Officials of Russian Prime Minister Mikhail Mishustin had worked for months in a basement operations room on the opposite bank of the Moskva River from the White House, which houses the headquarters of the Russian government, jokingly called “the bunker” by insiders. The goal: to find money to finance Russian economic growth after the pandemic ahead of Vladimir Putin’s annual speech to the nation expected on April 21 when the Russian president announced the details of the recovery plan. But, on balance, the announced measures are so modest that they can be covered with the funds already available. A missed opportunity, according to analysts, to revive the economy.
For the largest part of his speech to the assembled Chambers last April, the Kremlin leader simply listed the measures put in place to promote the development of infrastructure, help the indebted regions that make up the Russian Federation and above all to counter the decline. demographic. “The main objective is to ensure the growth of real citizens’ incomes,” said the Kremlin leader, rattling off a series of social incentives aimed at supporting families: aid for single parents, monthly subsidies for future mothers in need, hot meals free for primary school pupils, paid holidays for parents caring for a sick child and a one-off contribution for families with school-age children. On balance, however, the promises were so modest that they could be covered with the funds already available. After all, already the previous year, in full pandemic, an aid package of just 44 billion euros had been approved for a country of 144 million inhabitants: about 3 percent of GDP and less than a tenth of assistance. supplied by Italy.
The surprise 2020
However, the Russian economy has withstood the first year of the coronavirus crisis better than almost all the other major world economies, also thanks to the Kremlin’s choice not to impose a second lockdown in the fall, despite infections, hospitalizations and deaths having increased. Last year, GDP, the national statistical institute Rosstat said, fell by 3 percent against the 3.8 percent predicted by the same Ministry of Economy and the 4/5 percent forecast by the central bank in the spring. when oil had lost 70 percent of its value and prices had dropped below $ 20 a barrel. This was a much lower decline than the world average. Half of the -7.3 percent expected in the Eurozone with peaks of -11 percent in Spain and -8.3 percent in France. But it was still the biggest contraction of the Russian economy since the great recession of 2009. With a per capita GDP now amounting to 30 percent less than in 2013.
The “fiscal fortress”
Russia has withstood the shock of the pandemic because, unlike other economies, it has a long track record of isolation. Since Russia annexed Ukraine’s Crimean peninsula in 2014, the Kremlin has built a “fiscal fortress” that makes the country impervious to the potential siege of Western sanctions or fluctuations in oil prices. A fortress that resists external shocks, but internally generates the stagnation and discontent that fuel the opposition. Its foundations are low debt and large reserves. The National Welfare Fund for “rainy days” financed with proceeds exceeding the price on the oil and gas market which at the end of 2020 amounted to 183 billion dollars, the highest since 2009 and the international reserves of 596 billion dollars, equivalent a two-year import, with only 7 percent stakes in US banks and US dollars compared to 30 percent in 2013.
Inflation and real incomes
However, having preferred stability to economic recovery has had a high price in terms of the well-being of the population. Rising inflation, triggered by rising global food prices and the ruble’s weakness, are putting further pressure on the deteriorating standard of living of Russians. Last year, according to the business newspaper “Rbk”, another 400,000 families fell below the poverty threshold set in Russia at 190 euros per month, adding up to 19.6 million Russians and real disposable income collapsed due to fifth time in seven years recording a decline of 3.5 percent. Today, an average Russian has about 10 percent less to spend than in 2013, the last year of growth. To try to contain inflation, which increased in February at the fastest pace since 2016, and the rise in consumer prices which reached 5.8 percent on March 15, the government had to fix the prices of some food products, while the central bank raised interest rates for the first time since 2018.
Stick without carrot
The post-pandemic recovery plan, observed Clara Ferreira Marques, an analyst at Bloomberg, was yet another missed opportunity to develop a global economic vision. “Maybe because there isn’t one. The suggested tax changes, for example, will not be able to solve the problems that prevent companies from investing more heavily ”. The risk, warned Vladimir Gelman, a professor at the European University of St. Petersburg, is that of falling into what he calls the “trap of repression”. Repressing protests without meeting the demands of the protesting people becomes a vicious circle that requires more and more repression. A stick strategy without the carrot.