EDITORIAL: Russia’s Pension Elephant

EDITORIAL

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.

4 responses to “EDITORIAL: Russia’s Pension Elephant

  1. I heard somewhere the Putin will try to get the West to write off Russian’s companies $200 billion that is due later this year.

    I just hope everyone reject any write off bid from Russia…Why should the West help a country that’s been very aggressive and direspectful toward the west.

    It’s in the best interest of the West to do everything possible to help collapse the current regime.

  2. Pingback: EDITORIAL: Russia’s Pension Elephant

  3. The Russian Government can only borrow the Roubles or print currency, which is what Mugabe in Zimbabwe has done for years creating exorbitant rates of inflation.

    I do not think the Russian people will be lending to the Russian Government as they rarely try to help out dictatorships.

    Printing currency is probably the only option which means that as the quantity of currency notes rises, so will the inflation rate.

    Buy gold or silver or diamonds or a home or a car.

    Gary Marshall

  4. Interestingly, I have discovered that they have another option: using whatever reserves they have left to speculate against the ruble to raise funds to cover the governments deficit.

    Gazeta.ru has a wonderful piece entitle “The Theater of the Absurd of the Russian Economy” (Театр абсурда российской экономики) that examines this phenomenon (Russian state as currency speculator) and the other absurd economic policies being implemented by Putin/Medvedev. The authors writes that the leadership seems to be clueless as to what to do and are implementing measures that will only exacerbate the crisis.

    The author’s conclusion:

    От анализа происходящего остается полное ощущение того, что на самом деле российские экономические власти не борются с реальным кризисом, а просто играют пьесу в построенном ими театре абсурда.

    My rough translation: “From the analysis of what has occurred, we are left with the impression that in fact the Russian economic leadership is not struggling with a real crisis, but merely acting the parts given to them in a theater of the absurd.”

    In other words: they are implementing measures without rhyme nor reason that will make a bad economy worse.

    Source: http://gazeta.ru/comments/2009/02/12_a_2940855.shtml

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