EDITORIAL: Putinomics Crushes Russia’s Economy


Putinomics Crushes Russia’s Economy

“The Russian economy is in recovery!”  That’s the Kremlin’s story and it’s sticking to it, whatever the facts may show.

And what the facts in fact show is continuing disaster.

The VTB Capital purchasing manager’s index, for instance, shows that employment has fallen every month since October 2009, reaching 9.2% in January, the highest level since March 2009.  The PMI index fell to 51.0, it’s lowest level since last July, and just one point above the level that indicates a double-dip recession. VTB says that the services sector “slowed to nearly a standstill in February, as the number of new orders declined dramatically from the prior month.”

That’s only the tip of the bad-news iceberg where Putinomics is concerned.

Robert Amsterdam points out that the Russian banking system is so mired in failure that the Kremlin is actually praising the role of pawnshops, which are thriving as banks tumble and collapse and lending dries up to a mere trickle.

The initial public offering of Rusal, the world’s largest aluminum producer, was a humiliating disaster, so much so that the offering’s own underwriters lost interest in the shares and repudiated them.

And in another truly breathtaking development, the Kremlin admitted things were getting so desperate it might be prepared t0o abandon the national currency.

There is only one word for a person who can review an avalanche of bad news like this and still contend that the Russian economy is in recovery, and that word is:  Idiot.

The world has watched slack-jawed as the once-vaunted Putin economy has imploded. It has seen exposed Putin’s ridiculous lies about Russia becoming an independent “safe harbor” that could challenge the United States as a leader in a multi-polar world.  The harm done to the Putin economy as a result of the global crisis was far, far greater than what the USA experienced.

Worse, the world has seen exposed the naked fraud of the Putin economy, which in fact is nothing but a sham, totally dependent on world crude oil prices.  Though he has held power for more than a decade now, Putin has done nothing to diversify the Russian economy.  To do so would require two things that Putin is incapable of:  first, knowledge of economics and business; second, a willingness to allow competing centers of power to arise in Russia, centers that could one day challenge him.

So Putin has fiddled while Russia burned.  He has not prepared his country for the vagaries of the business cycle, not prepared it to be competitive in a globalized economy, not prepared it to face the technology of the 21st century.  Instead, he has done nothing but provoke foreign countries, so that Russia has far more enemies now than when he took power, and divert huge amounts of resources to a new cold war.

Putin has acted, in other words, exactly like what he is:  a narrow-minded, proud KGB spy who wants nothing but to create a new-and-improved USSR.

47 responses to “EDITORIAL: Putinomics Crushes Russia’s Economy

  1. A note on Russian statistics.

    To get an accurate statistic.
    Double any bad statistic.
    Cut in half any bad statistic.


    Wasn’t that the rule before the KGB had power for a decade? Perhaps now some type of multiplier is in order . . .

  2. LR’s point about Mr. Putin’s economic policies not preparing Russia for the financial crisis are very well taken! Bravo to LR on this one! If Russia had had Yegor Gaidar ruling Russia all this time it may very well have done much better in this crisis. Anyone who even respects Austrian , English classical Liberal, Orthodox, Classical etc. economics should note this poor economic performance and the augurs it bodes for Russia’s future. My understanding is that Mr. Putin is at best lukewarm to strict Classical economics hence the hatred of Mr. Gaidar. Please tell me if I’m wrong. Thanks.

  3. “So Putin has fiddled while Russia burned. ”

    How much is Russia’s national debt, again? $76 Billion? You don’t say. And what’s the U.S.A’s national debt?

    $12 TRILLION!!!???

    Somebody fiddled like the entire Charlie Daniels Band while the U.S.A. burned. Maybe you should see if you can sweet-talk Boris Nemtsov into coming over to this side of the ocean to do a little tinkering with the U.S. economy, before he swoops in to save Russia.

    • We’ve heard this kind of talk before. That U.S. currently has a high deficit does not justify Russia’s. Nor does U.S. debt justify Russia’s lack of rational and coherent economic policy.

      You know as well as I do that Russia produces practically nothing that could be sold for hard currency except raw materials and maybe some arms. Well, add vodka, Siberian furs, and caviar to the list. The prices of raw materials are still relatively high, it’s true. So, Russia is nastily aggressive and wants to waste billions on those ridiculous Sochi games among other vulgar demonstrative actions.

      But there is no guarantee these prices will remain so forever. I remember the time when oil was under $20 and Russia asked for food assistance like Zimbabwe. I wonder what happened with their national pride then.

      Now, should the prices fall and Russia again becomes a beggar, would it be of great comfort to her that the U.S. has $12 trillion in debt? By the way, while this number does look enormous, remember the size of our economy. This debt can be relatively easily paid off in many ways.

    • Mark, your comment totally ignores all the evidence of economic collapse stated in this post and raises a point, debt, that has NOTHING to do with our post. Changing the subject is SPAM. We don’t allow it. Moreover, you do not cite ANY evidence from an authoritiative source indicating that Russia’s debt level wipes out all the other negative factors. That makes your comment SPAM as well, and clearly violates our comment guidelines. And your effort to suggest that because the USA has a large debt Russia is just fine is simply psychotic. If the standard of living and relative stability of the US vs. the Russian economies were the barometer of Putin’s legitimacy, he would have been out of office years ago.

      Please stop spamming our blog. Take our warning seriously. Another commenter recently ignored it, and is now banned.

  4. Russia is an emerging economy, so if people wish to draw comparisons it should be with the other BRIC nations China, Brazil, India, during the recession the only country out of the four to see negative growth was Russia, the Russian decline was sharper than developed nations at -6%, considering that Russia’s economy grew by 8% in 2007 this meant a disastrous drop of over 14%, this was all due to the fall in the price of oil and gas, Russia is a “one trick pony” called energy.

    Oil accounts for 56% of the Russian economy, the problem is Russia holds only the worlds 8th largest reserve at 79 billion barrels, but over the last 12 months has turned itself into the worlds largest producer, its production now exceeds Saudi Arabia which has the worlds largest reserve of approximately 280 billion barrels,
    Because of falling demand the OPEC countries and others cut production last year, Russia bucked the trend and produced 0.5% more, much to the annoyance of the other producers, Russias current level of production is not sustainable at current levels. Canada has the worlds 2nd largest reserve at over 178 billion barrels, but is only the worlds 7th largest producer, the big difference is Canada has a developed diverse economy and doesn’t need to over exploit its resources.

    Putin during his second presidential term brought large parts of the economy under state control and made it off limits to foreign investors, this strategy has blown up in his face, now out of the 420 strategically important companies that were off limits 220 will now be allowed to pursue foreign investors.

    Russia now acknowledges that it desperately needs fresh investment Putin’s “go it alone policy” has been a catastrophe; the problem is investment is thin on the ground and many blue chip companies do not view Russia as a reliable partner.

  5. Excellent article LR, anybody who’s ever visited Russia is fully aware of what a shambles of an economy Putin presides over. And I’m not talking about the tourists who flock to the glitz of downtown Moscow, Ulitsa Tverskaya, the GUM and Red Square, instead I’m talking about the poverty of the provinces and the villages, with ragged babushkas begging outside Orthodox churches. After a lifetime of servitude to the state their pittance pensions makes a mockery of ten years of Putinism, while his own inner circle of ex-KGB thugs and cronie-capitalists have enriched themselves beyond belief. While some nations’ brightest minds enact stimulus legislation in order to stave off recession, Putin instead has himself photographed half naked in the open countryside riding around on a small horse for the delight of the clueless TV audience (global). Time’s running out for this thug and Obama needs to quit appeasing the Kremlin. When the Putin regime comes crashing down all the king’s horses and all the king’s men won’t be able to save him, and he’ll bring the whole Russian Federation down with it.

    • I commend you on your excellent ‘comment’ kazan, it is quite clear that you have visited Putler’s ‘paradise’ and seen reality, so unlike the petty lying propaganda spewed out by his brain dead cohorts.

    • Bohdan, Kazan, did these people live better before Putin came to power?

      • AT, just because a bully is stronger than a drunk, that is not an endorsement of the bully. Just because a $50 per month pension is better than $15 per month, that is not an endorsement of a $50 pension. Putin had $147 per barrel oil prices, Yeltsin had $15 per barrel. The thievery, corruption, incompetence and brutality under Yeltsin continues under Putin. What Russia needs is a transparent competitive democracy and an end to legal nihilism in order to increase foreign investment, it had neither under Yeltsin or Putin. Your arguments might be sufficient for RT, and their moron viewers, but they are wasted on the likes of myself. You apologists for Putin obviously have a vested in his survival, but your days are numbered.

        • Well, I wrote two lines and you have already labeled me a Putin apologist, said that my days are numbered and pointed out that I support moronic views. You also said I provided some arguments — there are none in my two lines. Here however, some thoughts:

          I am not sure what is endorsement for what, but most people I talked to in Russia, my parents and in-laws included, are much more happier now that they get $150-$300 pensions than when they lived on $50 .

          The oil price was high, but this does not guarantee prosperity for anyone, under any system. In fact, as any economist would say, under free market conditions, high natural resource prices result in lower investments in other industries. In any case, unless you are a shareholder or an employee with an oil company, you should not expect the proceeds of oil sales to benefit you. In Russia’s case, these proceeds were used to balance the budget and to minimize the tax burden on both citizens and businesses.

          Moreover, many of the poor old ladies begging at the church steps cannot expect to live better within the next 10 years no matter who comes to power, unless someone grants Russia an endless supply of goods and a total wellfare state is introduced. Democracy, you see, does not guarantee a better life for everyone fast. It’s the most stable governance system, and appears to be the best system to achieve high economic results over a long period of time. In terms of growth, dictatorships appear to be posting quite impressive results lately (e.g. China, UAE, Saudi Arabia).

          Russia’s governance system is authoritarian and corrupt, under this system, however, the Russians are more free and more prosperous than they have ever been, although what they have in both areas now may not be impressive compared to more developed countries. Compared to 10 years ago, the resurgence in Russia is quite tangible, however. Whether the country could have done better without Putin — no one knows.

          • Well your parents must be living in Moscow or St Pete, because my mother-in-law in the provinces lives on $80 per month, after a lifetime of servitude to the Russian state, many of those years spent stuffing parachutes for the military. And she has friends living on even lower pensions. Have you factored in how annual double-digit inflation has reduced the value of those lucrative pensions you talk about?

            Its a coincidence how two of those growing dictatorships you mentioned also produce oil.

            I have no doubt that Russia could have thrived under different leadership. Even Yeltsin would have prospered with those rising oil and gas prices, at least he wouldn’t have chased the foreign investors out of the country. Homer Simpson would have done a better job than Putin with those oil prices.

            • Moscow and St. Pete is about 15% of Russia and should not be ignored. If you ask about my personal experience — I am more familiar with places like Perm and Nizhny Novgorod. I feel sorry for your mother-in-law, and even for my who gets a $400 pension — pensions tend to differ under any system as well. If your mother in law was, say a prominent chemist, like mine, she could have enjoyed a better pension. Quite fair, I think.

              The inflation– close to 10%, but not quite double digit — has reduced the value of both mother-in-laws’ pensions. But $50 then is still worse than $180-$300 now — not much better, but better — at least that what most old folks in Russia think as far as I know.

              China has no mineral resources. But the Congo does. I’ve been to both places. The Congo is more democratic than China, although both are authoritarian. Trust me, you want to live in the resource-poor China, not in the diamond and copper rich Congo.

              What if Zhirinovsky or Zyuganov came to power — would they have done a better job?

              • No, we don’t need any more drunks. But Kasparov or Nemtsov could be inspiring leaders. Though tough guy Putin is terrified of giving my two favourite candidates a voice, what is he so scared of?

                Oh, your comment above implies endorsement, albeit loosely.

                • Kasparov and Nemtsov could be great, if they could get some Russians to vote for them. They may be your favorites – and Nemtsov was mine in the late 1990s — but whom did your mother-in-law and her friends voted for? I see no loose endorsement of anything in my comments.

                  • Democracy, you see, is not when people vote for whom you like.

                  • Like everybody else in Russia my mother-in-law is spoon-fed a daily diet of ridicule and slander of all the credible opposition candidates on Russian TV. So how could she possibly have an informed opinion of policy agendas etc?

                    Let’s just agree to differ on what an endorsement is.

                    • The Soviet media spoon-fed the country for 70+ years, yet when the people were really pissed off, they figured out how to develop and informed opinion of things and dismantled the old regime in 1991. Nemtsov’s SPS and Yavlinsky’s Yabloko were well equipped to win over the Russians, and how many votes did they get in the best year — 10% combined at max? Maybe if Mr. Kasparov spent less time writing for the New York times and doing more what MLK did, he would get more exposure and votes.

                    • Well why did it take them 74 years then?

                      You’re either ignorant about the value of a free TV media, or you’re hoping I’m too stupid to recognize its importance. If Nemtsov or Kasparov did win a majority, the results would be rigged to suit Putin anyway.

                      By the way, Kasparov writes for the Wall Street Journal. And he’s doing a good public service informing people in the west about the diabolical political situation in Russia.

                    • There is another article on this blog saying that 1/3 of the Russian household has Internet access. That’s far more than the number of people who had access to any Western media in 1989.

                    • NYT, WSJ — same difference. I appreciate his public service for the West, but he would be more valuable for the Russians if he made them their primary audience.

                      Why did it take them 74 years? They were not too much pissed off for 74 years then. A nation deserves the government it has.

                      Diabolical is a loaded word. There are far worse places than Russia. And no leader will turn Russia into France in 10 years.

  6. Thank you Bohdan, I too have had enough of bad journalism extolling the virtues of Putin’s “resurgent Russia.” Its all smoke and mirrors, and the print media—in particular Time who made Putin the person of the year for 2007—must accept a huge portion of the blame for whatever false credibility he still retains.

    • “As president of Russia, Vladimir Putin’s most obvious accomplishment has been to transform the Russian economy from a bankrupt relic of the USSR into a global giant. The past ten years of 7% annual GDP growth have pushed the Russian economy well over the $1 trillion dollar mark, from 22nd to 9th in the world.
      The Putin Plan rests on two pillars: (1) stable economic growth; and (2) a stable legal environment. Each is in turn divided into two phases, the first of which is “consolidation” and the second “reconstruction”. The consolidation phase is now largely complete, while the reconstruction phase had only just begun before the 2008 collapse of global investment.
      Within weeks of his election in 2000, Putin proposed a comprehensive package of reforms that eliminated fuel and sales taxes, reduced the corporate tax rate, and introduced a 13% flat tax on personal income. Within just one year the Russian government moved from having regular budget deficits to having regular budget surpluses [2]. With stable revenues, tax inspections were curtailed [3], and in 2006 a comprehensive tax amnesty allowed citizens to legalize all prior undeclared income [4].
      While tax reforms stabilized government revenues, the massive privatization of state assets funded economic re-construction. Fifteen years ago Russia’s industry was fully state-owned. By 2002 it was 90% privately owned [5]. “

      [2] N. REYNOLDS, Tax reform, not oil, fuelled Russia’s revival, in «Johnson’s Russia List 2007», n.98.
      [3] T. PANINA, Nalogoviki ostanutsia bez vnezapnosti: im razreshat provodit? proverki ne chashe dvuh raz v god, in «Rossiiskaya gazeta», April 30, 2005.
      [4] D. DOKUCHAEV, State Duma Has Voted for Tax Amnesty. At Last!, in «Moscow News», December 29, 2006.
      [5] A. ASLUND et al., Russia’s Surprise Economic Success, in «Financial Times», October 9, 2002.

      Nicolai N. Petro is Professor of Politics at the University of Rhode Island (USA). He is the author or editor of eight books on Russian politics, and has served as special assistant on Soviet affairs in the U.S. Department of State in 1989-90.

      You might laugh out loud when you read the part that says, “stable legal environment”, because that is obviously far from achievement. As for the rest, the author’s credentials appear extremely respectable.


      Shame on you, Mark! Sloppy! We have a search engine! Learn to use it!


      This guy is a hardcore Russophile propagandist, we exposed him years ago. Get with it!

      • Mark, please give us your glowing endorsement of Putin’s handling of the impending disaster that is to be the Sochi Winter Olympics of 2014. Please do me a favour, spend some time in Russia, or even try living there, and observe the rotting infrastructure, which was actually in better shape during the Yeltsin fiasco. Any gains made during Putin’s time were entirely due to ten-fold increases in oil prices, Russia’s only trick. And tell us about the last two years, with GDP dropping 10% annually, and a plummeting currency. From my time in Russia, few people paid tax, it is a black market economy dominated by under-the-table dirty corrupted money. And don’t get me started on the treatment of Sergei Magnitski……….

        • (a) I am not permitted to discuss the Sochi Olympics in this forum – although my views on the subject are fairly plain – because changing the subject is SPAM, and is not allowed. I refer you to the comment above.

          (b) I have visited Russia many times, have lived there for a total of about 5 months and am married to a Russian.

          (c) trying to fudge economic gain by saying, “Yeah, but it’s all because of oil” doesn’t turn it into a deficit. You might say the same about Saudi Arabia, but nobody’s suggesting their leader is a disaster. The author, who plainly knows Russia from a business perspective better than either of us, suggests the Russian economy is likely to recover faster as the world shakes off the recession and development picks up, and I agree.

          (d) What does everybody’s GDP do during a global recession?

          (e) You’ll get no argument from me that infrastructure is crumbling. Water piping that services apartment blocks should not be above ground. Public transit is in horrible condition by North American standards. Nobody’s arguing that the place is a bustling utopia.


          “Nobody’s arguing that the place is a bustling utopia.”

          Actually, lots of Russophile scum are arguing just that. Nicolai Petro for instance. The hoardes of Nashi. You ought to get out more.

          • …GDP dropping 10% annually, and a plummeting currency… — which country are you talking about? The only year when Russia posted a GDP decline under Putin was last year, … and given the inflation, it what the first year when the Ruble did not appreciate.

          • Well, if this blog is about arguing with those who think Russia is a bustling utopia, count me as a Russophobe. I thought this blog was more about how bizzare the Russian language is and how dismal the Russians’ failures are in pretty much every area of human life….

          • In response to d. (because I have to run) France, Germany, China, the Netherlands, most of Scandanavia, Australia, most of South America have shown positive gains in GDP in the last two quarters.

            • Russia posted growth in the recent quarter as well.

              • Thanks, AT. Saved me the trouble.

                • Mark and AT

                  Please go and live in Russia, somewhere outside Moscow. Enjoy!

                  • Not unless I get a competitive job offer there. Or maybe I should also get myself a job stuffing parachutes? On the other hand, I would always move to Perm or Nizhny if the alternative is to go to Mumbai, Kinshasa, Minsk, Tbilisi, Bucharest, Kingston (the proximity to the beach redeems Kingston to some extent) and quite a few other places.

                    • I rest my case.

                      I’ve noticed none of those paradises you’ve mentioned are oil and gas rich.

                      If you’re going to insult an old woman who cannot defend herself then I’ll cease my communication with you. Idiot!

                    • I never insulted anyone. Everyone has the right, and an obligation to seek the best job one can get. I am sorry for your mother in law, but the fact that she did not get the best job in the world is, in part, a reflection on her competitive abilities. Both of my parents were born in remote villages in families exiled under Stalin. They did not have to stuff parachutes all their lives. Pretty much the same applies to my in-laws. I spent much time and effort to make an international career, and I will continue to do my best not to find myself in the suburbs of Detroit or in Rio’s favellas or in a parachute-stuffing job in Perm.

                      Most mineral-rich counties are dirt-poor. Look this up for yourself. The Congo is rich in every mineral on the periodic table. Trust me, its not the place you want to return to. The same can be said about most Sub-Saharan countries I’ve been to. I would rather live in Perm than in Saudi Arabia, everything else being equal. Hell, I will go as far as to say I will prefer Nizhny to Rio. Rio is pretty but I get mugged there all the time.

    • The growth of pensions from $50 to $150-300 is resurgence, which you pointed out in your other post, is resurgence, isn’t it?

  7. By the way, what do you mean by “endorsement”?


    “Nobody’s arguing that the place is a bustling utopia.”

    Actually, lots of Russophile scum are arguing just that. Nicolai Petro for instance. The hoardes of Nashi. You ought to get out more.”

    Actually, the subject is the Russian economy, and changing the subject is not allowed. Hey, I don’t make the rules. I didn’t really expect you to give Mr. Petro a ringing endorsement, but I’d submit he knows more about both Russian politics and economics than “the best Russia politics bloggers in the world”. I’ve noticed anyone who posits an alternative to “the Russians are the worst in the world at everything, and everything they do is evil” is automatically Nashi. Well, that’s between you and Mr. Petro.

    And that’s “hordes”.

  9. “And in another truly breathtaking development, the Kremlin admitted things were getting so desperate it might be prepared t0o abandon the national currency.”

    That should be “prepared to”, but it’s probably just a typo. However, the editor is right – this is a breathtaking development; for those who believe the dollar will remain the world’s reserve currency, and for whom it is a desperate situation may well be open to question.

    “Russia may scrap the ruble and introduce a common currency with Belarus and Kazakhstan as the nations broaden their alliance and seek to reduce their dependence on the dollar. Russia has sought to promote regional currencies in trade and diversify its reserves, the world’s third-largest stockpile, to reduce risks posed by the dominance of the dollar. President Dmitry Medvedev last year questioned the dollar’s future as a reserve currency and called for a mix of regional currencies to make the world economy more stable. He said a new supranational currency could reduce vulnerability to movements in the dollar.
    Four Persian Gulf states are working toward a single currency, which may see them step away from a dollar peg. The board of the monetary council that will determine the new system is made up of the central bank governors of Kuwait, Saudi Arabia, Bahrain and Qatar. Oman and the United Arab Emirates have opted out.”

    From The Moscow Times, essentially mirroring the report from Business Week.

    Not to change the subject, but it puts things in a little different light when joined-at-the-hip ally Saudi Arabia is also diversifying away from the dollar, doesn’t it? Fortunately, they’re not your biggest foreign oil supplier. That’s Canada.

    It’s also not necessarily a sign that Russia is panicking, but more likely the sign of a considered and measured response to market trends. Nobody freaked out (except for England) when the European Union went to a common currency.

  10. AT

    I notice you’ve been to a lot of hellholes where people get exploited, I wonder what you do for a living……

  11. Trying to improve these hellholes and make people’s lives better, one at a time.

  12. Make your life better you mean.

    I notice you haven’t had much success at your goal.

    You’re perfect for Putin’s Russia, no wonder you endorse it. Having visited Russia many times I’m with Kazan on nearly all of his points. Russia under Putin is a hellhole, and anybody who defends his brutal leadership is either highly deluded, or in on the corruption. I suspect you belong to the latter.

    The reason that you hang around this blog is because you know its credible. Kazan was right, your days are numbered.

    Lastly, internet freedom cannot compete with control of TV media, and Putin knows it. But he’s also gonna try and shore up the internet if he can.

  13. Well, you may suspect all you want, and as I said I do not endorse anything. I recognize the regime in Russia is authoritarian and corrupt. I also recognize Russians are more free and wealthy now than they have ever been. Whether Russia is a hellhole or not depends on your definition of a hellhole. In my view, Russia is better in all more aspects of life than, say India; freer than China, safer than Brazil. That’s as far as the BRICs are concerned.

    The fact that you make assumptions and accusations knowing nothing about me is a reflection on yourself in the first place.

  14. …on media control, the CPSU controlled all the media in 1989. …did not quite work out…


    Shame on you, Mark! Sloppy! We have a search engine! Learn to use it!


    This guy is a hardcore Russophile propagandist, we exposed him years ago. Get with it!”

    Yes, I understand that YOU THINK he is a “Kremlin stooge” (second in popularity only to “Nashi”). Aside the elements that are plainly speculation or opinion, such as his interpretation of Putin’s plans, are the figures quoted inaccurate? No. Are Reynolds, Panina, Dokuchaev and Aslund all Kremlin stooges, too?

    The articles that support your contention that Petro is a Kremlin stooge are full of “probably” and “I bet”. Those are opinions.

    Rebuttals seem to follow a pretty straightforward formula – everyone who disagrees with the data you present as gospel is a Kremlin stooge.

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