RUSSIA’S ROAD TO ECONOMIC RUIN Ilan Berman and Amanda Azinheira

Gentileza Forbes.com
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You might not know it, but Russia is losing. The official narrative, promulgated by the Kremlin via its extensive propaganda machine, is that Russia is resurgent on the world stage, and that its status as a global power is increasingly unassailable. Over time, this take has become embraced in official Washington, to the point where it is now more or less conventional wisdom, at least on the presidential campaign trail.

The economic indicators, however, suggest something very different. Russia may be making big moves on the world stage, but after two years of U.S. and European sanctions over Ukraine (as well as a sustained dip in the price of world oil), the county's fiscal forecast is bleak–and getting bleaker still. In fact, 2017 could turn out to be a disastrous year for Vladimir Putin's government, unless it fundamentally changes political course.

As The Times of London recently outlined, the country's national reserves have shrunk by two-thirds since the start of hostilities with Ukraine in 2014, falling from £67 billion (roughly $88 billion) that year to barely £23 billion (roughly $30 billion) today. While the depleted funds have been used to bolster the hemorrhaging national budget, the larger economic crisis has plunged millions into poverty and all but eliminated the gains in living standards made in Russia in recent years.

Russia's "rainy day" plan, the Russian Reserve Fund (RRF), is among the hardest hit. Estimates now predict that the RRF may become insolvent as early as this year. Although the Finance Ministry is taking steps to avoid such an outcome by selling foreign currency to finance the budget, federal expenses are still depleting reserves at an alarming rate.

Increasingly, average Russians are feeling the pinch. A recent survey by Dozhd TV, one of the country's last remaining mostly-free media outlets, found that some 74% of Russians recognize that there is an economic problem within the country. An equal number believe price inflation represents the most significant problem they face, while half of respondents (49%) believe poverty to be the most pressing, and almost as many (43%) identified unemployment as the most acute issue. And while Russia's increasingly authoritarian political climate makes opinion surveys notoriously unreliable, the findings nonetheless suggest that trouble could be brewing for Mr. Putin's government.

All this, however, hasn't spurred a rethink in the Kremlin. With an eye on the country's recent parliamentary elections (which took place last month) and its upcoming presidential contest, scheduled for next year, Russian officials have doubled down on their current policy priorities. "The [finance] ministry is not planning significant cuts to Russia's expenses in anticipation of the State Duma and presidential elections," The Moscow Times confirms. Instead, "Russia will fill holes in its budget caused by a consistent decline in gross domestic product using funds and loans," with domestic borrowing predicted to increase "four or five times within three years." That, however, isn't a durable solution, because Russian state expenditures are steadily growing.

Moscow, for example, has reengaged its military in support of Syrian dictator Bashar al-Assad's regime in what is becoming an increasingly costly military commitment. According to Russian financial business news agency RosBusiness Konsulting, Moscow is spending up to 10 billion rubles ($150 million) monthly just on military contractors in Syria. Expenditures on regular forces, and on extensive military sorties against hostile targets, are costing still more.

Russia's newest territorial holding is also leeching funds from Kremlin coffers. The Crimean peninsula, which Moscow annexed in the spring of 2014 following a stage-managed political referendum, could be costingthe Russian government as much as $10 billion in added expenses every year, owing to Kremlin pledges to upgrade the area's infrastructure and social services. This, in turn, has left little funding for badly-needed investments in Russia's other regions, and bred widespread resentment among ordinary citizens
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Meanwhile, Russia's vast network of state-owned corporations is struggling to stay afloat, and necessitating more and more bailouts from the Kremlin. Over the past year, Mr. Putin's government has–among other measures–been forced to provide a substantial capital infusion to the country's main airplane manufacturer, and launch a large scale privatization effort in an attempt to shore up the country's ailing energy companies.

Russia's economy, in other words, is increasingly running on empty. Whether this translates into significant, sustained opposition to Mr. Putin's regime from the Russian "street" remains to be seen. But one thing is already clear: The Kremlin's claim to renewed global greatness is being undermined by less-than-savory economic realities at home. Western leaders truly interested in curbing Russia's potential for future aggression should take notice, and press their political advantage.
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