Russia Fading

[BiscayneSunrise]

A few months ago there was much angst about Russia's invasion of Georgia signaling new hegemony.

Bloomberg TV this morning reported that Medvedev economic adviser, Arkady Dvorkovich, saying the majority of the Russian economy will collapse within 10 years due to various structural problems. (sorry, can't find a link)

Putin knew this day was coming and was desperately trying to push out Russian influence before the inevitable collapse. It looks like that day will be coming sooner rather than later.

Obama has just recently decided to maintain the Bush policy of missile defense based in Poland, reversing his campaign promise. Russian thought the west would back off on this policy. No such luck. Now Obama is also cozying up to the Turks which will add additional pressure on Russians southern flank.

Russia is dying.

Perhaps our resident kremlinologist, medved, can comment.

[c1ue]

Re: Russia Fading

I'd be interested in seeing the full interview.

What you heard seems contradictory to what has been said just in the past week by the same person:

http://news.xinhuanet.com/english/20...t_11103124.htm

Currently there is no need to worry about the stability of the ruble's exchange rate, said Russian presidential aide Arkady Dvorkovich here on Monday.


"The situation is quite stable, and there is no way to add anything to this. I think there should be no concerns about the stability of the national currency in general," Dvorkovich told reporters at a briefing.
"The Central Bank will continue the policy aimed at ensuring stability on the currency market. And we will move gradually, not in fits and jerks, to a freer and floating exchange rate of the national currency," he said.

http://www.silobreaker.com/DocumentC...28040450834452

The Russian rouble rose to a 9-week high on Monday, cheered by five-month peaks in the price of Urals crude on Monday, and prompting the central bank to intervene for the third day in a row to stem currency gains.

Trying to keep the ruble from getting too strong doesn't seem like the action of a failing state. In fact, it is the exact opposite of what's happening in Iceland, Eastern Europe, etc.

[BiscayneSunrise]

Re: Russia Fading

I soon as I saw the piece on TV, I went to Bloomber.com to find the story there with no luck.

They only gave it about 10 seconds on the TV so there was no background.

However, we already know that Russia is facing a demographic meltdown in about 20-50 years.

The bigger problem Russia has, in my mind, is that with Putin taking power away from the oligarchs, he has put a chill on foreign investment and internally generated innovation. They can run off the intellectual capital and business infrastructure they already have in place for a while but then all their internal problems will finally rise up to smother them.

I believe that is what Dvorkovich may have been referring to.

Currencies are not my strong point. So I can't really speak to the Rubles strength. Having said that, I am thinking, where most exporters like to keep their currencies weak to encourage more exports. In Russia, keeping their currency strong is probably the best strategy when exporting commodities in market that will demand them regardless of cost.

[Slimprofits]

Re: Russia Fading

Comments were made while speaking at this conference:

X-th International Academic Conference on Economic and Social Development. Moscow, 7-9 April, 2009
State University — Higher School of Economics

April 8, Wednesday

10.00-13.30

"The world economic crisis and Russia’s role in getting over"

http://www.hse.ru/org/hse/apr_conf_eng/plenary

http://www.bloomberg.com/apps/news?p...d=ahmiVXVM5fAQ

The “overwhelming part” of Russia’s economy is so inefficient that “it doesn’t stand a chance of surviving in the next 10 years,” Arkady Dvorkovich, President Dmitry Medvedev’s top economic adviser, told a conference at Moscow’s Higher School of Economics today.

Dvorkovich reiterated the government’s position that state support should be directed toward “new efficient niches” of the economy rather than to inefficient sectors.

[medved]

Re: Russia Fading

A few months ago there was much angst about Russia's invasion of Georgia signaling new hegemony.

Bloomberg TV this morning reported that Medvedev economic adviser, Arkady Dvorkovich, saying the majority of the Russian economy will collapse within 10 years due to various structural problems. (sorry, can't find a link)

Putin knew this day was coming and was desperately trying to push out Russian influence before the inevitable collapse. It looks like that day will be coming sooner rather than later.

Obama has just recently decided to maintain the Bush policy of missile defense based in Poland, reversing his campaign promise. Russian thought the west would back off on this policy. No such luck. Now Obama is also cozying up to the Turks which will add additional pressure on Russians southern flank.

Russia is dying.

Perhaps our resident kremlinologist, medved, can comment.

Here is some general info about myself.

A. I cannot consider myself a kremlinologist, because I don’t keep up with the current developments , I am just not that interested. My kids don’t even speak Russian, and I don’t see any reason to force them.
B. OTOH, I get some information from time to time (Internet, emails from my friends in Russia, talking to older folks that live in some “Russian Ghetto” in the US). My first (and last) visit to Russia (St. Petersburg) happened in 2007.
C. A&B above don’t mean, I hate Russia. My way of thinking is more American than Russian, but I accept Russia for what it is. I still love reading Leskov and Paustovsky and listening to Musorgsky.

Here is the link to the Bloomberg article:
http://www.bloomberg.com/apps/news?p...d=ahmiVXVM5fAQ

“The “overwhelming part” of Russia’s economy is so inefficient that “it doesn’t stand a chance of surviving in the next 10 years,” Arkady Dvorkovich, President Dmitry Medvedev’s top economic adviser, told a conference at Moscow’s Higher School of Economics today.”

1. Russia has always had inefficient economy, nothing has changed.
2. There is a big difference between inefficient economy and Russia’s collapse. If you ask me, it is in a permanent state of collapsing for the last 100 years. It can keep collapsing for the next 100 years as long as they produce enough gas/oil to sell and vodka to drink.
3. The real question is, will Russia turn into a moderate European country or a third-world resource supplier. I think, the latter will happen.
4. The gov’t types, of course, think of Russia as a former and future superpower, so they are alarmed by the country weakening. I think, they will eventually accept the reality, stop whining and sign long-term resource supply agreements with the rest of the world.
5. Having said that, I admit, that Russia is hardly predictable and can be affected by the whole financial crisis situation. And, of course, US mishandling of the situation can be dangerous.

Here is a good article:
http://www.atimes.com/atimes/Central_Asia/JH19Ag05.html

[Guest]

Re: Russia Fading

Fantastic realism in your posts Medved. For both the US and Russia, and Europe and all the others. Like someone opened a window and let in a blast of icy cold air. Very refreshing and very well "grounded".

[Shakespear]

Re: Russia Fading

I will put in my 2c here as I have worked in Russia and have a Slavic perspective.

Lest anyone from the West think that "Oh the pipes have burst and they will be done for it." with regard to Russia is sadly mistaken. These are some of the most resilient people on the planet. Very smart and flexible, if educated (as long as their education system doesn't sink). I know a few PhD's who can fix their plumbing in their homes. I met quit a few people in Russia who could do this and a lot more.

So don't count out Russia in a simplistic way like it was done with China and Malaysia many moons ago.

Like Medved said, no matter what they will just move ahead one way or the other but they will not roll over.

[BiscayneSunrise]

Re: Russia Fading

That has been the Russian tragedy. As Shakespear points out the Russian people are smart, flexible and resilient but have frequently suffered at the hands of their own government. Maybe Russia is a classic example of geography being destiny.

Try as they might, they never really achieved power equal to their smarts and ambitions.

Putin, to his credit, has played what is a very bad hand, about as well as possible. Given the realities of their situation, it seem he is now shifting the economy towards being a resource supplier to the rest of the world, as medved predicts.

Since we are in a transformational depression, Russia is in the process of transforming itself away from its' dreams of superpower to one of commodity supplier to the world.

The irony here is, once they give up on superpower aspirations and accept their natural place, maybe they will become more fully functional and influential.

[D-Mack]

Re: Russia Fading

Putin, to his credit, has played what is a very bad hand, about as well as possible. Given the realities of their situation, it seem he is now shifting the economy towards being a resource supplier to the rest of the world, as medved predicts.

I think I remember reading Putin speeches or articles on him, where he said they had to get away from that and into developing technology & manufacturing.

[BiscayneSunrise]

Re: Russia Fading

I think I remember reading Putin speeches or articles on him, where he said they had to get away from that and into developing technology & manufacturing.

I suppose he may have thought that before and I certainly have no insight into his thinking. Putin may have said he wants tech and manufacturing but his policies towards business have certainly had a chilling effect on innovation.

Even before that, after the fall of the Soviet Union, they had a brain drain of their scientists. I also read that they are just not producing science, math and engineering majors like they used to. What few that are graduating have no mentors because of the previous brain drain.

Maybe like an investor changing his strategy, Putin sees with a shrinking population and rising commodity prices, Russia's best hope is emphasis on a commodity centered economy. Or maybe he just figures he can control a commodity economy more so than a free wheeling technologically centered economy. I just don't know.

What I do know, however, is that Russia has few good options. There was lots of fanfare about Russia being an emerging powerhouse as part of the BRIC. I just don't see it.

[D-Mack]

Re: Russia Fading

I suppose he may have thought that before and I certainly have no insight into his thinking. Putin may have said he wants tech and manufacturing but his policies towards business have certainly had a chilling effect on innovation.

Even before that, after the fall of the Soviet Union, they had a brain drain of their scientists. I also read that they are just not producing science, math and engineering majors like they used to. What few that are graduating have no mentors because of the previous brain drain.

Maybe like an investor changing his strategy, Putin sees with a shrinking population and rising commodity prices, Russia's best hope is emphasis on a commodity centered economy. Or maybe he just figures he can control a commodity economy more so than a free wheeling technologically centered economy. I just don't know.

What I do know, however, is that Russia has few good options. There was lots of fanfare about Russia being an emerging powerhouse as part of the BRIC. I just don't see it.

Russia is the opposite of China when it comes to births

- the state will pay maternity allowances for the birth of two or more children in advance next year and the money may be used to pay mortgages
http://en.rian.ru/russia/20081204/118694135.html

[ThePythonicCow]

Re: Russia Fading

Russia is the opposite of China when it comes to births

Hmmm ... China had a one child rule to force a lower population.

Perhaps Russia can have a "three child rule" -- have three children by age thirty or it's off to the gualag for you :eek:

[c1ue]

Re: Russia Fading

The bigger problem Russia has, in my mind, is that with Putin taking power away from the oligarchs, he has put a chill on foreign investment and internally generated innovation. They can run off the intellectual capital and business infrastructure they already have in place for a while but then all their internal problems will finally rise up to smother them.

Actually the oligarch's losing power has little to do with Russia - it has more to do with the mountains of debt they ran up and are now stuck trying to keep up with - even as their core assets declined precipitously in value.

The word on the street is that there will be a new crop of oligarchs.

But I will point out that the supposed foreign investment seemed to be primarily financial - much as was seen in Thailand prior to their crash.

The loss of that much capital certainly hurt, but I personally am doubtful that mere presence of that kind of foreign capital really meant much in the way of long term benefits to the Russian economy.

Certainly for specific sectors like oil/natural gas - there probably have been negative effects from the virtual nationalization of resources. But on the other hand the beauty of capitalism is that this expertise can be encouraged back in with an appropriate lure of profit.

Currencies are not my strong point. So I can't really speak to the Rubles strength. Having said that, I am thinking, where most exporters like to keep their currencies weak to encourage more exports. In Russia, keeping their currency strong is probably the best strategy when exporting commodities in market that will demand them regardless of cost.

The ruble being weak helps the Russian trade and budget balance situation; the strong ruble is bad in times of declining commodities volumes because export income goes down while import spending goes up.

The problem as I see it was that having a strong ruble basically was a shot to the head for most internal manufacturing. Why bother building manufacturing or any other production capabilities in Russia when you can buy crap from Poland or Turkey for much cheaper?

Even the high import taxes didn't help as there was massive corruption such that import duties as a percentage of total imported goods cost sold were probably half or less what they should have been. This type of behavior also encouraged giant companies as smaller importers have a much harder time playing this game.

As I mentioned before - there are increasing reports of crackdowns on this type of business model. It may of course simply be a siloviki switchout, but Evrocet's owner was recently nailed for basically importing cell phones via bribing customs officials. Evrocet is a huge direct marketer of cell phones at least in St. Petersburg - comparable to a top 3 Verizon/AT & T/Sprint retail presence. There have also been crackdowns on furniture, cars, various types of food, etc etc. such that a noticeable change has occurred in the composition of St. Petersburg port officials.

Russia is the opposite of China when it comes to births

Yes, and this hasn't escaped notice either.

Russia went 'democratic', and is suffering the tail end of 20 years of decline.

China didn't, and is doing much better demographically.

Dr. Michael Hudson spoke to how 'financialization' of economies as was practiced in Russia can be as destructive as open conflict - we now get to see a repeat in the Baltics and Eastern Europe.

[BiscayneSunrise]

Re: Russia Fading

C1ue. I understand your points and do agree with them but here's the rub: Russia may have some successes on the periphery but it seems the best they can hope for is commodity provider to the world.

The question is can they leverage that to become an Australia of the north or will they continue to devolve?

[c1ue]

Re: Russia Fading

Greg,

Russia definitely has a lot of challenges.

In macro - the basic problem is that the previously fairly mechanized economy of the 70s was dismantled in favor of commodities by the 'democratization' process.

Sure, there were lots of inefficient state factories then as well as now.

But inefficient or not - being reliant on foreign factories has its own pitfalls.

The relatively strong ruble in recent years had several major negative effects:

1) Discouraging internal investment in manufacturing
2) Encouraging outsourcing of non-export commodities
3) Asset price bubbles in land and knock-on commercial real estate and residential property
4) Overmuch borrowing at the corporate level

As an example of the above, there was a publicly owned company that once farmed around St. Petersburg. The mayor of St. Petersburg basically sold all that land - and it is now covered with shopping malls and apartments.

The global credit squeeze is fixing 4)

Increasing enforcement of existing customs rules is working on 2) (fix is not clear)

Economic general troubles are fixing 3)

The last item - 1) - it is not clear if the fixing of 2) through 4) is enough or specific additional action is needed.

As for how Russia can proceed - in my mind it isn't rocket science.

Russia needs to regain its previous agriculture capabilities. Russia once supplied grain to much of Europe but today imports a lot. Australia can never do this as most of its land is desert.

Secondly Russia needs to rebuild its own manufacturing capabilities. Having Toyota and GM plants doesn't count. Australia also cannot do this as it simply is too small population wise.

Lastly Russia needs to mobilize its far flung land mass. At present most of Russia's land is not used for much of anything. Certainly it is not all useable, but equally certainly a lot of its potential could be tapped if better communications and transportation infrastructure were put in.

At present most of Russia's productivity is in the European side - while most of its commodities come from the Asian side.

The open letter I sent out concerning a trans-Siberian maglev line would be one possible example.

So I would absolutely agree with you that Russia has huge challenges facing it.

But I disagree that being a commodities exporter is the only way out.

Having a goal and seeing measurable progress towards that goal is one of the best ways to reverse a generally morose mindset - in a nation known for moroseness. That alone might be sufficient to reverse the demographic issues brought about by the 'democratization' of Russia by Yeltsin.