Putinomics Ravages Russia
The Russian economy came back online last Sunday after a ludicrous period of more than a week in drunken hibernation, and the results were not pretty. The ruble promptly crashed through the 30:1 psychological barrier against the dollar, with dollar closing up 1.5 rubles at 30.5 by the end of the day. It was the 13th time in 8 weeks that the Russian government has been forced to allow the ruble to slide and the second time in that period it has been compelled to allow a plunge of more than one percent, something it usually does all it can to avoid. The dollar has soared against the ruble by 7 rubles since late summer, nearly 30% deflation for the ruble and representing a concomitant rise in the price of foreign goods in Russian markets.
Things were, amazingly, even worse than they appeared.
This drop in the ruble occurred even though the Kremlin had feverishly spent nearly $60 billion in precious reserves defending the currency by buying it and creating artificial demand in the month of December, twice what it had spent the previous month. Across the globe, economists are united in condemning the dictator Vladimir Putin for devaluing the ruble so slowly, which not only squanders Russia’s dwindling reserves but undermines the economy itself.
The ripple effects on consumer prices across the gigantic range of items Russia cannot produce effectively and must import, has been truly ghastly. The Kremlin itself admits that it was off by a whopping 58% when it predicted 8.5% inflation for Russia at the beginning of 2008 and by an amazing 13% when it predicted 11.8% late in the year. Russia actually finished 2008 with a horrifying 13.3% overall consumer price inflation. Individual staple commodities were up far more: 16.5% for food prices (25.9% on bread and bakery products, 33.8% on pasta, 22.2% on meat, 22.1% on sunflower oil), 16.4% for medicines, 16.1% for tobacco and 10.9% for alcohol.
Putin’s attempt to escape into the paranoid world of Russian foreign policy has failed just as spectacularly. World media are also condemning Putin’s latest imperialist adventure, this time in Ukraine. After proclaiming for years that Russia was a “reliable energy partner” for Europe in a pathetic effort to draw it away from American influence, Putin showed himself to be a shameless liar by suddenly cutting flows to Ukraine and thereby reducing deliveries to Europe through Ukrainian pipelines. Exactly as he did in Georgia, without even giving Europe advance warning, much less receiving its consent, Putin acted in exactly the same arrogant, unilateralist manner that it accuses the U.S. of doing. This kind of brazen, imbecilic hypocisy can only come from the Russians.
And the media are exposing the fact that Putin’s obsessive focus on cold war politics and his frenzied greed for foreign currency has the result of leaving the Russian people out in the cold. Radio Free Europe reports that Russians are freezing in their homes in Tatarstan “because Russia’s state-owned gas monopoly, Gazprom, is more interested in selling high-priced gas to foreign customers than in supplying Russia’s own population.”
Pressure from Europe has now forced Putin to turn the taps back on as far as the flows necessary for transit are concerned. At least 18 other countries are affected by his crude bludgeoning of Ukraine, and all of them have now of course dramatically increased their dislike for Russia. Putin’s policies are actively encouraging Europeans to find other sources of energy, such as nuclear power, and make Russia entirely obsolete and irrelevant. In short, it’s hard to imagine how an actual enemy of Russia could do any more harm to Russia’s relations abroad than so-called “patriot” Putin is doing from right inside the Kremlin.
The mere fact that Ukraine would flout Russian power in the middle of winter clearly shows how very much diminished the Putin regime really is. It can run from the horrifying inflation data, but it can’t hide. These undeniable, unexplainable facts lay bare the Kremlin’s total incapacity to formulate real economic policy, to accept blame, to reform and to lead. The only “policy” the Kremlin’s clan of KGB spies understand is brute force and repression, and so they will go the way of the USSR.
And the people of Russia who have empowered that clan will go along for the ride.
It’s true that the Ruble has slid 30% since late summer, but at the same time the GB£ has slid 25% against the $ in almost the same time period from about 1.97 in June to 1.51 today… Nevertheless, it seems the creditcrunch is biting Russia even harder.
Also, much to my suprise I read in the FT today that 1. Putin had voiced criticism of Gazproms actions towards Ukraine, and 2. that Medvedev had criticised Putin in what appeared to be an attempt to blame the economy on Putin and come out looking like a saviour.
What do you make of that?
LA RUSSOPHOBE RESPONDS:
There’s a few reasons why the British currency’s performance is totally irrelevant to this discussion.
1. The British stock market isn’t down over 70%.
2. The British government hasn’t made the pound’s value the hallmark of its legitimacy.
3. Britain doesn’t have double-digit consumer price inflation on top of $4/hour average wages.
Is Kommersant a victime of Russian state censorship as well? The english edition kommersant.com hasn’t updated since December 8th, today I try visting the site but I’m instantly redirected to the Russian language version kommersant.ru, what has become of kommersant.com has been abandoned by its owners? Anyone know?
LA RUSSOPHOBE RESPONDS:
It might be more accurate to say that Kommersant has finally been embraced (in the way of a boa constrictor) by its owners, who are pro-Kremlin.
Catch up, LR! Tuesday already brings 31.4 rubles for 1 dollar. Oh, and oil dropped way below $40.
Remember my New Year prediction of Russian-2009 35:35 vision (35 rubles for dollar / $35 for barrel). Coming sooner than even I expected!
Felix, you are being an optimist. The ruble is falling faster than the price of oil (see http://gazeta.ru/financial/2009/01/12/2923226.shtml). An exchange rate of 40 rubles to the dollar by the Spring is much more likely ;)
An interesting note, the ruble will soon set a new record. The highest official exchange rate recorded in recent years was 31.8846 rubles to the dollar on January 9, 2003 (see http://gazeta.ru/financial/2009/01/13/2923631.shtml). This was the lowest level the ruble hit after the devaluation of the ruble in 1998.
In other words, all the economic “gains” made by Putin have now been wiped off the books: the stock market, the exchange rate, soon the reserves will be nothing but a memory…
And not so surprising in the same Gazeta edition Putin getting his priorities straight and preparing ahead for any possible civil unrest is giving law enforcement agencies a raise:
Will Russia ever be free? Or is forever doomed to tyranny and mediocrity?
1. Devaluation in principle is good for economy and results will be seen in the nearest term. Import will be substituted by domestic producers.
2. Inflation is also good in current situation as it stimulates spending.
3. Who is responsible for gas supplies disruption? I think the answer will be clear soon, as it was with Russia-Georgia opposition.
4. Comparison between different countries should be done ceteris paribus. Who tried to weight France and South Africa?
LA RUSSOPHOBE RESPONDS:
1. No, it won’t you ignoramus. Russia cannot produce those goods, it will simply suffer shortages just as in Soviet times. You are blindly repeating propaganda with absolutely no basis in reality.
2. That is the remark of a psychopath. Inflation forces people to waste hard-earned money and destroys whole economic systems with ease.
3. The whole world has condemned Russia for Georgia, not one major nation has recognized Ossetia. You have your head stuck in the ground like an ostrich. Or maybe stuck some other place.
4. Russian men don’t rank in the top 100 nations of the world for average lifespan. Compare that, you neo-Soviet gorilla.
1 and 2 of your point negate each other, which is actually a very large part of the Russian economic meltdown. Usually you devaluate when the inflation has gone haywire but inflation in Russia isn’t showing signs of slowing down no matter how many times the government devaluates. Also, it is considered common sense to have one big change – a big devaluation in this case – and then stick to it so that the people understand what’s going on and have time to adjust. This is not the case at ALL right now. The government devaluates a little, the people go into a buying frenzy hoping to get the best deal, which drives the inflation up and then the government devaluates again – repeat ad infinitum.