Foreign Affairs Follies – Is Russia Near Economic Collapse?

Fifty dollar a barrel oil certainly isn’t helping the situation:

The fall in oil prices from $147 this July to below $50 today has blown a gaping hole in the government’s budget calculations. It is now facing a $150bn shortfall in its spending plans – and will have to slash expenditure in 2009.

Today Putin sought to assure hard-up Russians that their social benefits would not be affected, promising a $20bn assistance package. “We will do everything, everything in our power … so that the collapses of the past years should never be repeated,” he said.

The oil slump, however, exacerbates Russia’s already severe economic problems. Since May Russian markets have lost 70% of their value. Russia’s central bank, meanwhile, has been spent $57.5bn in two months trying to prop up the country’s ailing currency.

“If the current trend continues with the government supporting the rouble, oil prices falling and a slowing economy we are going to have a major crisis,” said Chris Weafer, an analyst with the Moscow brokerage Uralsib.

He added: “There will be more pressure on the rouble and an extremely difficult first quarter next year.” Russia was more vulnerable than other countries because it was still an oil state, and had failed to diversify its economy, Weafer added.

Of course Putin, et. al, continue to blame their problems on the US financial crisis. Apparently invading Georgia and scaring investment out of Russia had little to do with the situation. Weafer buys into the US crisis being the trigger, but the Russian problem is structural, not the result of someone else’s crisis:

“In terms of the trigger Putin is correct. The bomb came from the US,” Weafer said. He added, however: “The shockwaves have hit a much weaker structure than the [Russian] government has acknowledged. The economy is going to hell in a handcart.”

And just like those trying to avert or soften the crisis here, it is apparent that Putin and company don’t have any more of an idea of how to address the problem than do our “leaders”.

The question is, even as “unfriendly” as Russia has become under Putin, what would become of Russia if, in fact, it should suffer an economic collapse? It’s past authoritarian history and it’s recent tendency to again embrace authoritarianism (under the guise of a democratic process) might find the replacement to be worse than Putin, and perhaps, even more aggressive.

The foreign affairs department is just looking lovely for the incoming administration. Joe Biden may have actually known what he was talking about when he said it would be tested soon after taking office.

[Crossposted at QandO]

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