Staunton, April 24 – In the long “cold” summer ahead, Vladislav Inozemtsev says, there will be a continuation of the sharp decline begun earlier of law-abidingness and a sharp growth in the use of force. In both, the government and the population will be involved. This destruction of the rule of law will be a no less significant result of the year than the economic hardships.
On the one hand, the Russian regime undermined the rule of law by its playing with the constitution and then its extra-constitutional and extra-legal responses to the pandemic, the Moscow economist says, and the population responded by ignoring laws because the regime was too preoccupied to enforce them (ridl.io/ru/holodnoe-leto-2020-go/).
And on the other, the government has shown itself to use force even more frequently and casually than in the past; and the population in some cases for self-defense and in others in pursuit of criminal goals shows itself more ready to employ force on its own rather than rely on the state which they have ceased to trust.
These trends, Inozemtsev suggests, are likely to lead by early fall to the collapse of the former unity of the power and the people, a break that will come just before elections are scheduled. They will either be delayed or pro-government parties will suffer extraordinary losses. Either development will entail serious social, economic and political consequences.
Consequently, he concludes, “the crisis of 2020 will unleash a process of the primitivization [of all these sectors] with all the ensuing consequences: a contraction of the middle class, a growth in emigration, and the collapse of many high-technology branches” of the economy. All these things will cast a dark shadow on the future long after the crisis ends.
Inozemtsev draws these conclusions on the basis of what he says are three key trends that have become obvious in the month since Vladimir Putin first spoke to the country about the pandemic. First, the regime’s approach, which relies on isolation rather than testing, means isolation must be maintained until the end of May and businesses in major cities for two months.
Second, while oil prices may stabilize, they will do so at a level at which “the Russian budget practically will not receive income from exports.” And third, the government will use its reserves to cover the resulting budget deficits rather than to provide direct aid to the population – and will try to reduce spending in various ways.
This combination will lead to the “deepest economic crisis” since 1991. Even the 1998 default was not as severe, and now “the main blow will fall not on the financial sector and not on major business as in 2008-2009 and 2015-2016 but on small private companies” in the retail and service sectors.
“This will lead to a serious loss of income for a minimum of 20 to 25 million people, that is, a third of those employed in the economy,” Inozemtsev says. The hardest hit areas will be in the regions rather than the major cities, a major difference from the economic shocks of 1998 and 2008-2009.
Earnings from oil and tax collections will thus decline, while government spending will go up. To balance the budget in the sequent quarter, the regime will have to withdraw from the reserve fund some three trillion rubles (50 billion US dollars). It won’t want to continue that and so will cut back on announced payments to business and other plans.
The economy will likely decline 20 to 23 percent in the second quarter and by 10 to 12 percent for the year as a whole, the economist continues. The service and retail sectors will be hit hardest but the foundations of the success of major companies, government and state corporation investments, will be compromised as well.
After a low point this summer, retail trade, food service and transportation will begin to make a comeback. In terms of the new low base, the percentage increases in these will be impressive. But it will be months or longer before even they recover to where they were as recently as January.