Russia's economy, $1.2 trillion in purchasing power parity (PPP) terms, is the largest within the former Soviet bloc. It is undergoing a painful transformation from a centrally planned economy to a market-oriented one with limited public ownership. GDP contracted 43% since the collapse of the Soviet Union with industrial production falling 55%. Per capita income in 2001 was only $1,822 in nominal terms, although $8,300 PPP terms (CIS est.) By 2000, services comprised the largest sector of the economy, while industrial production accounted for 37% of GDP. The manufacturing centers around Moscow and St. Petersburg are the most important, as they were for the entire former USSR. Russia has rich energy and mineral resources, including large deposits of iron ore, coal, phosphates, and nonferrous metals, as well as one-fifth of the world's gold deposits and substantial oil and gas reserves. There are also vast forest resources. Agricultural production is almost up to self-sufficiency levels and accounted for 7% of GDP in 2000. There is an acute excess demand for goods, especially consumer goods.
Russia's economic situation deteriorated rapidly after the breakup of the Soviet Union, which destroyed major economic links. President Yeltsin's 1992 economic reform program slashed defense spending, eliminated the old centralized distribution system, established private financial institutions, decentralized foreign trade, and began a program of privatizing state owned enterprises. Success was not immediate, however, as the GDP declined by over 12% in 1994 and 4% in 1995. By then, 25% of the population was living in poverty, corruption was rampart, and segments of the economy had gone "underground" to escape backbreaking taxes and bureaucratic regulation. However, government policies kept unemployment at the relatively low rate of 8%, even though there was no money to pay salaries and pensions. A stabilization program enacted in 1995 tightened the budget, liberalized trade, and lowered inflation through noninflationary financing of the budget deficit. Although the economy declined by 3.6% in 1996, segments of the economy were showing signs of recovery. In 1997, overall GDP registered its first positive growth, albeit only 0.9%. Inflation moderated to 11.3% from 21.8% in 1996, and unemployment fell from 9.3% to 9%. In a major privatization program, the government turned over to the growing private sector thousands of enterprises. However, in 1998, the effects of the Asian financial crisis swept the economy, propelling a massive outflow of foreign investment. In August 1998 it became the Russian financial crisis as the government defaulted on payments due on $40 billion in ruble bonds and allowed the ruble to depreciate. Real GDP fell 4.9% in 1998 as inflation shot up to 84.5%. Although the economy has not yet attained the levels reached in 1997 (much less the levels prevailing before the collapse of the Soviet Union), it has registered yearly growth and yearly decreases in inflation since 1998. In 1999, real GDP increased 5.4% and in 2000, a strong8.3% while inflation fell to 36.5% on 1999 and then to 20.2% in 2000. The global slowdown since 2001 has served to decelerate but not reverse economic recovery as GDP growth fell to 4.9% in 2001 and then to 3.5% (est.) in 2002. Inflation fell to 18.6% in 2001, and 16.5% (est.) in 2002, above predictions of 11-13% mainly because of increased fuel costs. Official unemployment, which peaked at 11.8% and 11.7% in 1998 and 1999, has moderated to an estimated 8% in 2002, down from 8.9% in 2001.