Finance
How The Ruble Crash Could Strengthen Putin
The Russian autocrat will be able to draw on his
favorite fuel: xenophobia.
By ZACHARY KARABELL
December 01, 2014
The ruble is crashing, but the Russian government isn’t going to any time soon. Ironically, Russia's economic distress might even make Vladimir Putin stronger.
The reasons for the ruble’s rapid decline – it’s dropped by nearly 13 percent against the dollar in November alone, and this week has seen more of the same—are neither obscure or surprising. Between sanctions imposed on Russia by the states of the West in response to a barely-disguised invasion of Ukraine and the plunging price of oil, the Russian economy has been severely and negatively impacted. According to Russia’s finance minister, in fact, the total damage will be about $140 billion this year, $40 billion from sanctions and $90-100 billion from oil prices that have slid thirty percent from their multi-year average at around $100 a barrel.
A seven percent hit to
any economy (and that is about what $140 billion is) would be cause for
concern. Imagine if Treasury Secretary Jack Lew announced that the U.S. economy
was going to shrink $1.2 trillion dollars; that news would hardly receive a
sanguine reaction. Yet Russia, for all the pain that the drop in the ruble and
the decline in oil is causing, does not seem in any immediate or even near-term
danger of political chaos or collapse. That says much about Putin and the
alternatives, or lack thereof.
First, Putin has
consolidated power to a remarkable degree over the past several years. There
may be credible opponents but if so, they are not evident and they must,
perforce, keep a low and guarded profile. The way that Putin has marginalized
opponents and maintained his control is itself a story, and it speaks to why
Russia today is not on the precipice of an economic collapse the way Russia was
the last time the ruble plummeted in 1998.
Second, there are the
Russian foreign reserves. While the size of the reserves and the way they are
accounted for is the subject of considerable debate, they are certainly at
least several hundred billion dollars and possible as much as the official
figure of more than four hundred billion. That may not be enough to float the
economy if oil prices stay depressed for years, but it is sufficient to given
Putin and finance officials some room to maneuver.
That alone makes Russia
today different from an indebted and imploding Russia of 1998. The other is
that Russia then was seeing the break down of the state and its authority,
whereas Russia now is seeing the extension of the state and its authority,
namely in the personal sphere of Putin.
It is hardly breaking
news requiring expert analysis that Putin has consolidated power, nor that he
remains quite popular in Russia, with August polls registering approval ratings
in the mid-80s. He astutely mixes Russian nationalism and aggrieved pride at
various humiliations at the hands of the United States and western powers since
the fall of the Soviet Union. The annexation of Crimea earlier this year and
the repeated semi-covert incursions in eastern Ukraine are part of that mix,
along with closer ties with the Russian Orthodox Church and a media that often
acts as public relations arm of the government.
No, Russia cannot
sustain itself endlessly in the face of plummeting energy prices and the
attendant sag in commodity prices worldwide. It has currency reserves, but
those cannot bridge the gap between what the economic generates and what it
requires if prices do not rise in the future. Putin can stoke nationalism, but
as billionaires flee the country and the urban middle class grow disenchanted,
that will erode the very Russian power he so ardently seeks to revive.
That said, the rush to hyperbolic commentary about the dire effects
of a crashing ruble is just that. It is Ukraine that is in danger of defaulting
on its debts, not Russia. Venezuela is truly a society on the verge of societal
breakdown (if not de facto there already). Russia seems very far from a danger
zone, let alone a political and social upheaval brought on by low oil prices.
In fact, you could name a dozen other countries in greater peril from this
shifting landscape, ranging from Iran to Iraq to Saudi Arabia to Nigeria.
Russia is an economy
tethered to oil and commodity exports, yes, but it is a society that has
withstood much worse in the past century plus. Unlike the United States, it is
also a society that on the whole has lower expectations for material affluence,
and in times such as these, that constitutes a strength. It is easier to
tighten belts, as the Russian foreign minister recently suggested, when the
belts were never particularly loose or generous to begin with.
The not-so-veiled
chortling in the United States and elsewhere that lower prices will force
changes in Russia is, therefore, premature at best. If anything, lower prices
could lead to more xenophobia and nationalism, and more Russian aggression over
Ukraine and natural gas to Europe as Putin finds other ways to maintain power
and prestige at home. It also is leading Russia to attempt to build stronger
ties with China, as a way to inoculate itself from vulnerability to Western
markets and finance. And Putin surely realizes that commodities are a risky
foundation. No one country can control prices and being dependent on
commodities means that you are never in control of your own destiny. This
recent shock is one more spur for Russia to make more of what it needs itself,
if it can.
Finally, as we see in
much of the world, it takes a lot to plunge a society into chaos, and it takes
a long day for states to decay. Many of the world’s most lawless states never
had a strong state to begin with, especially throughout sub-Saharan Africa. Few
of the truly chaotic zones had a strong government, save for Iraq, whose
governing structures were destroyed by war and occupation.
So while a weak ruble
and a weaker economy may spell pain and trouble for Russia, that may mean
little in terms of the government, international relations, and the near future
of Putin and Putinism. Long term, maybe, but long term who knows about any
country?
Things could even get a
lot worse for those who fear Putin before they get better. The weak ruble,
domestic Russian inflation, Putin policies, all force Russia ever inward, which
is where many in Russia may want it to be. These international currency and
commodities moves confirm trends already in place rather than shifting the
trajectory of Russia and its relations with the world. Relations have been cool
for some time; now they are a bit cooler. But this isn’t a new Cold War, nor
the brink of World War III, not yet at any rate.
All it is is a very weak
currency of an economy the size of Italy encompassing a country fifty times
larger, inhabited by a hundred and forty million people with one man dominating
the government. The ruble is one variable, and only one. Things are bad; they
would need to get much worse to force any real change.
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