Russia ended 2003 with its fifth straight year of growth, averaging 6.5% annually since the financial crisis of 1998. Although high oil prices and a relatively cheap ruble are important drivers of this economic rebound, since 2000 investment and consumer-driven demand have played a noticeably increasing role. Real fixed capital investments have averaged gains greater than 10% over the last four years and real personal incomes have averaged increases over 12%. Russia has also improved its international financial position since the 1998 financial crisis, with its foreign debt declining from 90% of GDP to around 28%. Strong oil export earnings have allowed Russia to increase its foreign reserves from only $12 billion to some $80 billion. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects. Nevertheless, serious problems persist. Oil, natural gas, metals, and timber account for more than 80% of exports, leaving the country vulnerable to swings in world prices.

Russia's manufacturing base is dilapidated and must be replaced or modernized if the country is to achieve broad-based economic growth. Other problems include a weak banking system, a poor business climate that discourages both domestic and foreign investors, corruption, local and regional government intervention in the courts, and widespread lack of trust in institutions. In addition, a string of investigations launched against a major Russian oil company, culminating with the arrest of its CEO in the fall of 2003, have raised concerns by some observers that President PUTIN is granting more influence to forces within his government that desire to reassert state control over the economy.