The recent tremors in the world's financial markets have reverberated in Russia, where stocks have fluctuated wildly and the ruble dropped 3.9 percent in the course of a week.
The Russian economy, meanwhile, remains deeply dependent on oil and gas exports and badly in need of diversification.
Sergei Seninsky, economic analyst for RFE/RL's Russian Service, sat down with RFE/RL's Brian Whitmore to explain the key issues facing Moscow's policymakers.
RFE/RL: How have the economic slowdown in the West and the current crisis in financial markets affected the Russian economy?
The direct effect, on the whole, has been small. It has only affected the Russian stock market, where foreign investors account for most of the trade volume.
A system of government favoritism prevails, in which the success of many companies is often determined not by their experience but by their connections to state institutions.
The Russian market has, by and large, repeated the fluctuations occurring in Western markets. The Russian economy itself is still very isolated from the world economy.
Despite the economic slowdown in the West, the demand for Russia's main export, oil, has not only not declined, but has actually continued to grow.
Oil prices, as before, have remained one of the main factors influencing the development of the Russian economy. For years, experts have used, along with other factors, a very simple formula: for every $10 the annual price of oil rises, the Russian economy grows by 1 percent. This formula also works in reverse.
In general, this relationship is still valid. But some experts believe that for the Russian economy to grow by 1 percent now, the price of oil needs to rise more than $10.
As a result of the crisis, the Russian economy is spending oil revenue more slowly than before, as businesses become more conservative with their plans.
World oil prices reached another peak in early May of this year, but have since fallen by more than 25 percent. Russia's GDP in the second quarter of 2011, however, rose by 3.4 percent compared to the second quarter of last year. In the first quarter, growth was 4.1 percent.
RFE/RL: But how sustainable can this growth be if it is so heavily dependent on oil prices?
That's where the main problem lies! The commodities sector dominates the Russian economy, and is far ahead of the others. Hundreds of companies and enterprises in other sectors of the economy depend on orders from the commodities sector. And so when oil prices fall and oil companies' revenues decline, it is immediately reflected in the overall economy.
RFE/RL economic analyst Serguei Seninsky
Reducing this dependence requires a deep diversification of the Russian economy. That means the development of new high-tech industries that are capable of producing modern products and services that are in demand not only for the commodities industries, but also for many others. They also must be competitive in the global market.
This is the problem Russian economic policy needs to focus on for many years to come. And here we are not just talking about creating a system of incentives and benefits for companies and new industries that would be guaranteed for at least a few years. To develop these industries requires not just building new techno-parks, but also stimulating a competitive environment in the real economy.
Instead, a system of government favoritism prevails, in which the success of many companies is often determined not by their experience but by their connections to state institutions, and private capital leaves the country to create jobs not in Russia, but abroad.
RFE/RL: Is the outflow of capital from Russia reflected in the ruble exchange rate?
Absolutely, although the current situation is rather peculiar. Let me explain. The outflow of capital implies that more capital is leaving the country than is coming in. This includes oil and gas revenues.
In just the past six months, this net outflow exceeded $50 billion. By way of comparison, this is one-10th of Russia's total accumulated foreign-exchange reserves.
Any significant fluctuations in the ruble exchange rate are practically impossible without the participation of the [Russian] Central
So that incoming oil revenues do not cause the ruble to strengthen too much, the Central Bank buys them on the currency markets. For these purchases, it prints new rubles, which accelerates inflation.
But if a significant portion of dollars then leaves in the form of capital outflow, then the Central Bank can print new rubles in much smaller quantities. This is what has been happening since the autumn of last year. This was a major factor in a significant slowdown of inflation in the country in recent months.
RFE/RL: But last week, amid falling stock markets around the world, the Russian ruble fell by 3 percent in relation to the U.S. dollar.
Yes, this happened on Tuesday, August 9. But even this drop is well within the currency corridor set by the Russian Central Bank for exchange-rate fluctuations in a single day.
As soon as the exchange rate began to approach the lower end of this corridor, just a moderate intervention was enough to make sure the ruble began to rise again.
In general, over the past week the ruble exchange rate fell by 3.9 percent in relation to the dollar.
Currently, with high oil prices, which determine the amount of foreign-exchange inflows into the country, and with the Russian Central Bank's accumulated foreign-exchange reserves of $537 billion, any significant fluctuations in the ruble exchange rate are practically impossible without the participation of the Central Bank.
RFE/RL: Does this mean that in the near future the ruble will not come under pressure?
No, it does not. And this is due mainly to internal factors. Since the autumn of 2010 imports have sharply increased in Russia. The acute phase of the [2008-09] financial crisis was over and high oil prices contributed to a significant influx of foreign currency.
This created additional demand, but the majority of Russian companies could not yet offer products and services to private and industrial consumers at a competitive price with the quality of their foreign counterparts.
And those companies that can offer them, as a rule use foreign technology and equipment for their production.
As a result, the growth rate of imports into Russia is a third higher than the growth rate of exports.
If this ratio is maintained, experts say that, by the end of 2012 or the beginning of 2013, Russia's trade surplus will be gone.
And if oil prices go down by that time, then inflow of foreign currency will decrease sharply, while the demand for it, on the contrary, will be high.
It's unlikely that this will lead to a rapid devaluation of the ruble. Russia has large foreign-exchange reserves, oil prices may not fall so sharply, and the rapid growth of imports may slow.
But even in this scenario, downward pressure on the ruble would grow.