Bloomberg Businessweek November 9, 2020 pp42-43 |Economics| “Stingy Putin” “The Kremlin has money to spend but wants to keep it in reserve in case it faces new Sanctions” “Bottomline Putin has been loath to sharply ramp-up spending, despite a 40% increase in Russia’s rainy day fund this year”
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Summary of Article
In the early 2000s Russia’s economy benefited from high oil prices resulting in a 7% growth rate during his first eight years in power. “Since the Crimea crisis” of 2014, with western sanctions in play and lower oil prices recently the annual growth rate has fallen ten-fold to 0.7%. During this time Putin has kept “a lid on spending and salting away hundreds of billions of dollars in a rainy-day fund that helped the Kremlin weather economic crises with confidence”. Delayed capital spending and support for other services was already putting a strain on Russians before COVID came along. But Putin remains steadfast regarding his aggressive foreign policy and continuing frugality. “Putin spent much of this first decade in office paying down Russia’s foreign debt, in part to prevent creditors from using it for political leverage…”. Luckily Russia’s economy stems mostly from commodity exports of oil, gas, steel and coal that haven’t been too impacted by COVID.
Russia did put out what amounted to a 3% COVID stimulus, funded by loans from domestic banks, to support impacted and critical industries. Their rainy-day fund is now at $172B. Meanwhile the citizenry suffers. A six-week lockdown ending in mid-May stripped most households of savings. One indication of the impact free-meal services have doubled in Moscow and St. Petersburg. Helping to maintain decorum state-controlled media has soften the narrative but Putin’s approval rating has dropped to a record low of 59%. While the purse-strings are being loosened a bit, Alexandra Suslina, (Economic Expert Group) is quoted “It’s almost like the politicians want to keep people poor so that all of their energy is focused on surviving, leaving no time to protest…improving living standards just isn’t a priority.”
“The International Monetary Fund and major credit rating companies have heaped praise on Russia in recent years for keeping debt levels among the lowest in the world and foreign exchange reserves among the highest.” Western governments could, should they have reason and desire, keep western money managers from “taking part in auctions of sovereign ruble debt…”and thereby reduce demand and price. Putin’s former finance minister and now auditor believes the government risks dragging out economic pain for years to come and commented “I imagine that they are being cautious with spending because they’re worried about future risks. But it will be much harder to revive the economy later if it’s badly damaged.”
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