Window on Eurasia: Even Rising Oil Prices May Not Keep Russia Out of a Recession, Moscow Commentator Says

Paul Goble

            Staunton, February 25 – It has become axiomatic among analysts that Russia’s economic and political fate depends upon and tracks with the price of oil and gas, but a Moscow analyst suggests that because of “systematic mistakes” by the Russian leadership, even the current rise in oil prices may not be enough to keep Russia from falling into a recession.

            In an article on the “Osobaya bukhva” portal, Vladislav Polyansky argues that the relationship between international oil prices and social well-being in the Russian Federation on which President Vladimir Putin has long counted is changing, with all the economic, social and political consequences likely to ensue (specletter.com/ekonomika/2013-02-22/neftjanye-reki-ne-garantirujut-kiselnye-berega.html).

            When Putin ran for election to the presidency last time, he said that Russia’s earnings from the export of oil and gas would be sufficient to increase incomes and improve the standard of living for all Russians, Polyansky says, but corruption and other policy mistakes have called those promises into question.

            Last week, he notes, “Kommersant” reported that there had been a slight decline in consumer spending in January, something other commentators blamed on inflation, but because Putin couldn’t counter it by raising pay, one may reasonably conclude that such a small thing may lead to “great perturbations,” according to the “Osobaya bukha” writer.

            Experts had correctly predicted that 2012 would be a hard time for Russia, but now the question is what will developments be like in 2013? What will happen with inflation and consumption if things continue as they are?  The answers so far, Polyansky says, are anything but encouraging despite the recent increase in oil prices.

            Last week, Igor Nikolayev, the director of the strategic analysis department of RBK, wrote in Gazeta.ru that not only had consumption fallen but so too had industrial production. It is “symptomatic,” he said, “that on one and the same day, Prime Minister Dmitry Medvedev … again spoke about the necessity and reality of five percent growth and Rosstat reported about [an 11.8 percent] fall in industrial production.”

            RBK’s Nikolayev pointed to a number of factors which are having a negative impact on the Russian economy, including increased social security payments, badly allocated budgetary expenditures, unrealistic social-economic programs “and much else,” in Polyansky’s report of the analyst’s comments.

            Among that “much else,” Polyansky said, Nikolayev sharply criticized “expensive and senseless ‘megaprojects’ which feed the egotism of the Russian leadership but do not bring in a profit capable of covering expenses” such as the Pacific summit in Vladivostok, the 2018 football championship, and “the winter Olympiad in subtropical Sochi.”

            Nikolayev also pointed the fact that the United States will soon sell more oil than it buys, something that will certainly drive down the prices on which Russia has relied, and consequently, Polyansky says, he “recommends ‘not to be too optimistic in one’s assessment of the prospects of the economic development of Russia in the coming years.”

            Polyansky says that “certainly there is no reason to run to the stores and buy packages of rice and salt, toilet paper and matches.  But it is long past time for the leadership of the country to introduce some definition corrections in its macro-economic strategy,” eliminating expensive “megaprojects” and really combatting corruption.

            Other analysts have an even bleaker view about the future than does Nikolayev, Polyansky continues. Dmitry Potapenko of the Management Development Group even says that Nikolayev’s assessments are “too soft.”  He said the Kremlin knows how bad things are for the population but isn’t doing anything but these problems don’t affect it directly.

            Members of that elite may ultimately discover, however, that such economic problems, including the possibility of a new recession even with high oil prices, will ultimately affect them, perhaps precisely in ways that they can’t imagine because they assume they have insured themselves against any unpleasantness.