'Putinomics' Has the Russian Economy in a Tailspin

The bad economic news has rolled over Russia this month in a manner as devastating in a financial sense as the tsunami that struck the Philippines was in the physical. No matter where you turned, if you were a Russian there was only a gigantic wave of red ink rushing at you full speed.

In a move some called unprecedented in Russian history, Economic Development Minister Aleksei Ulyukayev openly admitted that over the next fifteen years the Kremlin expects Russian economic growth to be over 25% less than the world average, with the result that by 2030 Russia’s share of the world economy will have declined by at least a stunning 15%, from 4% today  to just 3.4% fifteen years from now.

The stunned editors of the leading Russian newspaper Nezavisimaya Gazeta stated in an editorial: “Neither the tzars, nor the Bolsheviks, nor the statists ever once told the population that their country did not have greater prospects.” It was jarring indeed to realize that things might be so bad that not even the Kremlin would take the chance of lying about them.

In other words, the days of Vladimir Putin strutting about the world stage boasting of his economic achievements have come to an abrupt and ignominious end.

Then came the Economist magazine, with a hard-hitting feature item on the collapse of Putinomics provocatively titled “The Crumbling Kremlin.”  The piece almost seemed to be mocking Putin, the former KGB spy, taunting him with the dreaded word “stagnation” that wrought so much despair in Soviet times.

The magazine’s data show that the Russian economy never recovered from the 2009 global economic meltdown. Its post-crisis growth level is consistently a pale shadow of what it knew before.  The magazine shows that Russia experienced nearly $50 billion in capital flight in just the first three quarters of this year alone, and posits that Russia is facing a collapse of a state pension system which it can no longer afford to fund.

And worst of all it notes: “The oil price at which Russia can finance budgeted spending without borrowing has increased from just $34 a barrel in 2007 to above $100 for the years ahead.”

Putin’s country stands totally at the mercy, in other words, of a world oil price over which it has no control.  Ironically, Putin’s main foreign policy objective seems to be undermining the economies of the West, a policy which if successful would only lead to reduced demand for oil with brutal consequences for Russia.

Already beleaguered by illness of every kind imaginable, including a horrific AIDS crisis, Putin’s Russia is not prepared to sustain the type of draconian cuts to pensions and social services that are clearly now in the offing.  A major demographic debacle is inevitable.