March 03, 2008 |
|'Medov, Medadova - whatever!"|
Hillary Clinton is a highly-educated woman. But this was her response last week when asked to name the front-runner in Russia's presidential election.
The New York senator and White House hopeful seems to wear her ignorance of the world's largest country as a badge of honour. She is not alone.
In the run-up to today's Russian vote, the Western press has been full of insinuation, slur and downright disinformation about a nation which has risen from the ashes and is now emerging as a global economic giant.
I lived in Moscow for several years during the mid-90s - the roughest period of Russia's "transition" from state-planning to capitalism. I've paid regular visits ever since. I now work for a company that manages foreign investments in emerging markets - including Russia.
So, feel free to sniff at my motives. But please don't sniff at the facts, which show that Russia, over the last ten years, has achieved possibly the most incredible economic turnaround in human history.
When the Soviet Union imploded in the late 1980s and the planned economy collapsed, Russian growth sunk deep into negative territory. For the next decade, the country lurched from crisis to crisis.
Then, amid signs of recovery in 1998, Russia's fragile post-Communist economy collapsed again - caught in a financial melt-down affecting all emerging markets. Trying to defend its currency, the country defaulted on its sovereign debt.
Since then, Russia has grown at a real terms average of 7 per cent a year. In 2007, growth hit 8.1 per cent - higher than the year before, despite the US-originated sub-prime crisis that has hobbled much of the world.
Russia's reserves have ballooned from practically zero in 1998 to $480bn (£242bn) today - the third largest haul on earth. The country is now almost debt-free - with a budget surplus of 6 per cent of GDP, and a trade surplus almost twice as much again.
Goldman Sachs describes Russia's economic performance as "remarkable". UBS calls it "awesome". Russia, India, China and the other large emerging markets are upending the world economic order. Their resurgence has created hundreds of billions of dollars of wealth and lifted tens of millions from poverty.
Western politicians struggle to adjust to these new realities - particularly when it comes to the old "Cold War" enemy. But Russia is now the world's ninth largest economy - and rising fast. And, in my view, much of the scorn aimed its way is nothing but a small-minded reaction to this rapidly shifting balance of global power.
Three years ago, Russia overtook Saudi Arabia to become the world's largest crude exporter. And the country's post-Soviet recovery was initially built on a 50 per cent rise in annual crude production.
Had that increase not happened (had Russia chosen to join OPEC, for example), oil would now be way above $150 a barrel, rather than close to $100. Imagine how much that would now be hurting oil importers like America and the UK.
But Russia is now far more than "just an oil and gas economy". Retail sales are growing at around 13 per cent a year in real terms - one reason why leading multi-nationals are now piling into Russia. Construction is expanding by 16 per cent a year, and domestic investment by 20 per cent - as Russia rebuilds its shattered post-Soviet infrastructure. Again, this trend is now attracting massive - and welcome - foreign investment.
The big blot on Russia's economic landscape is inflation - almost 12 per cent last year. Like many fast-growing emerging markets, the country suffers from high food prices. But Russian policy-makers are now allowing the rouble to appreciate more quickly - bearing down on expensive food imports. And, while the rest of the world has been cutting interest rates, Russia's Central Bank just raised them - as part of its bid to tackle inflation.
This is a country, of course, with many problems. As in any nascent capitalist society (think England in the 1780s, or America in the 1870s), there is corruption and the legal system is fragile.
But, in recent years, despite factional in-fighting, the direction of economic policy has been clear. Russia now has a 13 per cent basic rate of income tax. Foreign banks can set up at will. Moscow, St. Petersburg and, increasingly, Russia's regions are rippling with stores bearing Western names and products. Despite his "hard-man" image, these developments have all happened since President Putin took office in 1999.
And today's likely winner - Dmitri Medvedev - will encourage further liberalisation. The 42-year-old has made a series of speeches calling for "reduced taxes" and "decentralisation of power". A trained lawyer, Medvedev will put effort into "improving the legal system".
Dismiss this as a wish-list if you like. But, again, the direction of travel is clear. Russia wants to be a fully-developed market economy and part of the global system - but on equal terms.
Will it be pushed around by the West? No. Will it allow the West to pull its historic trick of annexing countries with large natural resources, or treating them as supine? No.
Above all, Russia wants to trade with the West. But the West keeps blocking its membership of the World Trade Organisation - despite admitting China.
Since the Soviet Union collapsed, Russia has made huge strides - economically, but also in terms of freedom. Today's election, while imperfect, is a testament to that.
Western businesses are engaging with Russia as quickly as they can, desperate to gain a foothold in what will soon be one of the world's very biggest economies.
Western politicians, meanwhile, cling to their cold war clichés - replacing the "iron curtain" with an "iron curtain of the mind".
By Liam Halligan, Chief Economist at Prosperity Capital Management