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

Multimedia US Nurse ‘Cured of Ebola,’ NIH Says

Nina Pham, Texas nurse who treated first Ebola patient in US, received no experimental drugs; WHO expects vaccine surge in 2015 More

Video Islamic State Militants Encroach on Baghdad

Iraqi capital not under ‘imminent threat,’ US military says, amid worries about foothold More

Video Hong Kong Protesters Focus on Holding Volatile Mong Kok

Activists say holding Mong Kok is key to their movement's success, despite confrontations with angry residents and police 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.
After Decades of Pressure, Luxembourg Drops Bank Secrecy Rulesi
X
October 21, 2014 12:20 AM
European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video After Decades of Pressure, Luxembourg Drops Bank Secrecy Rules

European Union finance ministers have reached a breakthrough agreement that will make it more difficult for tax cheats to hide their money. The new legislation, which had been blocked for years by countries with a reputation as tax havens, was approved last week after Luxembourg and Austria agreed to lift their vetoes. But as Mil Arcega reports, it doesn’t mean tax cheats have run out of places to keep their money hidden.
Video

Video Kobani Refugees Welcome, Turkey Criticizes, US Airdrop

Residents of Kobani in northern Syria have welcomed the airdrop of weapons, ammunition and medicine to Kurdish militia who are resisting the seizure of their city by Islamic State militants. The Turkish government, however, has criticized the operation. VOA’s Scott Bobb reports from southeastern Turkey, across the border from Kobani.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video US ‘Death Cafes’ Put Focus on the Finale

In contemporary America, death usually is a topic to be avoided. But the growing “death café” movement encourages people to discuss their fears and desires about their final moments. VOA’s Jerome Socolovsky reports.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Young Nairobi Tech Innovator on 'Track' in Security Business

A 24-year-old technology innovator in Nairobi has invented a tracking device that monitors and secures cars. He has also come up with what he claims is the most robust audio-visual surveillance system yet. As Lenny Ruvaga reports from the Kenyan capital, his innovations are offering alternative security solutions.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video North Carolina Emerges as Key Election Battleground

U.S. congressional midterm elections will be held on November 4th and most political analysts give Republicans an excellent chance to win a majority in the U.S. Senate, which Democrats now control. So what are the issues driving voters in this congressional election year? VOA National Correspondent Jim Malone traveled to North Carolina, one of the most politically competitive states in the country, to find out.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.

All About America

AppleAndroid

World Currencies

EUR
USD
0.7893
JPY
USD
107.68
GBP
USD
0.6238
CAD
USD
1.1214
INR
USD
61.185

Rates may not be current.