December 18, 2017

“Horrible End Or Endless Horror?”

December 14, the President of the Russian Federation during held a major press conference during which the main theses of his election campaign were actually made public. As one would expect, the main thesis was further strengthening of Russia on the basis of the already achieved success. First of all, among them was the restoration of the positive dynamics of the country's development as a result of overcoming the negative effects of Western sanctions, as well as the increase in world energy prices. In support of this, he mentioned the growth of GDP by 1.6 % and investments in fixed assets by 4.2 % since the beginning of the current year.

At this, as usual, real problems of the country, which are already openly recognized by the Russian government and are increasingly felt by the Russian population, were left behind the scenes. Thus, according to the statement of Minister of Finance of Russia A. Siluanov of December 7, by the end of 2017, the Reserve Fund of the country will be completely exhausted, and 662 billion rubles will be spent from the National Welfare Fund (NWF). Taking into account such expenses, on January 1, 2018 the volume of the NWF will amount to 3.7 trillion rubles, of which the liquid part (i.e. the clear balance not invested in assets) will be 2.3 trillion rubles.

According to the Law on Federal Budget for 2018 and the 2019–2020 planned period, next year they expect to spend 1,113 trillion rubles from the NWF, which will be used to cover the state budget deficit and support the economy. So, the money from the last of the Russian funds (and thus the possibility of further deterring the crisis in the Russian economy) will be exhausted in two years. At the same time, taking into account the real volumes of expenses for the above-mentioned goals (starting from 2015 at the level of about 2 trillion rubles), the NWF may be emptied by the end of 2018.

By the end of 2017, the Reserve Fund of the Russian Federation will be completely exhausted
By the end of 2017, the Reserve Fund of the Russian Federation
will be completely exhausted

Moreover, the so-called “successes” of the Russian economy are of a purely ghostly nature and exist only in V. Putin’s and his Spokesman Peskov's imagination. Such statements are publicly refuted by the Russian government itself. In particular, according to the data published by the Ministry of Economic Development of Russia literally on the day of V. Putin's speech (deliberately or by an oversight), in October 2017 the growth of the GDP of the RF slowed down to 1 % in the annual terms and has a tendency for further decline, the manufacturing industry's indicators have deteriorated considerably, and investment activity has significantly weakened.

At the same time, according to independent experts, even these, rather modest, figures of the growth of Russia's GDP do not at all mean a real improvement in the economy and its adaptation to sanctions, but are just a consequence of the growth of world oil prices (as the basis of Russian exports). Incidentally, the afore-mentioned trend in the global energy market was the result of Russia's agreement with the OPEC regarding the reduction of oil production. On the one hand, it raised the price for it and allowed to increase the revenues to the Russian budget, but on the other it had negative consequences for the oil industry of the country due to the decrease in the work of its capacities.

Significant doubts also arise about the possibility of a real increase in foreign investments into the Russian economy. As “Borysfen Intel” has already pointed out in its previous publications, a certain increase in the inflow of capital to Russia at the beginning of this year was due to investors' expectations for Washington (and, subsequently, Brussels) to lift sanctions against the regime of Putin after the election of D. Trump President of the United States. The unjustified expectations have led to the withdrawal of foreign investors from the Russian financial market, which was pointed out by the Ministry of Economic Development of the Russian Federation. Other investments are mainly purely speculative and are associated with abnormally high lending rates of Russian banks in comparison with other countries.

Moreover, according to analysts of the Higher School of Economics of Russia (the federal state higher educational institution), the growth rates of the Russian economy in general are within the statistical error at the zero level and cannot show any positive changes in the country. At this, we can see the Rosstat's usual practice of presenting their data on the main parameters of the country's macroeconomic development following the instructions from the Kremlin.

No less pessimistic are the forecasts for 2018. Most experts agree that there is no effective way to overcome the country's economic problems, either through attracting foreign investments, or through attempts to manipulate world oil prices. Equally vain are the Russian government's hopes for stimulating the economy through the intensification of domestic trade. The lack of funds in Russian businesses, as well as the rapid impoverishment of the population, completely exclude this possibility.

Plus Western sanctions, which are becoming increasingly critical for Russia. At the beginning of December US President D. Trump issued a decree introducing a new package of sanctions (adopted by the US Congress in August this year), which virtually rules out the possibility of foreign investments into leading sectors of the Russian economy, especially energy and military industries. At the moment is being considered introduction of a ban on the purchase of Russian securities, which may become the strongest shock for the Russian economy next year. And on December 14 of this year for the first time, without any disagreements, the European Union extended the sanctions against the Russian Federation.

In such a situation, the only opportunity for the RF government to delay the economic collapse of the country is to further increase taxes and reduce of state budget expenditures. Thus, the afore-mentioned Law on the Federal Budget for 2018 and the 2019–2020 planned period, provides for a reduction of expenditures for social needs in different spheres by 30–40 %. As already recognized in expert circles in Russia, “the budget for 2018–2020 can be considered a budget of a coup, since it objectively aims at bringing society to the extreme degree of despair and actions based on the principles of 1991”.

“Better a horrible end than endless horror”. December 15, 2017, in more than ten cities of Russia, began another strike of long-range drivers — one of the most organized and active protest forces that advocates for changes in the country. All in all, more than half of the Russian population is in favor of such changes. I wonder if Putin understands all this, or remains in captivity of a virtual reality that seems to continue to determine his policy.

 

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