In response to the doomsayers, Putin pointed out that the Russian federal budget showed a net surplus of over 900 billion rubles (about 25 billion USD) for the first eight months of the year. This surplus amounts to 2% of the GDP, which is in stark contrast to the deficits run by all major Western countries.
This flies in the face of the assorted domestic liberal analysts and their Western peers who have been telling us for the last few years that Russia needs an oil price of close to $120 to balance the budget. It was no use trying to point out to them the logical conclusion, which entails from the facts that the Russian budget is denominated in rubles and that the Russian currency is the ruble, which would devaluate in pace with the decrease of the oil price, thus bringing the budget to a new level of equilibrium with a lower oil price. Events have now proved me right on this.
Correspondingly, the devalued ruble rate will increase profits in all other export sectors and thus replenish the tax coffers. Less competition from Western imports will also cushion the domestic sector industries. The battered Eurozone countries can only envy Russia for having its proper currency to enable such adaptation.
Putin stressed that even under these extraordinary conditions Russia will not need to increase the tax burden on businesses. Neither does Russia experience any EU-style cuts in welfare and retirement benefits; on the contrary Russia will continue investing in the social sphere.
There would be a big problem with the ruble depreciation were it to fuel inflation, but so far there are few signs of this. Putin pointed out that as of today the inflation expectations by the end of the year range from 7.5- 8 percent. This is of course high in comparison with what is usual for the Western countries but it is in fact only slightly higher than last year’s 6.5 percent.
The rise of the inflation rate is minor indeed, if we relate it to the decrease of the currency rate at a level of 30 percent. Putin assured that the hike in inflation would be of limited durance.
I agree. A certain period of time will naturally be needed to build up the logistics for alternative imports and for domestic replacement production.…Russia Insider
Putin Makes Compelling Case at Investment Conference
Jon Hellevig | managing partner of Awara Group
3 comments:
Putin's got the whole thing backwards. That's the ONLY reason Western sanctions are having any effect.
Russia recently instituted a sales tax and raised its VAT tax. Japan redux?
The Russian Harmony party came in 1st in the parliamentary elections this weekend in Latvia. Since Latvia is part of NATO, it will be interesting to see how Russia cautiously retakes the country into their sphere. They will have to use politics and referendums to have the people appear to cast-off NATO and Europe. It will undoubtedly be a test of restraint for all sides. Might go smoothly with parliament under control, he should be able to accelerate 'reforms' and bring the country out of Europe without too much violence.
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