A former deputy chairman of the Russian central bank has said Russia’s economic crisis is worse than Moscow admits and that the Kremlin’s optimism about future prospects "has not been based on reality."
Sergei Aleksashenko told SW on February 10 that "the Russian economy is not going to grow" in the near future "and the most likely scenario is stagnation in the medium term."
He said Russian authorities "have not acknowledged the real nature of the crisis, at least publicly" and the crisis "is not over, as the Kremlin claims."
"On the contrary," he said, “the Russian economy is set to continue downward."
The Russian economy has been hit hard by falling global oil prices and international sanctions imposed in response to the Kremlin’s illegal annexation of Ukraine’s Crimean Peninsula two years ago and its support for pro-Russian separatists in eastern Ukraine.
President Vladimir Putin has wagered that ordinary Russians will withstand the hardships brought about amid deteriorating relations with the West over his foreign-policy maneuvers.
But now, Aleksashenko said, Russia is experiencing a series of negative trends that, by his estimate, dragged down Russia’s GDP by 9 percent in 2015.
Russia’s state statistics agency said GDP fell by only 3.7 percent last year
"On the contrary," he said, “the Russian economy is set to continue downward."
The Russian economy has been hit hard by falling global oil prices and international sanctions imposed in response to the Kremlin’s illegal annexation of Ukraine’s Crimean Peninsula two years ago and its support for pro-Russian separatists in eastern Ukraine.
President Vladimir Putin has wagered that ordinary Russians will withstand the hardships brought about amid deteriorating relations with the West over his foreign-policy maneuvers.
But now, Aleksashenko said, Russia is experiencing a series of negative trends that, by his estimate, dragged down Russia’s GDP by 9 percent in 2015.
Russia’s state statistics agency said GDP fell by only 3.7 percent last year
Aleksashenko called that a "statistical miracle" that "does not reflect the real problems."
“As the saying goes, there are lies, damned lies, and statistics,” he said. “If we slice and dice [the official statistical data,] it would be evident that the only growing component of Russia’s GDP was net export.”
For all other components, investments in Russia have been decreasing.
Russia saw a growth in net exports during 2015 at least in part because imports declined -- a situation exacerbated by a weakened ruble and the Kremlin’s retaliatory ban on importing food and other products from the EU and the United States.
In fact, Aleksashenko maintained, there was no growth of Russian exports at all.
Aleksashenko said the real problems facing Russia’s economy are a lack of investment, high inflation, and the declining ruble, which has lost half of its value against the U.S. dollar since early 2014.
Russian authorities have responded to lost Western export markets by announcing that Russia’s future growth will rely more on domestic production and, especially, with developing new trade ties in Asia to replace the loss of exports to the West.
Putin has pushed during the last two years to expand influence in Asia by developing Russia’s eastern territories and integrating them more with developing economies in the Asia-Pacific. That geopolitical strategy hinges on Russia’s potential to become a major supplier of oil, natural gas, iron, steel, and other raw materials to China and other Asian countries.
But Aleksashenko said the Kremlin’s talk of “a pivot to Asia” to fuel Russian growth is not supported by market realities.
“We should not treat the Chinese market as a substitute for the European one,” he said. “This natural gas is provided from different deposits and fields” that are as much as 2,000 kilometers apart and unconnected.
Further, he said, the bulk of Russian exports -- as much as 80 percent -- consists of raw materials and commodities.
But the economic slowdown in China has eased the global demand for such products.
“As the saying goes, there are lies, damned lies, and statistics,” he said. “If we slice and dice [the official statistical data,] it would be evident that the only growing component of Russia’s GDP was net export.”
For all other components, investments in Russia have been decreasing.
Russia saw a growth in net exports during 2015 at least in part because imports declined -- a situation exacerbated by a weakened ruble and the Kremlin’s retaliatory ban on importing food and other products from the EU and the United States.
In fact, Aleksashenko maintained, there was no growth of Russian exports at all.
Aleksashenko said the real problems facing Russia’s economy are a lack of investment, high inflation, and the declining ruble, which has lost half of its value against the U.S. dollar since early 2014.
Russian authorities have responded to lost Western export markets by announcing that Russia’s future growth will rely more on domestic production and, especially, with developing new trade ties in Asia to replace the loss of exports to the West.
Putin has pushed during the last two years to expand influence in Asia by developing Russia’s eastern territories and integrating them more with developing economies in the Asia-Pacific. That geopolitical strategy hinges on Russia’s potential to become a major supplier of oil, natural gas, iron, steel, and other raw materials to China and other Asian countries.
But Aleksashenko said the Kremlin’s talk of “a pivot to Asia” to fuel Russian growth is not supported by market realities.
“We should not treat the Chinese market as a substitute for the European one,” he said. “This natural gas is provided from different deposits and fields” that are as much as 2,000 kilometers apart and unconnected.
Further, he said, the bulk of Russian exports -- as much as 80 percent -- consists of raw materials and commodities.
But the economic slowdown in China has eased the global demand for such products.
“Therefore, Russia cannot sell more,” he said. “Of course, Moscow would like to rely more on exporting armaments. But that accounts for just about 5 percent of overall Russian exports.”
Russia also has tried to export cars to neighboring countries, he continued. But that accounts for less than 2 percent of exports.
Thus, he said, “external demand cannot be a significant driver of the Russian economy.”
Nor can domestic production, he added.
Russia also has tried to export cars to neighboring countries, he continued. But that accounts for less than 2 percent of exports.
Thus, he said, “external demand cannot be a significant driver of the Russian economy.”
Nor can domestic production, he added.
Agriculture is the only sector of the Russian economy that has shown continuous growth, expanding at an average of 3 percent each year since 2003. But agriculture’s share of Russian GDP is just over 3 percent.
Aleksashenko estimated the Russian agriculture sector would have to grow by 10 percent each year to become “a significant factor in overall growth of the Russian economy.”
And that, he said, “is not doable.”
Despite the ongoing impact of international sanctions, Aleksashenko suggested that they no longer are playing a decisive role in determining Russia’s economic trends and have little effect at all on Kremlin policy decisions.
“Financial sanctions prevent many Russian banks and companies from borrowing money in foreign markets,” he said. “That played a huge role by the end of 2014 and at the beginning of 2015 when Russia had to replay its foreign debt, amounting to 10 percent of its GDP.”
But he said that burden fell dramatically to less than 3 percent of GDP during the last three quarters of 2015 and will continue to fall through 2016.
“It’s still a huge burden, but it cannot destroy the Russian economy.”
Aleksashenko was the Russian central bank’s first deputy chairman from 1995 to 1998 and was a deputy finance minister under President Boris Yeltsin.
He said that in late 2014 he was forced out of his job as editor of an influential economic newsletter published by Moscow’s Higher School of Economics due to his criticism of the Kremlin’s economic leadership.
He is now a senior fellow in global economy and development at the Brookings Institution in Washington.
Aleksashenko estimated the Russian agriculture sector would have to grow by 10 percent each year to become “a significant factor in overall growth of the Russian economy.”
And that, he said, “is not doable.”
Despite the ongoing impact of international sanctions, Aleksashenko suggested that they no longer are playing a decisive role in determining Russia’s economic trends and have little effect at all on Kremlin policy decisions.
“Financial sanctions prevent many Russian banks and companies from borrowing money in foreign markets,” he said. “That played a huge role by the end of 2014 and at the beginning of 2015 when Russia had to replay its foreign debt, amounting to 10 percent of its GDP.”
But he said that burden fell dramatically to less than 3 percent of GDP during the last three quarters of 2015 and will continue to fall through 2016.
“It’s still a huge burden, but it cannot destroy the Russian economy.”
Aleksashenko was the Russian central bank’s first deputy chairman from 1995 to 1998 and was a deputy finance minister under President Boris Yeltsin.
He said that in late 2014 he was forced out of his job as editor of an influential economic newsletter published by Moscow’s Higher School of Economics due to his criticism of the Kremlin’s economic leadership.
He is now a senior fellow in global economy and development at the Brookings Institution in Washington.
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