Russia

Not long ago the balance of global power was shifting toward Russia. The economic crisis has put a stop to that.

Any international economic crisis afflicts different countries in different ways, but an unfortunate few experience every painful dimension of it. In the current crisis, Russia is confronting virtually all the negatives at once–sharply declining export earnings from energy and metals, over-leveraged corporate balance sheets and a chorus of bailout appeals, a credit crunch and banking failures, a bursting real-estate bubble and mortgage defaults, accelerating capital flight, and unavoidable pressures for devaluation.


The Russian stock market is down 70 percent from late spring. The government has burned through more than 20 percent of its foreign-exchange reserves since August. The outflow of capital in October alone was $50 billion. Next year’s budget is based on a projected average price for oil of $95 per barrel; now budget planners have to work with forecasts of $50 or lower. Since Finance Minister Alexei Kudrin has said that Russian government spending goes into deficit at $70 per barrel, pressures for spending cuts are starting to mount. Severe reductions have already been announced in housing and education programs.

Russians, it seems, at last have an answer to the question they have been asking since the economic collapse of 1998: Can anything approaching that crisis happen again? The vast hard-currency reserves they accumulated during years of high oil and gas prices (and thanks to conservative fiscal policies) make it hard to imagine that Moscow might default on its debts anytime soon. Yet the very fact that this crisis has engulfed the country at a moment of high confidence in the future has made it in some respects even more shocking. Debate about how it is being handled, how far it will go, and what changes it will bring with it is becoming intense and much more open.

Newsweek