Putin’s Self-Destructing Economy

Vladimir Putin has sought to distract the Russian populace from the economic misrule of his regime through the Sochi Olympics and various international adventures and, of course, scapegoating gays and pandering to the fossilized leadership of the Russian Orthodox Church.  Meanwhile, the Russian economy has festered and the downturn in oil prices has dealt a further blow to the already struggling Russian economy.  Like so many times in the past, Russia's people are being betrayed by failed national leadership.  Putin likes to see himself as Russia's new Tsar, but seems to have learned nothing from the fall of those he seeks to emulate.  A column in the Washington Post looks at the dismal state of affairs.  Here are highlights:

A little more than a year after “Black Tuesday,” when the ruble lost a quarter of its value in a day, the state of the Russian economy is still uncertain. During the past 12 months, gross domestic product declined 3.9 percent, less than many analysts anticipated a year ago, and the government managed to get inflation below 13 percent. But early official forecasts promising a return to growth by the third quarter of 2015 went unrealized, and subsequent projections of growth resuming later this year also look unrealistic.

Both the international financial institutions and Russia’s economic ministry now agree that the economy will not grow in 2016; . . . Nonetheless, the current consensus is that the economy will resume expanding in 2017. If that indeed happens, one may say that the whole thing was another ordinary economic downturn caused by falling oil prices and Western sanctions. But if growth doesn’t return, then what?

The Russian economy suffers from both the effects of diminishing oil revenue and growing bureaucratic pressure, not to mention the country’s paranoid foreign policy.

Assessing the Russian economy since the early 2000s, one can see two distinct periods. The first runs from 2000 to 2007, when the economy grew by about 7 percent a year, the RTS stock market shot up and average incomes more than tripled. Taxes were lowered and international cooperation increased. Russia rose.

But then came the second period, which now can be called a standstill. Between 2008 and 2015, average annual growth has been close to zero; capital flight has accelerated; foreign investors have been sidelined; the business climate has deteriorated; and dozens of taxes have been newly introduced or increased. Military expenditures doubled as President Vladi­mir Putin launched military operations in Georgia, Ukraine and Syria, and he appears to have completely shifted his interest from economic matters to the geopolitical sphere.

[W]ith the Russian economy now totally subjugated to politics, and the latter becoming more illiberal, there is little hope for recovery, even if sanctions are lifted and oil prices return to more normal levels. Russia has weathered crises before, but neither in 1998 nor in 2008 did so many foreign companies abandon their investments. 

In the past year, more than 20 Western corporations, including Opel, Adobe Systems and Stockmann, have terminated their Russian businesses; around 30 production facilities owned by foreigners have been closed. Net emigration from Russia rose from 35,000 people a year from 2008 to 2010 to more than 400,000, by preliminary estimates, in 2015.

The main reason for this is that in the 1990s and early 2000s, Russia — however chaotic it might have seemed — was a country of hope, and investors were attracted to dynamic and improving domestic conditions. That changed after 2012. Now it is a territory of disillusionment.  

If growth does not resume, it could mean the country has entered a time of economic self-destruction that might mark the third phase of Putin’s reign.