Teaching Comparative Government and Politics

Monday, December 01, 2014

Russian economic problems

The economy might be Putin's downfall. At least the editors of The Economist think so. Do you agree?

The end of the line: For more than a decade oil income and consumer spending have delivered growth to Vladimir Putin’s Russia. Not any more
Russia’s economy is teetering on the verge of recession… The rouble has lost 30% of its value since the start of the year… Banks have been cut off from Western capital markets, and the price of oil… has fallen hard.

While the overall mood is clearly depressed, it is a long way from panic. Russia’s total foreign debt is just 35% of GDP…

Russian economists are now debating how long before the economy faces collapse. Most think it can totter on for two years or so. But there is a real chance things could get a lot worse a lot sooner…

This does not mean that Russia is anywhere close to a sovereign default like that of 1998. Then government debt was 50% of GDP and reserves just 5% of GDP. Today Russia is still running a current-account surplus of about $50 billion because it is importing less…

The Kremlin distributes oil rent via state banks to firms and projects which it selects on the basis of their political importance and their pro-Putin stance. Most of the contractors for the Sochi Olympics… were firms run by Mr Putin’s friends…

During the fat years, Mr Putin had an easy job satisfying all. Now he will face a tough decision whether to support the inefficient energy sector and the military-industrial complex with public money or rely on the more dynamic flexible small and medium-sized companies to pull Russia out of the crisis…

Protests driven by economic and also social issues have already started. Even in Moscow where the mood for protest is low, teachers and doctors have come out onto the streets to protest against pay cuts and restructuring…

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