By the end of this period Russia had struck rock bottom. Fortunately for the embattled republic, buoyant overseas demand for Russia's main industrial products - steel, non-ferrous metals and oil - prompted an economic recovery that started in 1995. Signs of revival were coupled with tamer inflation and signs of stability in the exchange rate of the ruble, and the government's "general investment program" fuelled hopes for growth in 1996 and subsequent years. Unfortunately predictions of growth in 1996 proved premature, underscoring the impression that Russia's economic comeback was no more than a flash in the pan. Part of the blame must be laid on the failure of Yeltsin's economic policies, but a principal underlying cause must surely be the IMF's obstinate and draconian tightening of domestic finance. Although the Fund's harsh restriction of the money supply was successful in squeezing inflation out of the economy, this policy also choked off investment and ground enterprises' productive activities to a halt. At the same time, high interest rates swelled outstanding debts between enterprises, creating instability in the credit system and exacerbating the problem of non-payment of workers' wages. In turn, this situation throttled the flow of tax revenues into government coffers. The importance of other factors cannot be denied as well, such as pork-barrel spending in the runup to a presidential election and vast military expenditures on the protracted war in Chechnya.
Russia is one of the most resource-rich countries in the world. If it cannot easily earn foreign exchange with its industrial products, Russia can generally rely on exports of its natural resources, in either raw or primary-processed form, to support economic growth with hard currency. Gradually, however, a sense of opposition and alarm is rising to the surface, regarding the depletion of Russia's precious natural resources by foreign powers.
Other problems, familiar around the world, arise in connection with resource extraction in Russia. Resource development is often opposed on the grounds that the extraction and transportation of natural resources may uproot the indigenous communities that dot Siberia's landscape from their traditional living environments. Many assert strongly that Russian law must offer complete protection of the rights of indigenous peoples. The conflict among the expectations of various groups can be exceedingly complex. In the Ob/Yenisey/Lena river basin, for example, negative aspects such as the impact on indigenous peoples and dependence on foreign investment are weighed against positive effects such as a stable supply of consumer and other goods. A policy of self-sufficiency is not the most optimal approach for promotion of development in remote areas. Add to these the tension between the federal and regional governments and the expectations and concerns of local communities, and it is clear that there are as many perspectives on resource development as there are people. Expectations for the organic linking of regional shipping with the NSR will be anything but simple.
Foreign investment in Russia fluctuates too wildly to allow any reliable forecast to be made, but it would surely grow rapidly if a stable system of taxation could be established. Russia's foreign-exchange controls are far feebler than most countries, making it easy for illegal capital outflows to hobble economic growth. According to the June, 1997 issue of Izvestiya, illegal capital outflows from Russia amount to US$12-15 billion per year. Hard currency earned from exports of oil, non-ferrous metals and the like are not circulated in the Russian economy but are secreted out of the country and into Western countries or offshore tax havens. Although Russia's external balance of payments from 1992 to 1997 was positive, much of this surplus failed to flow smoothly back into the country.
The widening gap between rich and poor, symbolized by the arrival of the "new rich," and the hardship of Russia's pensioners are serious problems of Russian life well publicized in the West. On the other hand, although largely limited to major urban areas, consumer goods and foodstuffs are becoming increasingly available, leading to the formation of a class of middlemen that purchases and resells these goods. Many of Russia's imports and exports are conducted through third-country markets; these new channels provide a solid boost to purchases of cars and office automation equipment from abroad.
