Putin's Limited Options to Restore Growth

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Thus, in Russia today, the policy of actively pumping money into the economy is more likely to have different consequences than in countries with a strong national currency. Instead of stimulating the work of the economy, this money will descend on the currency market and undermine the ruble’s position. And if the ruble falls, banks will stop lending money to industry, construction, and retail, as it will be much easier for them to make money from currency speculation.

Putin is very afraid of this. He is far more afraid of a disobedient ruble than a disobedient opposition. For the political opposition in Russia does not yet have the support of the people, while Russians like their savings very much, and will not keep them in rubles, even if the Russian national leader Vladimir Putin would like them to.

THE CORRUPTION EFFECT

A similar scenario applies to the possibility of using budget funds to prop up the economy. Recent months have shown that the government actively spends money on pursuing social policy, ignoring major state investments, which some experts and politicians think could create a demand for goods and stimulate the economy.

The fact is that every ruble spent on paying public sector salaries, or pensions to the elderly, probably does create a demand: for groceries, clothes, and medicine. But a ruble spent on state investments will probably not reach its goal and will go to the currency market, where it will be spent on buying dollars or euros. This can be explained by the high level of Russian corruption. The government is incapable of controlling how the money it allocates is spent. Even if after some time it really is spent on building roads or supporting industrial enterprises, in the short-term perspective banks will probably play with money on the currency market. And this will become a serious threat to the stability of the ruble.

So all in all, Vladimir Putin is just not in a position to pursue an anti-crisis policy. He can only hope that as the world economy emerges from the crisis demand for oil will rise, restoring the flow of petrodollars into Russia and strengthening the ruble. If this happens, the Russian economy will gradually recover.

But so far all Putin can do is order bankers to give loans to the economy, and not play the currency market. Who knows, Sberbank and VTB loans might just be able to give a bit of a boost to production.

Provided by Transitions Online—Intelligent Eastern Europe

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