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Jan Winiecki compares Vladimir Putin’s short-sighted leadership to Soviet rule in the 1970’s and 1980’s. – Project Syndicate
RZESZOW – With the Winter Olympics underway in Sochi, Russia is again in the global spotlight – and President Vladimir Putin is taking the opportunity to present his country as a resurgent power. But, beneath the swagger and fanfare lie serious doubts about Russia’s future. In fact, long-term price trends for the mineral resources upon which the economy depends, together with Russia’s history (especially the last two decades of Soviet rule), suggest that Putin’s luck may well be about to run out.
Mineral-resource price cycles generally begin with a rise lasting 8-10 years, followed by a longer period of stable, relatively low prices. Given that prices have been on an upswing since the middle of the last decade, they should begin declining within two years, if they have not done so already. Moreover, the last price trough lasted more than 20 years, implying that Russia cannot expect simply to wait it out.
But, beyond acknowledging the need to cut spending – an obvious imperative, after the estimated $50 billion cost of the Sochi Olympics – Putin has not signaled any concrete plans to tackle Russia’s economic weaknesses.
Russia faced a similar challenge in the 1970’s and 1980’s – and, like Putin today, its leaders failed to do what was needed. According to former Prime Minister Yegor Gaidar, who led Russia’s only post-Soviet government that was oriented toward systemic change, the socialist command economy exhausted its growth potential by 1970.
Under non-totalitarian circumstances, the threat of stagnation would have generated strong pressure for systemic reform. But the Soviet Union’s aging communist leadership, encouraged by the OPEC-generated oil-price explosion and the discovery of massive hydrocarbon reserves in western Siberia, took a different tack, using natural-resource revenues to finance continued military expansion.
In an effort to appease the public, the Soviet leadership increased food imports – both directly (meat imports, for example, quintupled from 1970 to 1980) and indirectly (by increasing feedstock imports). While this strategy worked in the short term, it caused food consumption to increase far beyond what the economy could sustain.
As a result, the Soviet economy became even more dependent on resource revenues, making it extremely vulnerable to price fluctuations in international commodity markets. When mineral prices began to decline in the early 1980’s – reaching their lowest point in 1999 – the economy, which had already been stagnating for about five years, went into a free-fall.
Today, the Russian economy is no more resilient than it was in the late Soviet era, with commodities, especially oil and natural gas, accounting for around 90% of total exports and manufacturing for only about 6%. If anything, the economy’s dependence on exports of fuels and industrial minerals has increased, meaning that smaller price fluctuations have a greater impact on Russia’s fiscal and external position. Indeed, some observers – including the Central Bank of Russia (CBR) – have predicted that the country’s current account could slip into deficit as early as next year.
A lasting deficit would eliminate the major economic difference between Putin’s Russia and its Soviet counterpart during the 1980’s – namely, the financial buffer that has been accumulated over the last decade. It is this buffer – which amounted to $785 billion in the 2000-2011 period – that protected the economy from a larger shock when the global financial crisis erupted in 2009, and that has financed Russia’s foreign-policy initiatives, including its recent cooperation with Ukraine.
The CBR’s warning of twin fiscal and current-account deficits assumed that oil prices would remain steady, at $104 per barrel in 2015. But my expectation that oil prices will decline over the next 3-7 years suggests that Russia’s medium-term prospects are actually considerably worse.
In short, Russia will soon have to confront diminished macroeconomic health, with few options for restoring it. Russia’s uncompetitive manufacturing sector certainly cannot pick up the slack, and this is unlikely to change, given Putin’s unwillingness to pursue the needed shift to a more knowledge-intensive economy.
This new reality will not only affect Russia’s foreign-policy and imperial ambitions; it will also undermine the relative social and political stability that has characterized the last decade. Without resource revenues, the government will struggle to finance the policies and programs that are needed to placate ordinary Russians. In this context, the Sochi Olympics, intended to herald Russia’s triumphant return as a global power, may soon come to be regarded as a swansong.
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Russia presses Ukraine on debt amid protests – Europe – Al Jazeera English
Russia presses Ukraine on debt amid protests – Europe – Al Jazeera English.
Russian finance minister pledges to give second tranche of $15bn bailout package, but wants gas debt paid first.Last updated: 08 Feb 2014 15:21
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The protesters have been demanding resignation of the president and early elections [Reuters]
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Russia has increased economic pressure on Ukraine by drawing a link between disbursement of the next tranche of its $15 billion aid package to Kiev with repayment of a hefty gas bill owed to Russian firms.
The link, made in comments by Russia’s finance minister to the Reuters news agency on Saturday, came as the Kremlin confirmed President Vladimir Putin had held private talks with Ukraine’s leader Viktor Yanukovich in Sochi on Friday before the opening of the Winter Olympics. No details of the leaders’ talks were disclosed. “We will fulfill what we have promised to Ukraine, but we would like the Ukrainian side to comply with the obligations that it has committed to,” Anton Siluanov told Reuters. The gas debt was due for repayment in late January, but Ukraine did not pay up, he said. On Saturday, thousands of people angered by months of anti-government protests in the Ukrainian capital, Kiev, converged on one of the protesters’ barricades, the Associated Press news agency reported. They retreated after meeting sizeable resistance, averting a violent showdown. The incident underlined tensions that persist as the protests slog through a third month with no sign of concessions from either side. About 2,000 people streamed toward the barricade near city hall at midday, blocking traffic on the capital’s main avenue and placing tires in the roadway. Igor Polishchuk, one of the men placing the tires, said the crowd wanted to show its peaceful opposition to the protests that have pushed the country into a political crisis and complained that police had done little against the protesters. “It’s a critical mass in there, without control,” he said. “The authorities aren’t anywhere inside.” EU versus Russia The anti-government protesters have set up an extensive tent camp in Kiev’s main square and occupy three nearby buildings, including the city hall, that they use for operations centres, sleeping quarters and even an improvised library. Yanukovich has been battling massive anti-government protesters, demanding his resignation and early elections, since he rejected a trade deal with the EU in favour of closer ties with Russia. The president must now decide whether to submit to protesters’ demands by taking a more conciliatory approach towards a new agreement with the EU – a possibility that prompted Russia to suspend its bailout payments after issuing just one instalment of $3bn in December. The US and the EU have backed the anti-government protests and promised a financial package to Ukraine on the condition that the government agrees to political reform. |
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Numerous Explosives Discovered Near Winter Olympics Site | Zero Hedge
Numerous Explosives Discovered Near Winter Olympics Site | Zero Hedge.
Just a few short weeks away, the opening ceremony of the Sochi Winter Olympic may go off with a bang, literally, judging by the amount of “terrorist” chatter surrounding the games. Today however, it is more than just chatter: earlier the Russian media reported that Russian security forces had come across multiple unexplained deaths and explosive devices in a region near Sochi, resulting in an aggressive “anti-terrorism sweep.”
The developments are bizarre to say the least:
A car with a body inside exploded as police approached it in Russia’s Stavropol Territory, reported Russia’s state-owned RIA Novosti, citing the Interior Ministry. In the same area, Russian authorities reportedly discovered a car containing the bodies of three men along with explosive material. The day before, two more bodies were found in the same region.
Russian officials are investigating the possible cause and motive for the deaths — a Russia analyst speculated to ABC News the deaths could be related to organized crime — but at any rate the mystery and the security sweep add to an already tense situation in southern Russia as the Olympics approach.
One person keeping a close eye on the developments is none other than president Obama, who as we reported yesterday, will unleash an ad blitz for Obamacare around the Olympics. The last thing he will want is for the participants in the games to have need of it. Which is why one can be certain that the NSA and various US security forces are already well aware of any potential sources of terrorism around the games. Sure enough, in a statement of condolences from the White House over the most recent Volgograd bombings, President Obama’s National Security Council slipped in an apparent jab at the Russian government over the security situation. “The U.S. government has offered our full support to the Russian government in security preparations for the Sochi Olympic Games, and we would welcome the opportunity for closer cooperation for the safety of the athletes, spectators, and other participants,” the NSC statement said.”
Some thoughts on who they may be:
Just 10 days ago more than 30 people were killed in dual suicide bombings in Volgograd, Russia, some 400 miles northeast of Sochi. By comparison, Moscow lies more than 850 miles north of Sochi. In October seven people were killed when a suicide bomber detonated explosives on a bus, also in Volgograd. The Stavropol Territory lies approximately halfway between Volgograd and Sochi – approximately 150 miles away from the Olympic site.
No group has publicly claimed responsibility for the bombings, but in the case of the October bus bombing, Russian authorities said the bomber hailed from Dagestan, a restive region in southern Russia to Sochi’s east that, along with Chechnya, is home to a violent Islamist insurgency that has fought Russian government forces for decades.
The leader of the insurgency, Doku Umarov, sometimes referred to as “Russia’s Osama bin Laden,” last June called on his followers to “do their utmost to derail” the Sochi Olympics, which he called a “satanic dance on the bones of our ancestors.” In the past Umarov has claimed responsibility for deadly attacks on Russian civilians, including the 2011 bombing of Moscow’s Domodedovo airport.
What is far more clear is who is providing the funding and supplies for the Islamists – the same puppetmaster who was behind the Syrian conflict. Recall:
Bandar told Putin, “There are many common values and goals that bring us together, most notably the fight against terrorism and extremism all over the world. Russia, the US, the EU and the Saudis agree on promoting and consolidating international peace and security. The terrorist threat is growing in light of the phenomena spawned by the Arab Spring. We have lost some regimes. And what we got in return were terrorist experiences, as evidenced by the experience of the Muslim Brotherhood in Egypt and the extremist groups in Libya. … As an example, I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us, and they will not move in the Syrian territory’s direction without coordinating with us. These groups do not scare us. We use them in the face of the Syrian regime but they will have no role or influence in Syria’s political future.”
Putin laughed in Bandar’s face, the Saudi natgas pipeline gambit in Syria failed, and as a result the escalation in Sochi is progressing just as Bandar implied it would. Naturally this puts Obama in a tough spot: he can’t openly act against Saudi interests once again after alieanting his ally in the region and take out the terrorist camps in Chechnya, but the last thing he would want is to cart home coffins of athletes.
Which means US participants are resorting to Plan B:
the U.S. ski and snowboard team this year will be overseen by a private security firm, which plans to have as many as five aircraft on standby in case of a medical or security emergency in Sochi. “This environment is unique,” Global Rescue CEO Dan Richards told USA Today Wednesday. “You just don’t have competitions in places like Sochi with any frequency. … In the last 10 years, there has been nothing like it.”
William Rathburn, who was the head of Olympic Security during the bombing of the 1996 Olympic Games in Atlanta, Georgia, told ABC News that while he’s confident Russian officials “have done everything they can” to secure the upcoming games, the odds of an incident are “very high.”
“It’s an opportunity for the Chechen [militants] or anyone else to embarrass Russia or [Russian President Vladimir] Putin, I think,” he said. “It’s far easier to protect against attacks on somebody who might be targeted, a group or country or delegation. [But] it’s clear that the people who conducted the two bombings in Volgograd are willing to indiscriminately kill people. It’s very difficult to protect against…”
And after last year in which Putin humiliated US and most western foreign policy on virtually every front, the number of people who want to embarass Putin is quite long.
Olduvaiblog: Musings on the coming collapse 