Russian Economy Faces Disastrous Free Fall Contraction

In 1987 I visited the Soviet Union with Republican Congressman Tom DeLay (who has since moved on to bigger-but not necessarily better-things), and observed firsthand how a society with bright, well-educated people can still undergo a profound economic collapse when the elites running the nation are infused with corruption, fossilized dogmas and misplaced priorities. Four years after my visit, the USSR of old imploded under the weight of its own colossal economic mismanagement and contradictions.

Will history repeat itself? The Russia of today is far from immune to the ramifications of the Global Economic Crisis. Though I would not argue that the Russia being ruled by the duality of President Dmitry Medvedev and Prime Minister Vladimir Putin is on the same trajectory as Gorbachev's Soviet Union, there has already emerged a sustained trend of harsh macroeconomic data that attests to a severe economic crisis gripping the Russian nation. The country's stock market has sustained losses from its peak in the range of 70%, while the prices for Russia's commodity exports, the major source of foreign exchange earnings, have plummeted at a staggering rate, especially with regards to oil and natural gas.

Perhaps more alarming, the latest projection by the European Bank of Reconstruction and Development reveals a dire forecast of negative 7.5 % growth in Russia's GDP for 2009. Though some believe that the EBRD projection may be too pessimistic, only four months ago this same institution was predicting that the Russian economy would contract by a mere negative 1%. Recent indicators point to a national economy going south at an accelerating pace, reflected in official Russian government statistics which reveal that the national economy contracted by a staggering negative 9.5%. in Q1 of 2009. At the very least, Moscow faces a crippling recession.

The Medvedev/Putin regime has initiated a host of policy responses to mitigate the impact of the Global Economic Crisis on the nation's fragile economy. Time will determine their long-term effectiveness; however, in the short-term some measures have proven more efficacious than others. A major goal of Moscow's economic technocrats has been to stabilize the country's banking system, and for the time being a degree of success has been achieved through government provision of liquidity to financial institutions. However, this complex geopolitical space that is Russia is now facing a vast array of complex challenges that other members of the G8 are spared, despite the destructive impact of the global synchronized recession facing all major industrialized countries.

In Russia, historically, economic health and political stability are intertwined to a degree that is rarely encountered in other major industrialized economies. It was the economic stagnation of the former Soviet Union that led to its political downfall. Similarly, Medvedev and Putin, both intimately acquainted with their nation's history, are unquestionably alarmed at the prospect that Russia's economic crisis will endanger the nation's political stability, achieved at great cost after years of chaos following the demise of the Soviet Union. Already, strikes and protests are occurring among rank and file workers facing unemployment or non-payment of their salaries. Recent polling demonstrates that the once supreme popularity ratings of Putin and Medvedev are eroding rapidly. Beyond the political elites are the financial oligarchs, who have been forced to deleverage, even unloading their yachts and executive jets in a desperate attempt to raise cash.

Should the Russian economy deteriorate to the point where economic collapse is not out of the question, the impact will go far beyond the obvious accelerant such an outcome would be for the Global Economic Crisis. There is a geopolitical dimension that is even more relevant then the economic context. Despite its economic vulnerabilities and perceived decline from superpower status, Russia remains one of only two nations on earth with a nuclear arsenal of sufficient scope and capability to destroy the world as we know it. For that reason, it is not only President Medvedev and Prime Minister Putin who will be lying awake at nights over the prospect that a national economic crisis can transform itself into a virulent and destabilizing social and political upheaval. It just may be possible that U.S. President Barack Obama's national security team has already briefed him about the consequences of a major economic meltdown in Russia for the peace of the world. After all, the most recent national intelligence estimates put out by the U.S. intelligence community have already concluded that the Global Economic Crisis represents the greatest national security threat to the United States, due to its facilitating political instability in the world.

During the years Boris Yeltsin ruled Russia, security forces responsible for guarding the nation's nuclear arsenal went without pay for months at a time, leading to fears that desperate personnel would illicitly sell nuclear weapons to terrorist organizations. If the current economic crisis in Russia were to deteriorate much further, how secure would the Russian nuclear arsenal remain? It may be that the financial impact of the Global Economic Crisis is its least dangerous consequence.

Comments

[Lanret]

That's why it is such a bad time to rock the boat over things like nato expansion, Georgia, and missile shield. Russia may cause much more headache if really hateful people come to power there.
No one really knows what the new economic and geopolitical realities will be after the world emerges from the current recession. It is unlikely that Russia will lose more then others - provided there is no political crisis there. After all, oil and gas will be in demand for some time if even cheaper and better cars and computers start coming from India and China as opposed to Europe and the US.

[IndieBlue]

",,,It just may be possible that U.S. President Barack Obama's national security team has already briefed him about the consequences of a major economic meltdown in Russia for the peace of the world."

-I think he probably knew that, already, having been there to discuss disarmament as a senator.

[SiberianRat]

In addition to the above, inflation in Russia remains an issue, unlike in some of the other countries experiencing financial upheaval. People are genuinely worried, but luckily Russians are a pretty robust group that can withstand great challenges; that said, I'm very glad to hear that (a) the Russian leadership is being honest about the situation and (b) that the relationship between the US and Russia shows signs of thawing, as it will be in both countries' interest to work together to ensure stability should the economic situation in Russia worsen further.

[veritasor]

Knowing this, why did US start the crisis then? For comparison, time to focus home...
Quite Coup, by Simon Johnson, former IMF chief economist
http://www.theatlantic.com/doc/200905/imf-advice

[SiberianRat]

Great link--thanks!

[altohone]

We are all unfortunately now well aware what rule by oligarchs leads to.

We should hope the turbulence here and abroad will wash away some of their control.


The interesting tidbit is the strikes and protests.
It seems our corporate media refuses to report on those abroad now too.
Could it be they worry about how the messages of protestors resonate across borders?
American business and politics became as corrupt as Russia or any African country lamented by the neoliberals.
More intricate, often legalized, American corruption has been exposed.

Unfortunately, most don't yet realize how bad it truly has become, and the corporate media's complicity means much will remain uninvestigated.

[wallyone]

As a frequent visitor to rural Russia, to me it seems to me that we are getting more like Russia all the time, in terms of infrastructure neglect, cronyism, mafia-type rule, fear mongering, media propaganda, education going backward, executive power grabs and oligarch-politician rule. Life is a survival struggle for the rural poor.

[MilwaukeeDan]

wally, we just started a lot higher than Russia, but we are headed in the same downward direction, no doubt about it.