Sunday, December 28, 2014

Russia Is In Crisis And Putin Is Fighting To Survive It

Via Business Insider:

The risk of a financial crisis in Russia has risen because of a precipitous fall in the rouble in mid-December.

Recession, falling living standards and rising economic uncertainty look set to be key sources of political instability over the near term.

But despite differences between the economic and security elite, it seems unlikely that financial instability, at its current level, will be enough to produce a political revolution in Russia similar to the one that undid the Yanukovych government in Ukraine in February 2014.

However, the desire to avoid such an outcome will continue to inform the actions of the Kremlin at home and abroad.

And even if a full-blown financial crisis were to send the economy into a slump, bringing Vladimir Putin, the President, down with it, security hardliners look better placed to choose his successor than either the economic liberals or a vibrant popular protest movement that has yet to emerge.

Russia finds itself in the middle of a multi-dimensional crisis.

Even before the bust-up with the West over Ukraine, Russia's economy had been running into trouble, growing more slowly each year since 2011, owing to the government's failure to undertake structural reforms crucial for innovation and investment.

In the second half of 2014 structural deficiencies have been exposed by a precipitous drop in global oil prices, Russia's main source of export revenue.

The rouble followed the oil price down until mid-December, when the Russian currency plummeted owing to a loss of confidence in the exchange-rate policy of the Russian Central Bank (RCB).

In turn, this has exacerbated the debt burden of foreign-currency loans taken out by Russian firms.

But because Russia's military actions against Ukraine have led to the imposition of Western economic sanctions, Russia is cut off from Western capital markets.

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