The Russian Economy is Collapsing
In 2008, nearly $130 billion flew out of Russia, erasing the modicum of inflows registered in 2006 and 2007. For its size, Russia as an investment destination pales in comparison to South Korea. Total equity portfolio inflow into Russia in 2009 was just $3.4 billion, according to World Bank data, making it the lowest of the big emerging markets by far. India, China and Brazil all registered inflows over $20 billion. A recent opinion poll by the Levada Centre shows that 22% of Russia’s adult population would like to leave the country for good, up from 7% in 2007. It is the highest figure since the collapse of the Soviet Union, when only 18% said they wanted to get out. Over 50% of Russian entrepreneurs said that they wanted leave the country. “From a macro perspective, I don’t want to be in Russia,” says Justin Leverenz, emerging markets portfolio manager at Oppenheimer Funds in New York. “From an investor’s point of view, Russian politics are far beyond what I’m able to analyze.”
Believe it or not, those words appear in a recent article in which the author is trying to put a positive spin on Russia. Can you imagine what Russia’s economic critics are saying these days?
The Russian stock and currency markets recently set two-year record lows. Capital flight for 2011 is already close to the level it reached in all of 2010. And it’s not even October yet. Instead of looking for new solutions and new leadership, Russia has just announced that Vladimir Putin will return to office as president for life.
Today, one Russian ruble is worth 0.0313 U.S. dollars. When Vladimir Putin was reelected to a second term in 2004, one ruble was worth 0.0351. Between 2004 and 2011 under Putin’s rule, Russia’s currency has lost over ten percent of its value.
The World Bank recently issued a dire warning in which it openly stated that Russia’s economy is entirely enslaved by the world price of crude oil and that, given the prospects for a new global recession, Russian debt could soar by a factor of five and anemic growth could be choked off entirely in the coming months.
Russia will ignore that warning.
The International Monetary Fund, by contrast, has warned the Putin regime that it must cut spending immediately or risk disastrous consequences when the inevitable economic downturn comes for Russia. Instead of heeding this advice, Russia is launching a massive program of military and civilian spending that puts the country recklessly on course for bankruptcy.
Russia will not heed that advice.
Meanwhile, Russia has purged from the ranks of government its leading and most-respected economics guru, Alexei Kudrin, who had been the voice of reason.
Russia is doomed.