Friday, January 1, 2016

Moscow Will Somehow Find Money for North Caucasus but Not for Other Regions, Zubarevich Says

Paul Goble

            Staunton, January 1 – “The most probable prognosis” for Russia is “stabilization at a lower level: less investment, less production and less consumption,” according to Natalya Zubarevich, who adds that “this ‘stability’ may last several years and result in the economic and social degradation of the country.”

            There is the additional risk, the director of regional programs at Moscow’s Independent Institute for Social Policy, that there will be a further decline in oil prices on which both the federal budget and regional ones (because of transfers from Moscow) rely (

             But she says that even in the worst situation, Moscow is likely to find money for the republics of the North Caucasus, where any cutbacks in spending could lead to new violence; but the fate of other regions is likely to be increasingly dire with the center increasingly transferring unfunded liabilities to them.

            If oil prices stabilize or unexpectedly rise to a “more comfortable level,” the regional geographer says, the Russian economy could eventually grow by one to two percent a year, “but these tempos would be below that of other countries. And that means that [Russia] will fall further and further behind [them].”

            Zubarevich, Moscow’s leading specialist on developments in Russia’s regions, backs up her projections with an analysis of the current situation.  She points out that the current economic crisis in Russia is very different from its predecessors in that it is not part of a worldwide trend but rather an internal one driven by “Russian ‘rules of the game’ which block growth.”

            The crisis began in 2013 “with the stagnation of the economy and the slow reduction in investment.” The following year, it was intensified by “external factors” including Western sanctions after Crimea and the decline in the price of oil and by internal ones like the counter-sanctions of the Russian authorities which unleashed inflation.

            In the past year, the geographer says, world prices for other Russian raw material exports also began to fall; and as a result, “the Russian economy passed from stagnation to recession” and has remained “at the bottom” since the summer.

            Declines in income and trade have affected “almost all regions” of the country, she says, “Russians are adapting to the crisis by sharply reducing consumption.” Investment has fallen in 51 regions, industrial production has fallen in 34, and processing industry output has declined in “more than 40.”

            The only reason that production hasn’t fallen in more of them is that defense industry production has increased in some. “But do not forget what this costs,” Zubarevich says.  About 21 percent of the federal budget now goes to defense, but that rise has been possible only by cutting back social spending significantly.

            Given the absence of investment, talk about import substitution is just that talk: “without investments, there will not be import substitution.” Instead, there will be inflation, a decline in quality and a reduction in consumption. “The Russian powers that be have forgotten that it is impossible to move the economy by television” alone, although some Russians may be affected.

            Zubarevich advises her readers on this New Year’s day to stop watching television and stop participating in social networks online. Instead, she suggests, they should turn to “wise books and good friends” and they should maintain their sense of humor about the authorities. Any country whose people do that “has a future.”

            But she warns in conclusion that “in Russia one will have to live a long time in order to see a positive trend. There won’t be any rapid changes, but,” the geographer says, “time is working for us.”

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