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Business Last Updated: Mar 25, 2020 - 12:53:20 PM


Russia Sinks Into Economic Quicksand
By Pavel K. Baev, EDM, 23/3/20
Mar 24, 2020 - 3:31:47 PM

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Russian President Vladimir Putin’s much-publicized series of interviews with the official TASS news agency was suddenly interrupted during the third week of March 2020. The pre-recorded interviews, which heretofore received priority coverage across state media, focus on Putin’s achievements during the last two decades of his rule. But at present, these retrospectives on the president fit poorly with the “changed news agenda” (Newsru.com, March 20). The Russian audience is currently too worried about the COVID-19 pandemic and preoccupied with the openings spasms of economic crisis to pay due attention to Putin’s “stellar” track record. Official reporting on the spread of the coronavirus in Russia remains remarkably optimistic, but stories of people who encounter the acute threat of infection confirm a shocking lack of preparation within the country’s long-underfunded healthcare system—and explode over the uncensored social media networks (Znak.com, March 20). Economic messaging from the government acknowledges only a minor deviation from what had, until now, been claims of positive prospects. However, Russians have learned to closely watch the global oil price as an unmistakable indicator of the ups and downs in their fortunes; and presently, they cannot guess how low this price may ultimately drop (Forbes.ru, March 21).

According to most observable parameters, the Russian economy is doing rather better than the oil market as a whole, and the ruble has fallen only to the tolerable mark of 80 per $1, from 60 some three weeks ago (Nezavisimaya Gazeta, March 19). The Central Bank has opted to leave its basic rate unchanged at about 6 percent, which is much higher than what the United States Federal Reserve had maintained even before the radical decision last week to cut it down to zero (Kommersant, March 21). The Russian government continues to issue some vague promises but is in no rush to work on a package of rescue measures for the already depressed transport and tourism sectors or to design a more comprehensive anti-crisis program, as it did in 2009 (RBC, March 20). In fact, the newly arrived contraction already generally fits into the worst-case scenario for a global recession developed by the Central Bank last autumn, even without the pandemic further exacerbating the situation (Rosbalt, March 20). What these moderately optimistic assessments fail to take into account is Russia’s unique vulnerability to economic turmoil determined by the joint impact of four particular drivers.

The first is the significantly deteriorated quality of Russia’s economic governance. The newly formed Cabinet, led by the inexperienced Prime Minister Mikhail Mishustin, who has promoted his subordinates from the Federal Tax Service and demoted such seasoned professionals as Finance Minister Anton Siluanov, is patently not ready to manage a crisis of extra-severe proportions (RBC, March 20). The shock of devastatingly low oil prices is, to a significant degree, self-inflicted: it was Moscow’s decision to break the OPEC+ cartel deal on oil-production cuts, advocated by Igor Sechin, the CEO of Rosneft, that unleashed the price war with Saudi Arabia (Svoboda.org, March 20). Now Sechin, who has great experience in manipulating Putin’s opinions, promises a fast recovery of prices after the mass bankruptcy of US shale oil producers; but this wishful strategizing ignores the price Russia is set to pay for such “success” (Forbes.ru, March 21). Putin cannot grasp the complexity of this unfolding crisis and remains a firm believer in a state-controlled economy, reflexively describing entrepreneurs as “swindlers” (Vedomosti, March 12).

The second aggravator of the crisis is Russian corruption. Kremlin-linked oligarchs and elites have built fortunes by embezzling funds associated with various mega-projects like the Kerch Strait Bridge to Crimea or the TurkStream natural gas pipeline, and they have been rewarded with multiple state honors for their “heroic” labor (Kommersant, March 19). Average incomes in Russia, meanwhile, have been shrinking for five years. Even the medical research center near Novosibirsk, which is involved in the program for developing a vaccine against COVID-19, has been trying to recruit scientists for the paltry salary equivalent of $186 a month (Navalny.com, March 20). Following Sechin’s “war” with US shale oil producers, Russians are bracing for new hardships. But Putin confidently proclaims that everyone with a monthly income above $200—70 percent of the population—belongs to the middle class (Ezhednevny Zhurnal, March 20).

The third driver dragging the Russian economy down is the heavy burden of military expenditures, which have grown massively since the crisis of 2008–2009, when the military reform was launched without any extra funding. Now Russia’s military-industrial complex is mobilizing all of its heavy propaganda guns in defense of prioritizing resource allocations for arms manufacturers (Voenno-Promyshlenny Kuryer, March 17). Russian military activities have certainly not halted, including in the Arctic theater, where the North Atlantic Treaty Organization (NATO) has canceled its own planned exercises due to health concerns (Nezavisimaya Gazeta, March 17). Russian Defense Minister Sergei Shoigu assured that there would be no changes in the plans for the spring draft because of the COVID-19 issue (Izvestia, March 20).

The fourth factor escalating the recession is the political campaign for revising the Constitution, which has unexpectedly produced a crisis of legitimacy for Putin’s regime. The Kremlin is determined to proceed with the public vote on the package of amendments. But the pandemic emergency makes it necessary to relax the rules, threatening to enable the expected show of public support to devolve into a farce (Novaya Gazeta, March 21). Putin is also firm set to proceed with the annual May 9 Victory Day parade no matter what (Svoboda.org, March 19). At the same time, the Russian Orthodox Church, a key ally of the regime, insists there is no risk of contamination during religious services. Thus, hundreds of believers recently lined up to kiss the relic of John the Baptist, displayed at the Kazan Cathedral, in St. Petersburg (Meduza, March 14).

The Kremlin is sticking to its message of stability and normalcy. Yet, even if the propaganda successfully downplays the explosion of the COVID-19 infection, it cannot camouflage the impact of the fast-progressing recession. Anxiety over the hidden scale of the pandemic disaster translates into anger aimed at the elites enjoying comfortable “quarantines” in their dachas and purchasing ventilator machines for personal use (Lenta.ru, March 20). China has mobilized massive state capacity to combat the disease; European states are relying on their citizens’ solidarity and responsibility; in the US, taxpayers will receive direct financial support; but Russia cannot take any such measures. Putin’s main hope rests on the patience and indifference of the populace; however, these “resources” can be exhausted in a matter of a few weeks.

 


Source:Ocnus.net 2020

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