THE RUSSIAN CONTEXT
Russia’s transformation to a market economy has not been easy. In 1994-1995
the annual inflation rate was 100-200% per year. In 1997 inflation declined to 10% but
quickly increased to 50-80% due to the August 1998 financial crisis (RECEP 1998;
1999). GDP has continued to decline throughout the 1990s. Official unemployment has
doubled to 18% since the financial crisis. Until the most recent crisis, exchange rates had
stabilized, varying less than 10% during 1996-1997. However, in 1998 the ruble was
devalued again (RECEP, 1999). Foreign direct investment has been allowed in Russia
since 1987, and since 1991 wholly-owned foreign firms have been legal in Russia.
Despite this change in policy, foreign direct investment in Russia has remained fairly
modest at about $47 per person (BISNIS, 1997).