News / Europe

Experts: Crimea a Brief Distraction from Russia's Economic Woes

Cashier counts pension payment in Russian roubles, post office at Simferopol, Crimea, March 25, 2014.Cashier counts pension payment in Russian roubles, post office at Simferopol, Crimea, March 25, 2014.
x
Cashier counts pension payment in Russian roubles, post office at Simferopol, Crimea, March 25, 2014.
Cashier counts pension payment in Russian roubles, post office at Simferopol, Crimea, March 25, 2014.
Reuters
The annexation of Crimea will only temporarily distract Russians from worrying about the economy, a respected economist said, suggesting a rally in President Vladimir Putin's ratings may not last.

The standoff with the United States and the European Union over the Black Sea region has won Putin support at home but Western sanctions and capital withdrawals by nervous investors are expected to damage the economy.

A weaker rouble, leading to inflation, and slower growth may eventually hurt Russian budgets, and voters could turn on the ruling elite, Mikhail Dmitriev, of the Moscow-based Center for Strategic Research think tank, said.

"If there is no economic growth it is likely that the influence of Crimea and other foreign policy events on political ratings won't be long-lasting," Dmitriev, who predicted mass protests against Putin in 2011-2012 said in an interview.

"The population will start to look at politics from the point of growing economic struggles."

Dmitriev was beaten and had his laptop stolen by unidentified people last week. It is unclear whether the attack was related to his work and sometimes forthright views.

While many Russians are proud of the stance that Putin has taken on the majority ethnic Russian region, some are wary of the impact on the economy and recall the financial crisis of 1998 when Russia devalued the rouble and defaulted on its debt.

Inflation soared and shop shelves emptied as Russian stocked up on essential food items and millions lost their life savings as banks collapsed. Russians took to the streets in protest and President Boris Yeltsin fired his prime minister.

However, Dmitriev said it would be a while before Putin's popularity was affected.

"For now, the situation in Crimea is to the fore and is shaping the population's political mood," he said. "But when it comes to long-term preferences, economic conditions are absolutely dominant and people's attitude towards the Russian authorities in the end will depend on the economic situation."

On Wednesday, the World Bank warned that the Russian economy could shrink by 1.8 percent in 2014 and the country could see record capital outflows of $150 billion if the crisis over Crimea deepens.

Alexander Rubtsov at the Institute of Philosophy at the Russian Academy of Sciences says events such as the annexation of Crimea have "the champagne effect" — a rapid, but short-lived high which — is often followed by a "hangover."

Putin's approval ratings have soared to a five-year high of more than 75 percent after Russia hosted the winter Olympics and since he claimed back Crimea, 60 years after the region was handed to Ukraine by Soviet leader Nikita Khrushchev.

He dominates the political scene in Russia, and his grip on power is strengthened by a loyal parliament and pliant media. His term expires in 2018.

The wave of patriotism and euphoria in the state media have drowned out news about a weakening economy, where growth fell to 1.3 percent last year from 3.4 percent in 2012.

Most analysts see the economy ministry's forecast for 2.5 percent in 2014 as wildly optimistic.

Shares on the local stock exchange, once seen by some in the political elite as a centerpiece for Moscow's transformation into a financial center to rival New York and London, lost some $70 billion this month as investors pulled out of Russia.

EU and U.S. visa bans and asset freezes on Russian officials and businessmen over Crimea have worsened capital flight and weakened the rouble, which is down 8 percent against the dollar this year, putting pressure on consumer price inflation.

"If problems with Russian exports arise it may create difficulties over serving corporate debt, [and] put additional negative pressure on the rouble," said Dmitriev, a former first deputy economy minister under Putin.

The external debt of Russian corporations stands at more than $650 billion, according to the central bank, making firms and the Western financial system closely interconnected but still leaving room for a spike in borrowing costs.

Last week, Fitch ratings agency revised Russia's outlook to negative, warning that foreign investors may be reluctant to lend to Russia with the economy slowing further and the private sector requiring support.

Russian gold and foreign exchange reserves stood at $493.2 billion last week, down $16.4 billion since the end of 2013, mostly due to the central bank's market interventions to curb the rouble's fall.

"In theory, if further developments in Ukraine are accompanied by military confrontation ... Russia may face a serious worsening in external trade conditions and investments, leading to an economic crisis which may be accompanied with a no less serious sequel in terms of domestic political situation," Dmitriev said.

You May Like

Turkey: No Ransom Paid for Release of Hostages Held by IS Militants

President Erdogan hails release of hostages as diplomatic success but declines to be drawn on whether their release freed Ankara's hand to take more active stance against insurgents More

Audio Sierra Leone Ends Ebola Lockdown

Health ministry says it has reached 75 percent of its target of visiting 1.5 million homes to locate infected, educate population about virus More

US Pivot to Asia Demands Delicate Balancing Act

As the tumult in the Middle East distracts Obama, shifting American focus eastward appears threatened 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.
Natural Gas Export Plan Divides Maryland Towni
X
Deborah Block
September 21, 2014 2:12 PM
A U.S. power company that has been importing natural gas now wants to export it. If approved, its plant in Lusby, Maryland, would likely be the first terminal on the United States East Coast to export liquefied natural gas from American pipelines. While some residents welcome the move because it will create jobs, others oppose it, saying the expansion could be a safety and environmental hazard. VOA’s Deborah Block examines the controversy.
Video

Video Natural Gas Export Plan Divides Maryland Town

A U.S. power company that has been importing natural gas now wants to export it. If approved, its plant in Lusby, Maryland, would likely be the first terminal on the United States East Coast to export liquefied natural gas from American pipelines. While some residents welcome the move because it will create jobs, others oppose it, saying the expansion could be a safety and environmental hazard. VOA’s Deborah Block examines the controversy.
Video

Video Fears Ebola Outbreak ‘Beyond Our Capability to Contain’

Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Difficult Tactical Battle Ahead Against IS Militants in Syria

The U.S. president has ordered the military to intensify its fight against the Islamic State, including in Syria. But how does the military conduct air strikes in a country that is not a U.S. ally? VOA correspondent Carla Babb reports from the Pentagon.
Video

Video Iran, World Powers Seek Progress in Nuclear Talks

Iran and the five permanent members of the U.N. Security Council plus Germany, known as the P5 + 1, have started a new round of talks on Iran's nuclear program. VOA State Department correspondent Pam Dockins reports that as the negotiations take place in New York, a U.S. envoy is questioning Iran's commitment to peaceful nuclear activity.
Video

Video Alibaba Shares Soar in First Day of Trading

China's biggest online retailer hit the market Friday -- with its share price soaring on the New York Stock Exchange. The shares were priced at $68, but trading stalled at the opening, as sellers held onto their shares, waiting for buyers to bid up the price. More on the world's biggest initial public offering from VOA’s Bernard Shusman in New York.
Video

Video Obama Goes to UN With Islamic State, Ebola on Agenda

President Obama goes to the United Nations General Assembly to rally nations to support a coalition against Islamic State militants in Iraq and Syria. He also will look for nations to back his plan to fight the Ebola virus in West Africa. As VOA White House correspondent Luis Ramirez reports, Obama’s efforts reflect new moves by the U.S. administration to take a leading role in addressing world crises.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid