The Guardian view on Russia: rouble trouble
As Vladimir Putin pursues a high-stakes expansionist foreign policy, problems are piling up on the home front. The rouble appears to be in freefall. Never since the financial crash of 1998 has the national currency seemed so weak. Russia’s central bank has already spent over $100bn this year trying to prop it up. Fears of inflation, and of bank runs by Russian citizens worried about their savings, are once again haunting the country, a chilling reminder of the financial instability of the 1990s. Moscow is now expecting the economy to enter recession next year, a sharp contrast with its earlier forecast of 1.2% growth in GDP. Capital flight is reaching new heights.
The main sources of this grim reality are to be found in the 40% drop in global oil prices since the summer, as well as in western sanctions imposed in response to Russia’s actions in Ukraine.
But the bleak economic picture is also the result of one of the hugely wasted opportunities of the Putin era: there has been no genuine economic modernisation of Russia, a country that remains overwhelmingly dependent on oil and gas exports, just as it was in Soviet times. For all of Mr Putin’s nationalistic posturing, this is a political leadership that has failed to bring Russia into a 21st-century economy centred on innovation, knowledge and new technologies. The heavy industry inherited from Leonid Brezhnev’s USSR has been the foundation of the Russian petro-state. More than two-thirds of Russia’s exports are from the energy sector.
Mr Putin’s domestic strategy throughout the last decade has been to present Russians with a deal: improved living standards in return for the curbing of political freedoms and concentration of political power. This quid pro quo was made possible by higher oil prices, which rose from $30 a barrel in 2003 to a peak of $147 a barrel in 2008.
Soon Moscow will surely try to mitigate the potential consequences of the rouble’s decline, including unease at home. It will hope that a weakened currency will reduce the pressure on the budget, by boosting the rouble value of Russia’s oil reserves. But that won’t stop Russian banks struggling to deal with debt. And a continued fall in the exchange rate will encourage Russians to convert roubles to dollars, thus increasing the risk of bank runs.
Mr Putin has now said that Gazprom will scrap the South Stream gas pipeline project to Europe, a sign of the trouble Russia is in. Whether these hard times will mellow his external ambitions or fuel further revanchist adventurism is now a key question. The Russian president should come back to sober realities and choose moderation. The economic numbers leave him little alternative.