EDITORIAL: Economic Collapse in Putin’s Russia

EDITORIAL

Economic Collapse in Putin’s Russia

The lastest jaw-dropping bad news out of Russia came last week with the announcement that the beleaguered nation’s economy shrank a stunning 10.9% in the second quarter of this year, a significant increase from the 9.8% contraction that occurred in the first quarter, meaning that the pace of Russia’s devastating recession accelerated rather than slowing at the whopping rate of over 10% per quarter).  It was the worst quarterly performance of the Russian economy since the fall of the USSR. The data was much worse than economists had predicted, and the ruble and stock markets plunged accordingly.  With only half the year over, economists are predicting a double-digit budget deficit, 10% of GDP or more, by the end of the year, with worse to follow in 2010, including the total exhaustion of the budgetary emergency fund.

Bloomberg reported:  “By the end of 2009, 17.4 percent of the population, or 24.6 million people, will be living beneath the subsistence level of $185 per month, almost 5 percent more than before the crisis, the World Bank said in a report released in June. Rising numbers of jobless and falling wages will cut the country’s nascent middle class by 10 percent, or 6.2 million people, to about 51.2 percent of the population.  Household consumption, the main source of growth in recent years, is collapsing, it added.”

The Russian economy is in freefall, and there is no telling where or when it will hit bottom.  Even many highly placed Russians are now admitting this openly.  Paul Goble reports that Garegin Tosunyan, President of the Association of Russian Banks, has declared that the economy is “chronically ill” because of “monetary and credit policy which had not been thought through” by the Kremlin.  If someone Putin can throw in jail is saying that, do you dare imagine how bad things really are?

Indeed, how could Russia’s economic policy have been “thought out ” at all?  Russia is ruled by a proud KGB spy with no economics training or business experience of any kind, and he has surrounded himself with sycophants of the same ilk.  It is a hopeless situation from which only regime change can save Russia.  Yet there is virtually no chance that the benighted people of Russia will realize that fact before it is far too late.

Advertisements

33 responses to “EDITORIAL: Economic Collapse in Putin’s Russia

  1. The “benighted” people of Russia, as you put it, completely deserve it. By very large and clear margins they have consistently approved of Putin and of his policies, and freely voted for him and his cronies. Perhaps, there were irregularities in the voting process, but it is beyond any reasonable dispute that he has enjoyed overall popular support. In normal countries people bear responsibility for their governments’ actions. Russia insists it’s normal now.

    They have made their bed, let them sleep in it now

  2. The West is only just learning the Soviet citizen’s art of bed making. We have a hyper partisan and ideologically extreme media but we have not taken significant action to stifle Internet and radio political discussion, despite proposals toward such – the exception being Australia and even they are in the early stages. We are becoming desensitized to intimidation a physical violence in the political sphere but we are far from the point of accepting assassinations of high profile dissidents as calmly as the weather; except for the odd critic of Islam and many female Muslims whose refusal to play by the rules of their family’s earn them the title of “honour killing” victim. It will take a long time for Western nations to get to the point that they could allow and even participate in an unconstitutional, and prefabricated referendum to extend executive terms indefinately – maybe a decade. But Russia is a crystal ball on a very possible future. It might be hard to imagine but so was the idea of government owned auto makers and union muscle screening the public out of public meetings with politicians, once.

  3. I couldn’t agree more with RV: this is the path Russians chose for themselves. If they want a future as anything more than a 3rd-world basketcase, then they need to start working towards it. Though I wouldn’t hold my breath for signs of independent thought from the narod…

  4. I live in Russia – there is no collaps it sight…

    Unlike it the Baltics, hehe..

    • The Batics have powerful allies in NATO and the EU. What allies does Russia have? Iran, Venezuela and Belarus? They won’t be able to help much.

      Russia has double digit unemployment and inflation. Read the link, ape. RUSSIAN EXPERTS admit this is a doomsday crisis.

      Your intelligence is pulp.

      • @The Batics have powerful allies in NATO and the EU. What allies does Russia have? Iran, Venezuela and Belarus?

        Belarus has some strange love-hate relationship with Russia nowadays… and now it’s increasingly hate. So I guess it’s hardly a sidekick for Russia.

        Chechk this out (Lukashenka in May): “If things don’t work out in Russia, bowing, nagging and weeping is useless. We should seek our happiness in another part of the planet…We are an independent sovereign country and we will do everything in our interest..Therefore, you must remember: no praying or begging. If they don’t have the $500 million that they promised a long time ago and that we included in our budget, don’t go and beg.. Let’s build our economy and policy as a sovereign independent state. We have many levers to influence the situation, those challenges that we face, including in Russia. Let’s use them. When will we start thinking as civil servants of an independent sovereign state?”

        Judging from the aftermath of the last year’s war, their only trusted ally is Nicaragua (everyone else in the world either condemned or ignored the Russia-enforced “independences” of the Georgian separatists, despite Russia’s repeated calls for support).

        • Oh, and the Lukashenko’s recent (counter)remark at both the Russian economy and Russia-Belarus relations:

          “If their economy is that good, where did the 10% GDP decline come from? Our economy is different, but our GDP growth stands at 1.5%. What is your problem? Why do you go to Russia where you are kicked? Don’t you understand that it is not the first time when they want to get us for free? Yesterday Vladimir Putin said that he had discussed the situation with [Russian Finance Minister Alexei] Kudrin while flying to Minsk. And after that Kudrin broke out his rant. Wasn’t it arranged? It was, totally.”

          • Kudrin’s “rant”:

            St. PETERSBURG, Russia (Dow Jones)–Belarus made a “strategic error” in not accepting the ruble as its currency, a move that could have spared the country its current financial troubles, Russia’s Finance Minister Alexei Kudrin said Saturday.

            “If Belarus had accepted the ruble, it would not have to be taking credits right now,” Kudrin told journalists during a briefing at the sidelines of Russia’s main economic event, the St. Petersburg Forum.

            Russia offered to let Belarus switch to ruble in 2005, Kudrin said, and the issue has been raised frequently since, but Belarus has refused. The former Soviet Republic has been promised some $3.7 billion in various loans, including a $2 billion stabilization loan from Russia and an $800 million facility from the International Monetary Fund to aid its ailing economy and currency.

            The two neighbors and staunch allies have been in an emotionally charged spat recently after a dispute broke out over the issuing of the next $500 million tranche of a Russian loan to Minsk.

            On a recent trip to Belarus, Kudrin said Belarus must take considerable efforts to stabilize its economic situation in order to receive the promised money. Kudrin also said that Belarus refused to accept the tranche in rubles.

            Kudrin also warned during the visit that the Belarussian government and the economy as a whole could default even by the end of this year.

            Belarussian President Alexander Lukashenko retaliated, saying his country doesn’t need help from Russia. “We don’t need to bow down. We don’t need to whine and cry,” according to a statement provided by Lukashenko’s press service.

            http://online.wsj.com/article/BT-CO-20090606-700893.html

    • Leonid, despite a theoretical differece in the recent GDP estimates, in the Baltic States practically everyone has a flush toilet (unitaz in Russian, I guess) and runnig water (hot and cold) to wash their hands afterwards. But in Russia a huge number of people has to use outhouses and/or community shared facilities.

      I know for fact that there is soap available in Russia, too, but I have no idea how hand washing is done properly without running water (hot and cold). You might know?

      Btw, which countries have seen their industrial production rise in recent months and which country most certainly has not?

  5. “stunning 10.9%”

    22% drop in Lithuania and Latvia is not very stunning for russophobes, is it?

    • Actually, it is. But this blog is about RUSSIA, you moron, not the Baltics.

      You Russophile idiots seem to think that if there is even one nation on the face of the earth with worse peformance than Russia, then Russia is just fine. We guess you think that since there are 50 countries with adult lifespan shorter than Russia, it doesn’t matter that THERE ARE ONE HUNDRED AND FIFTY countries where people live much longer.

      Rationalizing Russian failure by pointing to other countries rather than reforming Russia is what destroyed the USSR. Do you want Russia destroyed too?

    • “B-b-b-but our mortal enemies the Balts have it even worse!”, said the ghost of Leonid B.

      http://www.globalpropertyguide.com/Europe/Russia/gdp-per-capita

      “Collapsing” Latvia: nearly 15,000 (Estonia: over 17,000). “Economic superpower” Russia: less than 12,000 (the middle point between Turkey and Poland, which also actually has continued economic growth and not decline).

      So unkneeling.

  6. Do you want Russia destroyed too?

    Hahaha… Many a powerful at different times wanted Russia destroyed – they all died….
    And you, russophobes, will all die.. and Russia remain.

  7. In Spain unemployment is almost twice as much than in Russia – so what?

  8. Hello Leonid,

    Russia is blessed with resources that the Baltics and Spain can only dream of. Yet Russia, which has travelled as a roller coaster from the depths to the heights and now back to the depths, is the nation who suffers the greatest blows from the crisis. Why is that?

    It will not be long before Putin is expelled from power and the Ukraine, Georgia, Poland, and many other former Soviet fiefdoms are stepping over drunk Russians and picking through the remains of the Bear’s flea infested carcass.

    That dunce Putin is the best ally those Russophobes in the west and in China have ever had.

    Regards,
    Gary Marshall

    • “Greatest”? You do understand that 20 is greater than 1o, don’t you?

      • Boba, this blog isn’t about facts, it’s about smashing Russia’s image by any means possible (and impossible) and nothing else. Speaking to the gorillas (in LR’s own words, but here I mean the blog owners themselves and their claque) is pretty senseless :-) Thus, 10 is greater than 20, when they need it (you know, during the war time sine may equal 4!)

        • “Prezident” Rosiiskoi “Federatsii” (Dmytro Anatoliyovych is no president and Russia is no federation) must be one of those rasha bashas because he said just reacently that Russian economy is hitting a dead end and it has crumbled worse than in many other countries.

          http://news.my.msn.com/topstories/article.aspx?cp-documentid=3519504

          • Hyvää päivää! ‘Worse than many’ isn’t equal to ‘worse than hell’ (which is always implied here).

            • One also has to take into account the time honoured Russian tradition of lies, lies, and more lies.

              Pretty much guaranteed, that if the Russian government actually admits to say a 10% contraction, that the real figure is considerably worse.

              A time honoured Russian tradition, Tsarist, Communist, or neo fascist, why ruin a good lie with the truth?

            • So we can agree that the only thing left open for debate is whether Russia is worse than hell or vice versa?

              • You may agree and have such debates with the poster above (don’t even want to mention his name) or somebody of his ilk.

  9. Oh dearie me,

    Russia’s economy is in decline, you mean just like nearly every economy in the world. For example the apparent green shoots did not appear in the UK’s economy as expected instead they have recorded the largest ever decline since records began in 1955 despite pumping 125 billion into the economy. Russia is in a stronger position than most countries because its national debt is a fraction of that owned by the US and the UK. Personal debt is extremely low compared to the UK which has the same amount of personal debt as the rest of Europe. Thirdly many Russians still grow and produce their own food giving reducing personal expenditure. The average person in the UK has 25,000 pounds credit card debt. The US owns a massive 13 trillion dollars debt.

    • @Russia’s economy is in decline, you mean just like nearly every economy in the world.

      Oh dearie you,

      January 24, 2008:

      Kudrin: Russia – Stability ‘Haven’ amid Global Crisis

      DAVOS (RIA Novosti) – Russia’s finance minister said on Wednesday that Russia was a safe haven for investors and the country’s economy remained stable amid slumping global stock markets.

      World stock exchanges have seen heightened volatility in recent weeks following the financial turmoil provoked by the U.S. subprime mortgage crisis and fresh signs of a recession in the world’s largest economy.

      Speaking on the sidelines of the World Economic Forum that opened in the Swiss resort of Davos earlier in the day, Finance Minister and Deputy Prime Minister Alexei Kudrin said, “In the past few years Russia has managed to achieve economic stability piling up substantial international reserves, which play the role of an airbag. I believe Russia will soon be the focus of attention as a haven of stability.”

      November 20, 2008:

      “Putin, who stepped down as president in May and remains hugely influential, offered assurances there would be no repeat of the economic turmoil when the Soviet Union collapsed in 1991 and, 10 years ago, when the state defaulted on its debt.”

      “We will do everything, everything in our power … so that the collapses of the past years should never be repeated in our country,” he said.

      http://www.reuters.com/article/idUSLK36695720081120

      Russia “crumbled” after commodity prices collapsed, Medvedev said. Energy, including oil and natural gas, accounted for 68.8 percent of exports to the Baltic states and countries outside the former Soviet Union in the first six months of the year, Russia’s Federal Customs Service said last week.

      Russia failed to free itself of its reliance on commodities during Prime Minister Vladimir Putin’s tenure as President between 2000 and 2008, said Natalia Orlova, chief economist at Alfa Bank, Russia’s biggest privately-owned lender.

      “Because of high oil prices, capital came in; banks transferred this capital into the economy,” she said. “Rising wages fed consumer growth, so there was no reason to invest or create new production. Now capital has stopped coming in and consumption has stopped. This model has ceased to exist. We don’t have a new one.”

      http://www.bloomberg.com/apps/news?pid=20601085&sid=aol.Mp5G5grQ

      • The first link:

        http://www.mnweekly.ru/business/20080124/55305451.html

        Kudrin’s ravings were not unusual, they really thought they’ll be “oasis of economic stability”…

        …while actually having no real economy, other than exporting raw materials.

        So much for the largest country in the world who love to pretend they’re “global superpower”, better than everyone in everything.

        And now when the unkneeling Russians are on their knees again, it’s not fault of theirs, or their government (like they loved and love to fault Yelstin for the previous collapse)… why, it’s of course the fault of the Americans!

        Oh, and an example of the Russian Way (October 2008):

        Russia: Crisis? What Crisis?

        State-controlled TV in Russia is playing down the global financial mess even as its impact starts to spread through the economy

        http://www.businessweek.com/globalbiz/content/oct2008/gb20081024_966379.htm

        There is a mantra these days, repeated diligently by Russian television: “The Russian authorities have taken all necessary measures to ensure that the global financial crisis does not produce a strong negative effect on the social situation in our country,” or “The situation is under control.”

        The word “crisis” is scarcely used and only to concede that, yes, a crisis is unfolding, but this is happening very far from Russia, so the viewer mustn’t worry.

        All reports that do touch on the negative consequences of the global banking slump come from abroad. Russian television tells viewers about impoverished Britons unable to bury their dead relatives because the government no longer provides subsidies for that purpose, or about the American businessman, driven mad by the loss of his managerial job, who shoots his entire family and himself. But nothing is said about the clerks of Russian banks living in constant fear of being laid off, or about young families no longer able to keep up with their mortgage payments. Nothing at all is being reported from the regions, and there is no ground-level view of the situation. Only the Kremlin-cabinet view is aired.

        It is an open secret that television in Russia – heavily filtered and as unchallenging as possible – is used to manipulate the public or to provide some kind of mass psychotherapy when officials feel it is required.

        Journalists working for the state-controlled media admit in Internet forums that whole lists of words and expressions have been banned for use on Russian television, including “panic,” “plummeting shares and markets,” “market collapse,” “market meltdown,” “the bottom has dropped out of the market,” and “record plunge.” Euphemisms like “decrease” are used instead.

        No wonder, then, that 20 percent of Russians polled in mid-October by the National Agency for Financial Research said they think the global financial problems will have only positive consequences for Russia. A further 40 percent said they are convinced that there will be no negative impact on Russia.

    • Even Marie Antoinette was more generous: she told the masses to eat cake. Freddy’s call to the Russian masses is to eat potatoes ;) And, that is what they will do as potatoes is the main “produce” that Russians can grow.

  10. Alexei Bayer in today’s Moscow Times sums it up quite nicely:

    “Russia is living in a self-imposed international isolation and has an inefficient, nontransparent economy dominated by corrupt bureaucrats and well-connected clans. Shameless personal enrichment has become the sole preoccupation of its elites, who see themselves as temporary caretakers. Much like the Soviet Union, the system fears change and has no mechanism for changing peacefully. Unlike the Soviet Union, however, it offers no solidarity of equal poverty and no hope for a better future. Now, there are the haves and the have-nots and an every-man-for-himself mentality. It does not make for a pretty picture.”

    Source: http://www.moscowtimes.ru/article/1016/42/380831.htm

  11. The kremlin’s greedy uncivilized barbarian’s empire is starting to fall apart and break up into smaller pieces.

    Decaying Soviet Infrastructure Shows Its Era

    By ANDREW E. KRAMER
    Published: August 20, 2009

    MOSCOW — A devastating breach in Russia’s largest hydroelectric dam reminded Russians and foreign investors alike this week of the dangers posed by this country’s largely Soviet-era infrastructure.

    The failure of the towering Sayano-Shushenskaya dam, which accounts for 15 percent of Russia’s hydroelectric power and 2 percent of its overall power, highlighted what a risky investment Russia’s infrastructure can be. At the same time, the disaster’s immediate effect — a spike in electricity prices in Siberia where the dam is located — showed how infrastructure problems could hamper any Russian economic recovery.

    Sayano-Shushenskaya and similar dams built by the Soviet Union’s command economy provided copious, cheap hydropower, and many businesses benefited. Rusal, the world’s largest aluminum company with many smelters in Siberia, took advantage of bountiful supply and cheap prices as it ramped up operations over the last decade.

    Rusal consumed about 70 percent of the Sayano-Shushenskaya dam’s output. Rusal’s owner, the oligarch Oleg V. Deripaska, once claimed that the Russian aluminum industry would outgrow America’s because cheap Siberian electricity provided an unbeatable advantage.

    In fact, all of Russia’s economy grew on roads, pipelines, electrical transmission towers and other infrastructure built by the Soviets, but idled during the deep post-Soviet recession. This helped facilitate rapid economic growth.

    But metal fatigues and snaps, gear teeth chip, grind and stick, oil pipes burst and leak, roads and bridges crack and buckle, and agricultural machinery fails during harvest.

    A dearth of capital investment from the late 1980s until around 2005 left Russia with badly decrepit infrastructure. The nadir was probably in 2004, when the state statistics agency calculated that Russian capital equipment was, on average, 21.5 years old — compared with about 10 years in most Western economies, said Yaroslav D. Lissovolik, the chief economist at Deutsche Bank in Moscow.

    “To re-equip Russia’s industrial base will take decades, not just two or three years,” Mr. Lissovolik said. “This is a long-term challenge.”

    It has been a long-term challenge for a while. Long anticipated, the breakdown of Soviet infrastructure began in earnest this decade.

    An electrical transformer built in 1964 caught fire in 2005 outside Moscow, plunging the capital into a blackout that disrupted the stock exchange and banking operations.

    The oil slick from the dam breach, for example, killed 400 tons of trout in fish farms down river, ecologists said.

    From a distance, the breach looked like a small waterfall at the base of the 800-foot-tall Sayano-Shushenskaya dam spanning the Yenisei River in southern Siberia.

    By Thursday evening, 17 employees of the electrical company had been confirmed dead and an additional 58 were missing. Authorities said chances of finding anyone alive were slim. The force of the flood lifted one 900-ton turbine from its housing and bounced it off the ceiling of the machine room, Russia’s chief rescue official said. An oil slick stretched 80 miles down the Yenisei.

    The immediate effect, however, was a spike in electricity prices in Siberia, which will damp recovery for companies in the region that had relied on cheap power, illustrating the long-term costs of Russia’s crumbling infrastructure. The accident took offline 6,000 megawatts, or enough electricity to power six million American homes.

    Capping rates at a time when RusHydro will have an expected $1.25 billion repair bill is surely a disincentive for investors. Shares in RusHydro, which trade in Moscow and London, were down 18 percent on Thursday.

    http://www.nytimes.com/2009/08/21/business/global/21ruble.html?hpw

  12. serbia is not well know for lack of corruption my friend… it was inevitable, sorry…

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s