EDITORIAL: The Putin Economy in Freefall

EDITORIAL

The Putin Economy in Freefall

We report today on anecdotal evidence of Russian workers being crushed by consumer debt and, in one instance at least, being forced into the type of labor they impose on prisoners just to keep their heads above water.  The bad economic news just keeps rolling in like a tsunami in Vladimir Putin’s Russia, with no end in sight.  The people of Russia, pathetically, choose to keep their heads thrust deep into the neo-Soviet sand.

The Reliable Plant website reports, for instance, that the Russian “purchasing manager’s index,” which gauges the confidence of businesses based on their willingness to buy stock “has now signaled contraction for eight successive months, a longer sequence than that registered during the 1998 financial crisis. Moreover, the average PMI reading for the current period of decline (42.0) indicates a sharper downturn than that seen a decade earlier (where the PMI averaged 46.3).”

You read that right:  According to the Russian PMI, things are worse economically in Russia now than the were during the disastrous 1998 economic collapse that supposedly justified Putin’s massive authoritarian crackdown, just to avoid the same thing happening twice.  Russia is getting, in other words, the worst of all possible worlds from its KGB regime — reduced liberty without any increase in economic stability.

That’s only the tip of the iceberg, however. Reuters reports:  “Russia’s oil wealth funds lost $14 billion in value over the last month, falling to around $206 billion, the finance ministry said on Monday, as Russia begins tapping into oil reserves to cover its budget deficit. The Reserve Fund, designated for plugging holes in the federal budget, is currently worth 4.1 trillion roubles or $120.9 billion, down from 4.9 trillion roubles on March 1.”

And RIA Novosti adds:

Russia’s Reserve Fund went down in March to 4.117 trillion rubles ($121.5 billion), and National Welfare Fund reduced to 2.915 trillion rubles ($86 billion). The falls over the month were 750 billion rubles ($22.1 billion) and 80 billion rubles ($2.4 billion), respectively.  The Reserve Fund is designed to cushion the federal budget against a fall in oil prices, and the National Welfare Fund was set up to help the government carry out pension reforms. Russia has been hard hit by the global financial crisis, with unemployment rising and the ruble losing about 40% of its value against the dollar amid a drastic decline in oil prices, Russia’s most important export.

This weakness is at the very core of the Russian economy, the oil sector, and its ripple effects are immediately seen in the wider economy, as reflected in the PMI.  The World Bank has confirmed that Russia’s economy will suffer a massive contraction in 2009, something that was obviously indicated when the stock market plunged by 75% last year.

Thus RIA Novosti also reported last week that Russia saw nearly $40 billion in capital flight in the first quarter of’2009, even as the Kremlin was forced to acknowledge a massive, blood-curdling 7% contraction in GDP during that same period, far worse than the Kremlin had led the nation to expect.  The Kremlin has predicted a contraction of less than 2.5% for the year, so this rate is triple that claim. And that’s just what the Kremlin itself is willing to admit. Lord only knows what horror the real facts would reveal.

Any number of Russophile scum tirelessly claimed as the stock market was plummeting that it “didn’t affect ordinary Russians” and therefore was nothing to worry about. That was, of course, a shameless lie, a Putinite propaganda attack of the lowst order.  No nation can sustain that kind of damage in its  equities markests without it being a bellweather of wide economic collapse, and we now see the carnage that has resulted in the lives of the people described in our report on Russian consumer debt.

It is time the people of Russia arose from their stupor and realized that their government is, once again, leading them down the path to utter national destruction.

 

 

 

6 responses to “EDITORIAL: The Putin Economy in Freefall

  1. I have been looking into the issue of oil production capacity and the investment needed to maintain it or expand it. I have been told that even when oil prices were high nations like Russia, Iran, Saudi Arabia and Venezuela were slack in investing in maintenance and modernization let alone exploration and expansion of production capacity. Now that the price has tanked and the economies are weak, there are claims that that situation is worsening and that when the global economy begins to recover and prices go up, these nations may not be able to capitalize on the advantage because their production will be weak.

    Is this assessment likely to be accurate?

  2. Stranger_in_a_Strange_Land

    Russia has effectively cut itself off from foreign know-how in the oil business. Exploration dropped like two-thirds. Basically no more money to be maid by foreigners, and if you’d do, they’d steal it from you. Plus peak-oil for Russia is just four years away. Russia is now trying to expand the gas business, where the known reserves last a generation or so. But Gazprom is so deep in the red due to it feeding the nomenclatura, that they don’t really have the money to expand. And again, without foreign know-how they are stranded anyway.

  3. Locking up Khodorkovsky, the best and brightest in that business, and dismantling Yukos was stupid. Neither the siloviki goons nor the Russian sheeple have a clue about good corporate governance.

    Snake Oil Barron, I’m not so sure I’d put the Saudis in your equation.

  4. Snake Oil Baron,

    I believe you are correct. When the demand for oil goes back up as the economies recover, the oil output will be less than before and will take years to develop new discoveries. It won’t take long for us to see high prices again. As much as the left hates the big oil companies, most of the new technology and expertise is with the privately owned companies.

  5. Snake Oil Baron,

    I believe you are correct. When the demand for oil goes back up as the economies recover, the oil output will be less than before and will take years to develop new discoveries. It won’t take long for us to see high prices again. As much as the left hates the big oil companies, most of the new technology and expertise is with the privately owned companies.

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