Writing in the Wall Street Journal, Leon Aron sees two trends emerging in Russia that the West should play close attention to:
The first will be a growing dissatisfaction with the government, which may lead to a political crisis. The second will be a reactionary retrenchment: increased internal repression and more of its already troubling foreign policy. Managing the relationship with Moscow in the face of these trends is something President-elect Barack Obama and his administration should start thinking about now.
The size and depth of Russia’s economic problems — and thus the amountof political turbulence — will depend primarily on two variables. Thefirst is the ruble decline. The national currency is steadilydepreciating and has reached an all-time low against the euro despitethe central bank’s having spent $161 billion on its defense sincemid-September. The ruble’s losing at least 25% to 30% of its value is agiven; the key political issue is whether the weakening can be managedinto a gradual decline, or whether the depreciation turns into apanicky flight from the currency. (Already last September Russiansdumped around 160 billion rubles to buy $6 billion — the highestdemand for dollars since the aftermath of the 1998 financial crisis.)
The second factor is oil prices. Last year, oil revenues accountedfor at least one-fifth of Russia’s GDP and half of state revenues. At$40 a barrel, the state budget goes into a 3%-4% deficit. In the pasteight years, the national economy has mirrored fluctuating oil prices.So the 7%-8% growth projected for 2008 will have to be cut at best to1%-2% for 2009. Zero growth or contraction are distinct possibilities.
Sucha predicament is most dangerous politically for a country whosepopulation has become used to incomes increasing 8%-10% every yearsince 2000. Growing disappointment is sure to follow, first among theelites and then people at large.
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