EDITORIAL: Stormclouds over the Putin Economy

EDITORIAL

Stormclouds over the Putin Economy

“We note that at this point Russia, in financial terms, is not ready for a new global crisis, which is inevitable, unfortunately. To change the situation, it needs to liberalize its currency policy, look at ways of cutting the budget deficit and avoid accumulating external debt.”

Those were the words of Renaissance Capital economist Alexei Moisseev in a new report on Russia’s financial future.

Next year, Russia’s deficit looks set to rise 15% compared to last year’s deficit, the first in a decade.  The absence of a massive budget deficit and the presence of substantial foreign currency reserves have long been the sole bedrock supporting Russia’s economy, and now they are vanishing.  Ironically, as Russia’s runway inflation has somewhat abated because the country’s massive economic downturn has curtailed demand, there has been a vicious effect on the Kremlin’s revenues from taxes.  Fast-rising prices mean fast-rising tax revenues, and now the Kremlin is facing devastating shortfalls and the need to borrow to meet operating expenses.

The dire conclusions to be drawn from these facts are obvious, yet the Kremlin it seems still refuses to acknowledge them.

Moiseev’s report concludes that “new sustainable growth sources have yet to be found” and therefore an “analysis of the federal budget indicates that any build up in spending is no longer possible. Moreover, if the current budget policy remains intact, we believe Russia could face a budget crisis depending on the market situation for major export goods.”

The only way the Kremlin can balance its budget is for the price of crude oil to average in excess of $100 per barrel.  In other words, the Russian economy is utterly enslaved to world markets over which Russia has no control.

Blogger Julia Ioffe points out that Russia’s so-called “president” Dima Medvedev has “published a glowing op-ed in the Russian business daily Vedomosti about the upcoming second annual BRIC summit” which betrays Russia’s fundamental economic weakness better than any criticism could have done. She writes:

Medvedev was arguing that not only was BRIC a necessary conglomeration, but that Russia deserved to be included — which is far from certain these days. Back in October, economist Nouriel Roubini argued quite forcefully that it didn’t. At a Moscow economic forum in February, a panel on the future of the BRIC countries was nearly unanimous on this point. “Russia doesn’t quite fit with other countries in terms of growth,” said one of the panelists, reminding the audience that the BRIC countries are supposed to have “dynamic, fast-growing” markets. “The official estimate,” he added, “is -7.9% GDP growth. How can that be a dynamic fast-growing market?”

The BRIC summit starting in Brazil next week, Medvedev writes, may be a young group “but from its first steps, it has won much international authority…And this is not surprising,” he adds, since the member countries comprise “26% of the world’s territory, 42% of its population, and 14.6% of the world’s GDP.”

Landmass, fine. Russia’s big, and has always been a size queen. Population? Russia’s is shrinking. 14.6% of the world’s GDP? At a wobbly, shrinking $1.3 trillion, Russia’s is just over 2% of the world economy. And it looks like it’ll stay that way: Economists estimate that, in a few years, China and India combined will make up 45-50% of world GDP, while Russia and Brazil will make up around 4%.

Russia is continuing, in other words, to live in a world of bizarre self-deception, just as in Soviet times, making transparent efforts at propaganda that only leave the world laughing while the unreformed economy continues to implode.

18 responses to “EDITORIAL: Stormclouds over the Putin Economy

  1. the worrying thing is that problems in economy doesnt affect Russian power:

    http://www.stratfor.com/weekly/20090302_financial_crisis_and_six_pillars_russian_strength

    • Excellent article from a year ago. The Russian stock market has sky-rocketed since then.

      • yeah, I enjoy reading Stratfor. However, in a long run (this century) they predict domination of US and fall of Russia in next ten years or so and also collapse of China ^^ Future superpowers next to US, according to Stratfor, will be Japan, Turkey and Poland. And also Mexico, as competitor to US over domination of America.

  2. Russian Border Town Seeks To Join Estonia
    April 13, 2010
    IVANGOROD, Russia — People in the Russian town of Ivangorod on the border with Estonia have sent a petition to the Russian and Estonian presidents urging them to allow their town to become part of Estonia, RFE/RL’s Russian Service reports.

    Ivangorod City Council Deputy Yury Gordeyev wrote the letter and sent the petitions to Moscow and Tallinn with the signature of some 660 citizens of Ivangorod, which has a population of about 11,000.

    Gordeyev told RFE/RL the petition states that since Ivangorod and some other districts along the Russian-Estonian border were part of Estonia 300 years ago, the town should return to Estonian jurisdiction.

    Ivangorod is on the eastern bank of the Narva River, just opposite the Estonian city of Narva.

    Gordeyev said he has no hope that Russia’s border with Estonia will be redrawn in the petitioner’s favor. He said the aim of the petition is to draw attention to the town’s problems.

    “The arbitrariness of our bureaucrats and the complete indifference of the regional government towards our problems have forced us to this,” the letter to Russian President Dmitry Medvedev reads.

    According to Gordeyev, Ivangorod’s difficulties were compounded when the Ivangorod district was abolished and incorporated into the Kingisepp district three years ago. As a result, the town now receives some 50 million rubles ($1.7 million) less from the regional budget.

    Another recent cause of discontent in Ivangorod is a steep rise in utility prices, which Gordeyev said are now between 60 and 100 percent higher than in neighboring Kingisepp.

    “Of course there won’t be any integration” of Ivangorod into Estonia, Gordeyev said. “I understand this very well. It’s not within the competency of the Estonian president, but the president of Russia. But I wrote this appeal because nobody is paying attention to our problems.”

    http://www.rferl.org/content/Russian_Border_Town_Seeks_To_Join_Estonia/2011276.html

  3. The Russian RTS stock market currently stands at 1600 in may 2008 it stood at 2500, it then nosed dived to a low of 500, it has bounced back because of the rise in oil prices by it is still 900 behind its high in 2008, this is nothing to boast about. If the main global stock exchanges New York, London, Hong Kong had this kind of unstable volatility the world’s financial system would have collapsed totally leaving the entire planet in chaos.

    But thankfully Russia is only ranked 60 in the world when it comes to its financial sector so what happens in Russia have little impact on the rest of us.

    Recently a 100 strong delegation of top financiers from Luxemburg was invited to Moscow to advice the government about modernising their financial sector so Russia could become a global player (ha ha). After the talks they politely advised the Russians to lower their sights and look to attract clients from CIS countries, you know the big guns from Belarus or Turkmenistan. This advice was backed up by Yuri Roslyak, First Deputy Mayor of Moscow who said;.

    “The Russian government still has to write or amend about 200 laws to remove obstacles on capital inflow into the country and protect investment”.

    Anyone brave enough to hold their breath while this happens?….what about you RTR????.

  4. “Recently a 100 strong delegation of top financiers from Luxemburg was invited to Moscow to advice the government about modernising their financial sector so Russia could become a global player (ha ha)”

    Must be propaganda! Great Russia didnt need any help from tiny states, “pathethic dwarfs” as she used to call them. Also she didnt need any foreign help. Russia has all best in the world, “net analogov v mire!”.

    • ttc,

      You sound like the last time you were in Russia, was in 1950s. Is that right?

      • No I wasnt, but my grandfather was having “hollidays” in Siberian Gulag at that time (before he was also taken to Nazi Germany for forced work) . My girl’s mother also was born in Siberian exile. Distrust with Russia is in my genes, and I will not look at her positively until Russia will stop her imperialistic ambitions forever and herself will condemn all her crimes like Nazi Germany.

        • ttc wrote;

          No I wasn’t, but my grandfather was having “hollidays” in Siberian Gulag at that time (before he was also taken to Nazi Germany for forced work) . My girl’s mother also was born in Siberian exile. Distrust with Russia is in my genes, and I will not look at her positively until Russia will stop her imperialistic ambitions forever and herself will condemn all her crimes like Nazi Germany.

          Comment;
          Russians are the main victims of their own barbarity – therefore they will never to confront their history – so we should NEVER trust russia. But I don’t mind if they walk back to the gulag – and I respect their choices. I also wouldn’t dare to interfere in the russia’s internal affairs and let the drugs from Afghanistan finish off that cursed nations.

        • ttc,

          My Jewish relatives too have lost several people to Stalin’s GULAGs. Tragically, communist dictatorship systems, especially in early years, have the property that once the most ruthless and insane man – like Stalin – comes to power, he can do whatever he wants, including mass murder. But our family certainly doesn’t blame modern ethnic Georgians nor ethnic Russians for Stalin’s murders. We have also lost a lot of family (much-much more!) in Hitler’s Holocaust. And yet I would never write hateful words about modern Germans.

          And certainly telling lies about modern Russia is unacceptable. That’s how the Nazis and Bolsheviks started and proceeded: through lies and prevarications. When we were talking about the “delegation of top financiers” from the tiny country of Luxembourg, you told us that the Russians called Luxembourg and other tiny countries like it “pathethic dwarfs”. Now, why would Russians have more hate for small Western European countries than for large ones? What’s the difference? Please provide a serious reference where the Russian press/authorities called Luxembourg “pathetic dwarfs”, or at least tell me what the original term for “pathetic dwarfs” is in Russian.

          Then comes the next lie: “Russia has all best in the world, “net analogov v mire!”.” That was true of the USSR in the 1960s, but certainly since the late 1980s, when Gorbachev announced that the country was in the dumpster and needed “perestroika”, no sane Russian leader or journalist has ever denied that Russia is behind the West in finances, technology, management, control of corruption, etc. In fact, that’s Medvedev’s main point today: Russia is behind and needs to modernize. So, for you to claim something that has been false for 30 years – that’s either ignorant or sleazy.

  5. Luxenburg is a global finacial centre they were invited. Russia Today are carring this story so its not propaganda, go see for yourself.

  6. I was just mocking some of hilarious Russian propaganda cliches.

  7. Our American friends should watch the imminent collapse of the state and municipal economies.

  8. “Oasis of stability.”

    • Hey, there are palms down south, where Sochi is, and Putin is always in charge – so, yeah, palms+Putin=oasis of stability lol :D

  9. Oil won’t cost more than 100$. It looks much more like 40-50$ is the average price in next 10 years or so. What will happen with Russia then? More than 50% of the Russian budget goes to social payments (pensions, salaries to military, teachers, doctors, etc.).

    They can’t just cancel social payments. They can’t even make them lower.

    I think 2012 would be terrible for Russia. Putin will try to get back but with no money in budget it may well be the start of Russia’s collapse.

  10. Yulia Latynina draws a link between Putin’s commemoration of the Katyn massacre and US plans to start drilling for shale gas in Poland: ‘All of Russia’s neo-imperialism has been built upon the fact that it has “peaceful gas” (similar to the Soviet Union’s “peaceful atom”) and that it can shove its gas pipelines through Poland just like the Kremlin did with Ukraine. But what if Poland becomes a shale gas exporter?’

    http://www.themoscowtimes.com/opinion/article/scent-of-shale-gas-hangs-over-katyn/403877.html

    The other option is the party of Prime Minister Donald Tusk, a pragmatist who is ready to be friends with everyone, except Kaczynski — the two refused to even speak to each other.

    And when he was told that dense fog shrouded the area and that flight controllers were attempting to reroute the airplane to an alternate airport, it was undoubtedly Kaczynski who gave the command to land anyway, suspecting that the fog was just a political ruse instigated by Putin to disrupt Kaczynski’s participation in the Katyn ceremony.

    Putin and Tusk landed at the same Smolensk airport just three days before Saturday’s crash to participate in their own Katyn commemoration ceremonies. For their arrival, special navigation equipment was brought to the Smolensk airport to provide additional safety. It is possible that this equipment was removed before Kaczynski’s plane landed. That would add even more fog to the mysterious crash.

    Yulia Latynina

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