If the best economic news you’ve heard in a while is that you can now buy a half-liter of cheap vodka for $2.65, you know times are bad. And when you learn at the same time that your country’s new military ally may be the pariah state of North Korea, well, go ahead and insert your own cheap vodka joke here.
That’s the position, sadly, that the Russian people find themselves in this week. As the country’s economy continues to crumble, the Kremlin recently acted on a promise to cut taxes on the popular liquor, dropping the price as ordinary Russians watch the cost of virtually everything else soar.
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The move came just a day after a senior Russian military official announced the Kremlin is planning to expand its contacts with other countries’ militaries, something he said could include joint training exercises with the forces of North Korea.
The Russian people’s purchasing power has been practically halved due to the declining value of the ruble and a regimen of international sanctions. Those sanctions were imposed because of Russia’s invasion of Ukraine’s Crimean peninsula as well as its continued support of the armed revolt in Eastern Ukraine.
While the move to lower the price of vodka could be seen as Russian President Vladimir Putin’s means of damping social unrest, the truth is likely more related to the country’s finances. The plan to lower vodka prices has been in the works since late last year. It follows a failed attempt to improve public health by reducing alcohol consumption fueled partly by sharp increases on vodka taxes.
However, the effect of the tax increase, according to Russian authorities, was an equally dramatic surge in the popularity of bootleg vodka, and a sharp decline in the government’s tax revenue. According to the state-owned media outlet ITAR-TASS, Deputy Prime Minister Alexander Khloponin estimated that the Russian government was losing somewhere between $450 million and $760 million in tax revenue because of the surge in illegal liquor sales.
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That might not have mattered as much to Russian leaders a year ago, when the price of oil – Russia’s primary export – was over $100 a barrel. But with prices at between $45 and $55 per barrel these past several months, losing the revenue has had real fiscal impact.
The decision to pursue a military relationship with North Korea is harder to explain. The two countries share a relatively tiny border, and allying with a regime known for subjecting its people to what amounts to a perpetual famine while spending lavishly on its nuclear-armed military is hardly raising Russia’s profile on the global stage.
Taken together, the moves paint a picture of a Russian government struggling to find answers to an increasingly toxic combination of economic and political problems. A government facing a citizenry that has suffered massive losses of economic power at the same time that it is increasingly isolated on the international stage is not in a position of power. Neither cheap liquor nor alliances of convenience are likely to protect it for long.
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