The Russian economy looks better now than it has in many years. Developments since the crash of August 1998, have shown if nothing else the stubborn lunacy of the International Monetary Fund’s insistence on a fixed rate for the grossly overvalued ruble in the months preceding the debacle.

In the year and half since the crash, the weak ruble has eased the payments crisis and revived Russian industry. The state paid its debts to its workers and pensioners, albeit with deeply devalued rubles. With money in their pockets, people began to spend. Retail trade grew seven percent in the first two months of this year. The recovery of demand–and the collapse of import competition, priced out of the market by the new exchange rate–brought industry back. Preliminary data show a year-on-year gain of 13 percent in industrial production in January and February, ensuring double-digit growth for the third consecutive quarter. The federal budget ran a billion-dollar surplus in the first two months of 2000, and annual inflation rates are down to 25 percent from 125 percent a year ago.

High energy prices are a major part of the recovery, bringing in dollars from the sale of oil and gas. At $9.3 billion, monthly export earnings last December were the highest in five years. The trade surplus is on a $50 billion annual pace. Central Bank regulations require that 75 percent of export earnings be repatriated within ninety days. Even with capital flight taking dollars out of the country at a rate of one or two billion a month, enough foreign exchange has stayed behind to rebuild Central Bank reserves to $15 billion, their highest level since the August, 1998, crash.

In fact some economists think Russia in the short term may have trouble coping with a dollar glut. When dollars flow into the Central Bank, rubles flow out. With government spending slated to rise–there is the war in Chechnya to be funded, and Putin’s campaign promise of a 20 percent pay hike for public-sector employees–inflationary pressures could return.