Russia
The Russian economy underwent tremendous stress as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia’s major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid decline in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.
Russia, however, appears to have weathered the crisis relatively well. Real GDP increased by the highest percentage since the fall of the Soviet Union, the ruble stabilized, inflation was moderate, and investment began to increase again. Russia is making progress in meeting its foreign debts obligations. During 2000-01, Russia not only met its external debt services but also made large advance repayments of principal on IMF loans but also built up Central Bank reserves with government budget, trade, and current account surpluses. The FY 2002 Russian Government budget assumes payment of roughly $14 billion in official debt service payments falling due. Large current account surpluses have brought a rapid appreciation of the ruble over the past several years. This has meant that Russia has given back much of the terms-of-trade advantage that it gained when the ruble fell by 60% during the debt crisis. Oil and gas dominate Russian exports, so Russia remains highly dependent upon the price of energy. Loan and deposit rates at or below the inflation rate inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise.
In 2003, the debt will rise to $19 billion due to higher Ministry of Finance and Eurobond payments. However, $1 billion of this has been prepaid, and some of the private sector debt may already have been repurchased. Russia continues to explore debt swap/exchange opportunities.
In the June 2002 G8 Summit, leaders of the eight nations signed a statement agreeing to explore cancellation of some of Russia’s old Soviet debt to use the savings for safeguarding materials in Russia that could be used by terrorists. Under the proposed deal, $10 billion would come from the United States and $10 billion from other G-8 countries over 10 years.
Japan
Government-industry cooperation, a strong work ethic, mastery of high technology, emphasis on education and a comparatively small defense allocation (1% of GDP) have helped Japan advance with extraordinary speed to become one of the largest economic powers in the world along with the US and European Union. For three decades overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s largely because of the after effects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth have met with little success and were further hampered in 2000-2001 by the slowing of the US and Asian economies.
Distinguishing characteristics of the Japanese economy include the working together of manufacturers, suppliers, distributors and banks in closely-knit groups called keiretsu; the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon these norms in an attempt to increase profitability.
The government of Junichiro Koizumi has enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan’s dormant economy. While some of these laws have been enacted, the economy has yet to respond, and Japan’s aging population is expected to place further strain on the economy in the near future.
Germany
Germany possesses the world’s third most technologically powerful economy after the US and Japan and is part of the world’s largest economy, the European Union. While exports remain strong, the local market of the basically capitalistic economy has started to show problems commonly blamed on the generous social benefits. Unemployment has been a problem for several decades, and is now usually considered a long-term, not just cyclical, problem.
After the fall of Communism in Europe, Germany was reunited in 1990, not without economic difficulty. Together with France, the new Germany is playing the leading role in the European Union. The integration and upgrading of the eastern German economy remains a costly long-term problem, with annual transfers from the west amounting to roughly $100 billion without conditions in the East actually improving after 1997. Some economists argue that the transfers hurt more than they help since they don’t encourage the East to get out of the slump by its own effort, while at the same time preventing dearly-needed infrastructure investment and upkeep in the West. There are still almost no internationally renowned companies headquartered
in former East-Germany; most have only established subsidiaries.
The recent adoption of the euro and the general political and economic integration of Europe including the eastward expansion of the European Union are thought likely to bring major changes to the German economy in the early 21st century.