Last week Russia announced its $US35 billion “anti-crisis” plan, which, on paper aims, aims to save Russia’s badly bruised economy.
But not everyone’s a fan.
“That plan is nonsense,” Russian oligarch Alexander Lebedev told The New York Times. He described it as “throwing away money to rescue some of Russia’s worst companies” with “lots of words and little specific.”
Considering the fact that the oligarchs’ futures and fortunes largely depend on Putin’s benevolence, it’s particularly telling that a Russian oligarch actually criticised a Kremlin plan.
The anti-crisis plan primarily focuses on bailing out the banks and major companies so that they can survive the short-term effects of the economic crisis. But Putin also ordered that defence and social spending (aka military upgrades and pensions) won’t be cut.
While addressing short-term problems is certainly important, there are also glaring problems with this anti-crisis plan.
1. Russian officials are rearranging the deck chairs on the Titanic, rather than making necessary fundamental changes.
“They are trying to get by, manage it strategically and hope that oil prices rise, hope they can make a few adjustments and it will all go away,” Kennetth S. Rogoff, an economics professor at Harvard who recently attended a high-level economics conference in Moscow, told the New York Times. “There is no appetite for fundamental reform. They are just going to wait.”
And although the first part of the anti-crisis plan aims “at supporting strategic targets like exports and high-tech manufacturing” there weren’t any specific steps included.
“You never hear the details of what structural change means,” Konstantin V. Remchukov, the editor in chief of Nezavisimaya Gazeta and an economics professor to the New York Times. It is not discussed “at any level,” he added.
2. Russia’s reserves could run dry before oil prices rebound.
There’s worry that Russia might burn through their reserves before oil prices shoot up again. And Rogoff also noted that governments “habitually underestimate” how quickly they will burn through reserves.
The big problem here is that analysts and Russian politicians alike have been likening the current economic crisis in Russia to that of 2009 — the last time oil prices crashed. Then, it didn’t take long for oil prices to rebound, so the Kremlin’s strategy of just-waiting-it-out worked fine. (Well, as “fine” as a non-strategy can be.)
But this time around, a new Morgan Stanley note suggests that this crisis could be much more severe — and that a quick turnaround isn’t in sight.
“Looking ahead, barring a strong rebound in oil prices or the lifting of sanctions, we see the recession lasting much longer through 2016, unlike the V-shaped rebound in 2009, particularly given the rising risk of further sanctions,” Morgan Stanley’s Alina Slyusarchuk wrote last week.
3. For the most part, Russian officials and oligarchs are not publically addressing some of the major problems (or they’re simply unaware of the problems).
At Russia’s big annual economic conference, the Gaidar Forum, prime minister Dmitri Medvedev said that a reliance on material exports was “a thing of the past” but didn’t say what would replace them.
“Russia had plenty of money to ride out the hard times until economic growth resumed in a year or two,” the minister of economic development, Alexei Ulyukayev, said, according to the New York Times.
That being said, Russia’s finance minister, Anton Siluanov said that there’s “no peace of mind” in the Ministry of Finance. (Notably, even back in October he said that Russia couldn’t afford its military spending, despite the Kremlin’s insistance on pushing forward.)
The bottom line is that the Russian economy could probably survive a short-term crisis with its cushion-y “anti-crisis” agenda (although it’s unlikely that this time around that’s the case), but if Russia really wants to fix things, the Kremlin would need to make some fundamental changes.
If you want to read more, head over to the NYT.
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