Rumblings
One of the dangers that faces the Putin’s Russia is that the erosion of resource rents will dissolve the bonds that hold the natural state/cartel together. This dissolution threatens the stability of the current government, and perhaps of the country.
I came across several articles today that make a similar point. First, from RFE/RL:
Since Vladimir Putin ascended to power in 2000, petrodollars have been the key lubricant for Russia’s authoritarian regime of “managed democracy.” Easy money from energy exports has enabled the ruling elite to purchase the political loyalty of the country’s sprawling bureaucracy, to win at least the passive consent of a critical mass of the population, and to buy friends and intimidate enemies abroad.
It is far too soon, according to most analysts, to say that Russia is on the brink of serious political instability, or even close to it. And nobody is suggesting that Russia is on the verge of disintegration.
But with the regime’s essential lubricant slipping away, the system Putin built is beginning to show signs of strain. Newly emboldened regional leaders are clashing publicly with authorities in Moscow, marquee infrastructure projects — and the patronage that goes with them — are being scrapped, and the Kremlin is scrambling to amend the constitution to keep the current elite in power indefinitely.
“The potential damage that this fall in commodity prices could inflict is very great,” says David Satter, a senior fellow at the Hudson Institute and author of the book “Darkness at Dawn: The Rise of the Russian Criminal State.”
“Even though the leadership may be more capable of managing in a capitalist environment than the Communist leadership was, nonetheless, it is composed of people, because of the system that was created here, who have no hardcore loyalty to the system or the country, but are only pursuing their own individual personal well being.”
. . . .
Nevertheless, the economic downturn is beginning to cause rumblings of rebellion in the regions, where local elites showing signs of challenging the central authorities in Moscow for the first time in years.
A group of private oil companies in Tatarstan — which account for 20 percent of all oil produced in the region — is asking the government to temporarily exempt them from paying export duties and production taxes until crude prices recover. They are threatening to cease production as of December 1 if their request is denied.
Moscow Mayor Yury Luzhkov angered the Kremlin by calling on November 19 for the direct election of regional heads, which would give them more independence. Luzhkov received a stern rebuke from President Dmitry Medvedev and quickly backed off his comments.
Such insubordination, analysts say, could become increasingly frequent as the economic downturn dilutes the Kremlin’s authority.
“The oil regions are going to say, ‘We need to keep the income here. Why do we need to support these other regions that are parasites?'” says Marshall Goldman, professor emeritus in Russian Economics at Wellesley College and author of the book “Petrostate: Putin, Power, and the New Russia.”
It is therefore not surprising that with the economy in crisis, Russia’s rulers are spending a great deal of time worrying about politics, rushing to amend the country’s post-Soviet constitution for the first time since it was enacted in 1993.
. . . .
Since coming to power, Putin and his team have attempted to create a centralized, authoritarian, vertically integrated, and unitary executive that can manage a thorough and comprehensive modernization of Russia. In order to do this, however, the Kremlin built a vast network of patronage — similar to the Soviet nomenklatura system — in which key state posts, privileges, and favors were doled out to the loyal and obedient across Russia’s vast regions and republics.
But in an economic downturn, when there is less patronage to pass around, some analysts warn that Putin and his inner circle will have a harder time placating and co-opting Russia’s sprawling bureaucracy.
“The big question is are bribes elastic in a downward direction,” Satter says. “If there is less money to pay for corruption, are those people who are benefiting from the corruption going to be reasonable and accept smaller payments, or are they going to start fighting among themselves. All experience suggests it’s the latter and that could create enormous tension in the ruling elite…There was clan warfare even when the situation was favorable.”
The foregoing focuses on the reactions of the bureaucracy and the siloviki to the sharp decline in the booty available to be split among them. A more problematic issue is the popular reaction to a sharp economic slowdown. At least one analyst quoted in the article suggests that the passive tendencies in the Russian makeup will dominate:
“To a certain extent the Russian people are aware of their loss of liberties under Putin and Medvedev. To a degree, they have reconciled themselves to this because of the rising living standards,” Satter says. “Well, the living standards are very likely not going to keep rising under these circumstances. So there are enormous sources of potential tension in Russian society.”
But with a weak opposition and a public that has been politically passive for a decade, it remains unclear whether the hard economic times on the horizon will translate into demands for political change.
“If the government fails to keep its economic side of the bargain, I don’t think we know yet how the Russian public reacts. They haven’t shown themselves in the last 10-12 years to be an especially revolutionary group,” Pifer of the Brookings Institution says.
Satter predicts that internal tension will translate into international tension and Russian aggressiveness:
“I think if things get really bad, the regime will get more authoritarian, more fascistic, more brutal, and more anti-Western. And that will be the way in which they stave off internal turbulence,” Satter says, adding that he expects to see “an intensified search for foreign enemies” to explain the economic downturn to an increasingly restless public.
Brian Whitmore at RFE/RL provides more detail:
Boris Gryzlov, head of the party’s Supreme Council, announced on November 21 that it was cutting a quarter its staff positions. Gryzlov, who is also speaker of the State Duma, also announced that 10 percent of those working as aides for Unified Russia lawmakers in the lower house — where Unified Russia has a two-thirds majority of seats — will receive pink slips.
That sure is a lot of patronage to throw away. One way so-called managed democracies like today’s Russia keep themselves afloat is by buying off a critical mass of the elite with patronage, and placating enough of the general public with pork.
You can do a lot of that when oil is $150 a barrel. But what about when it is less than $50?
Well that’s when it is time to rely on that other — weaker — pillar of the authoritarian petrostate: coercion.
On November 21, Gryzlov also announced the creation of Unified Russia’s new Anticrisis Commission, which will monitor how state funds are being spent in Russia’s regions. “We must place the regional authorities under strict controls so they behave properly,” the daily “Gazeta” quoted him as saying.
A warning shot, perhaps, to keep regional elites in line. Keep your eyes open for some wayward governor or mayor to be made into a high-profile example.
Similar thoughts from Eurasian Daily Monitor:
Top Russian economists recently looked at five possible scenarios, Gontmakher says. All of them, except modernization and immediate reform, would lead to a catastrophe. This single solution that could still save this country is not, however, in the cards under the conditions of the existing state, which is afraid of losing its monopoly of power. “The consequences will be dire,” Gontmakher says. He believes that the country may pass the point of no return sometime in 2009.
Experts see a very serious possibility of an abrupt collapse of the living standard and economic disintegration leading to social unrest, eventually followed by political upheaval.
Gontmakher’s story in the daily Vedomosti (November 6) was pointedly titled “Novocherkassk-2009,” in an allusion to the major workers riots on June 1 and 2, 1962, in the city of Novocherkassk, which were suppressed by the Soviet Army; 23 people were killed and dozens jailed in the unrest (see V.A. Kozlov, Massovye Besporadki v SSSR pri Khrushcheve I Brezhneve [Mass Riots in the USSR Under Khrushchev and Brezhnev], Sibirski Khronograph, Novosibirsk, 1999). The article raised quite a commotion by drawing a picture of a shaky social peace collapsing once the 1962 situation starts repeating itself with prices and tariffs increasing drastically, wages dropping, workers laid off in droves, and food disappearing from the shelves because of collapsing imports and inadequate domestic production. “Either we finally take an effort to reform, or else we will enter a crisis that cannot be resolved within the framework of the current constitutional order,” the story concludes. On November 22 Rosomsvyaznadzor, the government’s media watchdog, issued a warning to Vedomosti that Gontmakher’s article could be seen as inciting extremism (www.polit.ru/news, November 22). Both Vedomosti and Gontmakher protested against the admonition.
As Tayevsky put it, “There will not be a crisis in Russia. There will be something immeasurably worse. But decent words for what it will be have not yet been devised, at least in the Russian language.”
Paul Goble reports that Putin and Medvedev are attempting to preempt a challenge from the regions:
These arrangements, Kolesev concludes, point toward the replacement of a large number of regional leaders, including those who came to office in Yeltsin’s time, by people totally loyal to the United Russia party and its leader, Prime Minister Putin, and they suggest that the party will work to prevent divisions within regional elites and between them and Moscow.
According to political analysts with whom Kolesev spoke, “very soon the role of the Control-Revision Commission of United Russia will grow sharply,” a development with disturbing parallels to the way in which the CPSU made use of its control-revision commission to keep party members and leaders in line.
But it was Yevgeny Minchenko who uttered the words that the leaders of Russia’s regions and republics most fear. “There will be purges,” he said, because “with the growth of social tensions [in the country] the leadership will need to seek out the guilty and punish them as examples” to others as to what Moscow or — more immediately — Putin wants.
But will the regional leaders submit without a fight? With fewer resources at its beck and call, does the center have the ability to bribe, cajole, or force its will on the regions? The fact that Putin appears compelled to take drastic measures suggests that he has serious concerns about his strength. The regional leaders may sense this, and in any event, they may have little to lose by opposing him if it appears that they will be consigned to oblivion in any event.
The emerging situation is one in which there is a very real prospect of fierce internecine struggles within the elite who will battle over the diminishing resource rents, and attempt to exploit the financial weakness of those in control of desirable resources. Moreover, the financial crisis threatens to weaken the center’s control over the regions. The decline in resource rents alone threatens the stability and viability of the system, and even the potential weakening of the control of the power vertical can be a self-fulfilling prophecy. The viability of a self-enforcing truce between contending factions depends on their time horizons. Political and economic crisis tends to shorten time horizons, that undermines the viability of cooperation between the various factions.
Again, the wildcard is the popular reaction to intra-elite battles and broader economic decline. The broader population appears uneasy, but largely quiescent. That may last, but it may not.
And, BTW, despite a modest rally on Wall Street today, oil continued its decline–with Urals Med falling to $42 and change. All the less glue to hold the whole contraption together.
It helps to look back at the one true crisis Putin faced. In January 2005, Putin was faced with pensioners taking to the streets over “monetisation” of social benefits (see http://www.independent.co.uk/news/world/europe/russias-pensioner-protests-threaten-putin-government-487149.html). Then, the petrodollars started flowing in and Putin could throw enough money at the problem to make it go away. What will he do when the pensioners take the streets again?
Comment by Michel — December 3, 2008 @ 12:08 am
Excellent analogy. Excellent question. Especially since expectations are now higher, and many more promises have been made.
[…] prognostications of political instability, and perhaps bloody revolution, made by the likes of Streetwise Professor with a pinch of salt – the populist discourse on red-in-tooth-and-claw silovik “clans” […]
Pingback by Russia Economy Crisis I: How Red will Russia Get? | Sublime Oblivion — December 3, 2008 @ 6:43 am
I’ve made a post on my blog specifically addressing the latest developments in the credit crisis in Russia. (Something like a summary of the WB report interspersed with my own commentary). I’ll quote (http://www.sublimeoblivion.com/2008/12/03/russia-economy-crisis-i-how-red-will-russia-get/):
“In summary, an incipient slowdown in the Russian economy was turbocharged into nosediving growth rates by the credit crisis. Russian companies are finding it difficult to access credit, while having to pay off a slew of short-term external loans. However, most of them are due in the final two quarters of 2008, so in this respect the situation should improve next year. The liquidity crunch in September was controlled in a ’swift, appropriate, and proportionate’ by the government, which now plans on substantial counter-cyclical fiscal injections to limit the effect of the credit crunch on the economy. The inflation risks of doing so have receded due to the global deflationary forces, while long-term fiscal viability is not seriously threatened, even under an erroneous scenario of continuing low oil prices, because Russia has healthy reserves and the non-oil part of its budget runs a small deficit. Although the capital account will go into the red to the tune of 100bn $ in 2009, the current account will remain positive at 40bn $ and the Central Bank should not lose more than 100bn $ in reserves in that year – considering that today they stand at 450bn $, this is far from catastrophic.
Recent economic news indicate that Russia, along with much of the rest of the world, is in much worse straits than was the conventional wisdom even a month ago, when this report was compiled – for instance, it is very likely that it’s already in a full-blown recession. Nonetheless, as I calculate below, even in a very pessimistic scenario in which oil prices fall to 50$ for 2009, the current account deficit for the year should not much exceed 40bn $; similarly, even a total cessation of net oil transfers to state coffers in 2008 will not imperial Russia’s long-term fiscal sustainability.
So is Russia going to go red? On the capital account, yes; on the current account, difficult to say – depends on whether we get a global recession or a global depression; on government spending, almost certainly not unless oil prices completely collapse or the Russian economy and tax base implode, both of which I consider extreme outliers on the probability scale. (However, the state will become more “red†in the political sense, because at least in the medium-term, it will assume more control over economic life and spend more on strategic long-term investments and social welfare – in any case, there have been latent tendencies towards the above in the last couple of years, anyway).
Nonetheless, one should take the doom-laden prognostications of political instability, and perhaps bloody revolution, made by the likes of Streetwise Professor with a pinch of salt – the populist discourse on red-in-tooth-and-claw silovik “clans†fighting for “resource rents†which hold the “natural state†together might appear superficially attractive, but is in fact meretricious, intellectually vapid verbiage that betrays the author’s preference for the mysticisms of Kremlinology over hardheaded observation and analysis of real economic data.”
Comment by Da Russophile — December 3, 2008 @ 6:49 am
Da Russophile,
Just repeating something ad nauseum does not make it true. I don’t have much time, but here are a few preliminary comments.
You write: “Russia has healthy reserves and the non-oil part of its budget runs a small deficit.” What exactly is the “non-oi part of its budget”? This is nonsensical. The Russian State has ONE budget with includes revenues and expenses. The decline in monies collected from the sale of oil, gas and other natural resources are part of the ENTIRE budget.
And, please tell how you calculate that the “the current account deficit for the year should not much exceed 40bn$” You state something as fact, yet you do not support your statement with facts. And, no, I won’t go to your site to get the missing information.
As for the analysis of real economic data, I prefer reliable sources to the fantasies of russophiles who have clearly been reading too much Russian Kremlin propaganda 😉
Vedomosti has an interesting piece discussing the various scenarios involving oil and $45 to $50 a barrel: http://www.vedomosti.ru/newspaper/article.shtml?2008/11/28/171300. Some are optimistic, but require large investments in the Russian economy, presumably from foreign sources, which I would say is unlikely. Some of the key points that I take from this article: if oil stays at $50 a barrel, Russia can expect 0% growth of it GDP and at $45 a barrel oil, Russia’s Ruble will be devalued by 20% relative to its currency basket (and this is the optimistic projection based on a scenario where there is little capital flight from the country). As for the country’s deficit, one analysts estimates that with oil prices at $50 or less, the Russian state deficit could reach 1.5 trillion rubles if it implements the anti-crisis measures approved by its governing United Russia party.
Comment by Michel — December 3, 2008 @ 10:50 am
Michel, as per your link that’s 38 million pensioners, 1/4 of the population, that Putin in this severe downturn must subsidize at present levels to keep satisfied. Somebody else is going to have to take a big hit in order to do that. Add to the pensioners the young Russians that, besides their aquisition of stuff that their parents never had, have come of age with informational access as to how civil societies are successfully structured in the EU and America. Russian passivity is going to be tested in the year to come. When Putin hijacks their constitution in his blatant power grab in the coming months if it is met with only a whimper than sadly I think Russians are closer to Africans and Muslims whose tribal cultures can’t overcome tyrannical governments.
We will see soon enough.
Putin is not going to get any help from OPEC in shoring up oil prices:
“Russia has stated that it will not join the Organization of Petroleum Exporting Countries (OPEC) but may cooperate with it in order to ensure stable prices. Yet OPEC has decided to put off for several weeks any decision on production cutbacks for price support. Since OPEC members tend more and more to see Russia as a free rider, that may be because leading oil producer Saudi Arabia, which often takes the brunt of reductions in output, no longer wishes to do so, or at least to do so alone.”
http://www.atimes.com/atimes/Central_Asia/JL04Ag01.html
Comment by penny — December 3, 2008 @ 11:32 am
Penny,
You are right about OPEC not be very useful in shoring up oil prices. The problem is that they still have to achieved promised cuts in output: “Over the past three months, Opec has already agreed to cut 2m barrels a day of its production and analysts said the group was more than half way there.” (source: http://www.ft.com/cms/s/0/3a41cee0-bdfb-11dd-9087-0000779fd18c,dwp_uuid=f2b40164-cfea-11dc-9309-0000779fd2ac.html).
I really have my doubts as to whether Saudi Arabia will cut its production drastically to help its fellow OPEC members and non-OPEC producers. If I were a Saudi, this is what my strategy would be: keep prices low for a year or two as the world goes through a recession. This will leave many countries selling their oil close to cost and generating little profit. If they do not generate profit, there is little capital to invest in new production. This means that countries such as Russia will be exhausting existing oil fields and won’t have the money in developing new oil fields. The same is true for Iran. This will leave Saudi Arabia sitting pretty when prices recover and they can quickly ramp up production.
Low oil prices also cuts into the burning desire of the leading industrial states to go “green” and develop alternative fuel sources. Then, when the world economy recovers, the Saudis can pick up the slack, sell more oil at higher prices, knowing that it will take years before countries such as Russia find the money to invest in production and years to build the infrastructure to drill for that oil and bring it to market.
Strategically, I would say that it is in Saudi Arabia’s long-term interests to keep oil prices low for a couple of years, though of course it will talk the talk and say that a fair oil price would be $75 a barrel 😉
Comment by Michel — December 3, 2008 @ 1:37 pm
“You write: “Russia has healthy reserves and the non-oil part of its budget runs a small deficit.†What exactly is the “non-oi part of its budgetâ€? This is nonsensical.” – Michel
That is what the World Bank reports. To summarize for your lazy ass :), even if ALL oil/gas transfers were cut from the budget LAST year, the budget deficit would have been only -2.9%. (This year and next, this deficit is going to be rather higher due to counter-cyclical spending and lower revenues due to tax cuts), so it’s just about feasible though unlikely that the government will run an overall budget deficit. Considering its reserves, however, that is not a big concern.
“And, please tell how you calculate that the “the current account deficit for the year should not much exceed 40bn$†You state something as fact, yet you do not support your statement with facts. And, no, I won’t go to your site to get the missing information.”
I’ll just quote the relevant chunk (BTW, scratch the -40bn figure. I made a mistake and used some wrong figures (it was late), actually even at 50$ oil Russia’s current account should remain at surplus assuming stable imports and non-oil exports – in practice both the latter will likely decline, but I assume they’ll roughly cancel each other out.)
– However, it is not critical, as could be gleaned from Russia’s balance of payments for H1 2008 and a few quick and crude calculations. Goods imports of 135bn $ were countered by oil/gas exports of 159bn $ and other goods exports of 78bn $, and add a deficit in services trade of 11bn $. Assuming everything remains constant except the value of the oil/gas exports* means that we need ((135+11-78) * 2 = 136bn $) in the latter to retain a positive current account. (* In practice, the value of Russia’s other exports will also decline because most of them are commodities like metals, lumber and grain; on the other hand, imports will certainly fall too due to global deflationary forces, a weakening ruble and falling consumer demand, thus presumably cancelling these effects out.) Even assuming a pessimistic oil price of 50$ per barrel for 2009 (in practice, most economists think it will be around 70-80$, albeit there is currently a downward tendency to revisions), that would simply take us back to 2005, when the average was 50.04$ (or 54.99$ inflation-adjusted). In that year, Russia exported 148bn $ of oil/gas (nor will export volumes change much between 2005 and 2009). Thus, even in this ‘low’ scenario we get a current account surplus of 12bn $ – and even if we undershoot, there still the matter of Russia’s 450bn $ reserves as of November. From this I’d venture to say Russia has ample resources to pursue a gradual correction, rather than sudden devaluation, of the ruble; and to undertake serious counter-cyclical fiscal measures. But more on that later…).
“As for the analysis of real economic data, I prefer reliable sources to the fantasies of russophiles who have clearly been reading too much Russian Kremlin propaganda” – Michel
The Kremlin has seized the World Bank? That’s news to me.
“As for the country’s deficit, one analysts estimates that with oil prices at $50 or less, the Russian state deficit could reach 1.5 trillion rubles if it implements the anti-crisis measures approved by its governing United Russia party.”
That deficit is peanuts. You might hate Russia’s reserves but they’re there. 🙂 (Although it should be pointed out that the WB disagrees there’ll be a deficit at all.)
—
BTW, once again and predictably, you fail to convey the spirit of the article – just nitpick some bad numbers, from a Russian newspaper to imply what you’re talking about.
ML says that at 47$ per barrel, zero growth is a LOW scenario, but the high scenario is 3.7% growth.
Their absolute worst scenario is 30$ oil and a 2.9% fall.
A Goldman Sachs analysis things growth will be 0% at 50$, but in practice thinks oil prices will get back up to an average of 80$.
You might help your case by quoting sources that actually consistently support your pessimistic beliefs.
Comment by Da Russophile — December 3, 2008 @ 2:04 pm
Well, let’s see:
You write: “This year and next, this deficit is going to be rather higher…” So you agree that the Russian government will have a budget deficit? Of course, you emphasize the reserves: “Considering its reserves, however, that is not a big concern.” Well, those reserves are being spent pretty quickly, as I and others keep emphasizing. If you think that the reserves are Russia’s Get out of Economic Pass, I would say that you are sadly mistaken. If oil prices don’t recover in the next year, what is left of the reserves will be spent quite quickly.
You write: “global deflationary forces, a weakening ruble and falling consumer demand…” I agree with you here. When the ruble is devalued, it will make imports much more expensive, and Russian consumers and businesses will have no choice but to cut back on purchases. Of course, this won’t necessarily be appreciated by Russians.
So, you are left with a Russian government who will have a deficit, a devalued ruble and declining production in other sectors. Hardly something to be optimistic about.
Comment by Michel — December 3, 2008 @ 2:39 pm
One final thing, the VEB is asking the Russian state for another $35 billion or so (see: http://www.forbes.com/markets/2008/12/03/veb-russia-capital-markets-equity-cx_vr_1203markets08.html or http://www.vedomosti.ru/newspaper/article.shtml?2008/12/03/171965). The reserves were down to $450 billion, another dozen or so billion were spent on protecting the ruble since then and if we add this $35 billion, this brings us down to $400 billion or less. Of this, at least $200 billion has been promised, but not spent. The pile is shrinking pretty quickly…
Comment by Michel — December 3, 2008 @ 3:58 pm
“You write: “This year and next, this deficit is going to be rather higher…†So you agree that the Russian government will have a budget deficit? Of course, you emphasize the reserves: “Considering its reserves, however, that is not a big concern.— – Michel
Oh dear. I am referring to the non-oil budget deficit. That is certainly going to be red, and redder than last year’s. However, whether the OVERALL budget deficit (i.e. including oil/gas revenues) is going to fall into a deficit is an entirely different question. I admit that if the oil price is less than c.60$ average for 2009, then that is a possibility. However, even if there is an OVERALL deficit, it will not be a big one, because as I said 50-60$ prices are a boundary between surplus or deficit; NOT a catastrophic deficit.
“Well, those reserves are being spent pretty quickly, as I and others keep emphasizing. If you think that the reserves are Russia’s Get out of Economic Pass, I would say that you are sadly mistaken. If oil prices don’t recover in the next year, what is left of the reserves will be spent quite quickly.”
That begs the question exactly why reserves fell. This is because of a) the 70bn $ of fiscal measures Russia took up to November 13th, b) a reversal of the capital account as FDI dried up and c) a lot of external repayments were due in Q3 and Q4. All the above factors are going to attenuate in 2009 and the WB predicts that losses from the CBR reserves will be not exceed 100bn $ for the entire year.
“You write: “global deflationary forces, a weakening ruble and falling consumer demand…†I agree with you here. When the ruble is devalued, it will make imports much more expensive, and Russian consumers and businesses will have no choice but to cut back on purchases.”
Of course, some things like food imports (Russia imports meat and fruit) are going to become cheaper because of global deflation, to a lesser extent same with machines. This should somewhat cancel out a corrected ruble. So I doubt the overall effect on consumers will be too deleterious, while manufacturers will get a long-needed boost – hopefully contributing to recovery of industrial production.
“So, you are left with a Russian government who will have a deficit, a devalued ruble and declining production in other sectors. Hardly something to be optimistic about.”
As I said, if there’ll be a deficit it will be small, and a gradual correction is far more likely than a catastrophic devaluation. As for production, although I agree Q4 is catastrophic (just as in the US, Europe, China and pretty much everywhere else), by next year the effects of the fiscal stimuli should begin permeating the economy and perhaps preventing recession.
Re-reserves: it is becoming clear that all financial systems’ losses are much bigger than originally thought. At least Russia is bailing them out with its reserves unlike some countries that are forced to go ever deeper into unsustainable levels of debt to do so. Besides as I mentioned many external repayments are due to Q3 and Q4 of 2008; pressures on reserves for bailouts should somewhat subside next year.
Comment by Da Russophile — December 3, 2008 @ 4:33 pm
Now that I think about it, I was an idiot. Things are better than I presented them.
“The reserves were down to $450 billion, another dozen or so billion were spent on protecting the ruble since then and if we add this $35 billion, this brings us down to $400 billion or less. Of this, at least $200 billion has been promised, but not spent.”
This is government spending. You can just print money and save the reserves, since inflation is not a big worry right now.
Comment by Da Russophile — December 4, 2008 @ 5:15 am
Yes, I agree with you when you write: “I was an idiot.” LOL.
Seriously, the problem is that much of the $200 billion that was promised was to help Russian companies pay off monies owed to foreign companies. These contracts that were signed certainly using the American dollar (or the Euro) as the basis of the contract (i.e. Russian companies agreed to set amount of debt to be paid back in dollars and not rubles). Yes, I presume the Russian government could start printing American dollars, but I doubt their foreign creditors will accept that as payment 😉
As for inflation not being a big problem, Russia still have 13 or 14% inflation and have not read any reports that inflation had disappeared in Russia. Printing money when you already have an inflation problem and there is already the risk of devaluation would not make for the best economic policy IMHO.
Comment by Michel — December 4, 2008 @ 10:08 am
Da Russophile, do you ever get tired of carrying water for Putin and Hugo Chavez?
Other than attention getting, it’s hard to understand what’s in it for a person to defend those two unsavory autocratic thugs. Your site for as much as you gratuitously promote it is a pretty lonely place, perhaps you’ve failed to draw the obvious conclusion from that.
You vacillate between fact-challenged propaganda and insulting others. It’s getting old.
Comment by penny — December 4, 2008 @ 11:50 am
@Michel,
“Seriously, the problem is that much of the $200 billion that was promised was to help Russian companies pay off monies owed to foreign companies.” –
That’s a good point, I admit.
However, it’s not that simple. Drawing from my reading of the WB report:
1. The only major allocation from the foreign currency reserves is a 50bn $ deposit at the VEB bank (to reduce the rollover risk of short-term external debt held by domestic financial and non-financial corporations). It has already been completed so would account for a substantial amount of the decline in reserves for the past month. (I.e. some of that 200bn $ has already been allocated).
2. Most measures are taken in rubles, and spread the cost out over several years. There are no outright bailouts where the government just gives away rubles for free. E.g. a 35bn $ (equivalent, that is) subordinated loan to top banks, 15bn $ to support financial markets (presumably also in rubles), cut in oil export duty (which is just a loss of a few billion $ equivalent in revenue). Another 60bn $ (in rubles) consists of the CBR making short-term deposits in several selected banks to counter iliquidity.
I.e., most of these measures seem to me to be aiming to help the companies help themselves.
“As for inflation not being a big problem, Russia still have 13 or 14% inflation and have not read any reports that inflation had disappeared in Russia.”
It’s already slowing down (http://www.guardian.co.uk/business/feedarticle/8101188), which is entirely to be expected not surprising given the credit crisis and global deflation.
@penny,
I consider that several countries are unfairly represented in the US media (foremost, Russia and Venezuela), as represented by the big numbers of sheeple in those countries that consider them ruled by “unsavory autocratic thugs” because the elites want to think that way.
It also annoys me how it focuses on minor human rights or democratic failings there (and with more justification, in Iran), to the exclusion of violations of said rights in Western countries (or when they are acknowledged, are brushed off as exceptions and non-comparable to Russia); and much more serious violations in US allies like Saudi Arabia, Iraq, Georgia, etc. Not only that, but discourse on economics, demography, history and other such subjects, which should be neutral, is perverted in service of the “evil empire/new cold war” narrative.
Any who dare point out Western hypocrisy are labeled as “paid propagandists” / “useful idiots” / “moral relativists” (although, I accept the latter).
In a sense I am attention-mongering dissident in a society that doesn’t want to hear my views. Somewhat like Kasparov, in fact.
I don’t think I take special pains to promote my site, unless commenting on other sites counts as “gratuitous” promotion (whatever the heck that means).
Re-popularity. See http://en.wikipedia.org/wiki/Argumentum_ad_populum. Although, I wouldn’t say an average 70 visitors a day is particularly bad. How popular is your blog?
“You vacillate between fact-challenged propaganda and insulting others. It’s getting old.”
Lol. Had a good chuckle there. You know, glass stones throwing house etc.
Comment by Da Russophile — December 4, 2008 @ 7:22 pm
More:
And Russia’s reserves rise by 5bn $.
http://www.cbr.ru/eng/statistics/credit_statistics/print.asp?file=inter_res_08_e.htm
(Yes, yes, a week does not a trend make. But then again you lot have been latching on to oil price declines to prophecy the death of Russia’s economy). 🙂
Comment by Da Russophile — December 4, 2008 @ 7:34 pm
This is what Gazeta.ru had to say about the $5 billion:
Золотовалютные резервы РоÑÑии выроÑли впервые Ñ ÑентÑбрÑ. Ðо, увы, Ñтот отрадный факт, который не преминул отметить Владимир Путин, не означает уÑпех финанÑовой политики влаÑтей. Ðизкие нефтÑные цены продолжат давить на рубль и вызовут дефицит бюджета, а роÑÑийÑким корпорациÑм по-прежнему нужна валюта Ð´Ð»Ñ Ð¿Ð¾Ð³Ð°ÑˆÐµÐ½Ð¸Ñ Ñвоих долгов. Ð’Ñе Ñти проблемы будут решатьÑÑ Ð·Ð° Ñчет ÑредÑтв Центробанка.
Source: http://gazeta.ru/financial/2008/12/04/2903756.shtml
Comment by Michel — December 4, 2008 @ 11:04 pm