The Kremlin’s Economic Balancing Act

The World Bank has a new report out with a pretty gloomy outlook on the Russian economy, as though the political burden weren’t already heavy enough on Alexei Kudrin’s shoulders.  Moscow may be attempting to build a “new global financial architecture,” but these forecasts from the old one, though not definitive, still matter.  Obviously the critical puzzle will be fiscal policy – how much the state spends, how much it saves, while keeping everybody happy in conditions of rising unemployment.  From The New York Times:

As the global recession deepened last winter, Russia spent about $200 billion, or a third of its precrisis foreign currency reserves, defending the ruble during a gradual devaluation. This spring the tables quietly turned as oil prices rose, and the Russian Central Bank has made back about $30 billion since March by intervening to prevent the ruble from appreciating, the report said.

Yet other factors are weighing on Russia’s prospects, the World Bank report said. A swoon in domestic demand, worse-than-expected global growth, tight credit and declining infrastructure investment are taking a toll, it said.

Thereport did note some signs of recovery in Russia’s economy, includingearnings for companies and the budget from the higher oil prices.

Still,because of the worsening outlook, millions of Russians will slip backinto poverty, the bank predicted. The percentage of the populationliving in poverty, which had been on the decline for the last decade asRussia seemed to put its post-Soviet economic woes behind it, will riseagain. The bank projected Russia would end the year with 17.4 percentof the population, or about 24.6 million people, living in poverty.

Russianpolicy makers, the report said, would increasingly find themselvesperforming a “balancing act” of maintaining macro-economic stabilitywhile meeting growing demands for social spending as poverty spreads.