Excellent news 1: thetimes.co.uk/tto/news/world/europe/article4280719.ece Ben Hoyle Moscow Published 1 minute ago Russia’s mounting economic crisis is likely to pose an existential threat to President Putin’s leadership within two years, one of the country’s most respected economists said yesterday. The economic distress signals are becoming clearer and although western sanctions are not the only cause of Russia’s problems, they make escape from the downturn far more difficult. Ordinary Russians, who have overwhelmingly supported Mr Putin’s annexation of Crimea in March and his refusal to buckle in the face of sanctions imposed as a result, are feeling a growing impact in their daily lives, and the plummeting price of oil has squeezed government receipts. Inflation is running at more than 8 per cent, but food inflation is even higher, and there has been panic buying of buckwheat, a Russian staple that is served as a side dish or cooked into soups, pancakes or porridge. Prices have risen by up to 80 per cent in some regions. Rice is more than 25 per cent more expensive than it was last month, and the retail price of pasta is expected to climb by a similar degree. Sergei Guriev, a former adviser to Dmitri Medvedev, the prime minister, and a former board member of Russia’s largest state bank, said: “If nothing changes, if sanctions aren’t removed and the price of oil does not go up, then in two years the Russian government will have a major problem — it will lack cash and it will not be able to borrow it.” Speaking from Paris, where he fled after state harassment left him fearing for his freedom last year, Dr Guriev said that rising inflation, the depressed oil price, the falling rouble, isolation from western capital markets and plummeting investor confidence meant that, for the first time, “there is a risk to the existence of the regime”. In Moscow, such thoughts are aired only in private. The business world does not dare to question the Kremlin’s increasingly unpredictable political and military course, even though it has sucked Russia into an economic confrontation with the West over Ukraine that it looks ill-equipped to win. At the high end of the social scale, the economic fall is hurting Moscow’s designer-clad elite. The luxury goods market will contract by up to 18 per cent this year, after 5 per cent growth last year, according to the consultancy Bain & Company. International companies have scaled back and delayed planned acquisitions and expansion. Demand for high-end property in Moscow, normally driven by foreigners, is down by 10 per cent. Occupancy rates in Moscow City, a $12 billion cluster of skyscrapers that was intended to turn the capital into a global financial hub, are so low that a youth hostel has opened on the 43rd floor of one of the glass towers. According to Anton Siluanov, the finance minister, sanctions will cost Russia $40 billion this year, but the falling oil price will take out a further $100 billion. Yesterday the price of Brent crude oil fell below $73 a barrel to its lowest point in four years as a crucial Opec meeting in Vienna failed to reduce the supply that Russia hoped for to prop up prices. That is $27 below the price needed to balance Russia’s 2015-17 budget. The rouble has lost 40 per cent of its value against the dollar this year, with the slide accelerating in the past month. That will make it far harder for Russian companies to pay the $614 billion in foreign debt that they owe, $130 billion of which is due within the next year. Russia has foreign exchange reserves of more than $380 billion, which Mr Putin has said could be used to substitute for international borrowing, but there is uncertainty over whether more than $200 billion of that can be accessed quickly. China’s role as an alternative source of international investment has been heavily emphasised by the administration, but Chinese business is proving resistant to Russia’s charms. Andrey Kostin, the head of VTB, Russia’s second biggest lender, complained on Wednesday that Chinese banks were not lending to sanctioned Russian companies because of pressure from the US. The Russian central bank predicts that the economy will stagnate next year. A few favourably placed business people have voiced concerns. Alexei Kudrin, the liberal former finance minister whose advice Mr Putin values, wrote last week that “bringing back earlier opportunities with regard to foreign investment and trust in the rouble will take seven to ten years of growth of our economy”. German Gref, the head of Sberbank, Russia’s largest state bank, said last month that the country risked repeating the “mind-boggling incompetence of the Soviet leadership” by returning to a government-directed model of economic development. “You cannot motivate people through the gulag, like in the Soviet Union,” he told a conference. However, President Putin sought to reassure the same audience, saying that Russia remained committed to an “open economy” that was built on strong foundations. Investment would return, he said. “All I have to do is smile and show the devil is not as frightening as he seems.”
Posted on: Thu, 27 Nov 2014 23:35:15 +0000