Russia’s Pension Elephant
Last weekend, Russian “prime minister” Vladimir Putin stated: “We understand that in real life inflation this year could be above the level we put in the budget. Then, in order for us to meet the declared goals, it would be necessary to increase the basic pension by more than 26.5%.”
At the end of next year, Russia’s old-age pension is scheduled to be increased by 26.5%, but Putin says that if inflation continues on its current pace that won’t be enough to keep pensioners’ heads above water. He predicts it may be necessary to raise pensions by a whopping 30% at that point, and they are already scheduled to go up 8.7% in March of this year.
That means that in January 2010 the Kremlin may be paying nearly 40% more for old-age pensions than it is paying now because of Russia’s runaway consumer price inflation, which runs well above 20% on the tiny basket of staple products that ordinary Russians need to survive.
Where will the Kremlin get the money?
It has already wasted more than half of its FOREX reserves on a futile effort to artificially inflate the value of the ruble and the stock market. It is planning to spend a huge chunk of its budgetary reserves to cover existing expenses in 2009, when it will be entering a full-blown recession and incurring massive debt. It’s planning a gigantic increase in military spending, and now it will face the crushing burden of monumental new, permanent, pension expenses — or the prospect of senior citizens starving and freezing as their existing pensions are whittled down to nothing by the plague of inflation.