Russia
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 decline 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.Russia, however, appears to have weathered the crisis relatively well. Real 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 debts obligations. During 2000-01, Russia not only met its external debt services but also made large advance repayments of principal on IMF loans but also built up Central Bank reserves with government budget, trade, and current account surpluses. The FY 2002 Russian Government budget assumes payment of roughly $14 billion in official debt service payments falling due. Large current account surpluses have brought a rapid appreciation of the ruble over the past several years. This has meant that Russia has given back much of the terms-of-trade advantage that it gained when the ruble fell by 60% during the debt crisis. Oil and gas dominate Russian exports, so Russia remains highly dependent upon the price of energy. Loan and deposit rates at or below the inflation rate inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise.
In 2003, the debt will rise to $19 billion due to higher Ministry of Finance and Eurobond payments. However, $1 billion of this has been prepaid, and some of the private sector debt may already have been repurchased. Russia continues to explore debt swap/exchange opportunities.In the June 2002 G8 Summit, leaders of the eight nations signed a statement agreeing to explore cancellation of some of Russia’s old Soviet debt to use the savings for safeguarding materials in Russia that could be used by terrorists. Under the proposed deal, $10 billion would come from the United States and $10 billion from other G-8 countries over 10 years.Japan
Government-industry cooperation, a strong work ethic, mastery of high technology, emphasis on education and a comparatively small defense allocation (1% of GDP) have helped Japan advance with extraordinary speed to become one of the largest economic powers in the world along with the US and European Union. For three decades overall real economic growth had been spectacular: a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s largely because of the after effects of overinvestment during the late 1980s and contractionary domestic policies intended to wring speculative excesses from the stock and real estate markets. Government efforts to revive economic growth have met with little success and were further hampered in 2000-2001 by the slowing of the US and Asian economies.Distinguishing characteristics of the Japanese economy include the working together of manufacturers, suppliers, distributors and banks in closely-knit groups called keiretsu; the powerful enterprise unions and shunto; cozy relations with government bureaucrats, and the guarantee of lifetime employment (shushin koyo) in big corporations and highly unionized blue-collar factories. Recently, Japanese companies have begun to abandon these norms in an attempt to increase profitability.The government of Junichiro Koizumi has enacted or attempted to pass (sometimes with failure) major privatization and foreign-investment laws intended to help stimulate Japan’s dormant economy. While some of these laws have been enacted, the economy has yet to respond, and Japan’s aging population is expected to place further strain on the economy in the near future.
Germany
Germany possesses the world’s third most technologically powerful economy after the US and Japan and is part of the world’s largest economy, the European Union. While exports remain strong, the local market of the basically capitalistic economy has started to show problems commonly blamed on the generous social benefits. Unemployment has been a problem for several decades, and is now usually considered a long-term, not just cyclical, problem.After the fall of Communism in Europe, Germany was reunited in 1990, not without economic difficulty. Together with France, the new Germany is playing the leading role in the European Union. The integration and upgrading of the eastern German economy remains a costly long-term problem, with annual transfers from the west amounting to roughly $100 billion without conditions in the East actually improving after 1997. Some economists argue that the transfers hurt more than they help since they don’t encourage the East to get out of the slump by its own effort, while at the same time preventing dearly-needed infrastructure investment and upkeep in the West. There are still almost no internationally renowned companies headquartered in former East-Germany; most have only established subsidiaries.The recent adoption of the euro and the general political and economic integration of Europe including the eastward expansion of the European Union are thought likely to bring major changes to the German economy in the early 21st century.Turkey
Turkey’s dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that in 2001 still accounted for 40% of employment. It has a strong and rapidly growing private sector, yet the state still plays a major role in basic industry, banking, transport, and communication. The most important industry – and largest export – is textiles and clothing, which is almost entirely in private hands.In recent years the economic situation has been marked by erratic economic growth and serious imbalances. Real GNP growth has exceeded 6% in many years, but this strong expansion has been interrupted by sharp declines in output in 1994, 1999, and 2001.
Meanwhile the public sector fiscal deficit has regularly exceeded 10% of GDP – due in large part to the huge burden of interest payments, which in 2001 accounted for more than 50% of central government spending – while inflation has remained in the high double digit range.Perhaps because of these problems, foreign direct investment in Turkey remains low – less than USD 1 billion annually. In late 2000 and early 2001 a growing trade deficit and serious weaknesses in the banking sector plunged the economy into crisis – forcing Ankara to float the lira and pushing the country into recession.Results in 2002 were much better, because of strong financial support from the IMF and tighter fiscal policy. Continued slow global growth and serious political tensions in the Middle East cast a shadow over growth prospects in the future.The Economy of Europe
The economy of Europe is comprised of more than 665 million people in 48 different states. Like other continents, the wealth of Europe’s states varies, although the poorest are well above the poorest states of other continents in terms of GDP and living standards. The difference in wealth across Europe can be seen in a rough East-West divide. Whilst Western European states all have high GDPs and living standards, many of Eastern Europe’s economies are emerging from the collapse of the USSR and the former Yugoslavia.As a continent, Europe has the largest economy. Its largest single economy is that of Germany, which ranks third globally behind the United States of America and Japan. The European Union is the world’s largest economy, surpassing even that of the United States of America.
United States
The United States is said to have a mixed economy because privately owned businesses and government both play important roles. Indeed, some of the most enduring debates of American economic history focus on the relative roles of the public and private sectors.
The American free enterprise system emphasizes private ownership. Private businesses produce most goods and services, and almost two-thirds of the nation’s total economic output goes to individuals for personal use (the remaining one-third is bought by government and business). The consumer role is so great, in fact, that the nation is sometimes characterized as having a “consumer economy.”However, like in all modern economies, there are limits to free enterprise and private ownership. Americans generally agree that some services are better performed by public rather than private enterprise. For instance, in the United States, government is primarily responsible for the administration of justice, education (although there are many private schools and training centers), the road system, social statistical reporting, and national defence. In addition, government often is asked to intervene in the economy to correct situations in which the price system does not work. It regulates “natural monopolies,” for example, and it uses antitrust laws to control or break up other business combinations that become so powerful that they can surmount market forces.Government also addresses issues beyond the reach of market forces. It provides welfare and unemployment benefits to people who cannot or will not support themselves, either because they encounter problems in their personal lives or lose their jobs as a result of economic upheaval; it pays much of the cost of medical care for the aged and those who live in poverty; it regulates private industry to limit air and water pollution; it provides low-cost loans to people who suffer losses as a result of natural disasters; and it has played the leading role in the exploration of space, which is too expensive for any private enterprise to handle. All of this is paid for by a system of progressive taxation.In this mixed economy, individuals can help guide the economy not only through the choices they make as consumers but through the votes they cast for officials who shape economic policy. In recent years, consumers have voiced concerns about product safety, environmental threats posed by certain industrial practices, and potential health risks citizens may face; government has responded by creating agencies which aim to protect consumer interests and promote the general public welfare.The U.S. economy has changed in other ways as well. The population and the labour force have shifted dramatically away from farms to cities, from fields to factories, and, above all, to service industries. In today’s economy, the providers of personal and public services far outnumber producers of agricultural and manufactured goods. As the economy has grown more complex, statistics also reveal over the last century a sharp long-term trend away from self-employment toward working for others.