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In November through January, a number ofindustries showed growth not only from the previous month but from the sameperiods of 1997-1998. In January 1999 as compared to January 1998, engineeringoutput rose by 2.3 per cent, timber and woodworking by 5.8 per cent, industrialbuilding materials 2 per cent, glass, china and earthenware 2.6 per cent, andmicrobiology output by 0.4 per cent. Of course,. this is not much, but let usnot forget that a year ago the Russian economy had already begun to show signsof growth, so that the reference point in this comparison is not the deepestlow of the post-communist crisis.

One has to wonder about the reasons forthese positive developments. In late 1998, the government managed, for the mostpart, to ensure macroeconomic stability (first of all, to prevent inflationfrom skyrocketing) and to more or less normalize the system of payments andsettlements.

Generally speaking, there are two principalgroups of factors that determined the production growth trend.

On the one hand, the ruble devaluation,which sharply undermined the competitive capacity of many imported products,generated a rapid rise in the efficiency of a number of domestic producers.This factor will continue to operate provided the real ruble rate ismaintained, i.e., provided the inflation rate coincides with the rate ofdecline of the exchange rate. High inflation would by itself cancel the growthpotential. Inflation would be curbed (using a fixed or quasi-fixed rate) whenthe real ruble value rises and the "devaluation" source of the competitivecapacity of domestic production has been exhausted.

Table 1.14

Dynamics of industrial output for 1998,
per cent of previous month

01.98

02.98

03.98

04.98

05.98

06.98

07.98

08.98

09.98

10.98

11.98

12.98

Total industry

93,2

101,2

100,4

95,8

93,2

100,9

94,5

99,3

96,9

110,1

100

110,1

Electrical powerengineering

96,8

91,4

92,7

84,4

76

86

98

98,2

110,5

131,3

126,4

110,3

Fuel

99,4

93

106,1


98,9

97

103

98,9

96,8

107,4

97

104,9

Ferrous metals

104,5

95,1

107,3

98,3

102

89,5

100,1

97,8

96,8

104,2

94,6

117,1

Nonferrousmetals

116,9

97,2

106,5

92,1

106,5

113,2

111,5

99,2

92,8

95,1

92,1

103,2

Chemical and petrochemicalindustry

99,5

98,5

113,1

102,5

93

88,2

98,1

96,2

100

114,1

99,4

104,5

Machine building and metalworking

103,5

108,4

112,1

98,5

78,5

115,4

87,2

95,7

93,4

118,2

93,3

111,4

Timber, wood working andpulp and paper industries

96,1

111,3

113,1

88,1

74,8

120,6

100,3

95

92,9

100,5

92,6

140,1

Building materialsindustry

87,9

100,1

115,9

112,6

99,5

110,2

98,8

98,7

98,1

100,2

86,7

101,3

Light industry

109,5

109,5

102,3

98,3

71,8

102

81,1

105

107,9

7

95,7

107,1

Foodprocessing

93,2

113

117,2

98,2

98,8

97,7

98,6

95,2

98,1

112,1

91,6

102

Source: RF Goskomstat

On the other hand, the growth of the pastfew months is associated with the economy's entry into a high inflation cycle.The experience of many countries makes it quite clear that the expansion ofmonetary financing of the economy initially (during several months) stimulateseconomic growth thanks to the emergence of a "monetary illusion", that is,money injected into the economy creates an illusion of expanding demand.Households have the money to buy goods. Companies perceive the market's signalsas an increase of demand and begin to expand production. The demand forintermediary goods (ones used for production purpose) grows. The real level ofnon-payments in the economy goes down. This factor is strictly short-term andis soon followed by a new recession.

Table 1.15

Dynamics of the strike movement in1998

Month

Number of enterprises andorganizations where strikes occurred

Number of strikers,

in thousands of persons

January

246

19,6

February

78

8,1

March

70

9,7

April

946

52,3

May

362

25,4

June

92

13,9

July

31

5,4

August

47

2,1

September

2394

78,5

October

4229

196,1

November

2135

65,5

December

5305

134,3

Source: RF Goskomstat

We see that by early 1999, the Russianeconomy had two mechanisms for stimulating growth, which, although compatiblein the short term, are bound to diverge in mid-term (over six months). Thestability of the December-January favorable trends would depend, above all, onthe government's economic policy. Adequate macroeconomic and institutionaldecisions on the part of the government are essential for maintaining thefavorable trends that came into being in late 1998-early 1999.

In the short term, the operation of thesefactors was predominantly favorable. As demand expanded, the share ofenterprises that increased the volume of output has increased several times.Last autumn witnessed production growth in engineering, the chemical andpetrochemical industry, ferrous and nonferrous metallurgy, oil production andoil refining (from September 1997 through August 1998, that is, in the periodof macroeconomic stabilization, this indicator was going down).

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