Russia Heading into Deepening Crisis Without Moscow Recognizing Unpleasant Realities, Inozemtsev Says

Paul Goble

            Staunton, April 11 – The failure of the Russian economic development ministry to present a promised report two days ago on the prospects for the country’s economy is indefensible given that independent agencies have prepared such reports and means Moscow will be headed into a deepening crisis without knowing where Russia is, Vladislav Inozemtsev says.\

            That is dangerous at any time, but it is “exceptionally irresponsible” in times of crisis like the present because it means that the authorities are not in a position to make good decisions because without good information or at least the best available, good policies are a random act  (echo.msk.ru/blog/v_inozemcev/2623012-echo).

            This week, when Moscow analysts were focusing on the outcome of talks with OPEC about oil production, most missed an equally important indicator of where Russia is now and where it may be heading. The economic development ministry in a press release said it was delaying its promised assessment because of “the current situation in the economy” (rbc.ru/economics/09/04/2020/5e8f5dca9a79475039f595ac).

            But it is precisely at times of turbulence that such reports are needed, the economist says; and it is also the case that while the ministry was failing to prepare one, there have been five predictions about the Russian economy for this year from the Center for Macro-Economic Analysis, the World Bank, the Fitch Agency, Citi Bank, and McKinsey consulting.

            Their assessments varied, “but, on the one hand, all pointed to an inevitable decline … and on the other, the depth of that decline grew with each passing day.” The initial report, by the World Bank, suggested the Russian economy would fall by one percent; the McKinsey report which followed several days later suggested that it would be at least 10 percent.

            “Russia encountered the global coronavirus pandemic a month to six weeks later than the majority of other countries infected,” Inozemtsev says. “The decline in the price of oil which occurred at the beginning of March almost did not touch the real flow of hard currency into the country.” And the population was told to stay home “only on March 30.”

            “All this means,” the Russian economist says, “that the official results of the first quarter, which in “first approximation will be announced a week from now will be very encouraging and that they will point to a continuation of growth.” And that will lead some in the regime and its propagandists to talk about Russia as “an island of stability” in a storm-tossed world.

            But such self-satisfaction “in the absence of an officially recognized assessment of prospects is dangerous in any economy and in a bureaucratized one like [Russia’s] especially so,” Inozemtsev says.

            The prospects in fact are not good. “In the best case,” the new oil deal will keep prices at about 30 US dollars a barrel.” Russian exports will fall by a quarter, and Moscow will receive 130 billion US dollars less from its export of oil this year than last, “nine percent of the GDP of last year.

            Adding to that, “economic activity will be practically paralyzed from the end of March to the middle of May,” resulting in a 40 percent falloff in GDP for those two months, which will mean “no less than five percent” decline for the year as a whole. And unlike Western governments, the Russian regime isn’t prepared to prop up the economy with massive injections.

            And “finally,” Inozemtsev says, “the basis of any economy, the incomes of its citizens, cannot fail to contract this year, most probably by “no less than 10 percent.”  That figure, he continues, is “not ‘pessimistic’ but an objective assessment of the decline which we will suffer in this year.”

            To avoid that requires that the government be given the information that is available to others and develop policies specifically designed to counter these trends. “If the Ministry for Economic Development has lost the competence or interest to fulfill its functions, it must be replaced” by some analytic center that will do so.

            Otherwise, the Russian government will be flying blind into a storm far greater than it imagines.