The Bad News Just Keeps on Coming for the Russian Economy
The ability of the Putin administration to keep on generating such a consistent stream of bad economic news is really quite breathtaking.
Earlier this week we learned that the amount of unpaid earned wages in Russia had increased in March by nearly 10%, so that now half a million Russians are suffering from delinquent payments by their employers. Almost ten billion rubles were owed as of April 1. Meanwhile, unemployment jumped to a shocking 11.9% last month, the highest level in eight years, soaring up from 8.5% in February. Nearly 2 million Russians lost their jobs in the first quarter of this year, so that now more than 7 million are jobless. Economists are now predicting that Russia’s unemployment rate will rise above 12% for the year. 10% unemployment is considered the threshold for major social upheaval.
Then, Deputy Finance Minister Tatyana Nesterenko warned that the national balance sheet is so much in peril from falling revenues that that government may be forced to slash spending by up to a stunning 30% in 2010, calling the goverment’s position “very difficult.” This was a massive increase over the 10% spending cut projection given by Finance Minister Alexei Kudrin just last week. Putin said Kudrin’s figure was the result of his being “under stress” and exaggerating. In fact, it’s obviously Putin whose head needs major work done.
Finally Vladimir Mau, who heads the Kremlin’s economic crisis task force, admitted that Russia is being crushed by inflation. In just the first quarter of this year Russia has recorded nearly 6% inflation, putting it on pace to post 24% inflation by year’s end. Even if inflation were to remain at the same level as last year, 13%, this would be a shocking and devastating blow, since plunging commodity prices should be causing deflation.
Mau’s words were amazingly forthright and ominous, echoing the diagnosis of Alexei Kudrin last week. Mau stated: “Inflation limits the tools of our anti-crisis policy. Many measures used in the United States and Europe are not available for us. We cannot carry out quantitative easing, we cannot use budget stimulus and we need to maintain high interest rate.”
The Russian economy has begun helplessly tracking the price of oil, something over which Russians have no control whatsoever. It has become so emaciated and servile that it no longer has any identity separate from the commodities markets. That, perhaps, is the most damning fact of all.
In other words, Russia is operating with an abnormal, second-rate economy that has none of the basic fundamentals it needs to deal with this crisis. The Russians themselves — the honest ones, anyway — admit this freely. It lacks them because the Kremlin, populated by a clan of KGB spies who know nothing about business or economics, have spent the last ten years fomenting a new cold war rather than building a vibrant and diversified economic base such as Western countries have.