PUTIN'S SHORT SIGHTED ECONOMIC POLICY RELIES TOO HEAVILY ON FOSSIL FUELS

 

For a while, surging sales of fossil fuels and gas prompted an economic renaissance of sorts for Russia, and Putin capitalized on it by making such sectors the centerpiece of his economic strategy. 

But the revolutionary fracking techniques employed in the US and other countries has freed many of them from the shackles of imported gasoline and gas.  What that means for Russia, and Putin, is that the sector's revenues are shrinking fast, and the heavy reliance on those exports has meant that there is no other sector to fill in the void once oil and gas sales peter out.  

The economy is slated to grow at a measly average of 2.5% until 2030, a staggering blow to an country whose growth was at 7% for almost a decade. 

This year, that growth is even lower, expected to tally in at 1.7%.  

One of the greatest problems faced by Putin is population contraction, due to very low life expectancy, one of the lowest in the world in fact, and low births, which threaten to contract the population even further than its almost 20% that has occurred in the past quarter century.  

The other problem bearing on the Russian economy is its military budget.  For a country that barely makes it to the 140 million in population, its military arsenal and budget rival that of countries whose population is multiples of its own.  Russia is also looking to the East, to China, with a worrisome eye.  Russia has a powerful arsenal, but also an enormous landmass and borderline to defend. 

The country is also rife with corruption and nepotism which prevent foreign investment and also inhibits free market enterprise and the development of a healthy economic sector in which people are able and free to open new businesses.  The judicial system is little more than an extension of Putin's own executive powers, making recourse for business owners difficult at best.  Successful enterpreneurs who are able to carve out a market for themselves risk takeovers and jail, in some cases, as was exemplified by the Khodorkovsky case.  

Without a healthy business sector to replace the energy sector, the Russian economy could come to a veritable halt.  Although Russia had become a powerful members of the BRICs, its status in the future might very well be compromised if its economy stalls. 

Russia's central bank, has already sent out a warning on Russia's diminished prospects, even though it has kept the interest rates at a modestly high 5.5%.  Although this signifies that the rates will not go higher, it also means that the central bank is expecting very low foreign investment and diminished demand of Russia's main exports. 

Although under Putin Russians have seen their income rise by almost 20% of the OECD average, that period of well being will not continue and may even regress, since oil prices have since then decreased and demand diminished.  

Already unemployment and inflation are making a strong comeback.  Without a strong private sector, Russia has nowhere to go to continue growing.  

Partial Source : 11.10.13