Friday, October 23, 2015

Russia Retreats to Autarky as Poverty Looms

A 1948 propaganda poster showing Stalin surrounded 
by admirers and reading 'Long live the Komsomol
 generation!' Photo: Alamy
Vladimir Putin is falling back on Soviet-era self-reliance as oil wealth evaporates and sanctions cut off vitally-needed technology
Russia is running out of money. President Vladimir Putin is taking a strategic gamble, depleting the Kremlin's last reserve funds to cover the budget and to pay for an escalating war in Syria at the same time.
The three big rating agencies have all issued alerts over recent days, warning that the country's public finances are deteriorating fast and furiously. There is no prospect of an oil revival as long as Saudi Arabia continues to flood the market. Russia cannot borrow abroad at a viable cost.
Standard & Poor's says the budget deficit will balloon to 4.4pc of GDP this year, including short-falls in local government spending and social security. The government has committed a further $40bn to bailing out the banking system.
Deficits on this scale are manageable for rich economies with deep capital markets. It is another story for Russia in the midst of a commodity slump and a geopolitical showdown with the West. Oil and gas revenues cover half the budget.
"They can't afford to run deficits at all. By the end of next year there won’t be any money left in the oil reserve fund," said Lubomir Mitov from Unicredit. The finance ministry admits that the funds will be exhausted within sixteen months on current policies.
Alexei Kudrin, the former finance minister, said the Kremlin has no means of raising large loans to ride out the oil bust. The pool of internal savings is pitifully small.
Read the rest of the story HERE.

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