On the eve of taking full power, Stalin derided his opponents as sailors whose boat drifted aimlessly with the current. Unlike Stalin, they did not known how to take control. Stalin would have the same criticism of President Vladimir Putin, whose economy drifts helplessly with the price of oil. Despite promises of diversification, Russia is more dependent on oil today than it was when Putin took power a decade and a half back.
The Russian parliament has just approved the 2016 budget, breaking a rule that requires a three-year budget cycle because of the high degree of uncertainty about 2017–18. The key assumption of the 2016 “base budget” is an average $50 per barrel price of oil. At $50 oil, Kremlin economists project the economy will either shrink a small amount (Central Bank) or grow about half a percent (Ministry of Economic Development), and the budget deficit will come in at around 3 percent of GDP, which can be covered by reserve funds. At $50 oil, Russia can muddle through, but a real recovery will have to wait.
These scenarios are summarized in the authoritative business newspaper Vedomosti’s “The Second Wave of Crisis: The Shock Scenario for 2016 May Become the Base Case.” If the average 2016 price of oil is $40, GDP is projected to decline 1.5 percent for 2016. At $35, the economy will shrink 2 to 3 percent, real wages will fall by double digits, inflation will be 7 percent at year end, the investment collapse will continue, and unemployment will rise as businesses start shedding employees. If the oil price falls to $30, Russia will face, according to the current finance minister, “a complicated year,” and according to a former finance minister, a biblical “seven lean years.”
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Putin’s opposition will be his core supporters — blue-collar workers and pensioners — who have been hardest hit by economic stagnation.
The Kremlin is in the midst of its first nationwide strike, as long-haul truckers protest a new federal highway tax and the corruption associated with it. Notably, 70 percent of Muscovites favor the strikers against the government, and elements of the Communist party have come out in their support. The blue-collar truckers have been careful to label their protest as non-political. The accusations of a Russian businessman at a December session of the Moscow Economic Forum accusing the government of corruption and strangling business has gone viral on the internet as has a video on the corruption of the family of Putin’s chief prosecutor.
Putin unleashed the spending gates on the eve of the December 2011 parliamentary and March 2012 presidential elections. The outrage over election fraud was limited to Moscow’s liberals, whom Putin hastily beat into submission. The September 2016 elections will take place in a time of scarce budget resources and dwindling reserve funds. Putin’s opposition will be his core supporters — blue-collar workers and pensioners — who have been hardest hit by economic stagnation. Putin’s media can scarcely accuse them of being CIA agents or traitors.Putin still has enough tricks to keep his United Russia in the majority, but the new Russian Duma (parliament) will be comprised of parties that are invigorated by electoral support and may be more willing to stand up to Putin.
If the past is a guide to the future, Putin will embark on a new foreign pre-election venture, most likely in Ukraine, to divert attention and rev up Russian nationalism and patriotism. Perhaps this time he will learn that you cannot go to the same well that often.
— Paul Roderick Gregory is a research fellow at the Hoover Institution, Stanford University, and Cullen Professor of Economics at the University of Houston.