A common image of Russia which I grew up with in the 1990s was corrupt and incompetent bureaucrats and a stagnant economy. In fact, the Russian economy had negative economic growth every year in the 1990s, except for 1997 (+0.3%) and 1999 (+2%). Beginning in 2000, the Russian economys fortunes began to change. The Russian bureaucrats continued to be corrupt and inept, but Russia was one of the BRIC nations boasting of a super-charged growth story. At least one commercial on television showed a smart looking investment banker putting his money in a business in Finland and gazing like a starry-eyed visionary at the growing and illimitable Russian market across the Russo-Finnish border. Well those days have ended. The economic sanctions implemented against Russia, in response to Russian President Putins machinations in Ukraine, have been criticized as too weak. Yet these sanctions were imposed on an economy that was already losing steam. Russia had little trouble growing at an impressive rate when its GDP per capita was still very low and oil prices were high. But by 2008, Russias GDP per capita qualified it as a middle income country, which meant that it could not continue to grow at an impressive rate off the back of high oil prices. The Russian government needed to root out corruption, strengthen the rule of law, privatize remaining state-owned industries, invest in modern infrastructure, promote manufacturing and high tech industries, and establish straightforward and effective regulations for business in order to continue on its growth path. Russia failed for the most part to do any of these things. In 2009, Russias economy plummeted at a very alarming rate (- 8.7%) and its recovery was anemic, especially when compared to pre-2008 crisis growth rates of 6% or more. Before Russia annexed Crimea, the Russian middle income economy was growing at around 1% -- which was low even for a recovering high income economy. So yes, the economic sanctions on Russia may not be that tough, but nor did they need to be. As this article reveals, Russia faces inflation in excess of 8% this year, forcing the central bank to jack up rates to 9.5%. This banking decision will contain or perhaps reduce inflation at the expense of economic growth and job creation. Moreover, the Russian economy will have negative growth in the last months of 2014 and early months of 2015. President Putin, in short, may have shored up his political legitimacy by annexing Crimea, but his popularity is in danger of being seriously undercut as Russians awaken to the difficult economic realities on the ground. bbc/news/business-29848940
Posted on: Sat, 01 Nov 2014 14:09:17 +0000
Trending Topics
Recently Viewed Topics
© 2015