On Russia’s “Black Tuesday” yesterday (16 December), the Central Bank tried to stop the ruble’s value falling by hiking interest rates. It didn’t work. The bankers and corporations panicked; the ruble kept falling. It has now lost half its value in six months. The main cause is the falling price of oil, on which the Russian economy is heavily dependent.
Now Russian people are likely to pay the price, with inflation, unemployment and falling living standards. More than at any time since president Vladimir Putin became the Moscow elite’s dominant figure 15 years ago, he is likely to face a population troubled by serious economic hardship.
Putin’s government has shown that, to deal with social unrest, it is prepared to use tools ranging from
beatings and jailings (used against the Bolotnaya anti-government marches in Moscow in 2012) to incitement of military conflict that wrecks cities and divides communities (used in response to the protests and overthrow of government in Ukraine).
Here are some points that might contribute to an analysis.
Q. What are the underlying causes of Russia’s economic problem?
A. Russia has become a subordinate player in the world economy, relying overwhelmingly on the export of oil, gas and metals. During the oil boom of 2002-08, numerous plans to diversify the economy away from these export commodities were drawn up, but none were successfully implemented. So Russia emerged from the boom more dependent on these exports than ever. In 2012, the energy sector (oil, gas, coal and power) Read the rest of this entry »