April 27, 2016

Russia's Economic Crisis as a Result of the Kremlin's Aggressive Policy

Yuriy Radkovets

In their public speeches, the Russian leaders try to persuade the population of the Russian Federation that "the peak of the economic crisis is behind” and “the growth of the Russian economy is taking place”. In this way, V. Putin's regime is trying to simultaneously demonstrate its intransigence in dealing with the West, and hopelessness of the USA and the EU's sanctions against Russia.

Thus, Russian experts, referring to the “conclusions of leading international experts” state that in 2016 the Russian Federation's economy will experience positive growth dynamics, at least at the level of 0.6-1% of GDP. In fact, like in the past year, the state of affairs in Russia's economy is not nearly so good as the Russian leadership would like it to be. In particular, according to experts of the International Monetary Fund, in 2016 the GDP of the Russian Federation will not grow. On the contrary, it will decrease by at least 1.8%. Since the beginning of this year, the International Monetary Fund has more than once pointed out the sharp deterioration in Russia's economic prospects. Two months ago, this global financial institution forecasted a drop in the Russian economy only by 0.8%. This is somewhat similar to the beginning of 2015, when the Western expert circles also gave negative forecasts for the Russian economy, while Putin's regime tried to somehow hide this fact.

Today, the unbridled sharpening of economic problems in Russia has already been admitted by some members of the Russian government, predicting even a worse situation in the country than that forecasted by the IMF. For example, the Chairman of the Central Bank of the Russian Federation Elvira Nabiullina has recently reported that in 2014 the Russian GDP in dollar terms fell by more than twice.

Such processes have worsened Russia's economic rating in the world: from the 9th it has moved to the 15th place. At present, the GDP of the Russian Federation is not just lagging far behind the GDP of the USA, China, Japan, Germany, France and the UK, but also of regional countries such as Mexico, Canada, Italy, Australia and South Korea. If this trend continues, soon Russia can be overtaken by Indonesia, the Netherlands and Turkey.

Experts of the Centre for the Development of the Higher School of Economics of Russia also state that even with the increase in world oil prices, Russia's GDP will not increase. They are sure that if the Kremlin keeps trying to confront the West, no anti-crisis programs of the Russian government will rescue it. Without real changes in Moscow's policy, all these programs will only worsen the economy of the country. In particular, they argue that of the two suggested options of the development of the economic situation in the Russian Federation, none will succeed.

Thus, the more “optimistic” forecast suggests that by 2017 the price of Urals oil will have risen to 50 US dollars per barrel and will remain at this level at least until 2020. Under such favorable for the Russian Federation circumstances, its GDP will decrease over the next four years to 5%, population's real wages will be reduced by 7% and investments into the country will fall by 10%. But a more pessimistic for Russia forecast envisages preservation of Russian oil prices in the range of 35 to 45 US dollars per barrel. So, up to 2020 the decline in the Russian economy can make already 7%, at this, monthly wages will be reduced by 14.5% and investments - by 20.5%.

Based on the experience of 2014-2015, due to Western sanctions against the Russian Federation, its GDP will fall (at least!) by another 3-4%. All this will aggravate the country's socio-economic and political situation similarly to the events of the first half of the 1990s. For example, take the recent mass protests of Russian “truckers” who opposed the introduction of a new tax - the so-called “Plato” system. Like in the 1990s, during these protests were blocked individual transport communications that for certain reasons were zealously supported by the opposition forces of the Russian Federation.

Socio-economic and political tensions in Russia are also intensified by the anti-crisis measures of the Russian leadership, which mainly provides state support to representatives of big business, especially to persons within V. Putin's circle. Against this background, the Russian government has introduced new types of financial contributions for small and medium enterprises, and even for ordinary citizens. First of all, property and business activity taxes and utility tariffs are growing, salaries in the public sector are getting reduced. For example, the latest such decision of the Russian government was introduction of the cadastral system of evaluation of the value of property, which automatically yet again raised taxes for the Russian population. In the nearest future, they are going to adopt at least 20 new laws which will “drain” money from the pockets of the Russian community. There are also rumors about a return to large-scale programs for privatization of state property and further reduction of the expenditure side of the state budget.

It is clear that like in the past, such a reduction is planned to be at the cost of the social sphere, including education and medicine. However, despite all the socio-economic and political problems of the country, the Kremlin does not intend to really reduce military spending. For example, in terms of the ratio of military spending and GDP, Russia is in first place in the world - 4.5%. For comparison, this figure for the USA is 3.55%, and for China - 2%.

Moreover, the Russian Federation's leadership, anticipating social unrests in the country, has embarked on the formation of new security forces purely for internal use. To this end, President of the RF V. Putin has decided to create the National Guard (NG) on the basis of the internal troops of the Russian Ministry of Internal Affairs. Interestingly, its head was appointed Commander of the Internal Troops of the Russian Federation V. Zolotov - a former head of Putin's security service.

The main task of the new Russian siloviki (law enforcers) headed by Putin's main personal guard is “the fight against terrorism and organized crime in close cooperation with the Ministry of Internal Affairs". It is accusing of these “crimes” that is traditionally used by Moscow for introduction or justification of repressions against representatives of the opposition.

However, V. Putin's regime, trying to hold the state power in its hands, is not limited to an increase in military spending and creation of power structures. The RF leadership takes noticeably more efforts to refocus the attention of the Russian public from internal problems of the country to “countering external threats to the RF's national security”. Among such threats Moscow, first of all, traditionally names “the West's provoking instability in Russia”, “the USA, NATO and the EU's invasion in the sphere of Russian interests in post-Soviet territories”, “intensification of activity of international (Islamic) terrorism”. Since the first days of its armed aggression against Ukraine, V. Putin's regime has been constantly using these various forms and methods.

In particular, after the failure of Russia's “blitzkrieg” in Ukraine, the most resonant of these forms was Moscow's direct intervention in the Syrian armed conflict in September 2015. In this way Moscow tries to distract the attention of the Russian society and the international community from events around Ukraine and to restore its relations with the West in the name of “the joint struggle against the Islamic extremism”.

However, like in the case with “blitzkrieg” against Ukraine, Russia's actions in Syria have actually failed. Despite Moscow's systematic efforts, the United States and the European Union have categorically refused to unite the “Ukrainian” and “Syrian” issues, demonstrating their intention to maintain international sanctions against the Russian Federation to the complete fulfillment of the Minsk Agreements (including the transfer of control over the eastern section of the Ukrainian border to Ukraine) . That is why at the end of last year, Western countries decided to maintain the anti-Russian sanctions.

By the way, the Russian troops' participation in the fighting in Syria did not provide a quick victory of Assad's regime. And Russia itself soon felt the negative consequences for itself. Remember how got worsened its relations with Turkey (at the time - the only NATO member state which refused to impose sanctions against Russia)! And how significantly it had to increase its military spending on power operations in the remote theater of war ... At the same time, we can't help remembering what a severe blow to Moscow's international image was the report on deaths of thousands of civilians in Syria due to the Russian aviation's “sighting” bombings and missile strikes on civilian targets! In fact, this was the reason why the Kremlin decided to reduce its military presence in Syria, allegedly due to a truce between the Syrian government and the opposition. However, Moscow has stepped up its activities in the more familiar for it and less expensive “battlefield” in the post-Soviet territory.

V. Putin's regime traditionally directs its efforts to countries of the former USSR, leading (or, at least, trying to lead) independent from the Russian Federation, their own (national) policy. Apart from Ukraine, these countries traditionally include Georgia, Moldova and Azerbaijan. Russia pays special attention to them, trying to get them back into the sphere of its influence.

In Moldova, the Russian leadership almost openly supports all sorts of left-wing and pro-Russian local parties, which initiate early parliamentary elections in the republic. In this well known way Russia is trying to completely destroy the pro-European coalition of the Moldovan Parliament and to replace it with political forces controlled by Moscow. Besides, the emphasis is on “the election for the post of President of the Republic of Moldova,” of the Kremlin's protege, like it once happened in Ukraine when V. Yanukovych headed the country.

Moscow's main allies are the Party of Socialists of the Republic of Moldova, headed by former First Deputy Prime Minister I. Dodon, and “Our Party” led by businessman and Mayor of Beltsy  R. Usatyi. These parties are against Moldova's European course and for its reorientation towards Russia. It is the Russian Federation's financial, informational and organizational support that allows these parties for already more than six months to organize protests against the current government of Moldova. On the side of the Kremlin serves the Communist Party of the Republic of Moldova already withdrawn from the list of “favorites” of V. Putin's regime because of “inconsistency in the actions”. However, it still leads pro-Russian policy.

The appointment by the Parliament of the Republic of Moldova of a new government in January of this year (the previous Cabinet went into retirement in autumn of 2015 as a result of protests) actually legally removed the need to hold early parliamentary elections. Similar was the decision of the Constitutional Court of Moldova on changing the mechanism of electing the President, when he will no longer be elected by the Parliament, but by nation-wide voting. As a consequence, the political situation in Moldova has got stabilized to some extent and mass protests that lasted from mid-February this year have quieted down.

But a month and a half after the events in Moldova, the armed conflict in Nagornyi Karabakh got escalated again. It was the most large-scale clash of the opposing sides in the last 20 years. From April 2 to April 6, during clashes between the forces of the Armed Forces of Armenia and Azerbaijan, more than 40 people were killed and several hundred people were injured. Combat actions took place almost all along the line of collision, including with the use of heavy weapons and combat aircrafts. Further scaling of the military conflict was stopped only through the active intervention of the international community, first and foremost of representatives of the OSCE Minsk Group. An important role in this process was played by Germany, in particular, by German Chancellor A. Merkel. Germany (as a member of the OSCE Minsk Group) proposed the implementation of a special program for resolving the situation around Nagornyi Karabakh. However, one cannot say it is sure to resolve the issue of the Armenian-Azerbaijani conflict, which can worsen at any time. In this case it is appropriate to ask: who benefits from this conflict?

There is more to it than that Russia reserves the influence on the Nagornyi Karabakh situation, by using the controlled by Moscow Armenia. Russia actively contributes to the escalation of tensions in the region, supplying weapons and munitions to both conflicting countries (note that it supplies Armenia – on credit, and Azerbaijan - for US dollars!).

So, Putin's Russia is implementing another critical for itself  plan of formation of permanent threats to functioning of the transport and energy corridor from the Caspian to Mediterranean and European regions.

First of all, we mean: the oil pipeline Baku (Azerbaijan) - Tbilisi (Georgia) - Ceyhan (Turkey), laid 30 kilometers off the zone of the Nagorno-Karabakh conflict; the plan to complete the construction of the railway line Baku - Tbilisi - Akhalkalaki (Georgia) - Kars (Turkey) by the end of 2016; agreement on the enhancement of the South Caucasus gas pipeline Baku - Tbilisi - Erzurum (Turkey); and the construction on Turkey's communications and resources of the Turkish Trans-Anatolian gas pipeline (TANAP - bypassing Russia) and laying it on the territory of the countries of Southern Europe within the framework of the Trans-Adriatic gas pipeline (TAP) to spite Russia's plans for the construction of gas pipelines “South Stream” and “Turkish Stream” (bypassing Ukraine).

That is, the latest Armenian-Azerbaijani conflict over Nagornyi Karabakh once again demonstrates that all the armed conflicts of recent years are due to intensification of the struggle between the two countries (or coalitions) for maintaining or establishing control over areas (fields) with significant reserves of hydrocarbons, as well as over transport and energy corridors to transport them. And Russia in this context, is no exception.

Thus, according to the International Monetary Fund, in 2016 the GDP of the Russian Federation will not grow, but will decrease by at least 1.8%. It copies the situation at the beginning of 2015, when the authoritative Western expert circles forecasted the fall of the Russian economy and Putin's regime denied that conclusion and concealed the real state of affairs.

Today, some representatives of the Russian government admit the economic problems in Russia, and even consider them more serious than the IMF imagines. Based on the latest data of the management of the Central Bank of the Russian Federation, since 2014 the volume of the Russian GDP in dollar equivalent has fallen by more than twice. Russia's rating among the most powerful economies in the world has fallen from the 9th to the 15th place, and so far it will preserve its negative dynamics.

Experts of the Centre for the Development of the Higher School of Economics of Russia state that Russia's GDP will decrease even despite the increase in world oil prices. They believe that if the Kremlin continues to confront the West, no anti-crisis programs of the Russian government will correct the situation. So, Moscow's policy should be changed.

The Russian economy is losing a lot because of the armed conflicts, arising in former Soviet territories, and in general throughout the world, in which, in one way or another, Russians are involved. Their participation is mainly due to Russia's desire to make enormous profits from the control of the rich deposits of hydrocarbons and channels of their transportation and from supplying Russian arms and ammunition to conflict zones.

That is why the Kremlin will by all means continue provoking conflicts, both, in the former Soviet territories and in other regions of the world, taking care of Russia's (read - Putin's) interests.

To this end, Putin will keep delaying the settlement of the conflict in the East of Ukraine, waiting for a favorable for Russia political situation, where it will be possible to get rid of Western sanctions. No wonder Moscow, in particular, hopes that the Republican -billionaire D. Trump(is for resumption of relations with Russia) will be elected as the new President of the USA in autumn of this year, and also hopes for strengthening of the positions of pro-Russian political forces in Germany (upon the results of the parliamentary elections in the country in 2017).

Unfortunately, the EU countries do not always perceive Russia' s “hybrid policy”, threatening with the collapse of the European Union as the main rival to Putin's project of the Eurasian Union (now - the Eurasian Economic Union), which is the main task of Russia against the EU. Some of them are against Ukraine's European integration, which is to Russia's advantage. This was recently demonstrated by the referendum in the Netherlands on the conclusion of the European Union- Ukraine Association Agreement.

What consequences could be for the European countries was demonstrated by Putin's regime's latest cynical ultimatum steps at the international level, which have almost unbalanced the global security system, European security and defense policy and, in fact, revived the “cold war” between Russia and the West .