R In BRIC Stands For Risk
A cluster of reports today contain unfavorable assertions about the Russian economy. Firstly, the BBC suggests here that there is a growing disparity between the Russian bear and fellow Bric members Brazil, China and India whose economies are modernizing with alacrity on the back of a demographic explosion, whilst in Russia a creaking infrastructure and dwindling population are kept afloat only by the flood of petrodollars.
News of Russia’s lackluster economic performance is seconded in the Moscow Times, which says that the Russia Competitiveness Report 2011 has placed the country 63rd out of 139 countries in terms of competitiveness. Sberbank’s German Gref, who contributed to the report signaled ‘new drivers of growth are needed for Russia to achieve sustainable development’. In other words, low educational standards, a natural resource-based economy, unstable financial markets and outmoded institutions all have Russia languishing behind its fellow Bricees. But is is Yulia Latynina in a Moscow Times op-ed who conveys concerns about the economy most vociferously, in typically coruscating style. It is not just petrodollars which are, to her mind, the problem, but how they are being siphoned off. She argues:
Clearly, the amount of oil revenues being laundered is much higherthan what is being reported. The Central Bank’s figure of $38 billionlost to capital flight and President Dmitry Medvedev‘s figure of 1 trillion rubles ($36 billion) embezzled in state contracts do not jibe with each other.
The second way to sterilize extra money is the stabilization fund.
Only two years ago, the government was able to balance its budgetwith oil prices at $64 per barrel. A year later, $80 per barrel wasrequired. According to analysts, the 2012 budget will be balanced onlyif oil reaches $120 per barrel, and this is not even counting thebottomless pit of the pension fund.
So if state expenditures are not covered by the budget itself, thegovernment can always dip into the stabilization fund. This meansopening up the money faucet and triggering even more inflation.
Inflation is rising, and the ruble is gaining strength. But in fourto five years, those unearned petrodollars that are flooding — andsinking — the economy thanks to runaway corruption will lead to theruble’s collapse.
Under Prime Minister Vladimir Putin‘smodel, it is impossible to stop the corruption, and its negativeeffects can only be mitigated through capital flight. This could easilyresult in a revolution or, at the very least, serious social unrest.
