Why Putin is popular in Russia

[Tomasz + 1,608]

I know that people in the West think that the Russians unreasonably support Putin, so let me describe the situation so that it becomes clearer why he still enjoys the support of 2/3 of Russians 

Maybe it would be fair to consider the situation in 1999, before to tell what Putin could have done and did not do.

In 1999 Russia was more or less on the brink of desintegration. The Governors had been virtually free to transform the “regions” in personal feuds, the oligarchs were running the economy (and the State) very more than the Government, and the Government had followed the line of IMF, of the US “advisers” and of the “assistants” (Mrs Nuland) with lackadaysical results: default, hyperinflation, fall of all the indicators (life expectancy, birthrate, GDP) way below the Soviet level, privatization and virtual deindustrialization of the economy.

The only industry still working was the energetic industry, and it was NOT in the hand of the State, but of the “democratic" oligarchs like the “marthyr” Khodorkovsky, who were ready to sell the control of their firms to the foreigners (especially USA) to make money and become politically untouchable.

So there was no time and no way to think about “diversification”: first, there were the foreign debts (Soviet and Russian, together) to repay to escape from the foreign debt trap, and the only source of the money to pay those debts were the oil and the gas, since almost all the other industries were in a shambles, including the huge military industrial complex, and the same former-red-army (see first Chechen war for details) .

So to concentrate the efforts to retake the control of the oil and gas industry, and then to make it as profitable as possible, was not else but common sense. But it took some years: 4 at least, just to complete the phase of “retaking” of the sector (Khodorkovsky case) and to get the “oil-igarch” to follow the line (steer clear of the politics and mind your own business, or else…). And after that, let's be realist: yes, Putin could even influence the oligarchs which led those big firms (Rosneft, Lukoil, etc.), but just to some extent. There was no more a Communist state, after all. There's free enterprise. If the oligarchs wanted to keep investing in the oil, the Government could not do so much to change their minds (fiscal leverage, etc.).

Since undoubtedly there were these serious priorities, it’s hard to say what could Putin do in favor of diversification, and even against big corruption, without adopting the Chinese model (execution line for the more corrupt officials) or reserving to ALL the oligarch the Khodorkovsky treatment. In both cases, this could create more problems, both within the country (oh, evil Putin starts purges!) and in the relations with “Western partners” (not only Khodorkovsky has his friends in the west…). Definitely, a too much ambitious project.

Surely some more things to “diversificate” and to fight corruption could have been done later, and Putin has rested a bit too much on his laurels till the crisis of 2014, when the fall of oil price and the sanctions have been a tough revelly. The country has gained many positions in such rates as the World Bank business ranking,

Fighting corruption is easier said than done, especially when the problem is systemic. There simply are too many people involved in corruption all the way to the top. As we have seen with the post-2008 banking crisis, all but one attempt to prosecute any banker in the USA failed despite the frauds seemed so clear-cut at the beginning. Ultimately all the fines levied at the banks were minuscule compared to the huge sums of money the US government (and taxpayers) had to put in to save the financial system.

The Russian economy HAS become more diversified, just not nearly enough. I think Putin does want diversification, it is pretty much an axiom for everyone. And it’s not really a problem for oligarchs to switch to other sectors. The problem probably is that diversification means investing into the long-term and getting smaller returns in the meantime, whereas the business and the government always want the quickest bang for the buck. That’s a problem of all commodity-based economies. They seriously want to diversify when commodity prices are low, but then they don’t have money and no one wants to invest. But when prices are high, they just keep on pumping since it’s the easiest thing to do.

Perhaps Putin did not have much of a choice as the money flowed where the profits were, but certainly he could have done more to ensure a transition to a more diversified and as a result more stable and developed economy. That would have protected Russia’s fortunes from the unpredictable swings in global commodity prices but if we start back in 2000 its rather good 20 years.

Russia advances in global Doing Business rankings to 31st position...

but the problem remains.

There is a Russian proverb: “if you hunt two hares, you will get neither of them". You better never divide your forces.

Especially if you are hunting not two hares, but four lions: the State’s corruption, the oligarchs' greed, the necessity of economic differentiation (the smallest lion, indeed, but always a lion), and islamist “separatism”.

Putin concentrated his action first on the “democratic" oligarchs (first Berezovsky -finance-, then Guzinsky -media- and “martyr" Khodorkovsky -oil-), becaise there was where the cash was. And the real power too (I don't want to be anecdotical, recalling how those gentlemen -especially the first- entered the Kremlin offices kicking the doors, but it helps to get the picture).

When he threw the biggest oligarchs out of the ring, and got the others to toe the line (and sent the biggest “separatists" -Basayev and Umarov- to Allah's Heaven), he started to take care of corruption, which has been not eliminated, but quite trimmed (see World Bank and other foreign above-any-suspect sources for details), and he has even improved the situation regarding the independence of the courts, though it's not ideal yet (the international boards lamented that the “interferences from outside" in the judicial matters are “yet" not so rare, though less than they were in the “democratic" Eltsin's years).

Just remember that in 2000 Russia was on the edge of default, all the resources in hands of oligarchs and even salaries were not paid reguralry.

Compare Russia under Putin, his 20 years with any other country after default.

I think he did quite well.

 

Edited July 13, 2020 by Tomasz

[surrept33 + 612]

I get it. Late 90s Russia was indeed a mess. It's why sometimes there is popular support for coup d'etats against Democratically elected governments who have bungled things up sufficiently.

That being said, Putin's first few terms coincided with a historic supercycle in many commodities in general, especially oil, something that seemed to one of the main drivers to get Russia back in track.

Putin could have simply pushed many reforms to break the oligarchs and end the chronic corruption that coincided with desovietization of the russian economy. He could have ridden into the sunset as a savior of the country who turned the country back towards a better future.

Instead, he's gone gone the path that many strongmen tend to go after they consolidate power: replace one set of corruption with another, and institute propaganda campaigns, laws, and use foreign boogymen/wars to prevent any opposition from ever gaining strength. Russia has declined in many ways since, and it's not very clear to me that it's future will be bright.

Ever since the last commodity supercycle grinded to a halt in 2008, the Russian economy has not done so well:

In a real democracy with a real opposition and a robust free press that holds people in positions of power accountable, there is no chance that Putin would hold 2/3s of the country's popular support during a period of such stagnation.

Instead, he's basically president for life. No way to maximize chances of good governance.

Edited July 13, 2020 by surrept33

[BradleyPNW + 282]

Joe Biden will be more popular than Putin in Russia because he will revoke oligarch travel visas, freeze their foreign bank accounts, and seize their chalets. 

 

[Enthalpic + 1,496]

7 hours ago, surrept33 said:

In a real democracy with a real opposition and a robust free press that holds people in positions of power accountable, there is no chance that Putin would hold 2/3s of the country's popular support during a period of such stagnation.

You would think, but trump has about 43% support even with extreme losses (record deficits, deaths, riots, impeachment, international embarrassment, lawsuits.)

When you spend more time working the media than fixing the country this is what you get.

Like a mistreated dog; only cares for attention - good or bad.

 

Edited July 14, 2020 by Enthalpic

[Douglas Buckland + 6,308]

20 minutes ago, BradleyPNW said:

Joe Biden will be more popular than Putin in Russia because he will revoke oligarch travel visas, freeze their foreign bank accounts, and seize their chalets. 

 

Good! Send Biden to Russia! A win-win solution!

[ronwagn + 6,290]

On 7/13/2020 at 5:53 PM, Tomasz said:

I know that people in the West think that the Russians unreasonably support Putin, so let me describe the situation so that it becomes clearer why he still enjoys the support of 2/3 of Russians 

Maybe it would be fair to consider the situation in 1999, before to tell what Putin could have done and did not do.

In 1999 Russia was more or less on the brink of desintegration. The Governors had been virtually free to transform the “regions” in personal feuds, the oligarchs were running the economy (and the State) very more than the Government, and the Government had followed the line of IMF, of the US “advisers” and of the “assistants” (Mrs Nuland) with lackadaysical results: default, hyperinflation, fall of all the indicators (life expectancy, birthrate, GDP) way below the Soviet level, privatization and virtual deindustrialization of the economy.

The only industry still working was the energetic industry, and it was NOT in the hand of the State, but of the “democratic" oligarchs like the “marthyr” Khodorkovsky, who were ready to sell the control of their firms to the foreigners (especially USA) to make money and become politically untouchable.

So there was no time and no way to think about “diversification”: first, there were the foreign debts (Soviet and Russian, together) to repay to escape from the foreign debt trap, and the only source of the money to pay those debts were the oil and the gas, since almost all the other industries were in a shambles, including the huge military industrial complex, and the same former-red-army (see first Chechen war for details) .

So to concentrate the efforts to retake the control of the oil and gas industry, and then to make it as profitable as possible, was not else but common sense. But it took some years: 4 at least, just to complete the phase of “retaking” of the sector (Khodorkovsky case) and to get the “oil-igarch” to follow the line (steer clear of the politics and mind your own business, or else…). And after that, let's be realist: yes, Putin could even influence the oligarchs which led those big firms (Rosneft, Lukoil, etc.), but just to some extent. There was no more a Communist state, after all. There's free enterprise. If the oligarchs wanted to keep investing in the oil, the Government could not do so much to change their minds (fiscal leverage, etc.).

Since undoubtedly there were these serious priorities, it’s hard to say what could Putin do in favor of diversification, and even against big corruption, without adopting the Chinese model (execution line for the more corrupt officials) or reserving to ALL the oligarch the Khodorkovsky treatment. In both cases, this could create more problems, both within the country (oh, evil Putin starts purges!) and in the relations with “Western partners” (not only Khodorkovsky has his friends in the west…). Definitely, a too much ambitious project.

Surely some more things to “diversificate” and to fight corruption could have been done later, and Putin has rested a bit too much on his laurels till the crisis of 2014, when the fall of oil price and the sanctions have been a tough revelly. The country has gained many positions in such rates as the World Bank business ranking,

Fighting corruption is easier said than done, especially when the problem is systemic. There simply are too many people involved in corruption all the way to the top. As we have seen with the post-2008 banking crisis, all but one attempt to prosecute any banker in the USA failed despite the frauds seemed so clear-cut at the beginning. Ultimately all the fines levied at the banks were minuscule compared to the huge sums of money the US government (and taxpayers) had to put in to save the financial system.

The Russian economy HAS become more diversified, just not nearly enough. I think Putin does want diversification, it is pretty much an axiom for everyone. And it’s not really a problem for oligarchs to switch to other sectors. The problem probably is that diversification means investing into the long-term and getting smaller returns in the meantime, whereas the business and the government always want the quickest bang for the buck. That’s a problem of all commodity-based economies. They seriously want to diversify when commodity prices are low, but then they don’t have money and no one wants to invest. But when prices are high, they just keep on pumping since it’s the easiest thing to do.

Perhaps Putin did not have much of a choice as the money flowed where the profits were, but certainly he could have done more to ensure a transition to a more diversified and as a result more stable and developed economy. That would have protected Russia’s fortunes from the unpredictable swings in global commodity prices but if we start back in 2000 its rather good 20 years.

Russia advances in global Doing Business rankings to 31st position...

but the problem remains.

There is a Russian proverb: “if you hunt two hares, you will get neither of them". You better never divide your forces.

Especially if you are hunting not two hares, but four lions: the State’s corruption, the oligarchs' greed, the necessity of economic differentiation (the smallest lion, indeed, but always a lion), and islamist “separatism”.

Putin concentrated his action first on the “democratic" oligarchs (first Berezovsky -finance-, then Guzinsky -media- and “martyr" Khodorkovsky -oil-), becaise there was where the cash was. And the real power too (I don't want to be anecdotical, recalling how those gentlemen -especially the first- entered the Kremlin offices kicking the doors, but it helps to get the picture).

When he threw the biggest oligarchs out of the ring, and got the others to toe the line (and sent the biggest “separatists" -Basayev and Umarov- to Allah's Heaven), he started to take care of corruption, which has been not eliminated, but quite trimmed (see World Bank and other foreign above-any-suspect sources for details), and he has even improved the situation regarding the independence of the courts, though it's not ideal yet (the international boards lamented that the “interferences from outside" in the judicial matters are “yet" not so rare, though less than they were in the “democratic" Eltsin's years).

Just remember that in 2000 Russia was on the edge of default, all the resources in hands of oligarchs and even salaries were not paid reguralry.

Compare Russia under Putin, his 20 years with any other country after default.

I think he did quite well.

 

 

On 7/14/2020 at 1:37 AM, Enthalpic said:

You would think, but trump has about 43% support even with extreme losses (record deficits, deaths, riots, impeachment, international embarrassment, lawsuits.)

When you spend more time working the media than fixing the country this is what you get.

Like a mistreated dog; only cares for attention - good or bad.

 

Absolutely!

[ronwagn + 6,290]

This has been going on for a long time in Russia. Russia needs to align with the West. 

https://www.themoscowtimes.com/2020/07/18/tens-of-thousands-stage-anti-kremlin-protests-in-russias-far-east-a70916

https://docs.google.com/document/d/1TNLgFNBS_jURlZiqkdZfYjG6DoGiYbcwcdn1e-62rUM/edit

Tens of Thousands Stage Anti-Kremlin Protests in Russia's Far East

 

By AFP

12 hours ago

    

[Jan van Eck + 7,558]

Also from the Moscow Times:

Russian Police Major Falls From Window After Testifying Against Boss

Seems to happen quite a lot over there.  Those Police Majors tend to be clumsy around windows. 

https://www.themoscowtimes.com/2020/07/16/russian-police-major-falls-from-window-after-testifying-against-boss-reports-a70895

Unconfirmed reports citing anonymous sources in law enforcement agencies say that Mishkina was a witness in a criminal case against her former boss, who’s suspected of extorting from subordinates. She was reported to have testified against him some time before her death.

Edited July 19, 2020 by Jan van Eck

[Tom Nolan + 2,443]

Russia's New Constitution: What You Need to Know

Article of July 18, 2020 – LINKS and References

https://hive.blog/russia/@corbettreport/russia-s-new-constitution-what-you-need-to-know

[Enthalpic + 1,496]

On 7/18/2020 at 8:14 PM, Jan van Eck said:

Also from the Moscow Times:

Russian Police Major Falls From Window After Testifying Against Boss

Seems to happen quite a lot over there.  Those Police Majors tend to be clumsy around windows. 

https://www.themoscowtimes.com/2020/07/16/russian-police-major-falls-from-window-after-testifying-against-boss-reports-a70895

Unconfirmed reports citing anonymous sources in law enforcement agencies say that Mishkina was a witness in a criminal case against her former boss, who’s suspected of extorting from subordinates. She was reported to have testified against him some time before her death.

Meanwhile in the US:

Son of US District Judge Esther Salas killed, husband shot

https://app.tmxmoney.com/news/cpnews/article?locale=EN&newsid=a06457&mobile=false

[Tomasz + 1,608]

 

I do not want to be malicious, but if we look at what is happening in the USA nowadays, Americans should be really more restrained in criticizing other countries because in my opinion no country compromise itself more than the USA in the fight against the coronavirus.

[Tomasz + 1,608]

Short history of russian economy by Ben Aris from bneintellinews

https://www.intellinews.com/moscow-blog-russia-s-diminishing-crises-waves-192705/?source=blogs

 

Quote

 

MOSCOW BLOG: Russia's diminishing crises waves

By Ben Aris in Berlin October 2, 2020

Russia has crises regularly. They happen for a variety of reasons: poor regulations, the lack of institutional checks and balances, rank corruption, heavy debt, no money in reserve, shallow capital markets, weak banking sectors and external shocks. And they cause havoc when they happen.

There have been five really big crises: in 1991 when the Soviet Union collapsed; in 1998 when the ruble collapsed and Russia defaulted on its debt; in 2008 when the collapse of the US housing market caused a global financial crisis; in 2014 following Russia’s annexation of the Crimea; and most recently in 2020 with a double whammy of the collapse in oil prices and the start of the global coronavirus (COVID-19) pandemic.

However, after three decades each successive crisis does less damage. Russia remains an emerging market and so while it still has not brought its economy up to the level of the more developed nations, in the last 30 years it has made constant progress, making it better able to weather the storms each time they happen.

1991 crash

In 1991 the entire economy collapsed. The centrally planned five-year plans were shown up for the fakes they were and with the borders thrown open to imports no one wanted to buy the shoddy consumer goods the state-owned dinosaurs were putting out. Almost everything went bust.

The ruble also completely collapsed. With hyperinflation soaring to 1,400% the value of a lifetime’s worth of savings were reduced to pennies in a matter of months. People looked for alternative value stores and a favourite tactic was to buy a washing machine, as they were easy to turn back into cash by selling them again second hand. Unemployment doubled over the next ten years. 

 

1998 crash

In 1998 the entire top tier of the banking sector went bust, with the household names like Uneximbank, SBS Agro and Most Bank disappearing overnight, taking people’s savings with them. The ruble devalued by 75%. Unemployment had been falling as new companies came into being, but it soared again rising from 5.1% in 1991 to its all-time post-Soviet peak of 13.3% in 1998.

The crash in 1998 was actually caused by a currency crisis in Asia in 1997 that took almost a year to reach Russia. The Asian crisis fed through into pulling down commodity prices and that began to hurt Russia’s economy. The state had been issuing the now notorious GKOs (the precursor to the new Russian Ministry of Finance ruble-denominated OFZ treasury bills used now) to cover the budget deficits and the maturities of these bills had been getting longer while the interest rates they paid had been getting lower. However, from about May that year investors began to panic and on August 19, 1998 then Prime Minister Sergei Kiriyenko admitted defeat and defaulted on some $40bn worth of GKOs, sending the economy into a tail spin.

The devaluation in 1998 turned out to be a blessing in disguise. It made the ruble so cheap it suddenly became competitive. The “virtual economy” based on barter, as no one had any cash, gave way to a cash-based economy and oil prices, which had fallen to circa $14 a barrel, began their inexorable rise from about 2001 onwards. But the recovery had begun well before oil revenues started to pour in: in 1999 the economy grew by 10%, a record that has never been beaten.

The oil sector was the biggest beneficiary and invested more into production in 1999 than it had invested in all of the proceeding seven years. Labour costs were still priced in rubles, which had been cut by three quarters, but their revenue was in dollars, making them money-making machines. Profits from the oil sector primed the pump and started off an almost decade-long boom as a virtuous cycle of profits-investment-wage rises-spending kicked in. At the same time the government, awash in petrodollars, started increasing state wages by around 10% a year to close the gap between the private and public sectors and kept that up for almost a decade. Consumption became the driving force of the economy, which doubled in size.

It looked like Russia had turned the corner, with GDP growth running at 6%-8% a year in 2006 and 2007 capital flight having reversed as Russian businessmen brought about $130bn of capital home and started investing in domestic businesses. Everyone was making money hand over fist.

2008 crash

Then the world collapsed again in September 2008. This time it was not Russia’s fault. The US financial regulator’s failure to head off the sub-prime mortgage disaster saw the entire US housing market collapse, which sent shock waves around the world. Russian capital turned tail and fled as all that $130bn left the country again. The Russian economy went from a 7% growth rate to a 7% contraction in about six months.

But this time the crisis did a lot less damage. In 1991 pretty much every Russian company went bankrupt. In 1998 the entire top tier of the banking sector went bust. In 2008 only one bank, Finance Invest Bank, went bust. And that was bailed out and taken over by Russian Railways (RZD) by lunch time the same day it announced it was pulling the plug.

The ruble devalued yet again but this time by only about 30% – still very painful, but people didn't see their entire savings wiped out, just cut by a third. Unemployment jumped too, but only by a limited percentage, as most companies could stay open, even if they did cut wages and tighten belts.

With oil still at $100 a barrel in 2009 Russia’s economy bounced back relatively quickly, but the boom years were over.

Between 2008 and 2013 Russia faced a new problem. Oil prices were still high, but the economy began to slow anyway. But 2013 GDP growth had fallen to zero despite the $100 oil. The problem was the Kremlin had ignored the deep structural reforms needed to modernise the economy and the petro-driven model had simply run out of steam, knocking up against increasingly hard structural limitations.

The 2008 crisis has a lot to answer for, as if that Russian capital had stayed a few more years then a whole new class of businesses could have been created that would have made the economy more robust. 2008 was also the high point of the Kremlin’s flirtation with the “Washington Consensus” free market economic model.

After inflation fell into single digits for the first time in two decades, the Kremlin announced a massive $1 trillion infrastructure investment programme to modernise the economy – twice the size of the current 12 national projects programme that is supposed to do more or less the same thing.

In the summer of 2008 the newly elected president, Dmitry Medvedev, announced a far-reaching and radical privatisation programme at the St Petersburg International Economic Forum (SPIEF) that was packed with foreign investors. The programme had been written by Sergei Guriev, a famous professor of economics at the Higher Economic School, and adopted wholesale by the Kremlin. But by the end of that year the government was in crisis mode yet again and all the grand plans for change were unceremoniously dumped as everyone simply tried to keep their head above water.

2014 crash

Already weakened by the onset of stagnation due to the lack of reform, 2014 brought yet another collapse in oil prices as the Kingdom of Saudi Arabia tried to kill the burgeoning US shale oil business by flooding the market with crude.

The ruble crashed again, but this time falling by more than the 35% in 1998, as it dropped by more than half. The ruble went from about RUB35 to the dollar to RUB80 during the worst of the crisis because as part of the Central Bank of Russia (CBR) emergency actions it freed the exchange rate and the ruble became a freely floating currency, which allows the exchange rate to partly cushion the shock. The exchange rate eventually recovered to about RUB65 but that still meant a 50% devaluation.

But this time round the battle-hardened CBR and government rolled out a rescue plan and pumped money into the economy. The CBR introduced a 17% emergency rate hike that stopped the devaluation rot. Some $200bn of Russia’s reserves were spent on supporting industry and no one significant went bust. Retail sales and SMEs suffered and unemployment ticked up but it was still only 5.5% by the start of 2015 – a post-Soviet low. Growth slumped but the economy quickly stabilised.

The problem that Russia faced after the 2014 crash was not the aftermath of the crash itself, but the stagnations caused by the exhausted petro-model of growth. Real income growth has flatlined since 2014 and consumption play almost no role in growth. Oil prices have been stuck around $40, so that didn't help either. And to add to Russia’s woes it annexed the Crimea that year, so the sanctions regime imposed killed off any inbound investment. By 2016 Russia had another near-miss crisis when the Ministry of Finance found itself with a RUB2 trillion ($30bn) hole in the budget that it couldn't fill. In the end that crisis was averted by the “privatisation” of a 19% stake in state-owned oil company Rosneft that later turned out to be a loan from the UAE.

Like in 1998, the crisis had some beneficial effects. The Ministry of Finance was so shaken by the almost-crisis in 2016 that it launched a massive reform campaign to clean up Russia’s tax system. The service was entirely revamped by Mikhail Mishustin, and was so successful that he was promoted to Prime Minister at the start of this year. The tax-take increased by 20%, although the tax burden only went up by 2pp in the same period. As an even better indicator of how radical and far-reaching these reforms have been, in 2008 the federal budget needed oil prices to be $115 to break even; by this year oil prices only need to be $42 for the budget to break even. Russia Inc. is now a much more profitable business.

2020 crash

That brings us to the current crisis that began in March, when Russia walked out of the OPEC+ production cut deal on March 6 and oil prices crashed yet again, falling from an average of $63.5 in December 2019 to a low of $21.2 in April this year – the nadir of the oil price crisis. Since then they have recovered to between $40 and $45 – the breakeven price for the Russian budget.

And then the coronacrisis came on top of an oil price crash in March. With oil prices already back in Russia’s comfort zone by June it is the total lockdown of the economy that started in May that will do the real damage this year; and not just to Russia.

Russia’s federal budget will still go into deficit in 2020 from a 1.8% GDP surplus last year as a result of the extra stimulus spending and reduced industrial production and consumption. The deficit was already at circa 2% in the first half of this year and is expected to end 2020 at -4.4%.

Growth will also hurt. Russia will go from 1.3% growth in 2019 – that stagnation problem hasn't gone away – to an estimated 8.5% contraction for 2020 before returning to growth in 2021. But this is actually a good result. It is less the full-year contractions in all the previous major crises’ contractions and it is also better than those in many of the developed markets.

Inflation too has not been effected. Consumer price inflation was a mere 3.6% in August, still below the CBR target rate of 4%, so instead of the massive 17% interest rate hike the CBR was forced to make in 2014 the CBR actually cut rates this year in order to stimulate more growth. Cutting rates in the midst of a nasty economic crisis is something that developed markets do, not emerging markets.

Unemployment has also escaped largely unhurt. The jobless rate was running at record lows of around 4.3% before the two shocks hit in March (also a developed market level) but has ticked up to 6.4% as of August – again the mildest increase in any of the previous crises.

And finally the ruble has also escaped with very little pain. As bne IntelliNews reported in “Russia’s amazing levitating ruble”, the currency lost about 17% in the first half of this year when oil prices were halved over the same period. Inflows into Russia’s OFZ by foreign investors have offset the fall in oil taxes and held the value of the currency up. If you remember, in 1998 foreign investors fled the GKO market causing it, and the Russian economy, to collapse.

Perhaps most remarkably of all, Russia has managed to continue to accumulate hard currency reserves throughout this year, with gross international reserves topping the $600bn mark this summer – the fifth largest reserves of any country on the planet. It is this huge war chest that gives the bond investors confidence and the Kremlin a lot of options.

The Russian economy is coping better with the coronavirus (COVID-19) pandemic than it did after the global financial crisis, the head of Russia's Accounts Chamber and ex-finance minister, Alexei Kudrin, said on September 28.

"The current economic situation is certainly better than predicted at the beginning of the pandemic," Kudrin told RT. "For a number of reasons, Russia now looks much better than in 2009, when the economy fell by 8%."

What is the silver lining this time round? Russia gained benefits from the previous crises. The collapse in 1998 killed off the virtual economy and remonetarised the country. The crisis of 2014 forced a radical fiscal reform on the Ministry of Finance. So what will happen this time?

The answer has to be the adaptation of a new economic model. The Russian economy has been stagnating since about 2011 and little has been done to fix it. The Kremlin has been well aware of the problem and Russian President Vladimir Putin has attempted to deal with the issue with his so-called May Decrees that were last updated in 2018 and have since grown into the 12 national projects. However, the programme got off a poor start in 2019 and has now been delayed after the crises of 2020 broke. This crisis made be the goad that the government needs to finally see these changes through.

But the geopolitics will hamper the kind of spending Russia needs to do to modernise its economy. With its huge fiscal reserves and extremely low debt – Russia could pay off its entire external and public debt tomorrow and still have $100bn left over, which would still be sufficient to ensure the stability of the ruble – the Kremlin could massively ramp up spending just by using the money in the National Welfare Fund (NWF). In addition, it could borrow heavily and still not be under pressure. Russia currently has public debts of about 15% of GDP and the Ministry of Finance intends to increase that to 20% under the new 2021-2023 budget, but the Maastricht recommended maximum borrowing level is 60% of GDP and almost all the EU countries are already well beyond that level.

The Kremlin won’t go down this road. With geopolitical tensions rising again thanks to the Belarus revolution and poisoning of anti-corruption blogger and opposition activist Alexei Navalny there is new talk of sanctions. On top of that, with Joe Biden looking increasingly likely to win the US November presidential elections, relations with the America will probably get worse over the next four years.

For the Kremlin all that money and the low debt is a strategic weapon in its fight with the US and gives it impunity from sanctions. It's not an economic resource that can be actually used to promote growth. In effect the Ministry of Finance has been running austerity budgets to preserve these reserves, when it doesn't really need to. The Kremlin is clearly hoping to continue this policy and generate the extra money it needs from recovering oil prices and even more efficiency gains. And given how prone Russia is to crises maybe that is not a bad plan.

year	GDP USDbn PPP	GDP per capita USDbn PP	GDP growth real	inflaation %	unemployment %	Government debt % GDP
1992	1,703.00	11,482	n/a	n/a	5.2	n/a
1993	1,591.90	10,724	−8.7	874.6	5.9	n/a
1994	1,419.30	9,563	−12.7	307.6	8.1	n/a
1995	1,389.50	9,370	−4.1	197.5	9.4	n/a
1996	1,363.80	9,210	−3.6	47.7	9.7	n/a
1997	1,406.30	9,517	1.4	14.8	11.8	n/a
1998	1,345.60	9,130	−5.3	27.7	13.3	n/a
1999	1,452.90	9,889	92.1	85.746	13.0	92.286
2000	1,635.30	11,170	10.0	20.8	10.6	55.7
2001	1,757.70	12,054	5.1	21.5	9	44.3
2002	1,869.30	12,875	4.7	15.8	8	37.5
2003	2,046.70	14,156	7.3	13.7	8.2	28.3
2004	2,253.90	15,647	7.2	10.9	7.7	20.8
2005	2,474.80	17,232	6.4	12.7	7.2	14.8
2006	2,758.80	19,249	8.2	9.7	7.1	14.8
2007	3,073.90	21,473	8.5	9	6	8
2008	3,298.70	23,054	5.2	14.1	6.2	7.4
2009	3,063.80	21,411	−7.8	11.7	8.2	9.9
2010	3,240.90	22,639	4.5	6.9	7.4	10.9
2011	3,475.40	24,259	5.0	8.4	6.5	11.1
2012	3,670.40	25,592	3.7	5.1	5.5	11.9
2013	3,798.00	26,430	1.8	6.8	5.5	13.1
2014	3,895.40	26,626	0.7	7.8	5.2	16.1
2015	3,845.10	26,247	−2.3	15.5	5.6	16.4
2016	3,897.70	26,551	0.3	7	5.5	16.1
2017	4,035.90	27,474	1.6	3.7	5.2	15.5
2018	4,227.40	28,797	2.3	2.9	4.8	14.6
2019	4,349.42	29,642	1.084	4.68	4.623	16.486
2020	4,518.72	30,819.56	1.87	3.523	4.76	17.653
2021	4,706.30	32,132.47	2.045	3.9	4.68	18.261
2022	4,899.04	33,493.86	2.049	4	4.603	18.973
2023	5,094.27	34,886.55	1.945	4	4.654	19.781
2024	5,292.69	36,316.35	1.845	4	4.678	20.857
source: IMF

 

 

 

[shadowkin + 584]

On 7/13/2020 at 3:53 PM, Tomasz said:

I know that people in the West think that the Russians unreasonably support Putin, so let me describe the situation so that it becomes clearer why he still enjoys the support of 2/3 of Russians 

Maybe it would be fair to consider the situation in 1999, before to tell what Putin could have done and did not do.

In 1999 Russia was more or less on the brink of desintegration. The Governors had been virtually free to transform the “regions” in personal feuds, the oligarchs were running the economy (and the State) very more than the Government, and the Government had followed the line of IMF, of the US “advisers” and of the “assistants” (Mrs Nuland) with lackadaysical results: default, hyperinflation, fall of all the indicators (life expectancy, birthrate, GDP) way below the Soviet level, privatization and virtual deindustrialization of the economy.

The only industry still working was the energetic industry, and it was NOT in the hand of the State, but of the “democratic" oligarchs like the “marthyr” Khodorkovsky, who were ready to sell the control of their firms to the foreigners (especially USA) to make money and become politically untouchable.

So there was no time and no way to think about “diversification”: first, there were the foreign debts (Soviet and Russian, together) to repay to escape from the foreign debt trap, and the only source of the money to pay those debts were the oil and the gas, since almost all the other industries were in a shambles, including the huge military industrial complex, and the same former-red-army (see first Chechen war for details) .

So to concentrate the efforts to retake the control of the oil and gas industry, and then to make it as profitable as possible, was not else but common sense. But it took some years: 4 at least, just to complete the phase of “retaking” of the sector (Khodorkovsky case) and to get the “oil-igarch” to follow the line (steer clear of the politics and mind your own business, or else…). And after that, let's be realist: yes, Putin could even influence the oligarchs which led those big firms (Rosneft, Lukoil, etc.), but just to some extent. There was no more a Communist state, after all. There's free enterprise. If the oligarchs wanted to keep investing in the oil, the Government could not do so much to change their minds (fiscal leverage, etc.).

Since undoubtedly there were these serious priorities, it’s hard to say what could Putin do in favor of diversification, and even against big corruption, without adopting the Chinese model (execution line for the more corrupt officials) or reserving to ALL the oligarch the Khodorkovsky treatment. In both cases, this could create more problems, both within the country (oh, evil Putin starts purges!) and in the relations with “Western partners” (not only Khodorkovsky has his friends in the west…). Definitely, a too much ambitious project.

Surely some more things to “diversificate” and to fight corruption could have been done later, and Putin has rested a bit too much on his laurels till the crisis of 2014, when the fall of oil price and the sanctions have been a tough revelly. The country has gained many positions in such rates as the World Bank business ranking,

Fighting corruption is easier said than done, especially when the problem is systemic. There simply are too many people involved in corruption all the way to the top. As we have seen with the post-2008 banking crisis, all but one attempt to prosecute any banker in the USA failed despite the frauds seemed so clear-cut at the beginning. Ultimately all the fines levied at the banks were minuscule compared to the huge sums of money the US government (and taxpayers) had to put in to save the financial system.

The Russian economy HAS become more diversified, just not nearly enough. I think Putin does want diversification, it is pretty much an axiom for everyone. And it’s not really a problem for oligarchs to switch to other sectors. The problem probably is that diversification means investing into the long-term and getting smaller returns in the meantime, whereas the business and the government always want the quickest bang for the buck. That’s a problem of all commodity-based economies. They seriously want to diversify when commodity prices are low, but then they don’t have money and no one wants to invest. But when prices are high, they just keep on pumping since it’s the easiest thing to do.

Perhaps Putin did not have much of a choice as the money flowed where the profits were, but certainly he could have done more to ensure a transition to a more diversified and as a result more stable and developed economy. That would have protected Russia’s fortunes from the unpredictable swings in global commodity prices but if we start back in 2000 its rather good 20 years.

Russia advances in global Doing Business rankings to 31st position...

but the problem remains.

There is a Russian proverb: “if you hunt two hares, you will get neither of them". You better never divide your forces.

Especially if you are hunting not two hares, but four lions: the State’s corruption, the oligarchs' greed, the necessity of economic differentiation (the smallest lion, indeed, but always a lion), and islamist “separatism”.

Putin concentrated his action first on the “democratic" oligarchs (first Berezovsky -finance-, then Guzinsky -media- and “martyr" Khodorkovsky -oil-), becaise there was where the cash was. And the real power too (I don't want to be anecdotical, recalling how those gentlemen -especially the first- entered the Kremlin offices kicking the doors, but it helps to get the picture).

When he threw the biggest oligarchs out of the ring, and got the others to toe the line (and sent the biggest “separatists" -Basayev and Umarov- to Allah's Heaven), he started to take care of corruption, which has been not eliminated, but quite trimmed (see World Bank and other foreign above-any-suspect sources for details), and he has even improved the situation regarding the independence of the courts, though it's not ideal yet (the international boards lamented that the “interferences from outside" in the judicial matters are “yet" not so rare, though less than they were in the “democratic" Eltsin's years).

Just remember that in 2000 Russia was on the edge of default, all the resources in hands of oligarchs and even salaries were not paid reguralry.

Compare Russia under Putin, his 20 years with any other country after default.

I think he did quite well.

 

I think any objective person must recognize he has done very good. Probably will go down as the best leader of Russia ever regardless of whether we're talking about tsars or communists. Even our own state department acknowledged he is genuinely popular and despite there being voting irregularities I think we won all elections he ran in.

A stable and strong Russia is actually in the United States interests despite our occasional disputes. Russia keeps the Stans from descending into civil war bases on jihadi vs secular old guard. As we know civil wars with a religious component often spread to neighboring countries.

Russia also acts as a counter balance to China. Yes, for the past decade or so they are in some sort of alliance but the only thing holding it together is their animosity to the US. It is not a natural alliance. Recently we are actually seeing an interesting dynamic play out in the Stans where some Chinese historian published an article claiming part of Tajikistan is actually Chinese territory. Russia obviously was not happy about this because they know this will lead to further claims of Chinese territory in other Stans and eventually Siberia.

Against this backdrop there is the India-China border conflict and China's behavior in the South China Sea. This can only serve to reinforce Russia's fears on this subject. Remember, prior to claiming territory China will produce some phony map or document to show one Chinese trader visited 5000 years ago and hence this means it's Chinese territory. So this article claiming Tajik territory is no obscure article but is rather laying the justification for Chinese expansionism in Russia's sphere of influence.

[Marcin2 + 726]

On 7/14/2020 at 12:53 AM, Tomasz said:

I know that people in the West think that the Russians unreasonably support Putin, so let me describe the situation so that it becomes clearer why he still enjoys the support of 2/3 of Russians 

 

Just remember that in 2000 Russia was on the edge of default, all the resources in hands of oligarchs and even salaries were not paid reguralry.

Compare Russia under Putin, his 20 years with any other country after default.

I think he did quite well.

 

I think Putin did a poor job during his 20 years as Russian leader.

This in my opinion is a very balanced and restrained view.

But I really wanted to write that he did terrible job, but this forum is full of exaggeration so I try to prevent it.

I can only agree that you could still imagine even WORSE fate for the Russians in 21st century, even worse leader, it is possible and in case of Russia really probable.

Life expectancy at birth: males 66.9 years the same as Rwanda but worse than: India at 68.2, Iraq, Nepal, Indonesia, Egypt,

females: 77.6 years much better, but I think still the worst result in Europe.

It is relatively easy to run Russia, half of budget revenues you get from taxation of natural resources.

Much easier than to run a country where you really need to tax people and companies.

 

But i did not want to concentrate on critisizing Putin, his track record is obvious for me,

but I do acknowledge that: 1. in theory somebody could do worse with such resources and that 2. situation in 1999 was much worse than today.

 

What I am really interested in is what people Russians really are ?

I mean contemporary Russians.

What they believe in ? How they live, I mean the median family in Moscow and out of Moscow ?

Is the abundance of natural resources money visible in government safety net ?

 

 

Edited October 10, 2020 by Marcin2
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