Monday, July 3, 2017

Resources that Pulled Russia Out of 1998 Catastrophe No Longer Available, Shelin Says

Paul Goble

            Staunton, July 3 – The situation with the standard of living in Russia is not nearly as dire as it was at the time of the 1998 default, Sergey Shelin says, and thus predictions of imminent collapse should be dismissed. But at the same time, the resources that helped Russia recover after default no longer are readily available if at all and so coming out of this crisis will be harder.     

            The Rosbalt commentator argues that Russians must come to understand that the current crisis in the economy and standard of living is one of “a new type,” albeit one that is still “far from that which was 20 years ago although potentially far more difficult to overcome (

            Unfortunately, Shelin continues, the nature of the problem is concealed behind the often-contradictory statistics offered by Rosstat, statistics that on the one hand point to growth in most sectors even as they indicate that “real disposable monetary incomes of the population continue to fall.” 

            A better way to consider the problem is to focus on retail trade. In May 2017, this was only 86 percent of what it had been on average in 2014, a figure that is likely exaggerated but is still indicative.  Over the same period, GDP for the country as a whole fell about three percent. In short, “the people had to pay much more than the economy lost.”

            In order to understand what is going on, Shelin says, it is useful to go back to the end of the 1990s. The low point for Russians was at the time of the 1998 default. Current levels of impoverishment do not begin to approach the lows of that time.  But after default, there was a period of rapid growth and improvement in the standard of living.

            “Initially,” this growth was based on the recovery of the economy as it had been, a development he describes as “healthy.” But then it rose on the basis of “an unhealthy one,” the rapid influx of petrodollars.  They allowed “incomes to rise even when the economy almost ceased to grow.”

            “The authorities simply distributed their earnings, increasing pensions, pay in the state sector and so on.” And that allowed incomes to continue to rise not just to 2008 as many think “but approximately to 2013.”  The end of the oil boom had a major impact, but sanctions and countersanctions were of secondary importance.

            “But the main thing that the popular masses had to pay for was all the same not import substitution, although that hit their pockets but the sharp growth of spending on the siloviki and the necessity of simultaneously compensating our magnates for their oil losses.” That means that the situation going forward is very different now than it was in 1998.

            The walls between rich and poor both sectorally and geographically are far higher and more impermeable than they were, and the dependence of the population on the generosity of the state is also far higher.   In the 1990s, Russians sought to make their way on their own; now, they are less interested and able to do so and are angry at anything they have to pay the state.

            “The so-called informal sector always existed. It typically did not bring particular wealth and flourishing. But the formation of an enormous, stable and apparently already inherited stratum of people who absolutely do not trust the state and do not want to pay it anything and living outside its accounts is one of the numerous special features of our time,” Shelin says.

            Moreover, there is an additional problem. Standards of living are not just monetary income, but the quality of life, education and medical care.  Not only are all these things worse than they were but they are worse not just when compared to the 1990s but to the “fat” years when everything seemed to be going so well.

            Recovery now will require a complete reordering of state policy and public attitudes, neither of which will be easy to change and each of which will tend to feed on the other and make a new period of growth more difficult to achieve than that which followed the default of 1998.

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