Putin's Petroleum Problem

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Summary
This article tackles the economic catch-22 that Russia faces today with petroleum. The petroleum industry that Russia inherited from the Soviet Union has helped keep Russia afloat. However, the over reliance on the petroleum industry also makes Russia very susceptible to the economic downturns and keeps Russia from growing in other sectors. During the recent recession, Russia was one of the countries that were hardest hit. This is due to the fact that thirty percent of Russia’s Gross Domestic Product (GDP) comes from petroleum revenues and forty percent of tax income is derived from petroleum taxes. The question for Russia is how to proceed to fix this problem while also benefiting from it. The privatization of the petroleum sector in the 90’s saw great increases in oil production which allowed for modernization and foreign investment. However, when Putin was elected President in 2000, he saw petroleum as potential for state grow via new revenue. The new taxes stifled growth, modernization, and chased away foreign investors. Despite how it may appear that this was the completely wrong choice to make, this move has allowed Putin to stay in power. The revenue has allowed Putin to give large social handouts and tax breaks that can garnish political favor. Medvedev’s time in power showed a shift from Putin’s plan, with an emphasis in using petroleum profits to reinvest in the technology industry. A third competing way to handle the economic situation was championed by Kudrin. He believed in reforming the pension and welfare systems, cutting back subsidies to regional governments and dying industries, trimming military expenditures, and generally restoring budgetary discipline and improving the investment climate. The author recommends Kudin’s plan. He believes Russia should fix the issues as Kudrin advocates as well as prohibiting politically charged tax breaks and subsidies for unfruitful causes. He also recommends improving the regulatory...
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