Tuesday, December 23, 2014

Chris Weafer — Putin stays

Although not saying so publicly, the Kremlin has adopted a deliberate strategy –to let the rouble continue falling and accept the painful economic consequences over the medium term as the 'lesser of two evils.' The weak rouble protects the country’s budget revenues and provides a soft stimulus for domestic manufacturers. It allows the country to survive the crisis but at the expense of growth and investment flows, both of which are being sacrificed over the medium term in order to try and remain in a relatively better shape to recover after the crisis and also to ensure that any loss of public support for the government is contained. As the Kremlin sees it, trying to limit the decline in financial reserves in order to protect the budget, and to preserve the investment grade rating, is a better strategy than burning though the money while oil remains weak.…
Open Democracy
Putin stays
Chris Weafer, co-founder of Macro Advisory, and former Chief Strategist at Sberbank CIB


Matt Franko said...

"The weak rouble protects the country’s budget revenues "

How is this supposed to happen? ??

How does a weak rouble 'protect' tax receipts?

The thing that we have to look for over there is if they somehow are led to take a page out of the austerity book in all of this...

I think if they can avoid austerity coupled with the other fiscally supportive things we know they are already doing... they are going to come out of this looking pretty smart...

Tom Hickey said...

"I think if they can avoid austerity coupled with the other fiscally supportive things we know they are already doing... they are going to come out of this looking pretty smart..."

So far Putin is smart enough to realize this. The purpose of sanctions is to make the Russian people hurt enough to effect regime change themselves. Putin knows that this is Washington's strategy and will do all in his considerable power to counter it.

I was initially opposed to the rate hike since it would cripple domestic investment, but they realize that and have taken steps to provide inexpensive loans to firms. The government is also putting pressure on corporations to disgorge their USD to take pressure off the ruble. This is the advantage of having a more centralized and powerful government when push comes to shove.

Same goes for China. They are taking steps to neutralize the influence of foreign powers within the country. HK was a wakeup call, reminding them that they are under attack by Western clandestine operations.

This is not say that there is not genuine popular support for change in Russia and China. But without organization and direction it is rather powerless. Organization, direction and funding is what the clandestine operations provide under the cover of NGOs, for instance, as well as other foreign presence including diplomatic. The aim to spark "color revolutions" that appear to be entirely grassroots.

Then there is also the possibility of the fifth column operating within the government itself. This seems to be more an issue with Russia than China, however, since Russia in the Yeltsin years was under neoliberal control.

This is both a thorn and a rose for Putin, since the majority of Russians did very poorly under neoliberalism and the rule of the Russian Mafia, but it also leaves a contingent in the Russian government and oligarch that want to return to the good old days of looting the country. Not that Putin has totally eliminated that but he has limited it enough to have high popular support.

Tom Hickey said...

"The weak rouble protects the country’s budget revenues "

How is this supposed to happen? ??

An export lead nation receives foreign currency that is worth relatively more than the ruble was previously. Since the ruble is the unit of account in Russia the effect is to increase the transaction amounts. This devaluation may lead to inflation so the deflator adjusts to reflect the real behind the nominal. But the nominal figures are larger even though the economy may be contracting in real terms.

What this means practically is that most people don't pay attention to the fx rate but rather the price level. How many people in the US are aware of the strengthening dollar unless they get it from the media? Only (some) business people are affected and care.

So what he is saying is that Russia doesn't get rubles from abroad, only foreign reserves. The sanctions don't directly affect the budget although they can through goods inflation and falling real wages. Putin has said that he understand this and is taking steps to ensure that the public is impacted as little as possible while at the same time Russia continues to take steps to broaden and deepen the economy, reducing reliance on exports and also breaking away from Western markets and developing other source for imports and exports, and non-dollar finance.

Putin further understands that the US regard this as a zero-sum game it has to win, and knows he has to win for Russia to survive as an independent, sovereign, and non-vassal state. He is banking on China, India, and the rest of the emerging world realizing this, too. since each of them is on the list and they either stand together, or they will fall to the Empire separately.

Matt Franko said...

Tom I think the people on our (US) side are simply not competent to successfully judo this thing for us.. not that I think the Russian leadership are the sharpest tools either they might just stumble into success here by luck imo...

Blind vs blind here imo.... rsp