There has been little comment on President Yeltsin’s July 17 decree hiking import tariffs by 3 percent across the board with effect from August 15. (Kommersant-daily, July 21) This is surprising in view of the fact that for the past several years, the international community has been pressing Russia to cut its import tariffs (prior to the latest hike, they averaged 14 percent) as a precondition for Russian entry to the World Trade Organization.
Presumably, both Moscow and the international agencies saw the revenue-boosting impact of higher import tariffs in the current financial crisis. The move was also a response to Russia’s worsening foreign trade performance. In previous years, Russia’s foreign trade surplus both helped fill government coffers and was reassuring to those holding Russia’s US$127 billion debt. The trade surplus stood at US$20 billion in 1997–a robust figure, but down from US$27 billion in 1997. In 1997, Russia’s export earnings started to slide due to a fall in world energy prices. The last quarter of 1997 was the first time ever that Russia ran a current account deficit (with a deficit on services and financial flows outweighing the trade surplus).
These negative trends accelerated in the first five months of this year, according to Goskomstat data. (Russian agencies, July 21) Overall trade in first five months of the year was down 3.4 percent. Exports fell 14 percent to US$29 billion, while imports rose 15 percent to US$22 billion. CIS countries account for 24 percent of Russia’s foreign trade. The reason for the decline in export revenues is the drop in price of Russia’s leading export commodities. In the first five months of the year, prices fell 31 percent for oil, 15 percent for natural gas, 25 percent for timber, 43 percent for nitrogen fertilizers and 20 percent for nickel. Although the volume of crude oil exports rose by 8.6 percent, revenues fell by 22 percent. The volume of natural gas exports fell 1.5 percent, leading to an 18 percent fall in earnings.
In five months, Russia’s leading export earners were natural gas (US$6.2 billion), crude oil (US$4.8 billion), oil products (US$1.6 billion), iron (US$2.2 billion), and aluminum (US$1.6 billion). Imports were led by generic machinery and equipment (US$7.4 billion), sugar (US$800 million), medicines (US$760 million), oil and oil products (US$780 million), meat (US$600 million), not forgetting alcohol US$440 million).
For several years now, imports have accounted for about half of all retail sales in Russia. The three percent increase in tariffs is not likely to make a significant dent in this level of import penetration, nor will its inflationary impact be substantial.
RUSSIAN ECONOMY CONTINUES TO STAGNATE.