http://www.philly.com/mld/inquirer/business/16149450.htm

Spending spree in Russia is fueled by its oil and gas
By James Brooke
Bloomberg News
Posted on Sun, Dec. 03, 2006

In central Moscow, construction cranes loom over the Kremlin, as hotel and office towers rise to accommodate Russia's newly minted companies and the flood of foreign business visitors. Downtown apartments that cost $100,000 a few years ago now go for $1 million.

On weekends, shoppers by the thousands line up behind cash registers at the 150,000-square-meter Tyoply Stan suburban mall, loading up on home furnishings, televisions and cell phones. Stockholm-based Ikea, which owns the mall, reported it welcomed 52 million shoppers in 2005, making it the most-visited shopping center in Europe. Moscow is adding 100,000 cars to its roads every year. (Overall Russian car sales are up 11% year over year.)

Across Russia, consumer loans doubled in the first nine months of 2006 to $80 billion. The country has seen eight straight years of economic growth, with expansion for 2006 estimated at 7 percent, according to Economy Minister German Gref. Bankrupt a decade ago, Russia wrote $23.7 billion in checks Aug. 21 to repay government debt run up during the 1998 ruble crisis, in which it defaulted on loans and bonds.

Much of Russia's new prosperity can be traced to a single source. "Russia's economy is about oil," says Natalia Orlova, chief economist at Moscow-based Alfa-Bank. Oil and gas account for 65 percent of Russia's exports and 60 percent of federal tax receipts. "Consumption is financed by oil revenues," she says.

Russian President Vladimir Putin is the first to point out that this golden era of energy can't last. "The main task of the government in the near term is to diversify our economy," Putin said Oct. 25 in a three-hour, nationally televised question-and-answer session.

Russia is the world's largest gas exporter and second-biggest oil exporter, after Saudi Arabia. The 92 percent rise in petroleum prices in the last three years has swelled the coffers of the big oil and gas companies and of the government.

The Kremlin's hard-currency reserves jumped more than 65 percent in the year ended Nov. 17, to $279 billion, more than the reserves of the entire euro zone. Russia has also profited from high prices for aluminum, gold and copper. Oil, gas and other commodities now account for 80 percent of Russia's exports.