Russia's Map

Geography
Area: 17 million sq. km. (6.5 million sq. mi.); about 1.8 times the size of the United States.
Cities: Capital--Moscow (pop. 8.3 million). Other cities--St. Petersburg (4.6 million), Novosibirsk (1.4 million), Nizhniy Novgorod (1.3 million).
Terrain: Broad plain with low hills west of Urals; vast coniferous forest and tundra in Siberia; uplands and mountains (Caucasus range) along southern borders.
Climate: Northern continental, from subarctic to subtropical.

People
Nationality: Noun and adjective--Russian(s).
Population (2004 est.): 144 million.
Annual growth rate (2004 est.): -0.45%.
Ethnic groups: Russian 82%, Tatar 4%, Ukrainian 3%, other 11%.
Religion: Russian Orthodox, Islam, Judaism, Roman Catholicism, Protestant, Buddhist, other.
Language: Russian (official); more than 140 other languages and dialects.
Education (total pop.): Literacy--99%.
Health: Life expectancy (2004 est.)--60 yrs. men, 73 yrs. women.
Work force (72 million): Production and economic services--84%; government--16%.

Government
Type: Federation.
Independence: August 24, 1991.
Constitution: December 12, 1993.
Branches: Executive--president, prime minister (chairman of the government). Legislative--Federal Assembly (Federation Council, State Duma). Judicial--Constitutional Court, Supreme Court, Supreme Court of Arbitration, Office of Procurator General.
Political parties: Shifting. The December 2003 Duma elections were contested by United Russia, the Communist Party (KPRF), the Liberal Democratic Party (LDPR), the Homeland (Rodina) bloc, the Union of Right Forces (SPS) and Yabloko. SPS and Yabloko, parties favoring Western-style reforms, failed to clear the 5% threshold to enter the Duma as a party.
Subdivisions: 21 autonomous republics and 68 autonomous territories and regions.
Suffrage: Universal at 18 years.

Economy
GDP (2004): $613 billion.
Growth rate (2004): 6.8%.
Per capita GDP: $4,000 in 2004 (purchasing power parity estimated at $8,280).
Natural resources: Petroleum, natural gas, timber, furs, precious and nonferrous metals.
Agriculture: Products--Grain, sugar beets, sunflower seeds, meat, dairy products.
Industry: Types--Complete range of manufactures: automobiles, trucks, trains, agricultural equipment, advanced aircraft, aerospace, machine and equipment products; mining and extractive industry; medical and scientific instruments; construction equipment.
Trade (2004): Exports--$152.7 billion: petroleum and petroleum products, natural gas, woods and wood products, metals, chemicals. Major markets--EU, CIS, China, Japan. Imports--$79 billion: machinery and equipment, chemicals, consumer goods, medicines, meat, sugar, semi-finished metal products. Major partners--EU, U.S., NIS, Japan, China. U.S. exports--$3 billion. Principal U.S. exports (2004)--oil/gas equipment, poultry, inorganic chemicals, tobacco, aircraft, medical equipment, autos/parts. U.S. imports--$11.8 billion. Principal U.S. imports (2004)--oil, aluminum, chemicals, platinum, iron/steel, fish and crustaceans, knit apparel, nickel, wood, and copper.

PEOPLE
Most of the roughly 145 million Russians derive from the Eastern Slavic family of peoples, whose original homeland was probably present-day Poland. Russian is the official language of Russia and is one of the six official languages of the United Nations. Russian has also been the language of such giants of world literature as Pushkin, Tolstoy, Dostoevsky, Chekov, Pasternak and Solzhenitsyn.

Russia's educational system has produced nearly 100% literacy. About 3 million students attend Russia's 519 institutions of higher education and 48 universities. As a result of great emphasis on science and technology in education, Russian medical, mathematical, scientific, and space and aviation research is generally of a high order. The number of doctors in relation to the population is high by American standards, although medical care in Russia, even in major cities, is far below Western standards. The unraveling of the Soviet state in its last decades and the physical and psychological traumas of transition during the 1990s resulted in a steady decline in the health of the Russian people. Poor nutrition among tens of millions of poorly nourished Russians produced high rates of chronic illnesses and stunted development in children. Widespread alcoholism and drug addiction among men contributed to the world’s largest gap between male and female life expectancy. In 2000, life expectancy at birth was 62 for men and 73 for women. The large annual excess of deaths over births may cut Russia’s population by several tens of millions over the next fifty years.

The Russian labor force is undergoing tremendous changes. Although well educated and skilled, it is largely mismatched to the rapidly changing needs of the Russian economy. Millions of Russian workers are underemployed. Unemployment is highest among women and young people. Many Russian workers compensate by working other part-time jobs. Following the 1991 collapse of the Soviet Union and the economic dislocation it engendered, the standard of living fell dramatically. The standard of living has been on the rise since 1999, but almost one-third of the population still does not meet the minimum subsistence level for income.

Moscow is Russia’s largest city (population 8.3 million) and its capital. Moscow is also increasingly important as an economic and business center; it has become Russia's principal magnet for foreign investment and business presence. Its cultural tradition is rich, and there are many museums devoted to art, literature, music, dance, history, and science, as well as hundreds of churches and dozens of notable cathedrals.

The second-largest city in Russia is St. Petersburg, which was established by Peter the Great in 1703 to be the capital of the Russian Empire as part of his Western-looking reforms. The city was called Petrograd during World War I and Leningrad after 1924. In 1991, as the result of a city referendum, it was renamed St. Petersburg. Under the tsars, the city was Russia's cultural, intellectual, commercial, financial, and industrial center. After Lenin moved the capital back to Moscow in 1918, the city's political significance declined, but it remained a cultural, scientific, and military-industrial center. The Hermitage, formerly the Winter Palace of the tsars, is one of the world's great fine arts museums.

Russia has an area of about 17 million square kilometers (6.5 million sq. mi.); in geographic terms, this makes Russia the largest country in the world by more than 2.5 million square miles. But with a population density of about 22 persons per square mile (9 per sq. km.), it is sparsely populated, and most of its residents live in urban areas.

HISTORY
Although human experience on the territory of present-day Russia dates back to Paleolithic times, the first lineal predecessor of the modern Russian state was founded in 862. The political entity known as Kievan Rus was established in Novgorod in 962 and lasted until the 12th century. In the 10th century, Christianity became the state religion under Vladimir, who adopted Greek Orthodox rites. Consequently, Byzantine culture predominated, as is evident in much of Russia's architectural, musical, and artistic heritage. Over the next centuries, various invaders assaulted the Kievan state and, finally, Mongols under Batu Khan destroyed the main population centers except for Novgorod and Pskov and prevailed over the region until 1480.

In the post-Mongol period, Muscovy gradually became the dominant principality and was able, through diplomacy and conquest, to establish suzerainty over European Russia. Ivan III (1462-1505) referred to his empire as "the Third Rome" and considered it heir to the Byzantine tradition. Ivan IV (the Terrible) (1530-1584) was the first Russian ruler to call himself tsar. He pushed Russian eastward with his conquests but his later reign was marked by the cruelty that earned him his familiar epithet. He was succeeded by Boris Godunov, whose reign commenced the so-called Time of Troubles. Relative stability was achieved when Michael Romanov established the dynasty that bore his name in 1613.

During the reign of Peter the Great (1689-1725), modernization and European influences spread in Russia. Peter created Western-style military forces, subordinated the Russian Orthodox Church hierarchy to the tsar, reformed the entire governmental structure, and established the beginnings of a Western-style education system. He moved the capital westward from Moscow to St. Petersburg, his newly-established city on the Baltic. His introduction of European customs generated nationalistic resentments in society and spawned the philosophical rivalry between "Westernizers" and nationalistic "Slavophiles" that remains a key dynamic of current Russian social and political thought.

Catherine the Great continued Peter’s expansionist policies and established Russia as a European power. During her reign (1762-96), power was centralized in the monarchy, and administrative reforms concentrated great wealth and privilege in the hands of the Russian nobility. Catherine was also known as an enthusiastic patron of art, literature and education and for her correspondence with Voltaire and other Enlightenment figures.

Alexander I (1801-1825) began his reign as a reformer, but after defeating Napoleon’s 1812 attempt to conquer Russia, he became much more conservative and rolled back many of his early reforms. During this era, Russia gained control of Georgia and much of the Caucasus. Throughout the 19^th century, the Russian Government sought to suppress repeated attempts at reform from within, particularly under the reign of Nicholas I (1825-1855). Its economy failed to compete with those of Western countries. Russian cities were growing without an industrial base to generate employment, although emancipation of the serfs in 1861 foreshadowed urbanization and rapid industrialization late in the century. At the same time, Russia expanded into the rest of the Caucasus, Central Asia and across Siberia. The port of Vladivostok was opened on the Pacific coast in 1860. The Trans-Siberian Railroad opened vast frontiers to development late in the century. In the 19th century, Russian culture flourished as Russian artists made significant contributions to world literature, visual arts, dance, and music. The names of Dostoyevsky, Tolstoy, Gogal, Repin, and Tchaikovsky became known to the world.

Alexander II (1855-1881), a relatively liberal tsar, emancipated the serfs. His 1881 assassination, however, prompted the reactionary rule of Alexander III (1881-1894). At the turn of the century, imperial decline became evident. Russia was defeated in the unpopular Russo-Japanese war in 1905. The Russian Revolution of 1905 forced Tsar Nicholas II (1894-1917) to grant a constitution and introduce limited democratic reforms. The government suppressed opposition and manipulated popular anger into anti-Semitic pogroms. Attempts at economic change, such as land reform, were incomplete.

1917 Revolution and the U.S.S.R.
The ruinous effects of World War I, combined with internal pressures, sparked the March 1917 uprising that led Tsar Nicholas II to abdicate the throne. A provisional government came to power, headed by Aleksandr Kerenskiy. On November 7, 1917, the Bolshevik Party, led by Vladimir Lenin, seized control and established the Russian Soviet Federated Socialist Republic. Civil war broke out in 1918 between Lenin's "Red" army and various "White" forces and lasted until 1920, when, despite foreign interventions, the Bolsheviks triumphed. After the Red army conquered Ukraine, Belorussia, Azerbaijan, Georgia, and Armenia, a new nation, the Union of Soviet Socialist Republics (U.S.S.R.), was formed in 1922.

First among its political figures was Lenin, leader of the Bolshevik Party and head of the first Soviet Government, who died in 1924. In the late 1920s, Josef Stalin emerged as General Secretary of the Communist Party of the Soviet Union (CPSU) amidst intraparty rivalries; he maintained complete control over Soviet domestic and international policy until his death in 1953. In the 1930s, Stalin oversaw the forced collectivization of tens of millions of its citizens under state agricultural and industrial enterprises. Millions died in the process. Millions more died in political purges, the vast penal and labor system, or in state-created famines. During World War II, 20 million Soviet citizens died in the successful effort to defeat Fascism. After the war, the USSR became one of the Permanent Members of the UN Security Council. In 1949, the U.S.S.R. developed its own nuclear arsenal.

Stalin’s successor, Nikita Khrushchev, served as Communist Party leader until he was ousted in 1964. Aleksey Kosygin became Chairman of the Council of Ministers, and Leonid Brezhnev was made First Secretary of the CPSU Central Committee in 1964. But in 1971, Brezhnev rose to become "first among equals" in a collective leadership. Brezhnev died in 1982 and was succeeded by Yuriy Andropov (1982-84) and Konstantin Chernenko (1984-85). In 1985, Mikhail Gorbachev became the next (and last) General Secretary of the CPSU. Gorbachev introduced policies of perestroika (restructuring) and glasnost (openness). But his efforts to reform the creaky Communist system from within failed. The people of the Soviet Union were not content with half-freedoms granted by Moscow; they demanded more and the system collapsed. Boris Yeltsin was elected the first president of the Russian Federation in 1991. Russia, Ukraine and Belarus formed the Commonwealth of Independent States in December 1991. Gorbachev resigned as Soviet President on December 25, 1991. Eleven days later, the U.S.S.R. was formally dissolved.

The Russian Federation
After the December 1991 dissolution of the Soviet Union, the Russian Federation became its largest successor state, inheriting its permanent seat on the UN Security Council, as well as the bulk of its foreign assets and debt. By the fall of 1993, politics in Russia reached a stalemate between President Yeltsin and the parliament. The parliament had succeeded in blocking, overturning, or ignoring the President's initiatives on drafting a new constitution, conducting new elections, and making further progress on democratic and economic reforms.

In a dramatic speech in September 1993, President Yeltsin dissolved the Russian parliament and called for new national elections and a new constitution. The standoff between the executive branch and opponents in the legislature turned violent in October after supporters of the parliament tried to instigate an armed insurrection. Yeltsin ordered the army to respond with force to capture the parliament building and crush the insurrection. In December 1993, voters elected a new parliament and approved a new constitution that had been drafted by the Yeltsin government. Yeltsin remained the dominant political figure, although a broad array of parties, including ultra-nationalists, liberals, agrarians, and communists, had substantial representation in the parliament and competed actively in elections at all levels of government.

In late 1994, the Russian security forces launched a brutal operation in the Republic of Chechnya against rebels who were intent on separation from Russia. Along with their opponents, Russian forces committed numerous violations of human rights. The protracted conflict, which received close scrutiny in the Russian media, raised serious human rights and humanitarian concerns abroad as well as within Russia. After numerous unsuccessful attempts to institute a cease-fire, in August 1996 the Russian and Chechen authorities negotiated a settlement that resulted in a complete withdrawal of Russian troops and the holding of elections in January 1997. A peace treaty was concluded in May 1997. Following a number of terrorist incidents blamed on Chechen separatists, the Russian government launched a new military campaign into Chechnya. By spring 2000, federal forces claimed control over Chechen territory, but fighting continues as rebel fighters regularly ambush Russian forces in the region. Throughout 2002 and 2003, the ability of Chechen separatists to battle the Russian forces waned but they claimed responsibility for numerous terrorist acts.

On December 31, 1999 Boris Yeltsin resigned, and Vladimir Putin was named Acting President. In March 2000, he won election in his own right as Russia’s second president with 53% of the vote. Putin moved quickly to reassert Moscow’s control over the regions, whose governors had confidently ignored edicts from Boris Yeltsin. He sent his own "plenipotentiary representatives" (commonly called ‘polpred’ in Russian) to ensure that Moscow’s policies were followed in recalcitrant regions and republics. He won enactment of liberal economic reforms that rescued a faltering economy and stopped a spiral of hyperinflation. Putin achieved wide popularity by stabilizing the government, especially in marked contrast to what many Russians saw as the chaos of the latter Yeltsin years. The economy grew, in part because Putin was able to achieve reforms in banking, labor, and private property. The economy also benefited from rising oil prices. During this time, Russia also moved closer to the U.S., especially after the terror attacks of September 11, 2001. In 2002, the NATO-Russia Council was established, giving Russia a voice in NATO discussions.

GOVERNMENT AND POLITICAL CONDITIONS
In the political system established by the 1993 constitution, the president wields considerable executive power. There is no vice president, and the legislative branch is far weaker than the executive. The bicameral legislature consists of the lower house (State Duma) and the upper house (the Federation Council). The president nominates the highest state officials, including the prime minister, who must be approved by the Duma. The president can pass decrees without consent from the Duma. He also is head of the armed forces and of the Security Council.

Duma elections were held most recently on December 7, 2003, and presidential elections on March 14, 2004. The pro-government party, United Russia, won close to half of the seats in the Duma. Combined with its allies, United Russia commands a two-thirds majority. The OSCE judged the Duma elections as failing to meet international standards for fairness, due largely to extensive slanted media bias in the campaign. Vladimir Putin was re-elected to second four-year term with 71% of the vote in March 2004. The Russian constitution does not allow presidents to serve more than two consecutive terms.

Russia is a federation, but the precise distribution of powers between the central government and the regional and local authorities is still evolving. The Russian Federation consists of 89 regional administrative units, including two federal cities, Moscow and St. Petersburg. The constitution explicitly defines the federal government's exclusive powers, but it also describes most key regional issues as the joint responsibility of the federal government and the regional administrative units. In 2000, President Putin grouped the regions into seven federal districts, with presidential appointees established in Moscow and six provincial capitals. In March 2004, the Constitution was amended to permit the merger of two of the 89 region administrative units, effective in 2005; further consolidation is expected. A law enacted in December 2004 eliminated the direct election of the country's regional leaders. Governors will now be nominated by the president and subject to confirmation by regional legislatures.

Judicial System
The Russian judicial system consists of the Constitutional Court, courts of general jurisdiction, military courts, and arbitrage courts (which hear commercial disputes). The Constitutional Court of the Russian Federation is a court of limited subject matter jurisdiction. The 1993 constitution empowers the Constitutional Court to arbitrate disputes between the executive and legislative branches and between Moscow and the regional and local governments. The court also is authorized to rule on violations of constitutional rights, to examine appeals from various bodies, and to participate in impeachment proceedings against the president. The July 1994 Law on the Constitutional Court prohibits the court from examining cases on its own initiative and limits the scope of issues the court can hear. The system of general jurisdiction courts includes the Supreme Court of the Russian Federation, regional level courts, district level courts and justices of the peace.

The Duma passed a Criminal Procedure Code and other judicial reforms during its 2001 session. These reforms help make the Russian judicial system more compatible with its Western counterparts and are seen by most as an accomplishment in human rights. The reforms have reintroduced jury trials in certain criminal cases and created a more adversarial system of criminal trials that protect the rights of defendants more adequately. In 2002, the introduction of the new code led to significant reductions in time spent in detention for new detainees, and the number of suspects placed in pretrial detention declined by 30%. Another significant advance in the new Code is the transfer from the Procuracy to the courts of the authority to issue search and arrest warrants.

In spite of the general tendency to increase judicial independence (for example, by recent considerable salary raise to judges), many judges still see their role not as of impartial and independent arbiters, but as of government officials protecting state interests.

Human Rights
Russia's human rights record remains uneven and has worsened in some areas in recent years. Despite significant improvements in conditions following the end of the Soviet Union, problem areas remain. In particular, the Russian Government's policy in Chechnya is a cause for international concern. Although the government has made progress in recognizing the legitimacy of international human rights standards, the institutionalization of procedures to safeguard these rights has lagged. There are, however, indications that the law is becoming an increasingly important tool for those seeking to protect human rights.

The judiciary is often subject to manipulation by political authorities and is plagued by large case backlogs and trial delays. Lengthy pretrial detention remains a serious problem. Russia has one of the highest prison population rates in the world, at 685 per 100,000. There are credible reports of beating and torture of inmates and detainees by law enforcement and correctional officials. Prison conditions fall well below international standards. In 2001, President Putin pronounced a moratorium on the death penalty. There are reports that the Russian Government might still be violating promises they made upon entering the European Council, especially in terms of prison control and conditions.

In Chechnya, there have been credible allegations of violations of international human rights and humanitarian law committed by Russian and pro-Moscow Chechen forces. Chechen rebels also have committed abuses as well as acts of terrorism. Human rights groups have criticized Russian officials concerning cases of Chechens disappearing while in custody. Chechen rebels have similarly been responsible for politically motivated disappearances. Russian authorities have introduced some improvements, including better access to complaint mechanisms, the formal opening of investigations in most cases, and the introduction of two decrees requiring the presence of civilian investigators and other nonmilitary personnel during all large-scale military operations and targeted search and seizure operations. Human rights groups welcome these changes but claim that most abuses remain uninvestigated and unpunished.

The Russian constitution provides for freedom of religion and the equality of all religions before the law as well as the separation of church and state. Although Jews and Muslims continue to encounter prejudice and societal discrimination, they have not been inhibited by the government in the free practice of their religion. High-ranking federal officials have condemned anti-Semitic hate crimes, but law enforcement bodies have not effectively prosecuted those responsible. The influx of foreign missionaries has led to pressure by groups in Russia, specifically nationalists and the Russian Orthodox Church, to limit the activities of these "nontraditional" religious groups. In response, the Duma passed a restrictive and potentially discriminatory law on religion in October 1997. The law is complex, with many ambiguous and contradictory provisions. The law's most controversial provisions distinguish between religious "groups" and "organizations" and introduce a 15-year rule, which allows groups that have been in existence for 15 years or longer to obtain accredited status. Senior Russian officials have pledged to implement the 1997 law on religion in a manner that is not in conflict with Russia's international human rights obligations. Some local officials, however, have used the law as a pretext to restrict religious liberty.

Government pressure continued to weaken freedom of expression and the independence and freedom of some media, particularly major national television networks and regional media outlets. A government decision resulted in the elimination of the last major non-state television network in 2003. A wide variety of views continue to be expressed in the press.

The constitution guarantees citizens the right to choose their place of residence and to travel abroad. Some big-city governments, however, have restricted this right through residential registration rules that closely resemble the Soviet-era "propiska" regulations. Although the rules were touted as a notification device rather than a control system, their implementation has produced many of the same results as the propiska system. The freedom to travel abroad and emigrate is respected although restrictions may apply to those who have had access to state secrets. Recognizing this progress, since 1994, the U.S. President has found Russia to be in full compliance with the provisions of the Jackson-Vanik Amendment.

Principal Government Officials
President--Vladimir Putin
Prime Minister--Mikhail Fradkov

The Russian Federation maintains an embassy at 2650 Wisconsin Ave., NW, Washington, DC 20007 (tel. 202-298-5700) and a consular section at 2641 Tunlaw Road, Washington, DC (tel. 202-939-8907/8913/8918). Russian consulates also are located in Houston, New York, San Francisco, and Seattle.

ECONOMY
The Russian economy underwent tremendous stress as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid and steep decline (60%) in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.

Still, Russia weathered the crisis well. In 1999, one year after the crisis, real gross domestic product (GDP) increased by the highest percentage since the fall of the Soviet Union, the ruble stabilized, inflation was moderate, and investment began to increase again. Russia is making progress in meeting its foreign debt obligations. Russia’s sovereign debt has shrunken rapidly since 1998. High oil prices brought large fiscal surpluses of over 1% of GDP. This has allowed Russia to prepay part of its debt and repurchase private sector debt. Russia’s foreign debt fell from 64% of GDP in 2000 to just 28% of GDP in 2003. Russia continues to explore debt swap/exchange opportunities.

An upgrade in Russian’s sovereign credit ratings by Moody’s to Baa3 in September 2003, and upgrade by Standard&Poor’s to BB+ in January 2004, reflects higher confidence in the Russian Government’s financial management. Credit ratings for Russian private debt remain low, however. Large current account surpluses have brought a real appreciation of the ruble over the past several years. The trade-weighted exchange rate of the ruble rose by 4% against the currencies of Russia’s major trading partners during 2003. Upward pressure on the ruble has been reduced by sterilization of some of the inflows and by channeling some of the government’s fiscal surplus into a stabilization fund. This fund will help cushion Russia from price shocks should energy prices remain low for an extended period. The ruble appreciation of the past several years has given back nearly all of the terms-of-trade advantage that Russia gained when the ruble fell by 60% during the 1998 debt crisis. Loan and deposit rates at or below the inflation rate, as well as a lack of depositor confidence in the Russian banks, inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise. The Russian government is currently in the process of implementing a deposit insurance scheme as part of its banking reform efforts.

Gross Domestic Product
Russia's GDP grew by 6.8% during 2004 to $613 billion, propelled by high oil prices, moderate inflation (12%), and strict government budget discipline. Real incomes grew by 10%, spurring considerable growth in private consumption. Industrial output in 2003 grew by 7% compared with 2002.

Monetary Policy
The exchange rate stabilized in 1999; after falling from 6.5 rubles/dollar in August 1998 to about 25 rubles/dollar by April 1999, one year later it had further depreciated only to about 28.5 rubles/dollar. As of January 2004, the exchange rate was 28.5 rubles/dollar, an appreciation of the ruble by 4% from January 2003. After some large spikes in inflation following the August 1998 economic crisis, inflation has declined steadily.

Government Spending/Taxation
Central and local government expenditures are about equal. Combined they come to about 38% of GDP. Fiscal policy has been very disciplined since the 1998 debt crisis. The combined budget surpluses during 2002 were 2.3% of GDP and 1% during 2003. Analysts remain skeptical that high rates of economic growth will continue should oil prices decline. However, high oil prices also have negative economic effects over time, as the consequent very large trade surpluses tend to push the ruble higher, making exports of manufactured goods lag.

Population
Russia's population of 143.8 million (2003 census) is falling. Lower birth rates and higher death rates have reduced Russia's population at a nearly 0.5% annual rate since the early 1990s. Russia is one of few countries with a declining population (although birth rates in many developed countries have dropped below the long-term population replacement). Population decline is particularly drastic in Russia, with higher death rates, especially among working-age males due to poverty, abuse of alcohol and other substances, disease, stress, and other afflictions. Russians generally disapprove of permanent or temporary immigration of workers from countries other than the Russian-speaking former Soviet states that might help solve economic problems brought on by its declining population.

HIV/AIDS
Russia and Ukraine are said to have the highest growth rates of HIV infection in the world. In Russia HIV seems to be transmitted mostly by intravenous drug users sharing needles, although data is very uncertain. Data from the Federal AIDS Center shows that the number of registered cases is doubling every 12 months and is currently at 300,000 persons. When projections are made which allow for people in high-risk groups who have not been tested for the disease, estimates of the actual number of HIV-infected persons are approximately 3 million. The high growth rate of AIDS cases, if unchecked, will have negative economic consequences. Investment will suffer from the diversion of private and government funds to AIDS treatment. The effect on the labor force may be acute since about 80% of infected individuals in Russia are under 30 years of age. At the September 2003 Camp David Summit, and again at the Bratislava meeting in February 2005, Presidents Bush and Putin pledged to deepen ongoing cooperation between the two countries to fight HIV/AIDS.

Law
A particular brake on many areas of economic activity is the absence of relevant legislation--and where there is legislation, lack of effective law enforcement. During 2000 and 2001, changes in government administration increased the power of the central government to compel localities to enforce laws. Progress has been made on pension reform and reform of the electricity sector. Nonetheless, taxation and business regulations are not very predictable, and legal enforcement of private business agreements, especially outside of Moscow and St. Petersburg, is weak. Leftover attitudes from the Soviet period will take many years to overcome. Local officials in some areas interfere in business. Government decisions affecting business have often been arbitrary and inconsistent, and corruption remains a serious problem. Crime has increased costs for both local and foreign businesses. On the positive side, Russian businesses are increasingly turning to the courts to resolve disputes. The passage of an improved bankruptcy code in January 1998 was one of the first steps. In 2001, the Duma passed legislation for positive changes within the business and investment sector; the most critical legislation was a deregulation package. A new flat tax boosted income tax collections considerably. This trend in legislation continued through 2002 when the new corporate tax code went into effect.

Natural Resources
The mineral-packed Ural Mountains and the vast oil, gas, coal, and timber reserves of Siberia and the Russian Far East make Russia rich in natural resources. However, most such resources are located in remote and climatically unfavorable areas that are difficult to develop and far from Russian ports. Nevertheless, Russia is a leading producer and exporter of minerals, gold, and all major fuels. Natural resources, especially energy, dominate Russian exports. Ninety percent of Russian exports to the United States are minerals or other raw materials.

Industry
Russia is one of the most industrialized of the former Soviet republics. However, years of very low investment have left much of Russian industry antiquated and highly inefficient. Besides its resource-based industries, it has developed large manufacturing capacities, notably in machinery. Russia inherited most of the defense industrial base of the Soviet Union, so armaments are the single-largest manufactured goods export category for Russia. Efforts have been made with varying success over the past few years to convert defense industries to civilian use, and the Russian government is engaged in an ongoing process to privatize the remaining 9,222 state-owned enterprises, 33% of which are in the industrial manufacturing sector.

Agriculture
For its great size, Russia has relatively little area suited for agriculture because of its arid climate and inconsistent rainfall. Northern areas concentrate mainly on livestock, and the southern parts and western Siberia produce grain. Restructuring of former state farms has been an extremely slow process. The new land code passed by the Duma in 2002, which makes it easier for Russians to buy and sell farmland, should speed restructuring and attract new domestic investment to Russian agriculture. Foreigners are not allowed to own farmland in Russia although long-term leases are permitted. Private farms and garden plots of individuals account for over one-half of all agricultural production.

Investment
During 2004, Russia's foreign direct investment (FDI) rose to $9.4 billion, a 10% increase from 2003 but still six times less than China. Russia's per capital cumulative FDI also lags far behind such countries as Hungary, Poland, and the Czech Republic. Russia does poorly in the international competition for foreign investment due to a poor business climate, lack of transparency, and weak rule of law. Although foreign investment increased during 2004, Russia’s total cumulative ratio of foreign direct investment to GDP is still low at about 6%. This is less than one-third the level in many other transition economies. Much of the foreign investment coming into Russia is actually returning Russian capital from such havens as Cyprus and Gibraltar. A significant drawback for investment is the banking sector, which lacks the resources, the capability, and the trust of the population needed to attract substantial savings and direct it toward productive investments. Russia's banks contribute only about 3% of overall investment in Russia. While ruble lending has increased since the October 1998 financial crisis, loans are still only 45% of total bank assets. Although many Russians prefer to keep their money outside the banking sector, the recent appreciation of the ruble against the dollar has persuaded some Russians to keep their money in rubles or other currencies such as the euro. The poorly developed banking system makes it difficult for entrepreneurs to raise capital as well as to permit capital transfer from a capital-rich sector such as energy to capital-poor sectors such as agriculture and manufacturing and to diversify risk. Banks still perceive commercial lending as risky, and some banks are inexperienced with assessing credit risk, though the situation is improving.

Money on deposit with Russian banks represents only 7% of GDP. Sberbank, Russia’s largest bank and 60% owned by the Russian Central Bank, is widely seen as enjoying an implicit state guarantee and so has attracted 63-65% of all bank deposits. The bank deposit insurance law passed in 2003 should gradually end this near-monopoly of Sberbank. Sergey Ignatyev in 2002 replaced Viktor Gerashchenko as Chairman of the Russian Central Bank. Under Ignatyev’s leadership, necessary banking reforms, including stricter accounting procedures and federal deposit insurance, have been slow to be implemented; for example, the switch to international accounting standards was pushed back from 2004 to 2007.

Trade
Russia’s overall trade surplus during 2004 was $73 billion, up from $60 billion during 2003. World prices continue to have a major effect on export performance, since commodities--particularly oil, natural gas, metals, and timber--comprise 80% of Russian exports. Russian GDP growth and the surplus/deficit in the Russian Federation state budget are closely linked to world oil prices.

Russian exports to the United States rose during 2004 to $11.8 billion. Chief 2004 Russian exports to the U.S. were fuel oil, inorganic chemicals, aluminum, and precious stones. U.S. exports to Russia rose to $3 billion. Chief 2004 U.S. exports to Russia were machinery, meat (mostly poultry), and electrical equipment.

According to the 2003 U.S. Trade Representative's National Trade Estimate, erratic customs enforcement has traditionally created problems for foreign and domestic trade and investment. The new customs code, which came into effect on January 1, 2004, has made some improvements to customs administration. However, full implementation has been not yet been achieved, and some customs facilities have been slow in making the shift to new procedures. In addition, a burdensome import licensing regime, including quotas for alcohol, has depressed imports of some products, including products containing alcohol. Uncertainty over Russian veterinary regulations cut U.S. poultry exports to Russia by 40% during 2002. Quotas introduced for poultry, pork, and beef in spring 2003 kept U.S. poultry exports below their 2001 peak. Large losses to U.S. audiovisual and other companies in Russia owing to poor enforcement of intellectual property rights in Russia is a growing irritant in U.S.-Russia trade relations.

DEFENSE
Russia’s efforts to transform its Soviet-legacy military into a smaller, lighter and more mobile force continue to be hampered by an ossified military leadership, discipline problems, limited funding and demographics. Recent steps by the Government of Russia suggest a desire to reform. There has been an increased emphasis on practical training, such as the Mobility 2004 Exercises, and the government is introducing bills to improve the organization of the military.

Despite recent increases in the budget, however, defense spending remains unable to sustain Russia’s oversized military. Current troop strength, estimated at one million, is large in comparison to Russia's GDP and military budget, which continues to make the process of transformation to a professional army difficult. This is the result of the Soviet legacy and military thinking that has changed little since the Cold War. Senior Russian leaders continue to emphasize a reliance on a large strategic nuclear force capable of deterring a massive nuclear attack.

In 2002, a conscript’s salary was only 100 rubles a month, or roughly $3.50. Theoretically, the army provides all necessities, however, housing and food shortages continue to plague the armed forces. Problems with both discipline and brutal hazing are common as well. HIV infection rates in the Russian army are estimated to be between two to five times higher than in the general population, and tuberculosis is a persistent problem.

Such conditions and the poor combat performance of the Russian Armed Forces in the Chechen conflict continue to encourage draft evasion and efforts to delay their military service. Although the available manpower (males 15-49) for the Russian Armed Forces was projected at 39.1 million in 2004, only approximately 11% of eligible males do military service. Moreover, military officials complain that new recruit cohorts are plagued by increasingly incidences of poor education, communicable diseases and criminality.

The Russian government has stated a desire to convert to a professional army. However, implementation has been delayed repeatedly. Current plans envision a transition to a mixed force, in which professional soldiers fill the ranks of select units and conscription is gradually phased out. Some officials have talked of developing a non-commissioned officer corps to lead the professional army, but the military has yet to make any concrete investments in training or facilities that would begin this process.