THE RUSSIAN ECONOMY: BOOM OR BUST?

It will be interesting to follow the political and economical development in Russia in the years to come. Will Vladimir Putin place the country in a hopeless situation of a new dictatorship, or is it a chance that Garry Kasparov's organization, The Free Choice 2008 committee, could come up with a presidential candidate? It shouldn't be too hard to compete with the existing parties and get your message out, if the following bulletin by Radio Free Europe is correct:

Other political parties have even less impressive statistics. On a typical day, just 605 people visit the Union of Rightist Forces (SPS) website (http://www.sps.ru), generating 2,845 page views. Four hundred twelve people visit the Yabloko site (http://www.yabloko.ru), generating 2,530 hits. Among the major parties, the pro-Kremlin Unified Russia party's site is the least active, with just 370 visitors a day generating 1,458 hits.  (RFE/RL Newsline, Volume 8 Number 136, 07/20/04.)

Frank Brown (Newsweek) describes the Russian economy in the following way:

To put it bluntly, Putin faces his biggest crisis since taking office in 2000—and it has nothing to do with Yukos. The Russian president may be no democrat. But it is hard to dispute that he is a reformer, determined to remake Russia as a modern, free-market economy. And just now the Kremlin is embarking on its most unpopular reform of all—stripping away the Soviet-era social benefits that most of Russia's 145 million citizens have long taken for granted. (Moving In For the Kill, Newsweek, August 2 issue.)

Putin must have been listening to his economic adviser, Andrei Illarionov. Here is a comment by Andrei Illarionov on the fact that "Russia's banks are running out of credit":

"Hiding our heads in the sand and saying there is no crisis would be totally incorrect," Interfax news agency reported him as saying. "The solution of a prob lem can only begin when the problem is identified correctly." (Carolynne Wheeler, The Guardian, 07/12/04.)

  
It looks like Mr. Illarionov has an aspiration to scrap much of the tax code, reduce the tax pressure, and start to compete, in an economical sense, with the rich United States of America. How successful has he been in the improvement of the economy? Here is an excerpt from article in BusinessWeek:

And Putin appears to be listening. Shortly after he appointed Illarionov--a fellow native of Saint Petersburg--in April, 2000, Putin decided to support the economist's proposal for a 13% flat income tax. That rate, introduced in January, 2001, represented a major cut from the previous sliding scale of 12% to 35%. Russia's income taxes are now Europe's lowest and the country's once-meager tax collection has vastly improved. Putin also backs Illarionov's ideas for slashing bureaucracy and creating competition for the monopolies. (BusinessWeek, 06/17/02.)

 
Here is another example, this time from Ivan Osorio's article, A Russian Revolution: 

Reforms advocated by Illarionov and enacted by Putin's government have already yielded impressive results, giving Russia GDP growth of 9 percent in 2000, 5 percent in 2001, and 4 percent in 2002. Last month, the Russian government revised its GDP growth estimate for 2003 to 6.6 percent (Tech Central Station, 01/12/04.)

UPDATE 07/26/04:
The Flat Tax at Work in Russia: Year Four, January–June 2004 by Alvin Rabushka (RussianEconomy.org).

UPDATE 07/28/04:
Here is an excerpt from an interview with Andrei Illarionov [hat tip to HBL subscriber, Tony P.]:

AI: The ideal split between the government and the private sector is just to limit government to the three or four core functions of the government which are functions that cannot be performed efficiently by anybody else except the government, for example, the protection of property rights, the courts, conducting foreign policy, and so on. All the rest should be left to the private sector which should be allowed to do whatever the private sector can and wants to do. (Frontier Centre for Public Policy, 12/01/00.)