With all the national attention on race rioting and police brutality, and now North Korea and the terror threat against Sony Pictures, it’s been a while since Vladimir Putin has been viewed in our scope. He’d probably like to keep it that way in spite of his affinity for gaining fixated stares from a curious global audience.
Nevertheless, trouble has been brewing for him and Russians since their currency has been taking hits for months. Mother Jones explains what’s been happening, what’s to blame, and how people are reacting.
Early Tuesday morning, Russia made what may be a last-ditch effort to save its economy: the country’s central bank jacked up interest rates to try to prevent the ruble from plunging in value for the sixth time this year. But the currency hit record lows anyway, sparking worries of economic collapse—and political instability.
Russian television channels are reportedly telling citizens that the weak ruble is good—that it will stimulate domestic production and make exports cheaper. And Russia is expected to keep blaming the West for the collapse; an opinion poll,translated by Time, confirms that most Russians are still happy to believe that.
But Harley Balzer, a professor at Georgetown University and an expert on Russian domestic politics and economy, spoke to a few Russians after the announcement: “People are really scared,” he tells Mother Jones. “The few Russians I’ve spoke to have been in a state of what I’d call shock.” And, he says, Moscow isn’t explaining what’s actually going on very well. “Signals coming out of Moscow have been contradictory…people don’t have enough information.”
Why is this happening?
Russia is being hit hard “primarily by the oil prices,” Baker says. Russia gets around half of its budget revenue from taxes on oil and natural gas, and as long as the price of oil is plummeting, its economy is likely to continue sinking.
Is it all about oil?
Not necessarily. An unbalanced pension system, inflation, and the harsh US and European sanctions have also damaged Russia’s economy in the past year. Sometimes, a less-valuable currency can help a country by making its products cheaper abroad, increasing exports. But Russia doesn’t have much domestic manufacturing, so it can’t take advantage of the ruble’s decline that way. “Russia doesn’t make anything,” President Barack Obama told The Economist in August. “They need to start making their own stuff,” says Balzer. “Right now they make stuff people don’t want to buy, they’re using foreign technology instead of their own. That’s silly.” Baker notes “There’s a lot of corruption there, that certainly precedes [Russian leader Vladimir] Putin. It all creates a very bad mix, and there’s not a good way out.”
What will Putin do?
The ruble’s collapsing value will definitely put pressure on Putin to explain himself and his plans to fix it. But some experts believe Putin might keep getting away with blaming the disaster on the West, at least for a while. “In the short term, he keeps blaming the West,” Balzer says. Putin is largely in control of Russian media sources, Balzer explains, and there is not enough outside information pouring in. “But this is not a short game, this is a long game,” he adds. Balzer predicts that in a year’s time, the sanctions will start hitting Russia much harder, and Russians are going to start asking more questions of their government. “Over time, that’s gonna stop working,” he says.
According to Balzer, Ukraine and the Baltic nations are already pointing out the flaws in Putin’s blame-the-West strategy. And, as the Russian people get more information, they’re bound to become disillusioned.
Michael McFaul, a political science professor at Stanford University and the former US ambassador to Russia, also believes Putin will “hold” the status quo rather than lash out or fold in response to the crisis. “I don’t see how more military aggression would help Putin domestically,” McFaul tells me in an e-mail. “Nor do I see Putin offering concessions in eastern Ukraine, first because that is not his character, and second because he must understand that it is Saudi actions, not Western sanctions, which are exacerbating his economic woes.” (Saudi Arabia’s refusal to cut oil production is perhaps the biggest factor in the huge decline in oil prices.) McFaul doesn’t think that lifting US sanctions would “stop the bleeding.”
German news source Deutsche Welle covers the effect of the ruble crisis on average Russian workers. As you read this, as yourself, Are Russian hair stylists and grocery workers that much different than American?
The cost of a haircut and color? 6,000 rubles. The look on your hairdresser’s face when you show her how far the ruble has dropped in one day? Priceless. Marina clutched her hand to her mouth and gasped as she stared at the currency converter on the mobile phone showing just how far the ruble had plunged on Tuesday.
It read 72 rubles to the dollar, but that wasn’t the lowest point it reached. At one stage it was down to 79, despite the government’s attempt to stop the freefall by raising the Russian Central Bank’s interest rate from 10.5 percent to 17 percent.
Since the sanctions started in July, Russians have been steadfastly saying “we’ve been through this before, we can do it again,” but now, with the drop in oil prices driving the ruble lower, the mood is changing and they’re realizing that this time the economic collapse will be different.
The economic crisis of the 1990s was bad – with hyperinflation and collapsing banks, but at that stage Russia still had the hangover of the Soviet Union’s albeit artificially high employment levels and very little exposure to credit. Now, the tables have turned and the country has taken to borrowing likes ducks to water.
In 2012 Russian’s had borrowed $238 billion, according to the Central Bank. Personal loans for cars and mortgages are the most popular forms of credit, but apart from the banks there’s a growing industry of ‘easy credit’ with advertisements plastered in public places offering cash within an hour, no documents required. But as interest rates on lending rise, it won’t be easy to make repayments.
“This is a nightmare. It’s very different to last time, it’s a disaster,” says Marina, a 38-year-old hairdresser. She predicts a massive wave of unemployment.
“Thank God I’m a hairdresser,” she says. “People always need their hair done, but I think many, many people will lose their jobs.”
She was just about to buy a new car, “nothing flashy, a Ford Focus,” but now with higher interest rates and a crashing ruble, she’s thinking twice.
“I don’t think I’ll be able to do it. I won’t be able to make the repayments,” she says.
Over the past few weeks there has been a rush to buy new cars and big-ticket appliances like refrigerators as people fear a price hike in the New Year, but Marina knows that if she got into trouble and had to sell the car she’d only get about one third of what she’d paid for it, which wouldn’t be enough to cover the value of the loan.
Mortgages in dollars and euros.
Alexsei, a fire truck driver with a salary of around 65,000 rubles a month isn’t too worried about his car repayments as he’s on a fixed interest rate. He says he’s one of the lucky ones because he didn’t take his loan in dollars or euros, even though they were offered at a lower rate. “It’s going to be really hard for people to repay those,” he says.
Food prices have already risen, and it’s expected they will rise far more. His main concern is food prices. The price of grechka, a buckwheat cereal and staple of the Russian diet, has doubled due to a poor harvest, and products like sugar, flour and bread have also gone up. Fortunately many supermarkets were well stocked so the prices of foreign products allowed in under the sanctions have only just started to rise, but it’s believed they will skyrocket as new stock comes in.
Alexsei has a small child and his wife, Irina, is nearing the end of her paid maternity leave. “I was hoping that Irina would be able to stay at home for longer, but if the ruble keeps going down, and prices go up, she might have to go back to work sooner than we’d hoped to help support the family,” he says.
Both his parents are pensioners. His father recently had an operation to remove part of his right lung due to lung cancer, and he worries that rising prices will have a serious impact on them, especially if the price of imported medicines goes up.
Nikolai, a retired foreign language professor rents out his Moscow flat and is building a dacha, or country house, not far from the city. He says the cost of building goods has risen substantially over the past couple of months. He tried to raise the rent on his apartment, but the tenants threatened to move out, so he changed his mind. “There are so many places on the market now, it wasn’t worth taking the risk of having the place empty. Then I’d have nothing.”
Alexander, a middle manager for a multinational wasn’t so lucky when it came to his rent. “My salary has just been slashed by more than 50 percent, but my landlord who lives in America wanted to raise my rent and charge me in US dollars. I had to move my family to the countryside. It now takes me an hour and a half to drop my child at pre-school and get to work, and I’m doing that on three winter tires. The fourth is damaged and I can’t afford to replace it.”
A test for Putin
Just a few weeks ago talk back radio was full of people saying the crashing ruble was all part of a conspiracy between the West and Saudi Arabia aimed at bringing Russia to its knees. Now the tune is changing.
Putin’s popularity could take a beating
“It’s the fault of Putin and the government. They’re all corrupt and have bled this country dry,” Nikolai says.
But while he may be feeling angry with the president, official figures say Putin’s approval rating in November was 87.5 percent – higher than it was at the height of the Crimean annexation. It will be interesting to see if the next set of figures are as good, or if his popularity will start to follow the same trajectory as the ruble.
New York Times Paul Krugman’s opinion of Putin, and his inability to put resources behind his scare tactics, resembles a snarky “And you think you’re SO big” that a playground bully deserves, in spite of many American’s infatuation with the bold, athletic Russian who resembles the epitome of a leader more than club swinging Obama.
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