Growing Unrest In Russia Amidst Economic Crisis

Falling oil prices, a collapsing Ruble, and a souring economy have Russia in the worst crisis in over a decade. The Financial Times is talking about this in Russian economy: The Putin defence.

When a top economic adviser to Vladimir Putin approached his boss in September to argue that the rapid fall in the oil price meant he would have to devalue the rouble, the answer was a firm nyet. “He said he would not be the prime minister of devaluation,” one insider said.

But even before the oil price failed to recover on output cuts by the Opec producers’ cartel earlier this month, Mr Putin’s room for manoeuvre was running out. As crude has fallen from $147 a barrel this summer to less than $40, Russia’s oil-fuelled economic boom has come abruptly to an end. A country that was growing at a rate of 7 per cent only six months ago now faces a looming recession – and Mr Putin, almost exactly nine years since Boris Yeltsin handed him the presidency on New Year’s Eve, is stalked by the same prospect of economic failure as his ill-fated predecessor.

He must also contend with growing unrest. This month has seen thousands of Russians protest against the government’s handling of the crisis in a series of demonstrations across the country. With some 400,000 losing their jobs in November alone and around 2 per cent of those in work facing wage arrears, tensions are likely to rise further.

As well as suffering from a marked drop in demand for commodities, Russia’s economy is also being choked by Mr Putin’s rouble policy. His decision to stave off a sharp devaluation is starting to look to some economists as ill-advised as Yeltsin’s similar attempt in 1998. The central bank has already lost more than a quarter of its foreign currency reserves as a result of its efforts to stem the rouble exodus that began in August, when foreign investors fled Russia in the wake of the war with neighbouring Georgia.

Russia’s reserves of some $451bn (€321bn, £309bn) may still be the third largest in the world, but the sharp drop in the oil price is limiting its ability to replenish them. Propping up the rouble is currently costing the government $6bn to $10bn a week; if this continues, Mr Putin may be unable to assuage popular unrest as he did in 2003, when he defused a row over social benefits by spending freely.

Also at risk is the country’s ability to refinance the foreign debt held by Russian companies. With international credit markets closed, the government has so far pledged $50bn for this purpose. But with up to $170bn due next year, analysts say, the reserves could be quickly exhausted.

“The situation is starting to look like 1998 when, in anticipation of devaluation, the credit market is frozen and there is an enormous contraction of the economy,” says Anton Strouchenevsky, an economist at Troika Dialog, the Moscow investment bank.