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How long can Russia's economy last? [1]

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Date: 2023-03-03

Russia has been under an every-increasing set of sanctions from many countries, plus the foreign assets of many oligarchs and officials have been seized or frozen. In response, Russia has taken some fairly major steps to prop up it’s economy, including restricting how much Russians can withdraw from the bank accounts in a day, forcing Russian companies with foreign currency to convert that currency into Rubles, and so on. Also, in preparation for the invasion, the Russian government had squirreled away a fair surplus, foreseeing sanctions coming and hoping to use that surplus as a buffer.

That buffer is gone now, and last December the Russian government admitted it would run a deficit this year.

CNN is now reporting that Russian oligarch Oleg Deripaska has said “There will be no money already next year, we need foreign investors,” in comments at an economic conference this week. Deripaska, while sometimes a critic of the Russian government, is also currently indicted in the US for violating sanctions.

And of course Deripaska’s comments contrast with official comments from the Russian government.

However, pre-invasion estimates thought that the Russian economy would grow by around 3% last year.

Instead, it’s estimated that with sanctions and flight of foreign businesses, the Russian economy shrank by 2.1%. Not as much as some had thought (some predictions thought the contraction could top 4%), but still, that’s a 5+% swing from pre-invasion prediction to now. It’s clear that sanctions are having an effect, even if not as severe as some had expected. It seems likely that part of the issue is countries that are finding ways to help Russia skirt the sanctions, thereby helping prop up the Russian economy more than would be the case if there was full compliance.

Still, as reported in the CNN story, Russia’s January revenue was down 35% compared to January last year (which was pre-invasion and pre-sanctions), while government expenditures were up 59%.I don’t see how that kind of imbalance is sustainable long-term. And Russia is selling some of it’s primary export, fossil fuels, at bargain basement pricing to India and China — literally sometimes selling it at prices below the cost of production.

In the past I’ve done other research on the Russian economy and while the official unemployment numbers look like Russia has a booming economy, with just 3.7% unemployment, those numbers are, shall we say...suspect. They do not account for things like “temporary” layoffs and furloughs, reflect cut hours, etc. I have seen unofficial estimates that the real unemployment level “behind the numbers” may be as high as 16%. Of course, some numbers might be lower because if you’re hanging out by the unemployment office scooping up applicants and putting them into a uniform and shipping them to Ukraine...yeah, that might lower your unemployment numbers, too. I mean, surely Russia is paying their cannon fodder, right? Right?

So in addition the losses that Russia is experiencing on the battlefield in Ukraine, on the home front the economy, propped up this year by extreme and artificial measures employed by the Russian government, may be on increasingly shaky ground.

And yes, I realize that there will be commenters eager to jump in and say “yeah, Russian economy supposed to fail, blah blah, hasn’t happened yet, Ruble strong, wake me up when it finally happens.”

Well, for one, the Ruble is strong compared to...what, exactly? Is anyone outside Russia exchanging anything for Rubles in any substantial way right now?

For another, most people who understand such things didn’t think the Russian economy was going to crash overnight. The government, as noted, has stockpiled a nest egg surplus to fall back on that lasted through the beginning of this year. That cushioned the blow sanctions had. And scofflaw companies and countries like Iran and China are going back-door around some of the sanctions, which weakens their effect. And finally, economies don’t just hit a brick wall in a matter of days, usually. The problem builds gradually and things may appear fine, right up until they aren’t and a crisis point is hit.

When will that crisis point come? Still hard to say. Six months? A year? The point is that long-term, the Russian economy is wrecked, and the government is basically doing a Weekend at Bernie’s thing with it’s zombie corpse. The question is how long they can continue to pull it off.

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[1] Url: https://www.dailykos.com/stories/2023/3/3/2156051/-How-long-can-Russia-s-economy-last

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