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Severe Economic Crisis in Russia Looms

The energy sector is in danger of collapsing.

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October 5, 2012 - 12:00 am
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And Russia’s domestic income prospects are no better; in fact, some commentators are already talking about Russia running out of budget cash. Economy Minister Andrei Belousov openly admits that Russia needs annual growth running well above 4% — double what it expects over the near term due to plunging tax revenues from fading energy profits — in order to meet Russia’s already anemic level of social spending on a sick and endangered population. Russia saw its share of the world population fall by half over the last half century, and that will happen again in the next.  Russia doesn’t rank in the top 110 nations of the world for life expectancy, and the drumbeat of analysis showing a demographic collapse is relentless.

Instead of proposing solutions, Putin has already begun lashing out, in neo-Soviet fashion, in personal attacks at cabinet ministers who are showing signs of being unable to deliver planned spending, and even Prime Minister Dmitri Medvedev has come in for a drubbing.

In another neo-Soviet move, as disturbing for what it says about the Russian political system as for what it tells us about the Russian economy, in order to make short-term ends meet on the budget, Medvedev ordered the seizure of assets of Rosneftegaz, a state-controlled holding company. How long it will be before the Kremlin turns its eye towards private and foreign assets is anyone’s guess, and this is a major reason why smart foreigners want no part of the Russian market.

As was the case in Soviet times, a major cause of budget pressure for the Kremlin is its frenzied attempt to match the United States on military spending. Russia has shown itself no less willing to roll tanks into Georgia than the USSR was to roll them into Hungary, and in fact, with Putin at the national helm, the KGB has far more power now than it ever dreamed of having in Soviet times. Just as in the Soviet era, Russia simply can’t maintain an arms race with the U.S. and simultaneously provide the basic level of assistance its population needs; its economy just doesn’t have the fundamentals or the dynamism to stand that type of pressure for long. It will crack and collapse just as the USSR’s did not long ago.

Standing in stark contrast to the EU’s bold confrontation of the Putin regime have been the craven policies of the Obama administration. Obama and his Ambassador to Russia, Michael McFaul, have shown themselves only too eager to do the exact opposite: appease Putin in any way possible. They not only looked the other way as Putin booted USAID out of country because of its efforts in support of Russian democracy, they actively supported Putin by shutting down Radio Liberty and pressing Congress not to impose any human-rights related trade sanctions on Russia.

As a result, those who stand for American values rightly feel betrayed, and they are stunned and bitter.  Leading opposition politician Vladimir Ryzhkov openly accuses Obama of pursuing a policy of appeasement under the euphemism “reset.” He writes:

In response to the aggressive anti-democratic campaign led by Putin and members of his chekist clan, the Obama administration continues its cowardly retreat from its democratic principles.  Although the Obama administration has said it is committed to defending freedom and human rights in the world, it has meekly given in to the Kremlin on two key institutions that have made invaluable contributions toward building democracy and civil society in Russia.

America has come a long way since the days of Ronald Reagan, when it was cheered around the world as a great beacon of hope for those seared in the flames of withering injustice from dictatorial regimes like Putin’s. If Americans are proud of their history, they should consider this fall from grace as the enter their polling booths in November.

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