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

Video Obama to Send 3,000 Troops to Liberia in Ebola Fight

At Centers for Disease Control and Prevention, President says US will take leadership role for a global response to deadly Ebola virus that is ravaging West Africa More

Video China Muslims Work to Change Perceptions After Knife Attacks

Muslims in Kunming say that they condemn the violence, it is not a reflection of the true beliefs of their faith More

Humanitarian Aid, Equipment Blocked in Cameroon

Move is seen as a developing supply crisis in West Africa 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.
NASA Picks Boeing, SpaceX to Carry Astronauts Into Spacei
X
September 17, 2014 4:20 AM
The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video NASA Picks Boeing, SpaceX to Carry Astronauts Into Space

The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video Future of Ukrainian Former President's Estate Uncertain

More than six months after Ukraine's former President Viktor Yanukovych fled revolution to Russia, authorities have yet to gain control of his palatial estate. Protesters occupy the grounds and opened it to tourists but they are also refusing to turn it over to the state. VOA's Daniel Schearf reports from Mezhigirya, just north of Kyiv.
Video

Video China Muslims Work to Change Perceptions After Knife Attacks

China says its has sentenced three men to death and one woman to life in prison for a deadly knife attack in March that left more than 30 dead and 140 injured. Beijing says Muslim militants from China's restive western region of Xinjiang carried out the attacks. Now, more than six months after the incident, residents in the city are still coping with the aftermath. VOA's Bill Ide has more from Kunming.
Video

Video Enviropreneur Seeks to Save the Environment, Empower the Community

Lorna Rutto, a former banker, is now an ‘enviropreneur’ - turning plastic waste into furniture and fences discusses the challenges she faces in Africa with raw materials and the environment.
Video

Video West Trades Accusations Over Ransoms

As world leaders try to forge a common response to the threat posed by Islamic State militants in Iraq and Syria, there is simmering tension over differing policies on paying ransoms. In the past month, the jihadist group has beheaded two Americans and one Briton. Both countries refuse to pay ransom money. As Henry Ridgwell reports for VOA from London, there is uncertainty in the approach of some other European nations.
Video

Video Scotland Independence Bid Stokes Global Interest

The people of Scotland are preparing to vote on whether to become independent and break away from the rest of Britain, in a referendum being watched carefully in many other countries. Some see it as a risky experiment; while others hope a successful vote for independence might energize their own separatist demands. Foreign immigrants to Scotland have a front row seat for the vote. VOA’s Henry Ridgwell spoke to some of them in Edinburgh.
Video

Video Washington DC Mural Artists Help Beautify City

Like many cities, Washington has a graffiti problem. Buildings and homes, especially in low-income neighborhoods, are often targets of illegal artwork. But as we hear from VOA’s Julie Taboh, officials in the nation's capital have come up with an innovative program that uses the talents of local artists to beautify the city.
Video

Video US Muslim Leaders Condemn Islamic State

Leaders of America's Muslim community are condemning the violent extremism of the Islamic State group in Iraq and Syria. The U.S. Muslim leaders say militants are exploiting their faith in a failed effort to justify violent extremism. VOA correspondent Meredith Buel reports.
Video

Video Bedouin Woman Runs Successful Business in Palestinian City

A Bedouin woman is breaking social taboos by running a successful vacation resort in the Palestinian town of Jericho. Bedouins are a sub-group of Arabs known for their semi-nomadic lifestyle. Zlatica Hoke says the resort in the West Bank's Jordan Valley is a model of success for women in the region.


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