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Streetwise Professor

September 26, 2011

Golts’s Take Similar to Mine

Filed under: Economics,Financial Crisis II,Politics,Russia — The Professor @ 1:27 pm

Alexander Golts has a similar take on the Kudrin affair, arguing that (a) Putin is really responsible for the spending spree that unsettles Kudrin, and (b) that Kudrin was sending a message to Putin:

In reality, however, it was Putin and not Medvedev who approved the increase in military spending. Therefore, any talk of a difference between Putin and Medvedev on defense expenditures is meaningless. The real reason for Kudrin’s sharp statement is that he does not want to be held responsible for the looming financial disaster that the Putin government is provoking.

It is no wonder that Kudrin placed so much importance on wasteful spending on defense. The re-armament program alone will cost 20 trillion rubles ($623 billion) from 2011 to 2020. These expenditures were approved despite the fact that all previous weapons programs have ended in complete failure. The plan is being implemented at a time when arguments between the Defense Ministry, military design bureaus and manufacturers over the exorbitantly high price of weapons systems reached their peak this year, resulting in many contracts going unfulfilled.

Putin is more responsible than Medvedev for this state of affairs. After all, it was during Putin’s presidency that the defense industry became a parody of the Soviet military-industrial complex. Several hundred defense companies were corralled into state-owned conglomerates, destroying the remaining elements of competition among military firms. The majority of companies that were merged into state-owned giants were highly ineffective and on the verge of bankruptcy. As a result, the end price for any piece of military equipment — from missiles and armored transport vehicles to combat aircraft — included not only the amounts that were stolen, but also the huge operating losses of inefficient factories.

Kudrin could not remain silent anymore on the massive waste and inefficiency in the defense sector, and there is a good reason for this. He understands perhaps better than anyone that Russia’s fiscal ship is sinking, and he has decided to jump overboard while he still has an opportunity.

Kudrin is the first to jump ship. Who will be next?

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12 Comments »

  1. Geithner plus Kareem Jackson for Kudrin would suit me.

    Comment by pahoben — September 26, 2011 @ 2:26 pm

  2. @pahoben–I proposed a Geithner-Kudrin swap many moons ago, but figured no one in their right mind would take the deal.

    The ProfessorComment by The Professor — September 26, 2011 @ 3:41 pm

  3. You are probably right but I just thought if they are looking for someone to waste truly huge amounts of money while happily toeing the party line then who better than Geithner. No one can compete with his expertise in this area and besides he had an eight week course in Mandarin IN Beijing no less.

    Comment by pahoben — September 26, 2011 @ 4:40 pm

  4. I dont understand where Kudrin will land and whether he will land on his feet. It is perhaps here that casting his displeasure as resulting due to Medvedev’s decisions becomes crucial. Ironically Kudrin might actually end up in Putin’s camp when the dust settles.

    Comment by Surya — September 26, 2011 @ 5:41 pm

  5. Russia’s budget surplus – c. 1% of GDP.

    EU’s budget surplus – c. -6% of GDP.

    USA’s budget surplus – c. -11% of GDP.

    If this means Russia’s fiscal ship is sinking, then the West is the Titanic.

    Note, however, that this doesn’t mean I think the armaments program is a good idea.

    Comment by Sublime Oblivion — September 26, 2011 @ 5:44 pm

  6. @S/O. And it is those statistics that drive Putin crazy. To him, it seems cosmically unjust. But that’s what credit is all about. Some countries are more trusted than others, and they can get more credit at lower cost than those that are trusted less. The US can run 11 pct deficits with relatively little difficulty–for a while, anyways–whereas any deficit at all is potentially catastrophic for Russia.

    If Putin has a problem with that, he should (a) look in the mirror, (b) curse Russian history, and (c) wait a while, because the worm may very well turn.

    The ProfessorComment by The Professor — September 26, 2011 @ 6:02 pm

  7. “He understands perhaps better than anyone that Russia’s fiscal ship is sinking, and he has decided to jump overboard while he still has an opportunity.”

    Maybe he understands better than anyone that if he continues doing things that aren’t what Putin tells him he’ll be cooling his heels in a cell next to MK in Siberia?

    Comment by La Russophobe — September 26, 2011 @ 7:36 pm

  8. “If this means Russia’s fiscal ship is sinking, then the West is the Titanic.”

    If Russia balances its books by starving its population, then its ship is indeed sinking. You have the economics insight of an acorn and the morals of a mushroom.

    Comment by La Russophobe — September 26, 2011 @ 7:37 pm

  9. “If this means Russia’s fiscal ship is sinking, then the West is the Titanic.”

    If the West is the Titanic then Russia is utterly doomed, because Russia’s economy depends utterly on the West’s demand for Russian oil.

    Comment by La Russophobe — September 28, 2011 @ 2:03 am

  10. “At least $50 billion have leaked out of Russia this year. That’s just one of many miserable economic indicators that point to big trouble ahead: the ruble at a two-year low, sliding domestic stock indexes, a budget that could barely be balanced even if oil were still at $116 a barrel (today, it’s $107). Siberian oil fields are in decline, it’ll be decades before Arctic drilling comes online, and the center of world oil production is shifting increasingly to the Americas. Then there’s the looming economic crisis in Europe scraping at the door. None of it, frankly, looks very good.”

    Good luck with that, Mr. Putin!

    http://www.foreignpolicy.com/articles/2011/09/27/disaster_politics?page=full

    Comment by La Russophobe — September 28, 2011 @ 2:09 am

  11. I just saw Putin on the news. When he talks to the common folk he reminds me of Tony Blair. He knows what he is saying is complete BS but he says it so earnestly that people may believe him. I can imagine people leaving the meeting thinking-I know he is lying but I still believe him.

    The highlight was when he was asked about 4 billion rubles that disappeared in Transneft. He leaned forward and earnestly explained that it was not a crime only some confusion in where the money went. Transneft reported it went one place but actually they paid it another place and that is no crime.

    This is return of a president the elite can respect and cherish-he will even run interference on national television for obvious and well documented fraud and corruption.

    Comment by pahoben — September 28, 2011 @ 7:31 pm

  12. If Russia balances its books by starving its population, then its ship is indeed sinking. You have the economics insight of an acorn and the morals of a mushroom.

    Why thank you La Russophobe, I appreciate your warm comments.

    After all, the economics insights of acorns are formidable – they represent one of the most amazingly high returns on initial investments in the natural world. From one acorn, a might oak can grow. And mushrooms and sundry fungi are, of course, intensely moral beings. They feed on inanimate matter, without any suffering whatsoever, and prevent the world from being overwhelmed with dead foliage. They also provide their consumers with an array of nutritional and medicinal benefits, and occasionally, deep spiritual experiences.

    It is truly an honor to be compared with acorns and mushrooms. I fear only whether I can fully live up to the standards you have set for me. I will do my best.

    Comment by Sublime Oblivion — September 28, 2011 @ 10:17 pm

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