GROSS DOMESTIC PRODUCT

GDP grew in 1999 by 3.2 percent, with industry as the main contributor to said growth. The volume of industrial production in comparison with the previous year increased by 8.1 percent, agricultural production by 2.4 percent construction by 5.4 percent and transport by 4.2 percent. However, a 3.2 percent decline in trade posted a negative influence on GDP.

In 1999, total consumption and private consumption experienced declines by 3.5 percent and 5.3 percent, respectively, over the previous year. The share of physical volumes of paid services for the population in the structure of final consumption of households increased by 1.4 percent.

INFLATION

Starting August 1999, the monthly rates of consumer prices were in the range of 1.2 to 1.5 percent. In 1999, consumer prices grew by 36.5 percent.

The rates of inflation in industry were higher than the rates of consumer prices growth. In 1999, the growth of prices in industry was 1.8 times more than the growth of consumer prices. The higher dynamics of prices in industry were influenced by the increased demand for domestic production, growth of deliveries in export, and growth of world prices for some Russian export goods.

EMPLOYMENT

Growth in the economy resulted in the improvement of the labor market situation. Both the number of officially registered unemployed and the rate of total unemployment have been on a downward trend since February 1999.

The number of unemployed (calculated in accordance with the method of the International Labor Organization) was reduced from 13.3 percent of the economically active population in the beginning of 1999 to 12.3 percent by the end of the year.

The rate of officially registered unemployed decreased from 2.6 percent of economically active population in the beginning of 1999 to 1.7 percent by the end of the year.

TRADE ACCOUNTS

Trade balance was at US$34.3 billion in 1999. Russia¡¯s exports practically stabilized at the 1998 level with a 0.3 percent decline.

Imports into Russia in 1999 were reduced by 33.1 percent. The dynamics of the volume of imports were predestined by the effect of devaluation of the ruble and significant reducing of import prices. As a result, import volumes fell less than in value terms.

In 1999, US$9.6 billion worth of foreign investments were infused into the Russian economy, 81 percent more than the 1998 level. The volume of foreign direct investments was US$4.3 billion in 1999, about a 27 percent growth over the 1998 level.

GROSS EXTERNAL DEBT

In 1999, the external debt of Russia amounted to US$158.8 billion. This includes credits received on the bilateral base (US$64.1 billion), commercial credits (US$56.8 billion), credits of international financial organizations (US$21.8 billion), and other credits (US$16.1 billion).

The main part of the debt was inherited by Russia from the Soviet Union. Russia made the preliminary agreement on February of the current year with the London Club on the restructuring of part of the debt, which had been inherited from the Soviet Union. As a result of negotiations, US$10.6 billion had been written off from a total debt equal to US$31.8 billion. In addition, consent was given to redeeming the remainder of the debt (amounting to US$21.2 billion) with a delay, until 2008, for the beginning of payments.

The rest of the Soviet debt to the member-countries of the Paris Club is more than US$40 billion.

EXCHANGE RATE

In 1999, Russia pursued the floating ruble exchange rate policy. The beginning of 1999 saw an increase in demand for foreign currency in the interbank market. Starting late March, the ruble acquired a stable exchange rate of 24 to 25 rubles per US dollar, which stayed the same through the period of April-August 1999. In the fourth quarter, the dynamics of the US dollar to ruble exchange rate was rather smooth and predictable.

Over 1999, the official exchange rate of the US dollar to the ruble fixed by the Bank of Russia increased by 31 percent, from 20.65 to 27.00 rubles for a dollar. The index of real exchange rate of the ruble to the US dollar (factoring the increase in prices on consumer goods) went up 1.5 percent over 1999.

FISCAL POLICY

Federal budget revenues in 1999 amounted to 13.7 percent of GDP. The key factors that determined the dynamics of federal budget revenues were: an increase in industrial production, better tax collection and favorable energy prices on world markets.

Federal budget expenses totaled 14.9 percent of GDP in 1999. The federal budget deficit in 1999 amounted to 1.2 percent of GDP with primary profit equaling 2.4 percent of GDP.

MONETARY POLICY

In 1999, the situation on the exchange market was determined by, essentially, an excess of foreign currency proposal above demand. It was conditioned mainly by a high positive trade balance.

The activity of credit organizations in a domestic market of government borrowing has increased. The decrease in the Bank of Russia¡¯s interest rate from 55 percent to 35 percent became the positive factor in the growth of the Russian securities demand.

In 1999, drawings from the Russian investors on a domestic securities market were restored. There was only partial refunding of a state debt which was made out of Treasury bills. In total, the auction yield of Treasury bills under the satisfied applications has compounded 20.1 percent annually.

The operations on the financial market of commercial banks stimulated an increase of their activity in the sphere of corporate securities.

MEDIUM-TERM OUTLOOK

The growth of GDP in 2000 is estimated to be 5.5 percent, industrial production at 7.5 percent, agricultural production at 3 percent, and investments to fixed capital at 9 percent. The rate of inflation is projected at 20 percent.

The main goals of economic policy for 2000 and 2001 are hastening of economic growth, step-by-step recovery of the real money income of the population in conditions of a steady decrease of inflation, a maintenance of effective protection of vulnerable sectors of the population, and the development of market and institutional infrastructure.

RUSSIAN FEDERATION: OVERALL ECONOMIC PERFORMANCE