The collapse of Russian President Putin's economic system

The ruble's record devaluation and the Russian economy's decline are marking the collapse of the economic system and achievements that President Vladimir Putin built during his 15 years in power, according to Bloomberg on December 17.

Russian President Vladimir Putin - Photo: AFP

Putin took power from Boris Yeltsin in 1999 with a pledge to end the chaos of the 1998 financial crisis. Putin has had some success in boosting economic growth and raising wages, but the drop in oil prices and sanctions from the US and Europe are posing major challenges for him, signaling the collapse of the economy he built 15 years ago, according to Bloomberg.

The situation is getting serious.

In a surprise move on December 16, the Central Bank of Russia (BoR) raised interest rates to 17%, the highest level in the past 16 years, to prevent the ruble from falling from 34 rubles/USD to 70 rubles/USD when oil prices fell below 60 USD/barrel. According to a report on December 9 by Moody's Investors Service, Russia has a quarter of its total economic output related to the energy industry.

Bloomberg quoted an expert at Gazprombank as saying that the ruble's devaluation and economic decline are marking the collapse of President Putin's oil-based economic system of the past 15 years.

Russian Prime Minister Dmitry Medvedev with officials and leaders of the Central Bank at a meeting yesterday, December 16 - Photo: Reuters

Meanwhile, economist Neil Shearing of Capital Economics Ltd said the high interest rates set by the BoR would affect household and business lending, increasing signs of recession in the Russian economy.

Mr. Putin has been implementing policies to save the ruble, from spending money to prevent devaluation, allowing the BoR to freely sell USD, severely punishing speculators, and culminating on December 16, the BoR raised interest rates to a record level since 1998. However, things still seem to have not changed for the better.

Last week, the Russian Economy Ministry said the country's GDP would fall 0.8% in 2015, and according to BoR, if oil prices continue to stay below $60/barrel, GDP could fall as much as 4.7%, according to Bloomberg.

“How many banks will go bankrupt in January 2015? People will lose their jobs and run out of money. The nightmare has only just begun,” said MP Dmitry Gudkov on Twitter, according to Bloomberg.

Support for Putin

Figures show that Mr. Putin is supported by 85% of the people after his policies towards Ukraine, especially his annexation of Crimea into Russian territory.

The ruble crisis could lead to an erosion of Putin's popularity, but if protests do take place they will be aimed at lower-ranking officials rather than at Putin, said Igor Bunin, head of the Moscow Center for Political Technologies.

The Russian ruble crisis puts Moscow's economic policy in a "dilemma" - Illustration photo: Reuters

“President Putin remains a symbol of Russia and the Russian people, so some Russian government officials may be fired due to the ruble crisis. People see Putin as a lucky star who will rescue the country and people fear losing him as losing luck,” Bloomberg quoted Mr. Bunin as saying.

“Everyone thought Putin was a strong leader who brought order and improved people’s lives. Now he is still Putin, he still has power, but everything is falling apart,” Bloomberg quoted political analyst Dmitry Oreshkin.

Incompetent government

Tatiana Barusheva, a 63-year-old resident of Gelendzhik, blamed Putin for the currency crisis due to reckless policies. “People cannot rely on the Russian government, it is incompetent. No matter how hard Putin tries, his policies are useless,” Bloomberg quoted Barusheva as saying.

The Russian economy is in dire straits (illustrative image) - Photo: Reuters

President Putin has withstood the economic crisis of 2008, when the global financial crisis caused Russia's GDP to fall by 7.8% and oil prices to plummet. In that situation, the ruble lost a third of its value, but the Russian economy gradually recovered from that crisis.

Meanwhile, sociologist Olga Kryshtanovskaya of the Russian Academy of Sciences (RAS) said that although Mr Putin had weathered the 2008 crisis, sanctions made the situation more difficult this time. According to the expert, measures to salvage the situation, such as imposing capital controls or taking a softer stance in Ukraine, all have their own risks.

Another senior researcher said the Russian economy recovered quickly after 2009 but now faces uncontrollable instability that will undermine confidence in Mr Putin's entire economic model.

According to Thanh Nien