EDITORIAL
Russia’s Looming Depression
Ask not for whom the bell tolls, Russia. It tolls for thee.
The humiliation just keeps rolling in for a Russia plagued by Putinomics. Russia can’t afford to host its Russian Open golf tournament this year, and when it can’t even maintain its matroshka nesting-doll industry, you know the writing is on the wall. National disgrace follows on national disgrace when you hand the reins of power to the an unqualified KGB spy.
We learned last week that Russia’s budgetary reserve fund shrank an amazing 12% last month, as the Kremlin squandered over 400 billion rubles to keep Russia’s current fiscal year from sliding into freefall. Well over one trillion rubles have now poured out of the fund since the ecnomic crisis begin. The Kremlin has seen its projected revenues plummet as demand for Russian oil and gas has evaporated; as we reported last week Gazprom, Russia’s leading industrial enterprise has seen its book value fall by two-thirds and slashed its dividend by nearly 90%. So it needs money to cover operating costs, and there are only three ways to get it: (1) print it (but then inflation would go crazy, and Russia already has double-digit inflation); (2) borrow it (but then Russia would become the helpless slave of the lenders) or (3) spend the rainy-day fund. It’s chosen the latter option, but the reserves are distinctly finite.
If Russia were to continue spending its budgetary reserve at this rate, it would not last 0ut the year, and the Kremlin would lose control of its budget in January 2010. And the fact is, spending may not simply continue at the current rate, it may dramatically accelerate if the price of oil falls or other government intervention is required, for instance to deal with defaulting loans. Soon, very soon, Russia will be at the mercy of foreign lenders just like the USSR always was, and its ability to deliver even the meager services it now provides to its desperate population will evaporate. The International Monetary Fund says Russia will experience no significant economic growth in 2010 after a massive contraction this year. The World Bank agrees. That means budget revenues won’t improve and the reserve will surely exhaust next year, if not this one.
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