If there is such a thing as an “anti-crisis” plan, then the Russian government may have just put that in place – though it’s hardly clear if or how it will solve the country’s mounting problems.
Russia’s top officials on Tuesday completed what government-run media referred to as an “anti-crisis” plan. It’s meant to shore up the country’s economy in the face of a plummeting ruble and continued financial challenges related to the steep decline in oil prices and international sanctions that together have pushed its economy into recession.
The Kremlin also made no secret about what it wants the Russian people to believe about the economic downturn, and particularly about the announcement Monday that ratings agency Standard & Poor’s had lowered the country’s sovereign debt to “junk bond” status.
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State-owned media company ITAR-TASS on Tuesday quoted Russian Prime Minister Dmitry Medvedev claiming the decision by the ratings firm, which as recently as 2011 issued a controversial downgrade of U.S. government debt, was driven by politics.
“What is it if not a political decision?” Medvedev said, according to TASS. “Of course, all of us will get over it, but it is bad, since it makes the situation in the country difficult, and I’ll be frank, in the world. All these ratings that everyone is talking about, it’s obvious it is a political tool in its purest form.”
Other senior officials publicly downplayed the effects of the S&P announcement. Their arguments claimed that since Russia and Russian companies are already cut off from global capital markets by international sanctions, the downgrade is of little importance.
“This was an expected event and it was taken into account in many developments,” said Russian Central Bank First Deputy Chief Kseniya Yudayeva. “As for the access of companies to markets, this decision will hardly have any strong impact because many companies were already barred from these markets.”
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However, writing in the Financial Times on Tuesday, Russian economist Sergei Guriew, a former rector of the New Economic School in Moscow, pointed out that this isn’t the whole story.
“It is true that the Russian government and companies are indeed cut off from the financial markets, but losing the investment grade increases the cost of servicing existing debt as well,” he wrote. “Russia’s government, banks and companies have $600bn in external debt.”
Medvedev signed what the government called an “anti-crisis” plan that the government was expected to present to the legislature on Wednesday morning. It reportedly dedicates the equivalent of $2.5 billion to preserving stability in Russia’s economy over the next year.
“The plan … stipulates the preparation of new structural reforms so that we can have a new quality of state governance, a new quality of the budget and so that we can keep our reserves instead of spending them in a year or two,” said Finance Minister Anton Siluanov.
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It is unclear how much of an effect a $2.5 billion investment will have on supporting what was, until recently, an economy with a GDP well in excess of $2 trillion. But Putin was confident in the public remarks, promising at minimum that the plan would preserve “social stability.”
“It [social stability] can only be achieved if acceptable parameters are preserved in the economy – first of all, it is linked with the budget, inflation, foreign debt, reserves, and so on,” the Russian president said, according to TASS. “This is all we have been rightly proud of in the recent years and it is called macroeconomic stability.”
For the record – the macroeconomic stability ship sailed a while ago. Russia’s economy is in recession. Interest rates of 17 percent plus billions of dollars in government spending have been unable to prevent a 50 percent drop in the value of the ruble. Inflation has hit double digits – and even before the S&P downgrade, nobody wanted to buy Russia’s bonds.
On top of all this, the European Union may end up putting a new round of sanctions on the Russian economy in response to an additional flare-up of violence in Ukraine that’s attributed to Russia.
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