World Economy: Overview

the Russian economy imploded. The ruble plunged in value, and the government defaulted on its foreign debt obligations. Many Russians faced wage cuts and layoffs; savings were wiped out as banks collapsed. The meltdown sent shock waves through global financial markets. Russia was down, but it was not out; in the years since the crisis, Russia's economy has experienced substantial growth. By 2006, a country that had teetered on the brink of bankruptcy had posted four consecutive years of 6 percent economic growth and had amassed $250 billion in foreign currency reserves. The dramatic economic recovery can be attributed in part to record world prices for oil and gas; the energy sector is Russian's most important source of export revenue. A second explanation for the rebounding economy was politics. In 2000, Vladimir Putin succeeded Boris Yeltsin as president. Putin initiated a reform program that included a new tax code, streamlined customs regulations, slashed subsidies to state-owned enterprises, and made other improvements in the business climate. A third factor in Russia's economic rebound was the fact that price increases for imports caused by the ruble's devaluation stimulated local production of a wide range of goods. As one economist noted, " The crash of '98 really cleaned out the macro-economy. " Putin confidently predicted that national income in Russia would double by 2010. The collapse of Russia's economy in 1998 and its subsequent rebound in the first years of the new millennium vividly illustrate the dynamic nature of today's economic environment. Recall the basic definition of a market: people or organizations with needs and wants and both the willingness and ability to buy or sell. As noted in Chapter 1, many companies engage in global marketing in an effort to reach new customers outside the home country and thereby increase sales, profits , and market share. Today, Russia represents a major growth opportunity for global companies. Russia, along with Brazil, India, and China, are collectively referred to as BRIC—four fast-growing markets that represent important opportunities. 1 This chapter will identify the most salient characteristics of the world economic environment, starting with an overview of the world economy , a survey of economic system types, a discussion of stages of market development, and a review of the balance of payments. The final section of the chapter discusses foreign exchange.