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Russia's Collapse

Courtesy Reuters

WINNER TAKES ALL

Russia's economy remains precarious after the August 1998 financial collapse. Gross domestic product fell by 4.6 percent last year and may fall by another percentage point in 1999. Except for 1997, GDP has decreased every year for the past decade, with an accumulated decline since 1991 of 40 percent. Inflation rose to 84 percent in 1998 and remains high. Yet Russia may have finally passed its nadir. Industrial production will likely increase significantly this year, and the fastest-growing industries are not raw materials but machinery, forestry, textiles, food, and construction materials, suggesting a qualitative change. Western policymakers should resist the urge to just throw more money at Russia and instead rethink what the West can and should do to help.

Many argue that Russia fared badly because its "shock therapy" reforms were too fast and radical. But all measures show that Russia's economy is not very liberalized, and the financial collapse made it obvious that

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