News / Economy

Despite Falling Growth, Russia Reverts to Old Playbook on Economy

Russian President Vladimir Putin (L) talks to Federation Council Deputy Chairman Yuri Vorobyov during a meeting with members of the Federation Council at the Novo-Ogaryovo state residence outside Moscow, March 27, 2014.
Russian President Vladimir Putin (L) talks to Federation Council Deputy Chairman Yuri Vorobyov during a meeting with members of the Federation Council at the Novo-Ogaryovo state residence outside Moscow, March 27, 2014.
Reuters
Russian officials have dramatically reduced growth forecasts for this year and acknowledged the annexation of Crimea will spur capital outflows and hurt investment, but they have not entirely ripped up the old script.

At an investment conference on Thursday, Russia's central bank head and finance and economy ministers were sanguine, boasting they had ways to protect the economy against the fallout from the worst East-West standoff since the Cold War.

Most would not have to be used, they said, and the crisis over Crimea eventually could help the economy become more self-sufficient, a message that matches President Vladimir Putin's longstanding drive to bring money home from abroad.

While sticking to a protocol agreed last week with Putin for all public comments to refer to economic and financial stability, however, Russia's three leading financial officials were clearly making preparations for the worst.
 
U.S. Officials Sanctioned by Russia

  • Senate Majority Leader Harry Reid
  • Senator John McCain
  • Senator Daniel Coats
  • Senator Robert Menendez
  • Senator Mary Landrieu
  • House Speaker John Boehner
  • Deputy National Security Advisor Caroline Atkinson
  • Presidential Aide Daniel Pfeiffer
  • Deputy National Security Advisor Ben Rhodes

Having already stopped referring to the official growth forecast for 2.5 percent this year, Economy Minister Alexei Ulyukayev said instead it could slow to 0.6-0.7 percent if capital flight reached $100 billion this year.

The Economy Ministry has estimated capital outflows of up to $70 billion in the first quarter alone.

“[With] an outflow of $150 billion, growth becomes negative,” he said, suggesting Russia could tumble into recession for the first time since the aftermath of the global financial crisis in 2008-09.

In the first estimate by a leading international body, the World Bank said on Wednesday Russia's economy could contract markedly this year and see record capital outflows of $150 billion if the crisis over Crimea deepens.

It said Russia's gross domestic product could shrink by 1.8 percent, hurt by uncertainty over future measures the West may take to punish Russia for annexing Crimea - a move criticized by Ukraine, the United States and the European Union as illegal.

Economists have also said Russia's economy would suffer badly if the price of oil, its main export item, were to fall.

A Reuters poll of analysts on Thursday showed that increasing supplies from North America and OPEC nations coupled with sluggish global demand will push oil prices lower in 2014, with further falls expected in 2015 and 2016.

Fears for Future

Russia's former finance minister, Alexei Kudrin, agreed, saying it was not the sanctions themselves that were damaging the economy but the expectation of more, possibly targeting trade or finance, and also how Moscow would retaliate.

“All this affects the amount of capital outflows and investments. The general atmosphere of uncertainty about Russian policy in these circumstances is also a deterrent,” he said.

“My forecast for economic growth is about zero, plus or minus 0.5 percent,” he said, pegging outflows at $150 billion to $160 billion.

He said this was what it cost to pursue an independent foreign policy and society was so far prepared to agree to such a cost.

“We are paying hundreds of billions of dollars for this, hundreds of billions, and we will see lower GDP growth, investment and revenues,” said Kudrin.

For now, most officials are at least publicly backing Putin's decision to pursue his strident foreign policy, forcing their financial colleagues to come up with ways to plug the gap.

Ulyukayev urged a loosening in budget funds to help spur investment, possibly from oil revenues.

Finance Minister Anton Siluanov said he was ready to offer companies the same emergency measures adopted during the 2008-2009 financial crisis when the government spent billions of dollars -- or about 8 percent of GDP -- bailing out Russia's major banks and companies.

He suggested using funds from the National Wealth Fund, a sovereign fund financed from oil taxes designed to support the pension system, which as of March 1, stood at $87.3 billion.

Central Bank Governor Elvira Nabiullina also promoted a plan to ease borrowing at home, pointing to three-year refinancing for banks secured by state-backed investment projects as a way of reducing reliance on Western finance.

For the time being, though, the overall message was relatively upbeat.

“We expect that one of the consequences of these recent events could be an increase in demand for credits inside the country, if access to lending abroad is reduced for companies and banks,” said Nabiullina.

You May Like

UN Ambassador Power Highlights Plight of Women Prisoners

She launches the 'Free the 20' campaign, aimed at profiling women being deprived of their freedom around the world More

Satellite Launch Sparks Spectacular Light Show

A slight delay in a satellite launch lit up the Florida sky early this morning More

Fleeing IS Killings in Syria, Family Reaches Bavaria

Exhausted, scared and under-nourished, Khalil and Maha's tale mirrors those of thousands of refugees from war-torn countries who have left their homes in the hopes of finding a better life More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Nobel Prize Winner Malala Talks to VOAi
X
August 31, 2015 2:17 AM
Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.

VOA Blogs

World Currencies

EUR
USD
0.8916
JPY
USD
121.32
GBP
USD
0.6487
CAD
USD
1.3252
INR
USD
66.401

Rates may not be current.