Theme of the lecture № 8. The foreign trade and economic policy of countries with a transitional economy
Trade Policy of Union of Independent Countries
Trade Policy of Eastern European countries
Trade Policy of Asian countries
Trade Policy of Union of Independent Countries
Russia
Russia has a market economy with enormous natural resources, particularly oil and natural gas. It has the 10th largest economy in the world by nominal GDP and the 6th largest by purchasing power parity (PPP). Since the turn of the 21st century, higher domestic consumption and greater political stability have bolstered economic growth in Russia. The country ended 2008 with its ninth straight year of growth, averaging 7% annually between 2000 and 2008. Real GDP per capita, PPP (current international $) was 19,840 in 2010. Growth was primarily driven by non-traded services and goods for the domestic market, as opposed to oil or mineral extraction and exports. The average nominal salary in Russia was $640 per month in early 2008, up from $80 in 2000. In the end of 2011 the average nominal monthly wages reached 24,310 RUR (or $810 USD), while tax on the income of individuals is payable at the rate of 13% on most incomes. Approximately 13.7% of Russians lived below the national poverty line in 2010, significantly down from 40% in 1998 at the worst point of the post-Soviet collapse. Unemployment in Russia was at 6% in 2007, down from about 12.4% in 1999. The middle class has grown from just 8 million persons in 2000 to 55 million persons in 2006.
Russian economy since the end of the Soviet Union
Oil, natural gas, metals, and timber account for more than 80% of Russian exports abroad. Since 2003, the exports of natural resources started decreasing in economic importance as the internal market strengthened considerably. Despite higher energy prices, oil and gas only contribute to 5.7% of Russia's GDP and the government predicts this will be 3.7% by 2011. Oil export earnings allowed Russia to increase its foreign reserves from $12 billion in 1999 to $597.3 billion on 1 August 2008, the third largest foreign exchange reserves in the world. The macroeconomic policy under Finance Minister Alexei Kudrin was prudent and sound, with excess income being stored in the Stabilization Fund of Russia. In 2006, Russia repaid most of its formerly massive debts, leaving it with one of the lowest foreign debts among major economies. The Stabilization Fund helped Russia to come out of the global financial crisis in a much better state than many experts had expected.
A simpler, more streamlined tax code adopted in 2001 reduced the tax burden on people and dramatically increased state revenue. Russia has a flat tax rate of 13%. This ranks it as the country with the second most attractive personal tax system for single managers in the world after the United Arab Emirates. According to Bloomberg, Russia is considered well ahead of most other resource-rich countries in its economic development, with a long tradition of education, science, and industry. The country has more higher education graduates than Eurasia.
The economic development of the country has been uneven geographically with the Moscow region contributing a very large share of the country's GDP. Another problem is modernization of infrastructure, ageing and inadequate after years of being neglected in 1990s; the government has said $1 trillion will be invested in development of infrastructure by 2020. In December 2011, Russia finally joined World Trade Organization, allowing it a greater access to overseas markets. Some analysts estimate that WTO membership could bring the Russian economy a bounce of up to 3 per cent annually. Russia ranks the second most corrupt country in Europe (after Ukraine), according to the Corruption Perceptions Index.
Republic of Kazakhstan
Macro-economic trend
This chart shows trends in the gross domestic product of Kazakhstan at market prices estimated by the International Monetary Fund, with figures in millions of Kazakhstani tenges.
Year |
Gross Domestic Product |
US Dollar Exchange |
Inflation Index (2000=100) |
Per Capita Income (as % of USA) |
1995 |
78,014,200 |
61.11 Tenges |
64 |
3.81 |
2000 |
102,599,902 |
142.26 Tenges |
100 |
3.53 |
2005 |
147,453,000 |
132.88 Tenges |
140 |
9.01 |
For purchasing-power parity comparisons, the US Dollar is exchanged at 59.95 Tenges only. Mean wages comprised $6.93 per man-hour in 2009.
Kazakhstan has managed its monetary policy well. Its principal challenge in 2001 was to manage strong foreign-currency inflows without sparking inflation. Inflation had, in fact, stayed under control, registering 9.8% in 2000, and appeared likely to be under 10% in 2001. Because of its strong economic performance and financial health, Kazakhstan became the first former Soviet republic to repay all of its debt to the IMF by paying back $400 million in 2000; 7 years ahead of schedule. Overall foreign debt amounts to about $12.5 billion, $4 billion of it owed by the government. This amounts to 6.9% of GDP, well within manageable levels.
The upturn in economic growth, combined with the results of earlier reforms in taxation and in the financial sector, dramatically improved government finances from the 1998 budget deficit level of 4.2% of GDP to a slight surplus in 2000. Government tax-revenues grew from 16.4% of GDP in 1999 to 20.6% of GDP in 2000. In 2000, Kazakhstan adopted a new tax-code in an effort to consolidate these gains. Its strong financial position also allowed the government to reduce the value-added tax (VAT) from 20% to 16% and to reduce social (payroll) taxes as of July 2001. Kazakhstan's stronger budget-position and strong export-earnings earned it credit-rating upgrades from Moody's, S&P, and Fitch during 2001.
Kazakhstan instituted a pension reform program in 1998 that was partly based on the model of the Chilean pension system but included modifications. By July 2001, Kazakhstanis had contributed more than $1 billion to their own personal pension-accounts, mostly managed by the private sector. The National Bank oversees and regulates the pension funds. The pension funds' growing demand for quality investment outlets triggered rapid development of the debt-securities market. Pension-fund capital is being invested almost exclusively in corporate and government bonds, including Government of Kazakhstan Eurobonds. The Kazakhstani banking system is developing rapidly.
Banking systems capitalization now exceeds $1 billion. The National Bank has introduced deposit insurance in its campaign to strengthen the banking sector. Several major foreign banks have branches in Kazakhstan, including ABN AMRO, Citibank, and HSBC. Kazakhstan is also a member of the Economic Cooperation Organization (ECO).
According to the Republic of Kazakhstan Agency for Statistics, in January–March 2010 production of GDP amounted to 3,881.6 billion tenge and an increase of 7.1%.
Ukraine
The economy of Ukraine is an emerging free market, with a gross domestic product that fell sharply for the first 10 years of its independence from the Soviet Union and then experienced rapid growth from 2000 until 2008. Formerly a major component of the economy of the Soviet Union, the country's economy experienced a deep recession during the 1990s, including hyperinflation and a drastic fall in economic output. In 1999, at the lowest point of the economic crisis, Ukraine's per capita GDP was about half of the per capita GDP it achieved before independence. GDP growth was first registered in 2000, and continued for eight years. In 2007 the economy continued to grow and posted real GDP growth of 7%. In 2008, Ukraine's economy was ranked 45th in the world according to 2008 GDP (nominal) with the total nominal GDP of 188 billion USD, and nominal per capita GDP of 3,900 USD.
However Ukraine was greatly affected by the economic crisis of 2008 and as a result a 15.1% decrease in Ukraine's GDP took place over 2008 and 2009. Inflation slowed in July 2009 and stayed at about 8% since. The Ukrainian currency, which had been pegged at a rate of 5:1 to the U.S. dollar, was devalued to 8:1, and was stabilized at that ratio.
There was 3% unemployment at the end of 2008; over the first 9 months of 2009, unemployment averaged 9.4%. The final official unemployment rates over 2009 and 2010 where 8.8% and 8,4%. Although according to the CIA World Factbook in Ukraine there are "large number of unregistered or underemployed workers".
The Ukrainian economy recovered in the first quarter of 2010. Ukraine's real GDP growth in 2010 was 4.3%, leading to per capita PPP GDP of 6,700 USD. The resumed growth has been helped by growth in neighbouring Russia, which is by far the country's largest trading partner and export market, and to a lesser extent Turkey.
Ukrainian politicians have estimated that 40% of its economy is in fact shadow economy
In 1992, Ukraine became a member of the IMF and the World Bank. It is a member of the European Bank for Reconstruction and Development.
In 2008 the country joined World Trade Organization. Ukraine applied for WTO membership in 1993, but its accession process was stalled for 15 years. The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount of VAT refund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.
A political crisis in the middle of 2006 was feared as a threat to economic and investment stability, however, despite the forecasts, the political situation has not scared investors. The GDP showed a good growth rate of 7% in 2007, compared to the previous year. Industrial output has increased. Car sales soared, while the banking sector has expanded, thanks to the arrival of European banks.
In May 2010 Ukraine was the third largest borrower of the IMF, following Hungary ($11.6 billion) and Romania ($12.5 billion). The IMF granted Ukraine a $16.4 billion loan in October 2008, of which the government has so far received $10.6 billion. Further payments were frozen late 2009 after Ukraine raised minimum wages and pensions contrary to IMF recommendations.
On July 28, 2010 the IMF approved a 29-month $15.15 billion loan to Ukraine. Among others this led to a 50 percent increase on household natural gas utility prices in July 2010 for Ukrainian consumers (a key demand of the IMF in exchange of the loan).
Ukraine encourages foreign trade and investment. The Parliament of Ukraine has approved a foreign investment law allowing Westerners to purchase businesses and property, to repatriate revenue and profits, and to receive compensation if the property is nationalized by a future government. However, complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts, and corruption all continue to stymie direct large-scale foreign investment in Ukraine. While there is a functioning stock market, the lack of protection for shareholders' rights severely restricts portfolio investment activities. As of April 2011 total foreign direct investment stock in Ukraine stood at $44.7 billion.
State enterprise InvestUkraine was created under the State Agency for Investment and National Projects (National Projects) to serve as a One Stop Shop for investors and to deliver investment consulting services.
The Customs Union of Belarus, Kazakhstan, and Russia came into existence on January 1, 2010 between the states of Belarus, Kazakhstan, and Russia. The Customs Union was launched as a first step towards forming a broader European Union-type economic alliance of former Soviet states. The member states are planning to continue with economic integration and were set to remove all customs borders between each other after July 2011. On 19 November 2011,the member states put together a joint commission on fostering closer economic ties, planning to create a Eurasian Union by 2015. From January 1, 2012, the three states are expected to introduce a single economic space.
The United States is opposed to the Customs Union, seeing it as an attempt to reestablish a Russian dominated USSR-type union amongst the Post-Soviet states.
Access of products to the single territory of the Customs Union is granted after products have proved to be compliant with the requirements of Customs Union Technical Regulations which are applicable to the product. As of December 2012, 31 Customs Union Technical Regulations have been developed covering different types of products, some of which have already come into force, while others will come into force in the period 2012 – 2015. Some Technical Regulations are being still developed.
Before Technical Regulations come into force, the following approvals are the basis for access to the Customs Union Member Countries:
National approvals/certificates – they are good for access of product to the country where this approval/certificate has been issued.
Customs Union Certificates/Approvals issued in accordance with the “List of products subject to mandatory conformity approval in the Customs Union” – such Certificate/Approval is valid in all the three Member Countries of the Customs Union.