LOWERING THE BOOM….

Russia’s economy seems likely to grow this year at a pace at least equal to last year’s 3.2 percent expansion.

Manufacturing was last year’s economic engine, fueled by devaluation and turbo-charged by statistics. The August 1998, financial collapse knocked the ruble down from 16 cents to four cents in just a few weeks. The weak ruble priced imports out of the market and made room for domestic goods, putting idle capacity back to work. And the collapse knocked the props out from under most statistical measures of economic performance; in comparison to late 1998-early 1999, even mediocre numbers would look good.

Even so, some numbers looked bad. Personal consumption in 1999 was down five percent from 1998, and retail sales were off by even more. Despite high world prices, production of oil and gas did not rise. What did grow was manufacturing, up more than 8 percent as inventories were replenished and industrial inputs like chemicals and glass found ready buyers.

That surge may not repeat. Manufacturers are paying more now for energy–electricity has doubled in real terms, and gas and oil are up sixfold. The ruble rose 40 percent in real terms between January 1 and the end of April. And year-on-year comparisons will become more difficult as the base moves into late 1999, when recovery had already taken hold. But as manufacturing decelerates, other sectors are taking up the slack. Construction is strong, as are transportation, personal consumption, and investment. The recovery is moving from the factory to the consumer and from idle capacity to new or modernized plant.

Nevertheless, few economists see long-term growth without structural reforms. The International Monetary Fund–the voice of consensus on these issues–has a long list of “priorities”: industrial restructuring, privatization, and improved corporate governance; an end to barter; reform of the banking system, the tax system, the budget, and the civil service; land ownership and agricultural reform; and a better social safety net. President Putin’s in-house intellectual, German Gref of the Center for Strategic Research, will present his plan for the economy to the government tomorrow. Prime Minister Mikhail Kasyanov has already belittled Gref’s work, saying he has not read it and does not intend to. Between the wheel of internal dissension and the stone of oligarchic interests, economic reform could be ground to a powder.