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Russia - Living with a lie

Promises of banking restructuring have turned out to be sham. Meanwhile the Russian economy looks to be on hold until the war in Chechnya is resolved and a new president is installed. But there are some signs of recovery, reports Ben Aris

    "The only business in Russia is politics," said Russian oligarch Mikhail Khodorkovsky. When he made this comment two years ago, it was true. But the devaluation of the rouble on August 17 1998 destroyed the so-called Russian oligarchs and broke their hold on power. Average incomes have tumbled, life expectancy has begun to fall again and hundreds of small and medium enterprises have been killed off.

With a depressed economy, those in power scrambled to grab what little money was available. Russia is now the riskiest country in the world for investors and ranks among one of the most corrupt.

The government has become more intrusive, returning to the principles of central planning in some sectors. Shareholder and investment rights abuses are now more blatant as businesspeople, facing an unpredictable future, have sought to consolidate their control over the best companies and businesses while they can.

The picture is bleak, but not hopeless. Devaluation has also forced a much-needed restructuring on Russia. With a cheaper rouble and an absence of imports, the balance of payments has improved and Russian industry, smothered for nearly a decade by an overpriced rouble, has been booming.

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