EDITORIAL: The Putin Economy, Sinking Deeper into the Mire


The Putin Economy, Sinking Deeper into the Mire

The Institute of Supply Managementproduces something called a Purchasing Manager’s Index (PMI), and has been compiling data for Russia since 2001. It is based on a monthly survey of 300 purchasing executives in Russian services companies, asking about their inventories, orders, deliveries, and staffing.  

In November, Russia’s PMI index plummetedto the lowest level ever recorded, in the words of VTB Bank Europe “a clear sign that the financial crisis was feeding through to the wider economy.”

The details are truly horrifying.

Market Watch reported:

Total business activity at Russian service providers declined for the second month running in November, and at a much steeper rate than in the previous month, VTB Bank said. The declines in activity were most severe in financial intermediation, transport and storage, as well as hotels and restaurants.  “A number of firms reported that clients had faced difficulty obtaining finance for new contracts, while the wider economic downturn had a significant impact on demand for services,” VTB said.  For the first time since the survey started in October 2001, Russian service providers expressed pessimism about the twelve-month outlook for business activity.  “The Russian services sector was previously the strongest pillar of Russian economic growth, greatly benefiting from robust expansion of domestic consumer demand,” said Vladimir Osakovsky, an economist at UniCredit Aton.  “We think the deterioration of services PMI suggests the problems in the Russian services sector are only starting to surface, with possible significant negative news flow from major companies in the services sectors on the horizon,” Osakovsky said. The current reading is worse than Russia’s manufacturing PMI index, which fell to an all-time low of 39.8 in November and over the past several months has been the worst performer in the domestic economy, he said.

The Putin economy is sinking ever deeper into the mire of failure. And while it was suggested earlier this year, when Dmitri Medvedev supposedly took power as “president” in a transition to a new type of government, distancing Russia from Putin’s iron-fisted KGB rule, it’s now quite clear that was an illusion.  It was Putin, not Medvedev, who participated once again in the national question-and-answer charade.  Yevgeny Volkof the Heritage Foundation’s Moscow Office stated:   “I am watching and I see no difference between what he is saying now as PM and what he used to say as the president.”  Volk says this clearly indicates that Putin remains the ruler of Russia and likely signals the beginning of his formal return to power.

Putin’s “analysis” of Russia’s economic situation has been fully neo-Soviet in character.  His first response was to deny that Russia’s stock market collapse meant anything significant for the average Russian citizen, because they have no stake in Russia’s relatively tiny market. Then, when it became clear that his regime’s failure to diversify stock market investment was a key factor in the market’s collapse, and when data such as the PMI figures made it irrefutable that the market was indeed a harbinger of much wider economic malaise, Putin dragged out the old Soviet whipping boy, the United States.  In his Q&A, rather than talking about reform, Putin once again blamed the U.S. for “infecting” the world’s economy.

In a disturbingly childish manner, Putin does not seem able to recognize his own hypocrisy.  If the U.S. wields such tremendous influence over the Russian economy, how can it be the Kremlin’s policy to provoke and undermine the U.S. at ever turn? Shouldn’t the Kremlin be seeking accommodation?  And how is it possible, after eight years of Putin’s rule and much talk about Russia’s “resurgence,” that the Russian economy is still so dependent upon what happens in the U.S.?

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