Strong growth masks Russia's problems

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Strong growth masks Russia's problems

Russia's economy is roaring up the growth curve but dependence on oil revenues, insufficient diversification into other activities and a growing gap between the well-off and the poor give cause for concern.

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HOPES WERE HIGH for the start of Vladimir Putin's second term after his re-election as Russia's president in March. He had already pushed through enough radical reform to put the Russian economy on a path to sustainable recovery, and despite hiccups no-one doubted that he was committed to the reform of the country's creaking institutions.

Then came the summer crackdown on the Yukos oil company, which has unnerved investors and caused the stock market to lose all of the gains it had made since the start of the year. Each week brings a fresh round of banner headlines detailing the last blow and counter-strike as the two sides slug it out.

But lost among the news is the fact that the Russian economy is roaring ahead: if it weren't for the Yukos affair Moscow would be boom town as investors flocked in to set up shop.

At the start of August, the economic development and trade ministry revised its year-end estimates up again and issued a slew of upbeat predictions. The government had assumed average oil prices of $26.50 a barrel when drawing up last year's budget, but with average prices of $30 over the first six months, the ministry has subsequently revised its end-of-year GDP growth figure to a tigerish 7.4%.

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