It’s Not the Economy, Stupid

The New York Times has gotten better, of late, at infographics. And they’ve gotten better at covering Russia, too. But somehow, their attempt today to combine the two was less than impressive.

In an effort to explain Russia’s economic downturn in five simple charts, the Times noted the following:

  1. Russia’s been running a budget deficit, with a negligible interruption, since 2009;
  2. Russia is heavily dependent on hydrocarbons, and now is a very bad time to be dependent on hydrocarbons;
  3. The ruble is weak, squeezed by sanctions and the fact that now is a very bad time to be dependent on hydrocarbons;
  4. They’re spending too much money on the military; and
  5. Their reserves are running low.

All of this is true, but little of it matters. For one thing, despite the deficit Russia’s fiscal position is comparatively strong; it has very little debt, and some other superpowers have been running deficits for decades and getting long just fine, thank you. For another, oil prices will eventually bounce back. A weak ruble will eventually spur import substitution and a manufacturing revival. And the situation with the reserves, while worse than it used to be, isn’t as bad as it might look.

I could go on, but that’s not the point. The point is that Russia does have a serious economic problem – and it’s got very little to do with the economy.

Earlier today, Alexei Kudrin – the former Finance Minister whose work to get Russia out of hock to the international financial institutions did more to bolster Moscow’s sovereignty than anything Vladimir Putin has ever done – chaired a panel at a stock market forum with three key economic figures: Central Bank Chief Elvira Nabiullina, Finance Minister Anton Siluanov and Deputy Prime Minister Arkady Dvorkovich. According to Vedomosti, he asked them to name sources of growth in the Russian economy looking forward. None of them could.

Dvorkovich, for his part, said Russia’s economy would contract by less than 1% this year, just hours before the IMF said it would be more like 1.8%. The only idea that he, Siluanov or Nabiullina had about where growth would come from in the future, though, was from the market eventually self-correcting. They all trotted out the usual rhetoric about improving the investment climate, reducing barriers, but their lack of specifics didn’t reflect a lack of vision: it reflected complete and utter honesty.

Ever since Crimea and Donbas, the problem for the Russian economy has been and will continue to be political. Yes, Russia has deep structural problems and was headed into recession even before anyone had ever heard of the Euromaidan. But back then, the market was willing to give Moscow the benefit of the doubt; after all, markets without structural problems are hard to come by these days, and even in a recession there is money to be made.

No, the problem for the Siluanov, Nabiullina and Dvorkovich is not that investors don’t trust them to manage the country’s economy; a more professional bunch is, in fact, hard to come by. The problem is that investors – both foreign and Russian – don’t really trust the man in the big chair not to drive the economy deliberately off a cliff just to stay in power.

The cost of Putin’s political survival is now priced into the market. It’s in the 9-10% that Russia is paying to borrow mid-term on global markets. It’s in the 8% projected inflation created by domestic producers who refuse to fill the gap left by expensive (or sanctioned imports). And it’s in the fact that stabilizing oil prices are boosting the ruble without doing a jot for the economy as a whole.

Unfortunately, it’s difficult to stick that in an infographic.

One thought on “It’s Not the Economy, Stupid

  1. Pingback: Links – April 12, 2016 | Nuclear Diner

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