Peculiarities Of The National Economic Crisis

(It's kind of silly to blame a person for falling sick in the midst of the epidemy of influenza.  Sure, in hindsight, one could have taken more Vitamin C, had more contrast showers in the mornings, done more aerobics, or stayed away from sneezing people.  But for now, you just do whatever is needed for speedy recovery and wait until the epidemy is over.)

One doesn't have to be "anti-American" -- reading newspapers is enough -- to figure out that the ongoing global financial/economic crisis originated in the United States as a result of  the bursting of a "housing bubble."

Attempts to lay blame on someone's doorstep are too strong to resist.  Hence the accusations of the Bush administration in lax regulation of "greedy" Wall Street and of former Fed Chairman Alan Greenspan in keeping interest rates too low for too long.  Greenspan's successor, Ben Bernanke, is being criticized for his habit of ignoring bubbles until they burst.  Yet, no one questions, at least at this point, the very fundamentals of the political system this country is built upon.

I would assume that the same rational approach -- getting political insinuations off the discussion of intrinsically cyclic economic events -- must be applied elsewhere.  For this reason, the fact that cash-strapped Latvia is canceling its participation in NATO military exercises and even withdrawing from the 2009 Eurovision contest in Moscow should not be interpreted as condemnation of a political arrangement that reduces a third of the Latvian population to the status of second-class denizens.  

A $16.4 billion IMF loan seems to be the only straw Ukraine can grasp at to prevent the collapse of its economy.   Is it the right time to call the 2004 Orange Revolution for what it always was: a farce?  

Tiny Iceland went bankrupt, literally, with its stock market having lost more than 95% of its value.  Are we to call criminal the "regime" of Geir Haarde, Iceland's prime minister, and question his moral right to govern the country?

Unfortunately, such a rational approach is seldom applied to Russia: almost any negative economic development there is routinely described in apocalyptic political terms.  Following this time-tested tradition, Anders Aslund has recently blamed what he called "putinomics" for Russia's current economic troubles. 

(Aslund's analytical powers should not be overestimated.  For years, he's been predicting the imminent collapse of the “criminal Putin regime” before the end of Putin’s second presidential term.  But last year, Aslund suddenly changed the tune and forecast that Putin will remain in power indefinitely by "possibly following declaration of a national military emergency."  In his latest opus in Moscow Times, Aslund calls for Putin's early retirement.  Go figure.)

It is fair to say that the Kremlin bears no direct responsibility for the waves of the liquidity tsunami brought to the Russian shores from overseas.  When the Duma speaker, Boris Gryzlov, says: "The roots of the crisis aren't in our country.  This isn't a Russian crisis" -- meaning apparently that Russia held no "poisonous" American mortgage securities -- he has a point.

But the crisis is already there. It has engulfed Russia with full force, and regardless of Gryzlov's wishful thinking, it is "Russian" from now on.  Moreover, in some important aspects, the crisis carries unmistakeably national, Russian, peculiarities. 

Like pretty much everywhere, the Russian banking system -- still in its adolescence -- contracted a flu of liquidity problems.  The government and the Central Bank have promptly intervened with massive influx of cash from Russia's foreign currency reserves, the third largest in the world.  (Critics charge that the reserves are down from their peak of $597 billion at the end of July to only (!) $456 billion at the beginning of December.  But this is still $456 billion more than Russia had back in 1998, when it fought its last financial crisis.) 

Exacerbating the liquidity malaise, Russia's largest industrial companies have been hit with margin calls from foreign banks -- a result of prior heavy borrowing using corporate stocks as leverage.  Without hesitation, the government rushed to the rescue of "oligarchs" with money from the Stabilization Fund. 

Lending money to troubled banks and companies isn't a Russian invention.  What nevertheless makes this "Russian" response peculiar is the ability of the Kremlin to use financial instruments like the Stabilization Fund -- which, by the way, was established, in 2004, exactly for that purpose -- instead of using money-printing machines.

Yet, it's falling oil prices and Russia's over-dependence on high prices of commodities to fulfill its budget obligations that makes this crisis so specifically "Russian" ("purely Russian crisis", one might say) -- and the Kremlin's major headache.  It's however blatantly ridiculous to equate -- as some Kremlin critics attempt -- the drop in oil prices with the inability of the authorities to control the economy, much less the political situation in the country.

Lower oil prices are a common sign (and, often, a consequence) of economic recessions; they are destined to rebound as the current crisis will give way to the next, inevitable, round of global economic growth. 

The only question that seems to keep the Russian authorities awake at night is how long this particular recession will last.  A government projection holds that even with the prices of oil staying at $30 per barrel, current reserves will push the economy through 2009-2010 "without problem." 

In the middle of December, an anti-crisis commission headed by First Deputy Prime Minister, Igor Shuvalov, unveiled a list of 295 "anchor" ("системообразующих") companies, each of which will have a chance of receiving about $12-15 million of government money.  The criteria for making the list included state or domestic ownership, minimums of $500 million in annual sales, and employment of at least 4,000 people.  Preference was also given to so-called "city-forming" ("градообразующим") enterprises. 

The emphasis on employment is telling.  I already wrote that in the core of the government's anti-crisis approach -- articulated by Putin at the recent congress of the United Russia party --  is a desire to prevent, at any cost, massive job losses. 

 

Unemployment is expected to pick up in 2009; some analysts predict that it may exceed 10 percent, considered by many potentially "socially-explosive." 

 

The determination of the authorities to keep intact, for as long as possible, state social obligations (pensions, salaries of state employees, unemployment benefits) represents a remarkable, perhaps, uniquely "Russian", peculiarity of the current crisis.

 

Only a few months ago, it felt that the co-existence of two powerful centers of decision-making -- in the presidential administration and in the Cabinet -- was emerging as a welcome change to the overcentralized, monopolistic, Russian political tradition.  The August war with Georgia turned out to be too short to seriously challenge President Medvedev's de jure supreme authority, with Medvedev looking "presidential" at every step during the conflict.

 

The current economic crisis -- going to last for many months ahead -- may become a more severe test of the durability of the Medvedev-Putin "tandem."  With all the focus on the economy -- traditionally a fiefdom of the government -- and the public attention centered around the hardship of everyday life, Medvedev may find himself largely irrelevant with his emphasis on fighting corruption and improving Russia's judicial system.  The crisis therefore carries a significant risk of weakening, if not de facto ending, Medvedev's presidency.

Comments

[Nick Milon]

"Greenspan's successor, Ben Bernanke, is being criticized for his habit of ignoring bubbles until they burst"

This I liked ! LOL

[Nick Milon]

More seriously ...
Talking about Latvia (and some other tiny Baltic (states?) ) I have since long lots of questions about their (democratic?) governments.
I strongly believe the way they treat their Russian minorities is UNACCEPTABLE for EU member states. Still nobody bothers to question their behavior in our (democratic?) EU.
May be it is about time fellow EU citizens raise this question to higher level EU bureaucrats and demand ANSWERS.

--
NickMilon

[Eugene Ivanov]

Nick,

Thanks much for your comments.

Well, you've said it all, and I have nothing to add, except that the Bush administration here ought to stop marketing the Baltics as shining "beacons of democracy" in the post-Soviet space.

Naturally, I will welcome your future comments.

Kind Regards,
Eugene

[viagra online]

This crisis is about to make us crazy...