Moscow has been eerily silent since the Troika (International Monetary Fund, European Commission, and European Central Bank) announced its revised plan to suture Cyprus last Monday. No talk of unprofessionalism. No references to Bolsheviks, expropriations, or confiscations. No histrionics. In an about face, Russia is cooperating with the new deal by “backstopping” the Troika plan with a promise to restructure its $3.2 billion loan to Cyprus.
Why the sudden change of heart? What made the Troika’s second deal more palatable to Moscow than the first? In a blog post last week, I argued that the crisis in Cyprus put Putin in a bind. He could step in and save Russian elites from massive losses, i.e. act in their class interests. Or keeping with his nationalist de-offshorization agenda, he could teach those elites a lesson for stashing their money abroad by letting them drown. Interestingly, the Troika’s new deal allowed Putin to have his cake and eat it too. Namely, the deal saved Russian state companies and some very rich Russians from losing lots of cash at the same time it gave Putin the satisfaction of watching some mid-level Russian businesses and individuals to get flushed down the toilet. The big Russian assets are saved, the weak are punished, and Cyprus gets neutralized as an offshore port and tax haven for Russian capital.
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- By Sean — 4 years ago
Over at the NYT, Paul Krugman has written some interesting posts on Russia’s economic woes: Putin on the Fritz; The Ruble and the Textbooks; Notes on Russian Debt, and Putin’s Bubble Bursts. Essentially, Krugman notes that falling oil prices and the collapse of the ruble have combined to add stress on the “terms of trade stock.” He explains:
What’s going on? Well, it turns out that Putin managed to get himself into a confrontation with the West over Ukraine just as the bottom dropped out of his country’s main export, so that a financing shock was added to the terms of trade shock. But it’s also true that drastic effects of terms of trade shocks are a fairly common phenomenon in developing countries where the private sector has substantial foreign-currency debt: the initial effect of a drop in export prices is a fall in the currency, this creates balance sheet problems for private debtors whose debts suddenly grow in domestic value, this further weakens the economy and undermines confidence, and so on.
Krugman fleshes this out in a longer column:
The proximate cause of Russia’s difficulties is, of course, the global plunge in oil prices, which, in turn, reflects factors — growing production from shale, weakening demand from China and other economies — that have nothing to do with Mr. Putin. And this was bound to inflict serious damage on an economy that, as I said, doesn’t have much besides oil that the rest of the world wants; the sanctions imposed on Russia over the Ukraine conflict have added to the damage.
But Russia’s difficulties are disproportionate to the size of the shock: While oil has indeed plunged, the ruble has plunged even more, and the damage to the Russian economy reaches far beyond the oil sector. Why?
Actually, it’s not a puzzle — and this is, in fact, a movie currency-crisis aficionados like yours truly have seen many times before: Argentina 2002, Indonesia 1998, Mexico 1995, Chile 1982, the list goes on. The kind of crisis Russia now faces is what you get when bad things happen to an economy made vulnerable by large-scale borrowing from abroad — specifically, large-scale borrowing by the private sector, with the debts denominated in foreign currency, not the currency of the debtor country.
In that situation, an adverse shock like a fall in exports can start a vicious downward spiral. When the nation’s currency falls, the balance sheets of local businesses — which have assets in rubles (or pesos or rupiah) but debts in dollars or euros — implode. This, in turn, inflicts severe damage on the domestic economy, undermining confidence and depressing the currency even more. And Russia fits the standard playbook.
Except for one thing, he adds, corruption.
The reason why Russian companies have so much debt is because elites have cannibalized the companies they run by skimming off the top and shipping that money abroad.
Where does the elite get that kind of money? The answer, of course, is that Putin’s Russia is an extreme version of crony capitalism, indeed, a kleptocracy in which loyalists get to skim off vast sums for their personal use. It all looked sustainable as long as oil prices stayed high. But now the bubble has burst, and the very corruption that sustained the Putin regime has left Russia in dire straits.
Basically, Putin’s kleptocracy worked fine and dandy as long as there were enough petrodollars to sustain the theft. Now that the price of oil has plummeted, those accrued foreign currency debts are coming back with a vengeance. So this economic crisis is no blimp, but based on the very structure of the Putinist economy. There’s no quick remedy for this.
- By Sean — 10 years ago
Who is leading the tandem dance? Is it Medvedev’s or Putin’s turn this week? The answer to who is at top in Kremlin Inc. is superfluous to those who live at Russia’s poverty line. Like in most places, the little guy is mostly a creature for cardboard cut out used for political rhetoric and posturing to those inhabiting the commanding heights. For the class conscious lumpen, it’s not who’s dancing that matters. It’s the dance itself. Each twirl, dip, side step, or skip is another assurance that the Russian elite will remain prosperous and the Russian prols will have to continue fighting over the scraps that trickle down.
For those living at the very bottom of Russian society, that trickle down is a fine mist. With costs of food, energy, and other staples rising that mist is leaving many Russian more and more parched. All the Russians can take comfort in is that they are not alone. With food riots in Haiti, Bangladesh and Egypt, fuel costs hitting pocket books the world wide, and a commodities bubble fueling the shebang, one can only wonder what will come next. For the Russians, its a sign that being part of the globalization block party isn’t all that it’s cracked up to be. Medvedev may pirouette and motion to West as the source for the despair all he wants. But the nature of the economy can no longer be thought of in terms of states or even regions. It’s all connected making the latest global economic crisis structural in nature.
With rising inflation in Russia (up 5.3% in the last three months), those living at the poverty line are forced to make it by with less. According to the Russian State Department of Statistics, Rosstat, the minimum subsistence level in Moscow is 62 Euros a month (or about 95 in sinking dollars terms) . This is supposed to cover food, clothes, housing utilities, and transportation in the capital. As of 2006, 21.6 million (15.3%) of Russians live below this threshold. Just to add some perspective, a recent figure says that there are 131,000 millionaires in Russia. That’s about sixteen impoverished Russians to every one millionaire. Sixteen live on what every one minigarch throws down for decent sushi. Can living in Moscow on 62 Euros a month be done? If so, how?
For answers we have to turn to Polit.ru journalist Liz Surnacheva, who recently pulled a Barbara Ehrenreich to see if the seemingly impossible is indeed possible. She chronicled her travails in a three part series on Open Democracy. The latter recently teamed up with Polit.ru to provide a bit more comprehensive coverage of the Russian scene for the English reader.
In part one, Surnacheva quickly finds that Rosstat’s statistical “shopping basket” and what is actually possible to do with it are two different things. Also, she finds that livin’ on the line is not just about cheap food, its more about what one has to do to first find it and then not getting screwed over when you get it. Kiosks are cheaper, though you run the risk of getting cheated. Prices at supermarkets are “catastrophic.” “From now on,” Surnacheva writes, “everything that saves time is out: nothing oven-ready, and above all, no eating out. Breakfast cereals, yoghurt, sweetened curd cheese, buns, frozen ready-meals, pel’meni and pizzas have all become forbidden foods. Kinder, Kuchen, Kirche.” One day of shopping: 628 rubles 90 kopeks. 1552 rubles 80 kopecks left.
By the time part two is published, Surnacheva is down to 920 rubles 50 kopecks. Sick of the “soup selection,” she laments that she has no choice. “I can’t afford meat, poultry or fish.” The Moscow favorite business lunch is out and days at work are spent hungry. But what is most revealing is not that she’s not managing, but why. Here is her conclusions:
1. I’m inexperienced. This is my first attempt at living on so little money. The worst time in any crisis is the beginning, when you haven’t worked out a survival strategy.
2. I’m irrational. I can’t even turn the classic female trick of making a salad and a scandal out of nothing. My grasp of energy and nutrition values is weak. 2000 calories still means half a kilo of sugar to me rather than so much cereal, milk and meat. Apparently I even use carrots inefficiently – I’ve had readers explaining to me that that the body can’t digest raw carrots without fat.
3. I haven’t got my bearings. I haven’t a clue where to get things cheap, or what to buy. In the first week I discovered that a perfectly fresh carrot that’s broken is half the price, and that apples that cost 15-20 rubles per kilo do exist – they just don’t look so great. For me, the word ‘meat’ means an expensive cut, and I haven’t yet learned what to do with cheaper cuts, bones and offal.
4. I don’t belong to the local network. Those who live on really limited means belong to a sort of informal club, whose members know where, what and how much. The moment cheap dairy products appear on a neighbouring stall or good cheap meat in the market, its members find out about this from one another. Outsiders like me only get to hear about these bargains by accident.
5. I live alone. Of course it’s a bit different for families- wholesale is cheaper. I went to this conference on regional poverty a month or so ago. The researchers noted something interesting: people always think of pensioners as the group most at risk of poverty. Actually, the group most at risk are families with children. Without going into the reasons (discrimination against single mothers, tv propaganda about programmes of social support etc) I must admit I made this assumption myself when I took on the role of lonely pensioner for this experiment. True, it would have been complicated trying to simulate being a family with lots of children – I might have had to starve the entire editorial team of Polit.ru.
Apparently living poor isn’t just about surviving, it’s about surviving artfully.
In part three, it’s day twenty and Surnacheva is down to 583 rubles, 70 kopecks. Life is consumed with a new consciousness of prices and looking for alternatives and substitutes (margarine for butter, damaged fruit and vegetables for fresh ones, and organ meats–liver, kidneys, and bones–for quality meats). Other items are put into perspective. “I could live for half a day on dictaphone batteries, and as for a ticket for the Paul Anka concert at the Kremlin, I’d last almost six months on that.”
Advice from babushkas on the street and readers begins pouring in. “Eat ground elder and dandelions. Sunbathe. Make rusks. Buy sea kale. Make friends with some Uzbeks and eat pilaf. Plant Jerusalem artichokes,” a reader suggests. Students tell her to eat “lots of kasha,” pop vitamins instead of fruits and veggies, and processed and canned meats instead of the real deal. Heroin chic devs write in urging a diet plan where eating less is more. A spoonful of cottage cheese for breakfast and soup for dinner. Surnacheva admits she could live on six days with a diet like that. But for your average person? Forget it.
By day 31 she’s down to 18 rubles. Even her colleagues at Polit.ru began feeling sorry for her. Invitations to lunch and offers of food began to pour in. The desire to be fed restaurant food even leads her to agree to a date.
In the end, Surnacheva survived one month on Rosstat’s “shopping basket.” Barely. Proving that living in poverty is as much about how you live than what you have to live with. “I did survive,” she concludes, “but I won’t be doing it again.”
If only 20 million or so Russians had such a choice.
- By Sean — 5 years ago
Thus far I’ve been silent on the Russian military occupation of Crimea. I’ve found the deluge of media on the crisis quite overwhelming. I do have a stance: Russia has violated Ukrainian sovereignty, an irony considering Moscow’s often paeans to sovereign integrity. I agree with Mark Adomanis that Russia has made a grave mistake that will cost their economy and international standing. And like him, I don’t support invasions of countries on principle so there’s no reason why I would support Russia on this. I’m not sure if taking Crimea amounts to “a blunder of historic proportions,” however. It’s too soon to assess the final fallout. It’s clear to me that Putin has the upper hand here. The West has little leverage—targeted economic sanctions and visa bans just don’t rattle Putin very much. Ending trade talks, G8 preparations, and other agreements under negotiation will do little. The US and EU just have nothing Putin wants or cares enough about. The Russian president clearly believes he can weather any storm western powers conjure over him. The only measure I think that will put pressure on Putin is if Russia’s elite is targeted. By one calculation 20 of Russia’s richest lost $9.5 billion when the Russian market crashed last Monday. Continued economic dips could mobilize Russia’s elite against their president. The question is when Russia’s elite have enough collective wherewithal, strength and gumption to challenge him.
Putin is going to take Crimea. The question is in what form: as part of Russia or as a protectorate. And to do it, he’s going use the next week’s referendum as the excuse. Basically, he’s going to claim that the Crimeans voted to join Russia. He will assert to no end that it was done “democratically” and “by the law.” Both houses of Russia’s Duma are ready to accept Crimea. Few outside of Russia will recognize the vote, of course. It’s not even legal under the Ukrainian constitution which stipulates any attempt at succession must be put to a national referendum. Whatever happens, Crimea will become a contested sovereign space like other “frozen conflicts” in the region.
This move could also open up a can of worms for Putin. If he’s ready to accept Crimea’s referendum on leaving Ukraine, will he welcome other republics in the Russian Federation to hold votes on succession? Probably not. Still, it’s a potentially dangerous precedent.
Crimea joining Russia is inevitable if only because the referendum ballot is rigged. The ballot asks voters two questions. 1) Do you support joining Crimea with the Russian Federation as a subject of Russian Federation? and 2) Do you support restoration of 1992 Crimean Constitution and Crimea’s status as a part of Ukraine? There’s a box next to each question indicating a “Yes” vote. There isn’t a place to mark “No.” Further the ballot states, “Ballots left unmarked or marked with both answers will be disqualified.” As Volodymyr Yavorkiy, a member of the Kharkiv Human Rights Group, told the Kyiv Post, “There is no option for ‘no,’ they are not counting the number of votes, but rather which one of the options gets more votes. Moreover, the first question is about Crimea joining Russia, the second – about it declaring independence and joining Russia. In other words, there is no difference.” Indeed, as Halya Coynash put it: “There is no possibility of voting for the status quo.”
This vote will be a farce for many reasons. There is little time to properly organize or propagate it let alone educate voters on its implications. Plus monitors have to quickly organize and make sure the vote is run without machinations. Schemes might already be in the works. As the Kyiv Post noted, 2.5 million votes have been printed even though there are only 1.5 million voters. The situation is ripe for ballot stuffing. Crimean Tatar leaders are calling for a boycott. But it won’t matter. It’s likely that a small minority of Crimeans will decide the majority’s fate since there’s no minimum hurtle for passage. So on March 16 Crimeans are left with a non-choice: Russia or a protectorate of Russia. There just isn’t any room for no.