When Vladimir Putin was president, he liked to give short, somewhat ironic answers to difficult questions. In 2000, for example, when U.S. television talk show host Larry King asked him what happened to the Kursk, Putin answered, "It sank."
Now that Putin is prime minister, he spends less time on defense and foreign policy matters, and much more time dealing with the country’s economic problems.
Thus, we might ask him, "Vladimir Vladimirovich, what happened to the stock exchange last week?" His answer might very well be, "It sank as well."
In fact, the market has been taking a series of record plunges, just as it used to make record gains. So far, the global crisis has affected Russia’s financial sector in terms of high inflation and a declining stock market.
It has also led to a weakening of the banking sector. It seems that every other week another Russian bank runs to the government asking for a loan from the state pension fund. Bankers probably were thinking that most Russians won’t live long enough to become pensioners anyway, while the banks desperately need the money today.
The U.S. financial crisis highlights how misguided Russia’s economic course has been. Russia invested about $100 billion of its $568 billion gold and foreign currency reserves in U.S. mortgage giants Fannie Mae and Freddie Mac. The 40 percent fall in the share prices of these huge lending companies raised serious questions about their solvency and ability to honor their debt obligations, including the $100 billion that Russia invested from its reserves.
Many Russian analysts, business people and government officials are trying to calm the public with the argument that the U.S. mortgage giants are a long way from bankruptcy, meaning that roughly 18 percent of Russia’s gold and foreign currency reserves that were invested in those companies will not be lost. They are trying to convince us that the global crisis will not affect Russia. They tell us that, although banks and mortgage firms all over the world are struggling to survive, Russia’s financial institutions will prosper. Although real estate prices are plummeting worldwide, experts say property values in Moscow and St. Petersburg will continue to climb, as if nothing alarming was happening.
In short, we are being told that Russian capitalism is self-sufficient, invincible and unique, not unlike Josef Stalin’s view of his socialist society. It is not entirely clear why our government and business leaders so zealously tried to open Russia’s markets and to pull us into the global economy if we now intend to lead some kind of solitary existence, isolated economically from whatever happens to the rest of the world. The main question is: What will we do when the global economic system collapses?
But bad news for the government is usually good news for the opposition. Who stands to gain here?
The liberals naively think that a fall in world oil prices will mean the end of Putin’s and President Dmitry Medvedev’s rule. But the opposition can seize and maintain power only if it has an alternative to offer. Unfortunately, it has few viable policies that differ from those held by the failed government.
This is the chief problem with Russia’s main opposition group, The Other Russia: It can only muster a comical alternative parliament like the National Assembly and poorly attended Dissenters’ Marches.
Boris Kagarlitsky, a fellow of the Transnational Institute, is a Director of the Institute of Globalization and Social Movements, Moscow. His latest book is Empire of the Periphery: Russia and the World System (2008)
The Moscow Times, 24 July 2008