congress, which would have to lift Cold War restrictions on U.S.-Russia trade as part of an agreement.

We need to keep the pressure on, but prosperity is vital to establishing a viable liberal democracy and is not often achieved by maximizing freedom early in the process.

MORE:
Boeing awaits Bush-Putin talks (Dominic Gates, 7/13/06, Seattle Times)

Boeing executives will watch with keen interest when President Bush meets Friday with President Vladimir Putin of Russia because a large 787 order may hang upon the meeting.

A person familiar with the deal says Russia's state airline Aeroflot has all but sealed a contract to buy as many as 22 Boeing 787s listed at $3.2 billion, awaiting only Putin's approval.

Also, Boeing Capital, the company's aircraft-finance division, has arranged to lease eight used MD-11 freighters to Aeroflot so that the airline can launch a new Russian air-cargo carrier.

While the Aeroflot order is smaller than some of the huge orders won last year, it's one of the major wide-body competitions pending. For Boeing to snag the deal would be a blow to Airbus, which hopes to sell Aeroflot its revamped A350.

No reason a Third World country shouldn't fly first class planes....

Posted by Orrin Judd at July 13, 2006 7:34 AM