U.S. Department of State
Background Notes: Russia, October 1998

Official Name: Russian Federation

PROFILE


Geography
Area: 17 million sq. km. (6.5 million sq. mi.); about 1.8 times the 
size of the U.S. 
Cities: Capital--Moscow (pop. 9 million). Other cities--St. Petersburg 
(5 million), Novosibirsk (1.4 million), Nizhniy Novgorod (1.3 million). 
Terrain: Broad plain with low hills west of Urals; vast coniferous 
forest and tundra in Siberia; uplands and mountains (Caucasus range) 
along southern borders. 
Climate: Northern continental, from subarctic to subtropical.


People
Nationality: Noun and adjective--Russian(s). 
Population (1997 est.): 147.5 million. 
Annual growth rate: Negative. 
Ethnic groups: Russian 81%, Tatar 4%, Ukrainian 3%, other 12%. 
Religion: Russian Orthodox, Islam, Judaism, Roman Catholicism, 
Protestant, Buddhist, other. 
Language: Russian (official); more than 140 other languages and 
dialects. 
Education (total pop.): Literacy--98%.
Health: Life expectancy (1996) -- 58 yrs. men, 72 yrs. women.

Work force (85 million): Production and economic services--84%. 
Government--16%.

Government 

Type: Federation. 
Independence: August 24, 1991. 
Constitution: December 12, 1993. 
Branches: Executive--president, prime minister (chairman of the 
government). Legislative--Federal Assembly (Federation Council, State 
Duma). Judicial--Constitutional Court, Supreme Court, Supreme Court of 
Arbitration, Office of Procurator General.

Subdivisions: 21 autonomous republics and 68 autonomous territories and 
regions.

Political parties: Shifting. The 1995-96 elections were contested by 
Our Home is Russia, Russia's Democratic Choice, Liberal Democratic 
Party of Russia, Agrarian Party, Communist Party of the Russian 
Federation, Unity and Accord, Yabloko Bloc, Women of Russia, Democratic 
Party of Russia, Russia Forward, Truth and Order, National Patriotic 
Bloc, Russia's Regions, and the Congress of Russian Communities.

Suffrage: Universal at 18 years. 

Economy (1997 est.) 

GDP: $452 billion. 
Growth rate: 0.4%.
Per capita GDP (exchange rate method): $3,054. 
Natural resources: Petroleum, natural gas, timber, furs, precious and 
nonferrous metals.
Agriculture: Grain, sugarbeets, sunflower seeds, meat, dairy products. 
Industry: Complete range of manufactures--automobiles, trucks, trains, 
agricultural equipment, advanced aircraft, aerospace, machine and 
equipment products, mining and extractive industry, medical and 
scientific instruments, construction equipment. 
Trade: Exports (f.o.b.) $87 billion--petroleum and petroleum products, 
natural gas, woods and wood products, metals, chemicals. Major markets-
-EU, NIS, China, Japan. 
Imports (c.i.f.) $68 billion--machinery and equipment, chemicals, 
consumer goods, medicines, meat, sugar, semi-finished metal products. 
Major partners--EU, U.S., NIS, Japan, China. 
Principal U.S. exports ($3.3 billion)--meat, machinery, tobacco. 
Principal U.S. imports ($4.3 billion, a 21% increase from 1996)--
aluminum, precious stones and metals, iron, and steel. 
 PEOPLE

Russia's area is about 6.5 million sq. mi. (17 million sq. km.). It is 
the largest country in the world by more than 2.5 million sq. mi. Its 
population density is about 23 people per square mile (9 per sq. km.), 
making it one of the most sparsely populated countries in the world. 
Its population is predominantly urban.

Most of the roughly 150 million Russians derive from the Eastern Slavic 
family of peoples, whose original homeland was probably present-day 
Poland. Russian is the official language of Russia, and an official 
language in the United Nations. As the language of writers such as 
Tolstoy, Dostoevsky, Chekov, Pushkin, and Solzhenitsyn, it has great 
importance in world literature. 

Russia's educational system has produced nearly 100% literacy. About 3 
million students attend Russia's 519 institutions of higher education 
and 48 universities. As a result of great emphasis on science and 
technology in education, Russian medical, mathematical, scientific, and 
space and aviation research is generally of a high order. The number of 
doctors in relation to the population is high by American standards, 
although medical care in Russia, even in major cities, is far below 
Western standards. 

The Russian labor force is undergoing tremendous changes. Although 
well-educated and skilled, it is mismatched to the rapidly changing 
needs of the Russian economy. Millions of Russian workers are 
underemployed. Unemployment is highest among women and young people. As 
many as 6 million workers were temporarily furloughed in 1996. Many 
Russian workers compensate by working other part-time jobs. Following 
the collapse of the Soviet Union and the economic dislocation it 
engendered, the standard of living fell dramatically, but it has begun 
to recover. 

Moscow is the largest city (population 9 million) and is the capital of 
the Federation. Moscow continues to be the center of Russian Government 
and is increasingly important as an economic and business center. It 
has become Russia's principal magnet for foreign investment and 
business presence. Its cultural tradition is rich, and visitors will 
find many museums devoted to art, literature, music, dance, history, 
and science. It has hundreds of churches and dozens of notable 
cathedrals. 

St. Petersburg, established in 1703 by Peter the Great as the capital 
of the Russian Empire, was called Petrograd during World War I, and 
Leningrad after 1924. In 1991, as the result of a city referendum, it 
was renamed St. Petersburg. Under the tsars, the city was Russia's 
cultural, intellectual, commercial, financial, and industrial center. 
After the capital was moved back to Moscow in 1918, the city's 
political significance declined, but it remained a cultural, 
scientific, and military-industrial center. The Hermitage is one of the 
world's great fine arts museums. Finally, Vladivostok, located in the 
Russian Far East, is becoming an important center for trade with 
Pacific Rim countries. 

HISTORY 

Human experience on the territory of present-day Russia dates back to 
Paleolithic times. Greek traders conducted extensive commerce with 
Scythian tribes around the shores of the Black Sea and the Crimean 
region. In the third century B.C., Scythians were displaced by 
Sarmatians, who in turn were overrun by waves of Germanic Goths. In the 
third century AD, Asiatic Huns replaced the Goths and were in turn 
conquered by Turkic Avars in the sixth century. By the ninth century, 
Eastern Slavs began to settle in what is now Ukraine, Belarus, and the 
Novgorod and Smolensk regions. 

In 862, the political entity known as Kievan Rus was established in 
what is now Ukraine and lasted until the 12th century. In the 10th 
century, Christianity became the state religion under Vladimir, who 
adopted Greek Orthodox rites. Consequently, Byzantine culture 
predominated, as is evident in much of Russia's architectural, musical, 
and artistic heritage. Over the next centuries, various invaders 
assaulted the Kievan state, and finally, Mongols under Batu Khan 
destroyed the main population centers except for Novgorod and Pskov and 
prevailed over the region until 1480. 

In the post-Mongol period, Muscovy gradually became the dominant 
principality and was able, through diplomacy and conquest, to establish 
suzerainty over European Russia. Ivan III (1462-1505) was able to refer 
to his empire as "the Third Rome" and heir to the Byzantine tradition, 
and a century later the Romanov dynasty was established under Tsar 
Mikhail in 1613. 

During Peter the Great's reign (1689-1725), Russia began modernizing, 
and European influences spread in Russia. Peter created Western-style 
military forces, subordinated the Russian Orthodox Church hierarchy to 
the Tsar, reformed the entire governmental structure, and established 
the beginnings of a Western-style education system. His introduction of 
European customs generated nationalistic resentments in society and 
spawned the philosophical rivalry between "Westernizers" and 
nationalistic "Slavophiles" that remains a key dynamic of current 
Russian social and political thought. 

Peter's expansionist policies were continued by Catherine the Great, 
who established Russia as a continental power. During her reign (1762-
96), power was centralized in the monarchy and administrative reforms 
concentrated great wealth and privilege in the hands of the Russian 
nobility. 

Napoleon failed in his attempt in 1812 to conquer Russia after 
occupying Moscow; his defeat and the continental order that emerged 
following the Congress of Vienna (1814-15) set the stage for Russia and 
Austria-Hungary to dominate the affairs of eastern Europe for the next 
century.

During the 19th century, the Russian Government sought to suppress 
repeated attempts at reform from within. Its economy failed to compete 
with those of Western countries. Russian cities were growing without an 
industrial base to generate employment, although emancipation of the 
serfs in 1861 foreshadowed urbanization and rapid industrialization 
late in the century. At the same time, Russia expanded across Siberia 
until the port of Vladivostok was opened on the Pacific coast in 1860. 
The Trans-Siberian Railroad opened vast frontiers to development late 
in the century. In the 19th century, Russian culture flourished as 
Russian artists made significant contributions to world literature, 
visual arts, dance, and music.

Imperial decline was evident in Russia's defeat in the unpopular Russo-
Japanese war in 1905. Subsequent civic disturbances forced Tsar 
Nicholas II to grant a constitution and introduce limited democratic 
reforms. The government suppressed opposition and manipulated popular 
anger into anti-Semitic pogroms. Attempts at economic reform, such as 
land reform, were incomplete. 

1917 Revolution and the U.S.S.R.

The ruinous effects of World War I combined with internal pressures 
sparked the March 1917 uprising, which led Tsar Nicholas II to abdicate 
the throne. A provisional government came to power, headed by Aleksandr 
Kerenskiy. On November 7, 1917, the Bolshevik Party, led by Vladimir 
Lenin, seized control and established the Russian Soviet Federated 
Socialist Republic. Civil war broke out in 1918 between Lenin's "Red" 
army and various "White" forces and lasted until 1920, when, despite 
foreign interventions, the Bolsheviks triumphed. After the Red army 
conquered Ukraine, Belorussia, Azerbaijan, Georgia, and Armenia, a new 
nation was formed in 1922, the Union of Soviet Socialist Republics. 

The U.S.S.R. lasted 69 years. In the 1930s, tens of millions of its 
citizens were collectivized under state agricultural and industrial 
enterprises. Millions died in political purges, the vast penal and 
labor system, or in state-created famines. During World War II, as many 
as 20 million Soviet citizens died. In 1949, the U.S.S.R. developed its 
own nuclear arsenal.

First among its political figures was Lenin, leader of the Bolshevik 
Party and head of the first Soviet Government, who died in 1924. In the 
late 1920s, Josif Stalin emerged as General Secretary of the Communist 
Party of the Soviet Union (CPSU) amidst intraparty rivalries; he 
maintained complete control over Soviet domestic and international 
policy until his death in 1953. His successor, Nikita Khrushchev, 
served as Communist Party leader until he was ousted in 1964. Aleksey 
Kosygin became Chairman of the Council of Ministers, and Leonid 
Brezhnev was made First Secretary of the CPSU Central Committee in 
1964, but in 1971, Brezhnev rose to become "first among equals" in a 
collective leadership. Brezhnev died in 1982 and was succeeded by Yuriy 
Andropov (1982-84), Konstantin Chernenko (1984-85), and Mikhail 
Gorbachev, who resigned as Soviet President on December 25, 1991. On 
December 26, 1991, the U.S.S.R. was formally dissolved. 

The Russian Federation 

After the December 1991 dissolution of the Soviet Union, the Russian 
Federation became its largest successor state, inheriting its permanent 
seat on the United Nations Security Council, as well as the bulk of its 
foreign assets and debt. 

Boris Yeltsin was elected President of Russia by popular vote in June 
1991. By the fall of 1993, politics in Russia reached a stalemate 
between President Yeltsin and the parliament. The parliament had 
succeeded in blocking, overturning, or ignoring the President's 
initiatives on drafting a new constitution, conducting new elections, 
and making further progress on democratic and economic reforms. 

In a dramatic speech in September 1993, President Yeltsin dissolved the 
Russian parliament and called for new national elections and a new 
constitution. The standoff between the executive branch and opponents 
in the legislature turned violent in October after supporters of the 
parliament tried to instigate an armed insurrection. Yeltsin ordered 
the army to respond with force to capture the parliament building 
(known as the White House).

In December 1993, voters elected a new parliament and approved a new 
constitution that had been drafted by the Yeltsin government. Yeltsin 
has remained the dominant political figure, although a broad array of 
parties, including ultra-nationalists, liberals, agrarians, and 
communists, have substantial representation in the parliament and 
compete actively in elections at all levels of government.

In late 1994, the Russian security forces launched a brutal operation 
in the Republic of Chechnya against rebels who were intent on 
separation from Russia. Along with their opponents, Russian forces 
committed numerous violations of human rights. The Russian Army used 
heavy weapons against civilians. Tens of thousands of civilians were 
killed and more than 500,000 displaced during the course of the war. 
The protracted conflict, which received close scrutiny in the Russian 
media, raised serious human rights and humanitarian concerns abroad as 
well as within Russia.

After numerous unsuccessful attempts to institute a cease-fire, in 
August 1996 the Russian and Chechen authorities negotiated a settlement 
that resulted in a complete withdrawal of Russian troops and the 
holding of elections in January 1997. The Organization for Security and 
Cooperation in Europe (OSCE) played a major role in facilitating the 
negotiation. A peace treaty was concluded in May 1997, and the two 
sides agreed to conclude a final settlement by 2001. 

GOVERNMENT AND POLITICAL CONDITIONS 

In the political system established by the 1993 constitution, the 
president wields considerable executive power. There is no vice 
president, and the legislative branch is far weaker than the executive. 
The president nominates the highest state officials, including the 
prime minister, who must be approved by the Duma. The president can 
pass decrees without consent from the Duma. He also is head of the 
armed forces and of the national security council. 

Duma elections were in December 1995 and presidential elections June 
1996. The Communist Party won a plurality of seats in the Duma; the 
pro-government party ("Our Home is Russia"), the liberal "Yabloko" 
bloc, and the nationalists also won substantial numbers of seats in the 
legislature. In the presidential election, Boris Yeltsin was reelected 
in the second round following a spirited campaign. Both the 
presidential and parliamentary elections were judged generally free and 
fair by international observers.

Russia is a federation, but the precise distribution of powers between 
the central government and the regional and local authorities is still 
evolving. The Russian Federation consists of 89 components, including 
two federal cities, Moscow and St. Petersburg. The constitution 
explicitly defines the federal government's exclusive powers, but it 
also describes most key regional issues as the joint responsibility of 
the federal government and the Federation components. 

Judicial System 

Russia's judiciary and justice system are weak. Numerous matters which 
are dealt with by administrative authority in European countries remain 
subject to political influence in Russia. The Constitutional Court was 
reconvened in March 1995 following its suspension by President Yeltsin 
in October 1993. The 1993 constitution empowers the court to arbitrate 
disputes between the executive and legislative branches and between 
Moscow and the regional and local governments. The court also is 
authorized to rule on violations of constitutional rights, to examine 
appeals from various bodies, and to participate in impeachment 
proceedings against the president. The July 1994 Law on the 
Constitutional Court prohibits the court from examining cases on its 
own initiative and limits the scope of issues the court can hear. 

In the past 3 years, the Russian Government has begun to reform the 
criminal justice system and judicial institutions, including the 
reintroduction of jury trials in certain criminal cases. Despite these 
efforts, judges are only beginning to assert their constitutionally 
mandated independence from other branches of government. 

Human Rights 

Russia's human rights record remains uneven. Despite significant 
improvements in conditions following the end of the Soviet Union, some 
problem areas remain. Although the government has made progress in 
recognizing the legitimacy of international human rights standards, the 
institutionalization of procedures to safeguard these rights has 
lagged. Implementation of the constitutional provisions for due process 
and timely trials, for example, has made little progress. In addition, 
the judiciary is often subject to manipulation by political authorities 
and is plagued by large case backlogs and trial delays. Lengthy 
pretrial detention remains a serious problem. There are credible 
reports of law enforcement and correctional officials beating and 
torturing inmates and detainees. Prison conditions fall well below 
international standards and, according to human rights groups, in 1996 
between 10,000 and 20,000 prisoners and detainees died, most because of 
overcrowding, disease, and lack of medical care.

Efforts to institutionalize official human rights bodies have been 
mixed. In 1996, human rights activist Sergey Kovalev resigned as 
chairman of the Presidential Human Rights Commission to protest the 
government's record, particularly the war in Chechnya. Parliament in 
1997 passed a law establishing a "human rights ombudsman," a position 
that is provided for in Russia's constitution and is required of 
members of the Council of Europe, to which Russia was admitted in 
February 1996. The Duma, however, has been unable to agree on a 
candidate to fill this position. International human rights groups 
operate freely in Russia, although the government did hinder the 
movement and access to information of some individuals investigating 
the war in Chechnya.

The case against environmentalist and former Soviet Navy Captain 
Aleksandr Nikitin raises questions about Russia's commitment to 
international standards of human rights.  Nikitin was arrested in early 
1996 for his role in publishing a report on the nuclear hazards posed 
by the decaying Russian Northern Fleet.  The prosecution's case is 
based on secret decrees, which were issued after Nikitin's arrest and 
released to Nikitin and his attorney only after the trial began. 

The Russian Constitution provides for freedom of religion and the 
equality of all religions before the law as well as the separation of 
church and state. Although Jews and Muslims continue to encounter 
prejudice and societal discrimination, they have not been inhibited by 
the government in the free practice of their religion. High-ranking 
federal officials have condemned anti-Semitic hate crimes, but law 
enforcement bodies have not effectively prosecuted those responsible. 
The influx of missionaries over the past several years has led to 
pressure by groups in Russia, specifically nationalists and the Russian 
Orthodox Church, to limit the activities of these "nontraditional" 
religious groups. In response, the Duma passed a new, restrictive, and 
potentially discriminatory law in October 1997. The law is very 
complex, with many ambiguous and contradictory provisions. The law's 
most controversial provisions separate religious "groups" and 
"organizations" and introduce a 15-year rule, which allows groups that 
have been in existence for 15 years or longer to obtain accredited 
status.

The constitution guarantees citizens the right to choose their place of 
residence and to travel abroad. Some big-city governments, however, 
have restricted this right through residential registration rules that 
closely resemble the Soviet-era "propiska" regulations. Although the 
rules were touted as a notification device rather than a control 
system, their implementation has produced many of the same results as 
the propiska system. The freedom to travel abroad and emigrate is 
respected although restrictions may apply to those who have had access 
to state secrets. Recognizing this progress, since 1994, President 
Clinton has found Russia to be in full compliance with the provisions 
of the Jackson-Vanik amendment. 

Principal Government Officials

President--Boris Yeltsin  
Prime Minister--Yevgeniy Primakov

First Deputy Prime Ministers

Economy--Yuriy Maslyukov 
State Building, National, Regional and Youth Policies, Problems of the 
Russian North--Vadim Gustov

Deputy Prime Ministers

Industry and Communications--Vladimir Bulgak 
Agriculture--Gennadiy Kulik
Social Problems--Valentina Matviyenko

Key Ministers

Agriculture--Viktor Semyonov 
Atomic Energy--Yevgeniy Adamov 
Civil Defense--Sergey Shoygu 
Culture--Vladimir Yegorov 
Defense--Igor Sergeyev 
Economic Affairs--Andrey Shapovalyants 
Education--Vladimir Filipov 
Finance--Mikhail Zadornov 
Foreign Affairs--Igor Ivanov 
Fuel and Energy--Sergey Generalov 
Health--Vladimir Starodubov 
Industry and Trade--Georgiy Gabuniya 
Internal Affairs--Sergey Stepashin 
Justice--Pavel Krasheninnikov 
Labor and Social Policy-- Sergey Kalashinkov 
Land Policy, Construction, and Utilities--(vacant) 
Natural Resources--Viktor Orlov 
Railways--Nikolay Aksyonenko  
National Policies--Ramazan Abdulatipov  
Regional Policies--Valeriy Kirpichnikov 
Science and Technology--Mikhail Kirpichnikov 
State Property--Farid Gazizullin 
Transport--Sergey Frank

Ambassador to the U.S.--Yuliy Vorontsov 
Ambassador to the United Nations--Sergey Lavrov

The Russian Federation maintains an embassy at 2650 Wisconsin Ave. NW, 
Washington, DC 20007 (tel. 202-298-5700) and a consular section at 2641 
Tunlaw Road, Washington DC (tel. 202-939-8907/8913/8918). Russian 
consulates also are located in New York, San Francisco, and Seattle. 

ECONOMY 

The Russian economy has undergone tremendous stress as it has moved 
from a centrally planned economy toward 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 run-away inflation.  

Gross Domestic Product

Russia's GDP, estimated at $452 billion in 1997, is believed to have 
declined by as much as 9.9% from September 1997 to September 1998.  By 
October 1998, unemployment had crept up from 9% to 11.5% (using 
International Labor Organization methodologies).  Combined unemployment 
and underemployment may reach 20%.  The government has been slow to 
respond to the unfolding crisis and has yet to announce clear policies 
for getting on a path to growth.

Monetary Policy

Despite a $22 billion assistance package from the International 
Monetary Fund negotiated in July 1998, by August 17, 1998 the 
government was effectively unable to support the value of the ruble, 
which subsequently declined in value by 50%.   As of October 1998, the 
exchange rate had fallen to a rate of approximately 17 rubles/dollar 
compared to 6.5 rubles/dollar in August.  The resulting increase in 
import prices pushed inflation to 45% in the first 3 weeks of September 
1998.  The government has promised to pay at least part of the massive 
wage and pension arrears it has accumulated over the past few years.  
Faced with declining revenues and a growing budget deficit, the 
government may be tempted to fulfill its promises by increasing the 
money supply in an inflationary manner.

Government Spending/Taxation

A revenue shortage continues to plague the government.  This shortage 
is attributable to weak tax administration, a cumbersome tax system 
with high rates that provoke evasion, falling industrial output, 
increasing use of barter in the economy, and blunt refusal to pay by 
large, politically powerful firms.  Since 1991, the government has 
tried to minimize its budget deficits by sequestering payments for 
wages and pensions.  The potential budget deficit for fourth quarter 
1998 is estimated at 9% of GDP.

Law

Lack of legislation in many areas of economic activity is a pressing 
issue.  Taxation and business regulations are unpredictable, and legal 
enforcement of private business agreements is weak. Government 
decisions affecting business often have been arbitrary and 
inconsistent.  Crime has increased costs for both local and foreign 
businesses.  On the positive side, Russian businesses are increasingly 
turning to the courts to resolve disputes.  The passage of an improved 
bankruptcy code in January 1998 and major portions of a new tax code in 
July 1998 were positive steps.

Natural Resources

The mineral-packed Ural mountains and the vast oil, gas, coal and 
timber reserves of Siberia and the Russian Far East make Russia rich in 
natural resources.  However, most such resources are located in remote 
and climactically unfavorable areas that are difficult to develop and 
far from Russian ports.  Oil and gas exports continue to be the main 
source of hard currency, but declining energy prices have hit Russia 
hard.  Russia is a leading producer and exporter of minerals, gold, and 
all major fuels.  The Russian fishing industry is the world's fourth-
largest, behind Japan, the U.S., and China.  Russia accounts for one-
quarter of the world's production of fresh and frozen fish and about 
one-third of world output of canned fish.

Industry

Russia is one of the most industrialized of the former Soviet 
Republics.  However, much of its industry is antiquated and highly 
inefficient.  Besides its resource-based industries, it has developed 
large manufacturing capacities, notably in machinery.  Russia inherited 
most of the defense industrial base of the Soviet Union.  Efforts have 
been made with varying success over the past few years to convert 
defense industries to civilian use.

Agriculture

Russia comprises roughly three-quarters of the territory of the former 
Soviet Union, but has relatively little area suited for agriculture 
because of its arid climate and inconsistent rainfall.  Northern areas 
concentrate mainly on livestock and the southern parts and western 
Siberia produce grain.  Restructuring of former state farms has been an 
extremely slow process, partially due to the lack of a land code 
allowing for the free sale, purchase, and mortgage of agricultural 
land.  Private farms and garden plots of individuals account for more 
than one-half of all agricultural production.

Investment

The economic turmoil of 1998 has most new foreign investment on hold.  
The Russian Government estimated that cumulative foreign investment in 
Russia increased 60% in 1997 to US $10.7 billion.  Foreign investment 
in Russia was heavily weighted to portfolio investment, with direct 
investment equaling about $3.9 billion.  The United States was Russia's 
top source of foreign investment.  Foreign investors pulled a 
significant portion of their portfolio investment out of the Russian 
market in 1998.  The Russian stock market lost more than 90% of its 
value from January to October 1998.

Even before the current difficulties, foreign investment in Russia 
paled in comparison to investment in other transition economies, such 
as Poland and Hungary.  Russian domestic investment dropped 7% in the 
first quarter of 1998.  Low levels of domestic investment continue to 
be one of the greatest obstacles to renewed economic growth.

Trade

Germany is Russia's largest trading partner, followed by Ukraine and 
the United States.  Trade with other NIS states is overwhelmingly in 
energy and industrial products, and in many instances is conducted by 
barter.  Fairly healthy trade surpluses ($36.8 billion in 1997) eroded 
over the course of 1998.  Imports to Russia grew by 10-15% per year in 
1995-97, as consumers benefited from an appreciating ruble and a rising 
average wage (in rubles).  At the same time, export revenues were 
falling, due in particular to sharply lower prices for oil and gas 
(accounting for 43% of merchandise exports in 1997).  Moreover, 
Russia's  manufactured exports compete poorly on the world market, 
especially since Asian goods have become less expensive following steep 
currency devaluations.  

The recent devaluation of the ruble and difficulties in completing 
transactions through the Russian banking system have reduced imports 
substantially.  The combination of import duties, a 20% value-added 
tax, excise taxes on imported goods (especially automobiles, alcoholic 
beverages, and aircraft), and an import licensing regime for alcohol 
further restrain demand for imports.  Frequent changes in customs 
regulations also have created problems for foreign and domestic traders 
and investors.


FOREIGN RELATIONS

Russia has taken important steps to become a full partner in the 
world's principal political groupings. On December 27, 1991, Russia 
assumed the seat formerly held by the Soviet Union in the UN Security 
Council. Russia also is a member of the Organization for Security and 
Cooperation in Europe (OSCE) and the North Atlantic Cooperation Council 
(NACC). It signed the NATO Partnership for Peace initiative on June 22, 
1994. On May 27, 1997, NATO and Russia signed the NATO-Russia Founding 
Act, which provides the basis for an enduring and robust partnership 
between the Alliance and Russia--one that can make an important 
contribution to European security architecture in the 21st century. On 
June 24, 1994, Russia and the European Union (EU) signed a partnership 
and cooperation agreement.

Russia has played an important role in helping to mediate international 
conflicts through its cosponsorship of the Middle East peace process 
and its support of UN and multilateral initiatives in the Persian Gulf, 
Cambodia, Angola, the former Yugoslavia, and Haiti. Russia is a member 
of the Contact Group; it has contributed troops to the NATO-led 
stabilization force in Bosnia. Russia has affirmed its respect for 
international law and OSCE principles. It has accepted UN and/or OSCE 
involvement in instances of regional conflict in neighboring countries, 
including the dispatch of observers to Georgia, Moldova, Tajikistan, 
and Nagorno-Karabakh.

DEFENSE

Since the breakup of the U.S.S.R., the Russians have discussed 
rebuilding a viable, cohesive fighting force out of the remaining parts 
of the former Soviet armed forces. A new Russian military doctrine, 
promulgated in November 1993, implicitly acknowledges the contraction 
of the old Soviet military into a regional military power without 
global imperial ambitions. In keeping with its emphasis on the threat 
of regional conflicts, the doctrine calls for a Russian military that 
is smaller, lighter, and more mobile, with a higher degree of 
professionalism and with greater rapid deployment capability. Such a 
transformation has proven difficult.

The challenge of this task has been magnified by difficult economic 
conditions in Russia, which have resulted in reduced defense spending. 
This has led to training cutbacks, wage arrears, and severe shortages 
of housing and other social amenities for military personnel, with a 
consequent lowering of morale, cohesion, and fighting effectiveness. 
The poor combat performance of the Russian armed forces in the Chechen 
conflict in part reflects these breakdowns.

The actual strength of the Russian armed forces probably falls between 
1.4 and 1.6 million and is scheduled to fall to 1.2 million by the end 
of 1999. Weapons production in Russia has fallen dramatically over the 
past few years; between 1988 and 1993, it fell by at least 50% for 
virtually every major weapons system. Weapons spending in 1992 was 
approximately 75% less than in 1988. Almost all of Russia's arms 
production is for sales to foreign governments, and procurement of 
major end-items by the Russian military has all but stopped.

About 70% of the former Soviet Union's defense industries is located in 
the Russian Federation. A large number of state-owned defense 
enterprises are on the brink of collapse as a result of cuts in weapons 
orders and insufficient funding to shift to production of civilian 
goods while at the same time trying to meet payrolls. Many defense 
firms have been privatized; some have developed significant 
partnerships with U.S. firms. 

U.S.- RUSSIA RELATIONS

The United States remains committed to maintaining a constructive 
relationship with Russia in which it seeks to expand areas of 
cooperation and effectively work through differences. The United States 
continues to support Russia's political and economic transformation and 
its integration into major international organizations. These steps, in 
conjunction with achievements in considerably reducing nuclear weapons, 
have greatly enhanced the security of the United States.

The intensity and frequency of contacts between President Yeltsin and 
President Clinton--in Helsinki, Finland and Paris, France in 1997 and 
in Denver, Colorado and Birmingham, England in 1998--are indicative of 
the strong commitment to working together on a broad range of issues. 
These include European security, reducing the threat to both countries 
posed by weapons of mass destruction, and economic cooperation, 
especially American investment in Russia.

Economic Relations

Under the leadership of Vice President Gore and the Russian Prime 
Minister, the U.S. and Russia are working to advance bilateral 
cooperation through nine working committees and several working groups 
known collectively as the U.S.-Russian Joint Commission on Economic and 
Technological Cooperation. Committees address issues in the fields of 
science and technology, business development, space, energy policy, 
environmental protection, health, defense conversion, capital markets, 
and agriculture. In addition, the commission provides a forum for high-
level discussions of priority security and economic issues. The 
commission held its 10th session in Washington in March 1998 and an 
executive session in Moscow in May 1998.

At the March 1997 summit in Helsinki, Finland, Presidents Clinton and 
Yeltsin emphasized the need to expand trade and investment. They signed 
a joint "Economic Initiative" aimed at stimulating Russian economic 
growth, deepening bilateral economic ties, and accelerating Russian 
integration into the global economy and its primary multilateral 
organizations. Both governments announced a special "Regional 
Investment Initiative" to create a climate for private investment in 
Russia's regions and attract foreign and domestic capital. As part of 
this initiative, several progressive regions with investment potential 
will be selected where the U.S. will focus its assistance activities to 
foster a better business and investment climate. These regions will, in 
turn, serve as models of what can be achieved by an intensive effort to 
improve the investment climate. As of spring 1998, Novgorod Oblast, 
Samara Oblast and the Russian Far East, with a focus on Khabarovsk Kray 
and Sakhalin Oblast, have been chosen as initiative sites.

In 1997, the U.S. trade deficit with Russia was $1 billion, an increase 
of $780 million from the U.S. trade deficit of $221 million in 1996. 
U.S. merchandise exports to Russia were nearly $3.3 billion in 1997. 
Russia was the United States' 35th-largest export market in 1997. U.S. 
imports from Russia were nearly $4.3 billion in 1997. The 1992 U.S.-
Russia trade agreement provides mutual most-favored-nation status and 
includes commitments on intellectual property rights protection. In 
1992, the two countries also signed treaties on the avoidance of double 
taxation and on bilateral investment. By spring 1998, however, the 
Russian parliament had not ratified the bilateral investment treaty. It 
has been ratified by the U.S. Senate.

The U.S. actively supports Russia's efforts to join the World Trade 
Organization on commercially viable terms. Consultations to review 
Russia's tariff offer on goods have already begun. As of spring 1998, 
Russia must still submit market access offers on services. The U.S. 
actively supported Russian membership in the Asia-Pacific Economic 
Cooperation (APEC) forum. Russia will become a member of APEC in 
November 1998. 

Security Cooperation 

Russia signed the NATO Partnership for Peace initiative in June 1994. 
U.S. and Russian troops served together in the Implementation Force in 
Bosnia and continue to do so in its successor, the Stabilization Force. 
Building on these steps, NATO and Russia signed the NATO-Russia 
Founding Act on May 27, 1997, in Paris. The act defines the terms of a 
fundamentally new and sustained relationship in which NATO and Russia 
will consult and coordinate regularly and, where appropriate, act 
jointly. Cooperation between NATO and Russia exists in scientific and 
technical fields.

The U.S. and Russia signed a memorandum of understanding on defense 
cooperation in September 1993 that institutionalized and expanded 
relations between defense ministries, including establishing a broad 
range of military-to-military contacts. The U.S. and Russia carried out 
a joint peacekeeping training exercise in Totskoye, Russia, in 
September 1994. Based on the January 14, 1994, agreement between 
Presidents Clinton and Yeltsin, the two nations stopped targeting their 
strategic nuclear missiles at each other as of May 30, 1994. U.S. and 
Russian security cooperation emphasizes strategic stability, nuclear 
safety, dismantling nuclear weapons, preventing proliferation of 
weapons of mass destruction and their delivery systems, and enhancing 
military-to-military contacts. At the Lisbon OSCE summit in 1992, the 
United States signed a protocol to the START I Treaty with Russia, 
Belarus, Kazakhstan, and Ukraine--where the strategic nuclear weapons 
of the former Soviet Union were located--making the four countries 
party to the treaty and committing all signatories to reductions in 
strategic nuclear weapons within the 7-year period provided by the 
treaty. The treaty entered into force December 5, 1994.

On January 3, 1993, the U.S. and Russia signed the Treaty between the 
United States of America and the Russian Federation on Further 
Reduction and Limitation of Strategic Offensive Arms (START II). This 
treaty would reduce overall deployments of strategic nuclear weapons on 
each side by more than two-thirds from current levels and will 
eliminate the most destabilizing strategic weapons--heavy 
intercontinental ballistic missiles (ICBMs) and all other deployed 
multiple-warhead ICBMs. At the September 1994 summit, the two nations 
agreed to begin removing nuclear warheads due to be scrapped under 
START II immediately, once START I takes effect and the START II Treaty 
is ratified by both countries, instead of taking the 9 years allowed. 
At their May 1995 summit, Presidents Clinton and Yeltsin agreed on a 
set of principles that would guide further discussion in the field of 
demarcation between anti-ballistic missile systems and theater missile 
defenses. They also agreed on steps to increase the transparency and 
irreversibility of nuclear arms reduction and committed not to use 
newly produced fissile materials or to reuse the fissile materials 
removed from nuclear weapons being eliminated and excess to national 
security requirements in nuclear weapons. The Russian Duma has not yet 
ratified START II.  Since that time, all strategic nuclear weapons have 
been removed from Ukraine, Belarus, and Kazakhstan to Russia.

Following ratification by Russia and the other NIS, the Conventional 
Armed Forces in Europe Treaty entered into force on November 9, 1992. 
This treaty establishes comprehensive limits on key categories of 
military equipment--tanks, artillery, armored combat vehicles, combat 
aircraft, and combat helicopters--and provides for the destruction of 
weaponry in excess of these limits.

Cooperative Threat Reduction assistance, often called Nunn-Lugar 
assistance, is provided to Russia (as well as Belarus, Kazakhstan, and 
Ukraine) to aid in the dismantling of weapons of mass destruction and 
to prevent the proliferation of such weapons. More than $730 million 
has been allocated for assistance to Russia during fiscal years 1997 
and 1998 under this program, and 13 implementing agreements have been 
signed. Key projects have included assistance in the elimination of 
strategic offensive arms ($184 million), design and construction of a 
fissile material storage facility ($127 million), provision of fissile 
material containers ($45 million), material control and accounting and 
physical protection of nuclear materials ($51 million), and development 
of a chemical weapons destruction facility and provision of equipment 
for a pilot laboratory for the safe and secure destruction of chemical 
weapons ($106 million). 

Under the CTR program, the U.S. also is assisting Russia in the 
development of export controls, providing emergency response equipment 
and training to enhance Russia's ability to respond to accidents 
involving nuclear weapons, providing increased military-to-military 
contacts, and encouraging the conversion of Russian defense firms 
through the formation of joint ventures to produce products for the 
civilian market. 

In a multilateral effort (the European Union, Japan, and Canada also 
are involved), the U.S. also has provided more than $60 million to 
establish and support the International Science and Technology Center 
(ISTC), which provides alternative peaceful civilian employment 
opportunities to scientists and engineers of the former Soviet Union 
involved with weapons of mass destruction and their delivery systems.

U.S. Assistance to Russia 

Since 1992, the U.S. Government has allocated more than $5 billion in 
aid to Russia, funding a variety of programs in the following key 
areas: private sector development, privatization and enterprise 
restructuring, trade and investment, democratic reform, energy, health 
care, housing, and the environment.  Humanitarian assistance 
represented a major portion of U.S. aid during the initial transition 
phase in Russia, when there was a pressing need for food, medicine, and 
other essential commodities.  However, this early focus on urgent 
humanitarian needs shifted in the mid-1990s toward technical assistance 
supporting macroeconomic reforms.  In 1997, the U.S. began moving 
toward cooperation under the Partnership for Freedom, emphasizing trade 
and investment, people-to-people linkages, and U.S.-Russian 
partnerships.  Efforts now concentrate on limited technical assistance, 
citizen exchanges and partnerships, and direct support for trade and 
investment.

The U.S. Government transports to Russia food, medical equipment, and 
other humanitarian assistance donated by U.S. private voluntary 
organizations, as well as Defense Department excess commodities.  U.S. 
Government-funded security programs eliminate weapons of mass 
destruction, demilitarize facilities, prevent proliferation, enable 
compliance with arms accords, enhance Russia's ability to control 
nuclear materials, and employ former weapons scientists who might 
otherwise help pariah states.  A substantial but declining portion of 
economic assistance is targeted on central government reforms, 
particularly tax reforms, and fostering a transparent legal and 
regulatory environment.  An increasing share is directed away from the 
central government to support economic reform outside Moscow.  
Democracy programs help Russians develop the building blocks of a 
democratic society based on the rule of law, including non-governmental 
organizations (NGOs), independent media, and an independent judiciary.  
To support this long-term generational transition, the U.S. Government 
is increasingly promoting links between U.S. and Russian communities 
and institutions, including universities, hospitals, and professional 
associations.  The U.S. Government also is helping Russia combat crime 
and corruption through cooperation with U.S. law enforcement agencies 
and community groups.

The more than $5 billion in grant assistance provided by the U.S. 
Government to date can be divided into the following categories:  more 
than $500 million in democracy reform programs, more than $1.5 billion 
in economic and technical assistance, more than $1.4 billion in 
humanitarian and food assistance, and more than $1.7 billion in 
security and weapons dismantlement assistance.  The U.S. Government 
also has supported more than $7.3 billion in commercial financing and 
insurance for Russia.  The annual level of economic and technical 
assistance for Russia has declined from a peak of $1.6 billion in FY 
1994 to $130 million in FY 1998.



The Regional Investment Initiative (RII) focuses on reducing barriers 
to trade and investment, establishing ongoing U.S.-Russian 
partnerships, and spurring the private sector as the engine of economic 
growth.  Three RII sites are up and running:  Novgorod, Samara, and 
Khabarovsk/Sakhalin, in the Russian Far East.  At each site, the 
private sector, NGOs, and local governments cooperate on programs that 
include investment promotion, small business training and finance, and 
health, educational and professional partnerships.

Implementing Agencies 

U.S. Agency for International Development (USAID) has implemented the 
lion's share of U.S. Government-funded technical assistance to Russia--
more than $1.6 billion since 1992.  USAID has devoted its assistance 
efforts to helping Russia develop democratic institutions and transform 
its state-controlled economy to one based on market principles.  USAID 
has been active in the areas of privatization and private sector 
development, agriculture, energy, housing reform, health, environmental 
protection, economic restructuring, independent media, elections, and 
the rule of law.

Some 26,000 Russians have traveled to the United States on  U.S. 
Information Agency (USIA) -funded exchanges since 1992.  USIA public 
diplomacy in Russia is helping to promote the growth of democracy and 
civil society, encouraging economic reform and growth of a market 
economy, explaining and building support for U.S. foreign policy 
objectives, and building understanding of U.S. society and culture.  
USIA's professional and academic exchanges cover such diverse fields as 
journalism, public administration, local government, business 
management, education, political science, and civic education.

The U.S. Department of Commerce's American Business Centers (ABCs) are 
operating in St. Petersburg, Novosibirsk, Volgograd, Nizhny Novgorod, 
Yekaterinburg, Khabarovsk, Vladivostok, Yuzhno-Sakhalinsk, and 
Chelyabinsk to help U.S. companies do business in Russia.  The Commerce 
Department also has established a Special American Business Internship 
Program (SABIT) in Russia, which places Russian managers in short-term 
internships at U.S. companies.  The Commerce Department also operates 
the Business Information Service for the New Independent States 
(BISNIS), which provides market information, trade leads, and 
partnering services to U.S. companies interested in the Russian market. 

The U.S. Export-Import Bank (Eximbank) has approved about $3.4 billion 
in loans, loan guarantees, and insurance for transactions in Russia 
since 1991.  Of this total, more than $1 billion was approved under its 
Oil and Gas Framework Agreement.

The U.S. Overseas Private Investment Corporation (OPIC) provides loans, 
loan guarantees, and political investment insurance to American 
companies investing in Russia. 

The Trade and Development Agency (TDA) has approved approximately $51 
million in funding for feasibility studies on more than 130 investment 
projects.

U.S. Department of Agriculture coordinates a variety of technical 
assistance and exchange activities under its Emerging Markets Program, 
including the Cochran Fellowship Program which brings Russian 
agriculturists to the United States for short-term training.  These 
projects are aimed at increasing U.S. agricultural exports to Russia, 
while helping the Russian agricultural sector learn about Western-style 
agribusiness management, marketing, and other issues.

The Eurasia Foundation, a private, non-profit, grant-making 
organization supported by the U.S. Government and private foundations, 
has awarded more than 1,600 grants totaling more than $35 million to 
Russian non-governmental organizations and U.S.-Russian NGO 
partnerships since 1993.  The Foundation's grants have been targeted at 
three main programmatic areas: economic reform, governmental reform and 
the non-profit sector, and media and communications.

Principal U.S. Embassy Officials

Ambassador--James F. Collins
Deputy Chief of Mission--John F. Tefft
Counselor for Political Affairs--John M. Ordway
Counselor for Economic Affairs--Michael Matera
Counselor for Commercial Affairs--John Peters
Counselor for Consular Affairs--Susan Wood
Counselor for Administrative Affairs--John O'Keefe
Counselor for Public Affairs--Robert R. Gosende
Director, U.S. Agency for International Development--Janet Valentine
Immigration and Naturalization Service--Anne Corsano Department of 
Energy--Robin J. Copeland
National Aeronautics and Space Administration (NASA)--Douglas Englund

The U.S. embassy in Russia is located at Novinskiy Bulvar 19/23, Moscow 
(tel. [7](095) 252-2451 through 59; fax: [7] (095) 956-4261).

Consulates General are in the following cities:
St. Petersburg (Furshtatskaya Ulitsa 15, tel. [7] (812) 275-1701); 
Vladivostok (Mordovtseva Ulitsa 12, tel. [7] (4232) 268-458/554); and 
Yekaterinburg (tel. [7] (3432) 60-11-43)

In Moscow, the U.S. Commercial Office is located at Novinskiy Bulvar 15 
(tel. [7] (095) 255-4848/4660 or 9564255, fax: [7] (095) 230-2101). In 
St. Petersburg, the U.S. Commercial Office is located at Bolshaya 
Morskaya Ulitsa 57 (tel. [7] (812) 110-6042, fax: [7] (812) 1106479).




TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides
Travel Warnings and Consular Information Sheets. Travel
Warnings are issued when the State Department recommends
that Americans avoid travel to a certain country. Consular
Information Sheetsexist for all countries and
include information on immigration practices, currency regulations,
health conditions, areas of instability, crime and security, political
disturbances, and the addresses of the U.S. posts in the country.
Public Announcements are issued as a means to
disseminate information quickly about terrorist threats and other
relatively short-term conditions overseas which pose significant
risks to the security of American travelers. Free copies of this
information are available by calling the Bureau of Consular Affairs
at 202-647-5225 or via the fax-on-demand system: 202-647-3000.
Travel Warnings and Consular Information Sheets also are available
on the Consular Affairs Internet home page: http://travel.state.gov
and the Consular Affairs Bulletin Board (CABB).
To access CABB, dial the modem number: (301-946-4400 (it will
accommodate up to 33,600 bps), set terminal communications program
to N-8-1 (no parity, 8 bits, 1 stop bit); and terminal emulation
to VT100. The login is traveland the
password is info (Note: Lower case is required).
The CABB also carries international security information from
the Overseas Security Advisory Council and Department's Bureau
of Diplomatic Security. Consular Affairs Trips for Travelers 
publication
series, which contain information on obtaining passports and planning
a safe trip abroad, can be purchased from the Superintendent of
Documents, U.S. Government Printing Office, P.O. Box 371954, 
Pittsburgh,
PA 15250-7954; telephone: 202-512-1800; fax 202-512-2250. 

Emergency information concerning Americans traveling
abroad may be obtained from the Office of Overseas Citizens Services
at (202) 647-5225. For after-hours emergencies, Sundays and holidays,
call 202-647-4000. 

Passport Services information can be obtained
by calling the 24-hour, 7-day a week automated system ($.35 per
minute) or live operators 8 a.m. to 8 p.m. (EST) Monday-Friday
($1.05 per minute). The number is 1-900-225-5674 (TDD: 1-900-225-7778).
Major credit card users (for a flat rate of $4.95) may call 1-888-362-
8668
(TDD: 1-888-498-3648) 

Travelers can check the latest health information with
the U.S. Centers for Disease Control and Prevention in Atlanta,
Georgia. A hotline at 877 FYI-TRIP (877 394-8747) gives the most recent 
health
advisories, immunization recommendations or requirements, and
advice on food and drinking water safety for regions and countries.  
This information is also available on the Web at 
http://www.cdc.gov/travel/index.htm.  
A booklet entitled Health Information for International Travel
(HHS publication number CDC-95-8280) is available from the U.S.
Government Printing Office, Washington, DC 20402, tel. (202) 512-1800.

Information on travel conditions, visa requirements, currency
and customs regulations, legal holidays, and other items of interest
to travelers also may be obtained before your departure
from a country's embassy and/or consulates in the U.S. (for this
country, see "Principal Government Officials" listing
in this publication). 

U.S. citizens who are long-term visitors or traveling
in dangerous areas are encouraged to register at the U.S. embassy
upon arrival in a country (see "Principal U.S. Embassy
Officials" listing in this publication). This may help family
members contact you in case of an emergency. 

Further Electronic Information: 

Department of State Foreign Affairs Network.
Available on the Internet, DOSFAN provides timely, global access
to official U.S. foreign policy information. Updated daily, DOSFAN
includes Background Notes; Dispatch, the official
magazine of U.S. foreign policy; daily press briefings; Country
Commercial Guides; directories of key officers of foreign
service posts; etc. DOSFAN's World Wide Web site is at 
http://www.state.gov.

U.S. Foreign Affairs on CD-ROM (USFAC). Published
annually by the U.S. Department of State, USFAC archives information
on the Department of State Foreign Affairs Network, and includes
an array of official foreign policy information from 1990 to the
present. Contact the Superintendent of Documents, U.S. Government
Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. To
order, call (202) 512-1800 or fax (202) 512-2250.

National Trade Data Bank (NTDB). Operated by
the U.S. Department of Commerce, the NTDB contains a wealth of
trade-related information. It is available on the Internet (www.stat-
usa.gov) and on CD-ROM. Call the NTDB Help-Line at (202) 482-1986 for more
information.
 
[End of Document]


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