EDITORIAL: What about that Economy, Mr. Putin?

EDITORIAL

What about that Economy, Mr. Putin?

If Vladimir Putin were brave enough to be interviewed by the editors of this blog — he’s certainly not, preferring to hobnob with brown-nosed idiots like Larry King and bought-and-paid for stooges at the Valdai convention — the first question we’d ask him would be: 

Why, after nearly ten years of ruling Russia, have you not freed your national budget from dependence on the price of crude oil as established by foreign markets?

Putin’s own deputy finance minister admits that if crude oil prices do not average $60/barrel in 2009 — and they currently stand at $56.80 — then Russia’s budget for 2010 will not be balanced and will have to be “reconsidered.”  And there is no “fat” to cut in that budget. Russians live in squalid poverty and don’t rank in the top 100 nations of the world for male adult lifespan.  So the Kremlin will either go into massive .

The bad news rolls in like a tsunami.  Russia had a shocking $140 billion in capital flight in just August and September of this year (that’s a stunning $1,000 for every man, woman and child in the country, equivalent to a full month’s average wages for each one) and the Kremlin itself now admits it expects consumer price inflation to ring in at a whopping 13% by year’s end, nearly 20% higher than the Kremlin had predicted.  Russia’s foreign reserves have plunged below $500 billion, down $31 billion in just the third week of October as the government flushed away the national savings propping up the stock market and the ruble.  Large firms are imposing massive layoffs.  Russia is even moving to take the draconian step of criminalizing non-payment of debt, a measure civilized nations abandoned centuries ago. And this catastrophe was caused mostly by the fact that the price of crude oil plummeted over the space of a few months by more than half in price, and because the Putin administration has totally failed to build anything remotely like a real economy that could insulate the country from the random choices of world petroleum markets.

Streetwise Professor and Pavel Baev of Eurasia Daily Monitor point out how utterly flummoxed by the economic crisis Putin has shown himself to have become.  SWP quotes Baev as follows:

All these voices are lines in a long rhyme that invariably ends with the reference “… in the house that Jack built,” and everybody in Russia knows who the architect in question is. That Vladimir Putin has never been able to admit a mistake is only part of his motivation for stonewalling the analysis of the unfolding disaster. A greater part of this determination comes from the need to keep the system of unaccountable redistribution of financial resources going for as long as possible, while the key players seek to compensate their colossal and totally unexpected losses.

Two features of this desperate looting of fast-shrinking reserves came into sharper focus last week. First was the mind-boggling scale of the external indebtedness of Russian companies, not only of all state-owned energy giants like Gazprom and Rosneft but also private “oligarchic” empires close to the Kremlin. The sharp fall of their market capitalization has triggered many “margin calls” for repaying the borrowed money since the collateral has lost value. As a result, Russian “champions” have to pay back up to $210 billion by the end of 2009 (The New Times, October 20). The political decision to rescue the loyal entrepreneurs by providing $50 billion for refinancing their foreign debts can solve some immediate problems, but the applications have already exceeded the designated sum, and many investment programs that are supposed to support Russia’s continuing growth, for instance in the newly-privatized electricity sector, have been gutted.

The second feature is the spectacular increase in corruption schemes and channels in the emergency situation of siphoning off hard-currency reserves that still amount to half a trillion dollars, which is approximately equal to the corporate debt. The decisions about rescuing banks that are known to be “close” to certain officials and opening credit lines to companies with unknown ownership structures are so opaque that the international financial services company Standard & Poor’s revised its outlook on Russia’s sovereign credit rating from “stable” to “negative” last week (www.newsru.com, 23 October). Corroborating this was Transparency International, which gave Russia its worst mark in eight years, so that in the Corruption Perception Index it now shares 147th place (out of 180) with Bangladesh, Kenya, and Syria (Nezavisimaya gazeta, October 24).

Medvedev quite possibly feels the need to add more substance to his anticorruption initiatives and provide some explanations for the apparent lack of results from the much-advertised interventions. Putin, however, cannot tolerate dissent from his junior partner, since any crack in the monolithic system of power could trigger an avalanche of desertions and revelations that would demonstrate that corruption is not a mere defect in his course of expanding state control over the economy but its core substance. His approval ratings may still remain high; but the social contract of “Putinism,” according to which the population enjoys the fruits of petro-prosperity while ignoring the shameless thievery of the ruling elite, is about to expire (www.gazeta.ru, October 22). The peculiar two-headed form of leadership was designed by the over-confident “tsar” for presiding over a permanent party of distributing tons of easy money; but it cannot function in the situation of escalating squabbles between elite clans and gathering social discontent. Cutting Medvedev down to size with his address was easy, but now Putin has to decide how much longer he can postpone the hard tasks of managing rather than explaining away the crisis that has transformed his pet projects into toxic assets.

Ultimately, Putin actually cancelled a major national address Medvedev was planning to make to discuss the crisis, humilating Medvedev to the Nth degree.  Meanwhile, as SWP notes:  ”

In a nutshell: Baev portrays a brittle natural state with stability dependent on simultaneously redistributing wealth to favored and powerful interests while generating enough growth to pacify the larger populace that is vulnerable to collapse due to defections of the powerful when the rents run low.” SWP agrees with that characterization.

So maybe Putin’s answer to our question would be simple:  “Because I don’t want the nation to become economically sound. I want crisis, I need them to survive.”

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