Russia’s currency, the ruble, this week fell to its lowest value in a quarter century. Oil prices also fell as finance officials changed their economic forecast for next year from slight growth to recession. Russia’s economy is taking a beating from Western sanctions over Ukraine and foreign investment is fleeing the country. But economists say Russia’s underlying problems are even more important than events in Ukraine and price of oil.
Russia’s economy is now expected to shrink in 2015.
The low price of oil helped push the ruble to a record low against the dollar, a drop of over 40 percent this year.
"Well, yes, of course, it scares me that the rates [of the dollar and the euro] go up. I am an entrepreneur. I get goods from the United States. Before I was paying 30 rubles for them. But now I am paying 50 rubles. It really scares me like nothing else, to be honest. I don't know what will be next. I think about China to buy some goods there and bring them here. Relations with the U.S. were ruined and I will not get them from there. I don't know what will be next," said one businessman.
Russia’s leaders portray the country’s economic problems as originating from the West and its sanctions for Moscow’s intervention in Ukraine.
Russia’s finance authorities say the economic punishment and drop in the oil price are costing Moscow $140 billion per year.
But Russia’s former Minister of the Economy, Andrei Nechayev, said the country’s over-reliance on energy and raw material exports, and its poor investment environment, are to blame.
"Serious economic problems began before the Ukraine crisis and before the fall in oil prices. Since 2012 the primary macro-economic indicators have plummeted with the exception of inflation, which has gone up," said Nechayev.
Consumer prices are going up, helped by Russia’s retaliatory ban on Western food imports. But state propaganda is so far keeping public anger focused on what it calls “foreign enemies.”
"I think there is no sense to criticize the government now. Because we are now alone and we have to be united. If we begin to disagree, it will only hurt us," said Russian Oleg Dibryov.
But Nechayev said Russia’s economic enemy comes from within, as authorities are doing little to keep billions in capital and foreign investment from fleeing the country.
"I'm convinced we must make serious entrepreneurial reforms in order to protect property rights, to create a truly independent judiciary system, and to conquer what is probably the nation's worst disease – corruption," said Nechayev.
Despite the downturn, Nechayev said things are not as bad as when Russia emerged from the Soviet Union and he was put in charge of the economy.
"Back then, economic collapse was a real issue. Everything in the press was true, that Russia might not survive the winter. Threats of hunger, the loss of public transport, chaos, a possible civil war like in Yugoslavia but involving nuclear weapons -- they were all real threats, not journalistic exaggerations," he said.
Nechayev said such a deep economic crisis would only be possible today if oil prices dropped to $40 a barrel for at least a year.
For most Russians, dealing with the upcoming recession means getting much less for their ruble and having to pay more to travel, if they can afford it.