The collapse of Putin's economic system
Published on: Thursday, December 18, 2014
THE foundations on which Vladimir Putin built his 15 years in charge of Russia are giving way. The meltdown of the ruble, which has plunged 18 per cent against the dollar in the last two days alone, is endangering the mantra of stability around which Putin has based his rule. While his approval rating is near an all-time high on the back of his stance over Ukraine, the currency crisis risks eroding it and undermining his authority, Moscow-based analysts said.The president took over from an ailing Boris Yeltsin in 1999 with pledges to banish the chaos that characterized his nation's post-communist transition, including the government's 1998 devaluation and default. While he oversaw economic growth and wage increases in all but one of his years as leader, the collapse in oil prices coupled with U.S. and European sanctions present him with the biggest challenge of his presidency."People thought: 'he's a strong leader who brought order and helped improve our living standards," said Dmitry Oreshkin, an independent political analyst in Moscow. "And now it's the same Putin, he's still got all the power, but everything is collapsing."In a surprise move yesterday, the Russian central bank raised interest rates by the most in 16 years, taking its benchmark to 17 per cent. That failed to halt the rout in the ruble, which has plummeted to about 70 rubles a dollar from 34 as oil prices dived by almost half to below $60 a barrel. Russia relies on the energy industry for as much as a quarter of economic output, Moody's Investors Service said in a Dec. 9 report.
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The ruble meltdown and accompanying economic slump marks the collapse of Putin's oil-fueled economic system of the past 15 years, said an executive at Gazprombank, the lender affiliated to Russia's state gas exporter. He asked not to be identified because of the sensitivity of the issue.The higher interest rate will crush lending to households and businesses and deepen Russia's looming recession, according to Neil Shearing, chief emerging-markets economist at London-based Capital Economics Ltd. Gross domestic product will shrink 0.8 per cent next year under the Economy Ministry's latest projection. With oil at $60, it may drop 4.7 per cent, the central bank said last week."How many bankruptcies await us in January?" opposition lawmaker Dmitry Gudkov said on Twitter. "People will be out of work, out of money. The nightmare is only just beginning."
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Vladimir Gutenev, a lawmaker from the ruling United Russia party, also fretted about the central bank's actions, calling the scale of the rate increase "unacceptable.""The situation concerning the financing of industry from bank credits is getting ever closer to critical," Gutenev, who's also first deputy president of the Machinery Construction Union, said by e-mail.
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The threats to economic stability have arisen with Putin's popularity at 85 per cent after Russians lauded his approach to Ukraine following ally Viktor Yanukovych's ouster. In particular, they cheered his annexation of Crimea, part of Russia until 1954, and shrugged off the ensuing U.S. and European sanctions that target the finance and oil industries.While the unfolding ruble crisis may lead to a gradual erosion of Putin's support, any protests that occur will mainly be against lower-level officials rather than Putin, said Igor Bunin, head of Moscow's Center for Political Technologies."Putin is the symbol of Russia and the state for ordinary Russians," according to Bunin, who said some members of the government may be fired as a result of the ruble chaos. "People see him as a lucky star who'll save them. So they're afraid to lose him as a symbol."Tatiana Barusheva, a 63-year-old pensioner who lives in the Gelendzhik resort city in the southern Krasnodar region, blames Putin's underlings for the current bout of uncertainty."We can't go far with this government, it's incompetent," she said yesterday on Moscow's Red Square. "It doesn't matter how hard Putin tries, but his helpers are good-for-nothing."Putin has already weathered one economic storm. The global financial crisis that erupted in 2008 wiped out 7.8 per cent of Russia's GDP the following year amid a similar tumble in oil prices. On that occasion, the ruble sank by about a third. The economy has grown each year since.Even so, the sanctions mean Putin's in a tougher bind this time round, according to Olga Kryshtanovskaya, a sociologist studying the elite at the Russian Academy of Sciences. Measures to ease the situation, such as imposing capital controls or softening Russia's position on Ukraine, both carry additional risks, she said.Stay up-to-date by following Daily Express’s Telegram channel.
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