In June 2008, even as the world economy began to crumble, Russian Prime Minister Vladimir Putin was sanguine about his country's economic prospects. "We have no crisis," he said. For the moment, he was on top of it all. Russia's economy had grown by seven percent every year from 1999 to 2007, and Putin was predicting that it would surpass Germany as the fifth-largest economy in the world by 2020.
This, however, would soon prove to be an illusion. At first, Putin and his allies in the Kremlin continued to act invincible, either in denial or opportunistic about the threat the crisis posed. But as the crisis deepened, more liberal figures close to President Dmitri Medvedev were able to push through an initial round of much-needed economic policy adjustments. The third phase of the Russian response will become clear over the next few months, as the Kremlin chooses either to continue down the path of reform or to halt structural changes.
The crisis hit Russia after a decade of high economic growth. By early August 2008, thanks to a steady balance of payment surpluses, Russia had accumulated international currency reserves of $598 billion, the third largest in the world. Inflation plateaued at 15 percent; if anyone worried, it was about the Russian economy overheating.
But then the price of oil -- which had peaked in July at $147 per barrel -- started to plummet. In December, it hit a low of $35 per barrel, a potentially devastating change of fortune for a country in which commodities account for 85 percent of all exports.
After the outbreak of the war in Georgia last August, Russia's stock market started plunging relentlessly, dropping a total of 80 percent from its height in May to its nadir in October. New revelations emerged about Russia's oligarchs -- it turned out they had borrowed more than anybody realized -- and much of their wealth vanished. Within a few months, two-thirds of the country's 100 wealthiest were no longer billionaires.
Russia's first anticrisis response was to refinance the foreign loans
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