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

    Syrian Torture Victim Recounts Horrors

    'You make them think you have surrendered' says Jalal Nofal, a doctor who was jailed and survived repeated interrogations in Syria

    Mandela’s Millions Paid to Heirs, But Who Gets His Country Home?

    Saga around $3 million estate of country's first democratic president is far from over as Winnie Mandela’s fight for home overshadows payouts

    Guess Which Beach is 'Best in the US'?

    Hawaii’s Hanauma Bay tops an annual "top 10" list compiled by a coastal scientist, also known as Doctor Beach

    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.
    Chinese-Americans Heart Trump, Bucking National Trendi
    X
    May 27, 2016 5:57 AM
    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Chinese-Americans Heart Trump, Bucking National Trend

    A new study conducted by three Asian-American organizations shows there are three times as many Democrats as there are Republicans among Asian-American voters, and they favor Hillary Clinton over Donald Trump. But one group, called Chinese-Americans For Trump, is going against the tide and strongly supports the business tycoon. VOA’s Elizabeth Lee caught up with them at a Trump rally and reports from Anaheim, California.
    Video

    Video Reactions to Trump's Success Polarized Abroad

    What seemed impossible less than a year ago is now almost a certainty. New York real estate mogul Donald Trump has won the number of delegates needed to secure the Republican presidential nomination. The prospect has sparked as much controversy abroad as it has in the United States. Zlatica Hoke has more.
    Video

    Video Drawings by Children in Hiroshima Show Hope and Peace

    On Friday, President Barack Obama will visit Hiroshima, Japan, the first American president to do so while in office. In August 1945, the United States dropped an atomic bomb on the city to force Japan's surrender in World War II. Although their city lay in ruins, some Hiroshima schoolchildren drew pictures of hope and peace. The former students and their drawings are now part of a documentary called “Pictures from a Hiroshima Schoolyard.” VOA's Deborah Block has the story.
    Video

    Video Vietnamese Rapper Performs for Obama

    A prominent young Vietnamese artist told President Obama said she faced roadblocks as a woman rapper, and asked the president about government support for the arts. He asked her to rap, and he even offered to provide a base beat for her. Watch what happened.
    Video

    Video Roots Run Deep for Tunisia's Dwindling Jewish Community

    This week, hundreds of Jewish pilgrims are defying terrorist threats to celebrate an ancient religious festival on the Tunisian island of Djerba. The festivities cast a spotlight on North Africa's once-vibrant Jewish population that has all but died out in recent decades. Despite rising threats of militant Islam and the country's battered economy, one of the Arab world's last Jewish communities is staying put and nurturing a new generation. VOA’s Lisa Bryant reports.
    Video

    Video Meet Your New Co-Worker: The Robot

    Increasing numbers of robots are joining the workforce, as companies scale back and more processes become automated. The latest robots are flexible and collaborative, built to work alongside humans as opposed to replacing them. VOA’s Tina Trinh looks at the next generation of automated employees helping out their human colleagues.
    Video

    Video Wheelchair Technology in Tune With Times

    Technologies for the disabled, including wheelchair technology, are advancing just as quickly as everything else in the digital age. Two new advances in wheelchairs offer improved control and a more comfortable fit. VOA's George Putic reports.
    Video

    Video Baby Boxes Offer Safe Haven for Unwanted Children

    No one knows exactly how many babies are abandoned worldwide each year. The statistic is a difficult one to determine because it is illegal in most places. Therefore unwanted babies are often hidden and left to die. But as Erika Celeste reports from Woodburn, Indiana, a new program hopes to make surrendering infants safer for everyone.
    Video

    Video California Celebration Showcases Local Wines, Balloons

    Communities in the U.S. often hold festivals to show what makes them special. In California, for example, farmers near Fresno celebrate their figs and those around Gilmore showcase their garlic. Mike O'Sullivan reports that the wine-producing region of Temecula offers local vintages in an annual festival where rides on hot-air balloons add to the excitement.
    Video

    Video US Elementary School Offers Living Science Lessons

    Zero is not a good score on a test at school. But Discovery Elementary is proud of its “net zero” rating. Net zero describes a building in which the amount of energy provided by on-site renewable sources equals the amount of energy the building uses. As Faiza Elmasry tells us, the innovative features in the building turn the school into a teaching tool, where kids can't help but learn about science and sustainability. Faith Lapidus narrates.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8954
    JPY
    USD
    109.65
    GBP
    USD
    0.6827
    CAD
    USD
    1.3037
    INR
    USD
    67.037

    Rates may not be current.