Russia – the beginning of stabilization

Posted in Russia | 17-Nov-08 | Author: Dame Chkatroski

A woman passes by a foreign exchange office in downtown Moscow, November 12, 2008.

Losses in Russia in the new financial crisis can be hardly calculated, but it is clear that implications are just at their outset

As good old Russian bureaucrats, being no exception to other leaders in Russian history, Putin and Medvedev are at least a year behind schedule with the economic measures, laws and projects.

Russian economy is rarely moved forward by new projects and ideas. In the past 100 years it has functioned under a kind of a siege and it has been affected by the inertia caused by pressures from abroad (the West), the bureaucratic/ideological apparatus and the criminal groups around the Kremlin, regardless of the governing system in Russia – the situation has been the same starting from Tsarist Russia up to today.

The financial crisis in the Kremlin began on a Friday exactly two months ago when Moscowians’ losses at foreign stock markets exceeded 750 million euro in one day only.

Soon, greatest Russian banks announced their calculations according to which they need 100 billion euros to cover the losses, although in the sanation letter that they submitted to the Kremlin they speculated with a figure of not more than 80 billion dollars. Similarly, the companies, especially those under Kremlin’s management, reported losses of 100 billion dollars.

In any case, figures grow by the day and Russian statisticians have still not managed to calculate the effect of the drop of oil prices on the losses in Russian economy. Even though they do not give detailed explanations, it is clear that they made the projections for the budget on the basis of oil prices of about 105 dollars and at certain problematic points they even made calculations with prices of up to 130 dollars per barrel.

World media speculate about the losses of Russian billionaires, but these speculations are different from reality itself.

This is Russian reality: Russia cannot be in a crisis because it never actually exited the previous one, so this crisis may be a little harsher or a little milder, but discussing crises in Russia is definitely a tedious job. When we talk about Russia we can only talk about new stabilization measures or Stabilization projects.

Kremlin’s PR

In order for the leadership to get extra time to come up with a solution for the latest financial situation, Kremlin’s PR releases various stories on a daily basis, namely those of the type "Putin and The Siberian Tiger" with its several sequels, then "Exit Medvedev - Enter Putin", "Extension of the presidential mandate" and a lot of other light topics in a practically critical situation.

Probably their next story will be about Putin re-marrying his first wife – stupid love affairs sound cheap and vicious, but they deeply entertain the Russian people and the quasi-serious analysts of Russia.

The situation in the Kremlin has become so difficult that the diversion with all kinds of stories about the leadership (which is actually quite totalitarian) sounds amusing, but this entertainment cannot last forever. Maybe the leadership has forgotten its own totalitarianism and charisma for a while, pressed by various simulations and analyses of potential problems of financial nature. However, it is not likely that they will be able to take the jokes for much longer.

Economic problems are played down with the PR entertaining the people - "when the going gets tough, PR gets going."

The implications of this financial crisis will affect Russian society, primarily the relationship between the tycoons and the Kremlin. The tycoon’s participation in actual Russian economy is marginal only and it is reduced to sheer profit making, that is controlling the supplies and sales of products in Russian companies (state-owned, privatized or partially privatized), or to crime connected to the state budget funds. Unfortunately, only a small part of this huge profit ends up in Russia, not more than 10% in fact, while the rest is kept in foreign banks, the funds invested in them being nothing less than the total foreign investments in Russia on an annual level.

Showdowns between political business elites have just begun and they will least affect common Russians – on the contrary, ordinary citizens will be amused with various affairs that powerful financial/ political groups will release in the media in order to put down competition or enemies. Maybe this campaign will look like a fight against corruption to somebody, but it will be far from that. The enchanted circle is far wider and more complicated that it seems.

It is probable that this financial crisis will distance Russia from the Saudi Syndrome, but it will also force the Kremlin administration to devote itself more to the people who voted for it and not only to their tycoons and budget manipulators.

Medvedev’s promises and the projects for improving the standard of living, increasing the pensions and reforming the health care system will be seriously delayed due to the oil export revenue decrease, which would be a serious blow for Russian society and the agenda for a New Russia.

Medvedev and Obama

After Obama’s election victory, Medvedev sent a note expressing his wish to meet the new American president as soon as possible.

Obama’s PR was victorious at the USA elections, while Kremlin’s is keeping a low profile until Obama takes the presidential post.

Before that happens, Medvedev would like to submit a number of remarks on all agreements concluded with the EU and USA so that he can change his position and become an indispensable partner of the USA in solving the financial crisis, for which he feels to be far more important than the EU.

While Medvedev’s fight for securing a strong position is ongoing, EU has only 100 days to take a solid position and if it fails, it will be out of the game, thus giving USA and Russia an advantage and marginalizing itself in the forthcoming political and economic agreements.

As ambitious young politicians, Medvedev and Obama are probably standing on the punctured financial balloon in order to accelerate the process of its deflation. Going back to the realistic principles of economy is a necessary step, but it will take huge state interventionism and this interventionism will certainly cause various changes and new rules in the international financial institutions and the WTO.

Things are not favorable for either Obama or medvedev at the moment, so a stronger alliance is necessary for solving foreign-political and internal problems. Will there be an alliance or just a temporary lull in animosities will be seen shortly, but in any case, no matter what the final outcome is, it will last for 3-5 years at least, with only tiny punches hidden under the table and without any risky maneuvers like the one in Georgia.

Milton Friedman’s ideas have already been put aside by EU, Russia and the USA. We shall know soon whether the world enters in an era of changes, marked by Obama’s and Medvedev’s economic interventionism, depending on the development of the financial crisis and the results of the meetings between these heads of states. It is important to stress that the Bretton-Woods agreement was concluded towards the end of a huge crisis. Will this crisis be overcome with a new Bretton-Woods created by Obama and Medvedev?!

The G-8 Summit and the EU - Russia Round Table in Cannes

?At the Summit of the Group of 20, encompassing the most developed countries in the world, Dmitry Medvedev is going to propose seven principles for reforming the world financial system. The participants in the Cannes Round Table of industrialists from Russia and the EU were the first to become acquainted with these Russian ideas. The proposals given by Russia refer primarily to introducing order and systematizing national and international institutions for regulation but also liberalization of trade with an increased state interventionism in the background. If one analyzes these proposals well, certain illogicality is naturally obvious, but thus, room is left for meetings and clarifications with the new president of the USA. And, as Moscow announces, this will happen very soon.

Dame Chkatroski is WSN Editor Macedonia and Western Balkans.