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Putin Trumpets Economic Strength, but Advisers Seem Less Certain
Keywords:
Speaking at a banking conference, advisors including the head of Russia's largest retail bank Sberbank, German Gref, minister of the economy, Aleksei Ulyukayev, and head of the central bank , Elvira Nabiullina, express deep concern about the economic prospects in 2015. Foreign investment is down from about $90 billion in the 1st quarter of 2013 to a negligible amount in the 3rd quarter of 2014. Capital outflows following the Ukraine crisis are estimated at about $110 billion by former finance minister Alexsei Kudrin. The ruble dropped to its lowest level against the dollar since the 1990's. And the sharp decline in oil prices with Brent crude at about $90 is another risk factor as 50% of the budget comes from oil and gas revenues and 60% of exports are still oil and gas, with no serious or effective effort to diversify under the Putin adminstration. Putin told the banking conference that a deficit free budget and reserves of $460 billion are "fundamental factors supporting stability." Advisors and leading bankers remain unconvinced. The problem is that even at the beginning of 2014 before the Ukraine crisis foreign investment had slowed to a trickle, similiar to what India experienced in 2013. The central bank head says her effort to open up the bond markets in Russia to foreign investors is now in vain because there are few foreign investors. Instead of reversing the situation as is happening in India with the new Modi administration, policy under Putin and the Ukraine conflict may have scared investors away with the increasing western sanctions and stagflation (estimated 8% inflation and about 0.5% growth in 2014). The head of Sberbank Mr. Gref told the banking conference- "The Soviet Union broke apart because of the mind boggling incompetence of the Soviet leadership. They did not respect the laws of economic development." The problem with sovereign reserves is that it can protect a sovereign currency such the Russian ruble or the Brazilian cruzeiro to some extent, but today's vibrant economies need foreign investment and foreign technology for growth. Even a country such as China with a trillion dollars in reserves needs the reserves in its special case because of its billion plus aging population, and is no exception to these laws of economic development about the need for foreign technology and foreign investment.
Emerging market perceptions changing in 2014-2015 with new leaders or political changes
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New leaders in India and Indonesia in 2014 have given a new confidence to investors, whereas leaders in Brazil, Turkey and South Africa have lost investor confidence. Erdogan for Turkey, Zuma for South Africa, and Rousseff for Brazil, do not inspire the same level of confidence. Other leaders who have changed investor perceptions for emerging markets are Putin in Russia with the sanctions. The rapidly changing situation with democracy protests in Hong Kong is eroding investor confidence in China as well, as Jinping in China is seen as adopting the Putin Way.
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Putin Tells European Official That He Could ‘Take Kiev in Two Weeks’
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The Obama administration plans to take a new approach to Russia to contain Russian interventionist policies in the remaining two years of the second term and limit the relationship to working together on nuclear disarmament and vital issues. A loss of faith in the Obama administration and of president Obama in president Putin after a plan to reset relations on a sounder basis in 2008. This may be one of the costs of Russian president Putin's foreign policy- the cost to the Russian economy in reduced trade, foreign investment, and capital outflows from Russia.
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Kudrin on higher military spending of 3% of Russia's GDP, exceeding the amount spent on education. He sees this as endangering Russia's finances. Kudrin's focus on building the Russian Stabilization Fund helped Russia weather the 2008 global financial crisis. He is one of the St Petersburg officials who helped bring Putin to the Presidency. A slowing economy and a decline in oil prices would have an impact on the Russian economy. Analysts say Russia needs an oil price of $120 to support the current level of spending.
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The Reserve Fund, Russia's sovereign wealth fund, is now down to $26 billion. This would only cover about half of the 2011 budget deficit. The need for foreign investment to pursue economic growth, meet development needs, and for oil exploration in the Arctic.
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Grouped Articles
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Friedman on why Putin blinked when he realized the costs of impulsive emotional policy making for Russia's economy and his legacy of economic progress
05/27/2014
Putin's early reactions to Yakunovych, corruption and poor leadership in Ukraine, and anti-Russian feeling in western Ukraine, were emotional and impulsive. The Crimean takeover was perceived very differently and gained Putin poor media coverage in Germany after decades of effort in building German-Russian relations, surely not worth what was gained in Crimea. The capital outflows estimated to reach $160 billion at one point and the damage to foreign investment sentiment at a time of sharp economic slowdown must rate as one of the poorest displays of policy making, when Russian speaking Ukrainians could be protected without damaging Russia's image and relations with western partners. Relationships needed for modernization of what is still an emerging market in a global economy. Even in a multipolar economic world with China, Russia playing a bigger role, other competing players Japan and India, would dilute any influence gained by China, and by Russia, and no change in the global economy. A more serious effort would be for Putin to have pushed to give Russia a more effective economic role by diversifying to a tech based economy, away from oil, something that still awaits Russia under some future leadership and party.
Grouped Articles
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Putin and Russia's shift in Ukraine policy with the impact of capital flight, western sanctions and a sharp slowdown in the economy by July 2014
07/11/2014
Polls show 66% of the Russian public opposes Russian forces going into Ukrainian territory. The rhetoric on Russian television has been toned down and Russian analysts say intervention in Ukraine would have dangerous consequences for Russia, that Russia needs to maintain its relations with the West. At the same time Putin will attend a summit of BRIC's leaders in Fortaleza, Brazil, with plans to set up a development bank, as the focus shifts back to the economy. Russia is expected to feel the impact of $75 billion in capital flight in the first half of 2014.
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Is China adopting the Putin Way to restrict foreign funded NGO's and have them register as foreign agents?
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The risk say experts in China is that this will reduce the chance for ventilating public opinion on important issues including discrimination against women, migrant workers, people with HIV/AIDs, social issues such as espoused by one NGO "Justice for All," increasing the prospect of protests later on. China's development depends on keeping the discussion open, more so to keep the faith of its own citizens, as it tries to evolve into a technologically advanced economy. Denyer refers to sources which describe Putin conveying his ideas about the protests in Ukraine to Chinese president Jinping. Jinping has to weigh this against the fact that Russia has aspired but not taken the action to develop an economy not dependent on commodity exports, and tech startups have withered in Russia in the post Ukraine climate without the open dialogue with foreign counterparts in Europe and America needed for technological advancement. Putin may have actually made a profound mistake by giving into his own nationalistic inclinations, when Russia's own interests to develop into an advanced technological economy and society is not served in any way by the acquisition of territory at its fringes- especially in a global economy and society. China's own interests also lie in continuing development so that there is no risk of ending up in a "middle income trap," that has faced other emerging market nations such as Mexico. China has another reason to consider- many Americans such as Mr. Zoellick are working with the National Development Reform Commission in NGO fashion to bring constructive progress in China's interest- with amazing dedication as it reorients is economy and society. Unfortunately for Mr. Putin and Russia the experience has been different in its early interactions leading to the collapse of the Russian ruble and the economy, with the exception of German cooperation, which has been steadfast and put at risk by Mr. Putin. All sides have a lot to consider, including Mr. Putin, who has received nothing but goodwill from the Ger
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Hong Kong erupts even as China tightens screws on civil society - The Washington Post
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The new administration of Russian president Putin for his third term in 2012
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Putin and Russia.
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Russia's prime minister Putin.
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Russia's full reopening of the domestic bond market to foreign investors in 2013
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Fifteen years after the Russian financial crisis of 1998, Russia will fully open its domestic bond market to foreign investors. Returns of about 7% compare favorably with the 4% returns on Italian bonds. The IMF estimate is for debt to GDP ratio to decline to 11% by the end of 2014, and it is a very different country today.
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Debt Investors Turn Page on Russia
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Alexei Kudrin and other experts see the potential for a deep political and economic crisis in Russia 2011-2015
01/25/2008
Fears expressed by Kudrin and other experts at a Moscow conference about the impact of a recession in the eurozone and Greece's exit from the euro. Kudrin was a key figure in Russia anticipating and setting aside reserves in the sovereign fund to meet the adverse effects of the 2008 global financial crisis. The views expressed were that Russia's economy is shaky and could be seriously affected if European banks reduce their loans. Earlier he strongly opposed increases in military spending in a disagreement with prime minister Medvedev because of concerns about financial stability.
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Ex-Aide to Medvedev and Putin Out at Kremlin
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Russia Is Facing Stagflation, Central Banker Says
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Russia Prepared to Let Ruble Slide
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The impact of the Ukraine crisis on the Russian economy in 2014 with western sanctions
08/11/2013
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Russia's Power Play Hits Economic Weak Spot
Wall Street Journal 03/04/2014
As Prime Russian Trading Partner, Germany Appears Crucial to Ending Crisis
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The World's Riskiest Stock Market?
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Russia Says It Has Weathered the Worst of the Economic Storm
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Russia's Growth Pace Continues to Weaken
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Warnings at a banking conference in Moscow in October 2014, and the ruble on the brink of collapse on Dec. 17, 2014
10/02/2014
The central bank head, Nabiullina, the Economy minister, Ulyukayev, and the head of Russia's largest bank Sberbank, German Gref, all expressed skepticism about president Putin's confidence in economic policy at a banking conference in Moscow in Oct. 2014. The architect of Russia's finances in the first and second terms of Putin, Alexei Kudrin, expressed alarm in Nov.-Dec. 2014 about lack of confidence in economic measures as the ruble took a hit from lower oil prices. The Putin administration made errors in handling economic policy leading to the ruble going to the brink of collapse by Dec. 17, 2014. This was preceded by miscalculations in policy towards the European Union and Germany leading to a loss of international confidence, and deteriorating relations with OPEC's leading member Saudi Arabia leading to OPEC's production decisions hurting Russia.
Linked Articles
Russia Introduces Measures to Calm Economic Jitters
New York Times 12/17/2014
Putin Trumpets Economic Strength, but Advisers Seem Less Certain
New York Times 10/02/2014
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