Monday, November 17, 2008

The disastrous miscalculation of Vladimir Putin

As I have warned over the past few months, Russia is being particularly badly hit by the global financial crisis. Partly this is a function of the severity of the collapse of commodity prices, especially oil and gas, which has had an exceptionally serious impact on a country where 85% of GDP relies on the extraction of raw materials. However the scale of the crisis in Russia has been hugely increased by a number of massive miscalculations by the Silovik state. Now the speed and scale of the Russian meltdown could conceivably become a threat to the stability of the Silovik regime itself.

As energy prices rose from their lows of a decade ago, the regime which took power after the resignation of Boris Yeltsin on New Years Eve 1999 made oil and gas the central plank of their economic policies. In a sense this was a natural thing to do, but from the Kremlin's point of view, it had several political advantages. Firstly, control over oil and gas was a lot simpler than controlling the complicated logistics chains of modern industry; and secondly the oil reserves could not be shifted overseas, beyond Kremlin control. However, by making oil and gas such a priority, the Russian economy suffered two unwelcome effects: firstly the strong Rouble rendered much of Russian industry uncompetitive so that it subsequently collapsed and secondly it made Russia much more vulnerable to big swings in commodity prices. In effect Russia lost more complex elements of its economy and in a sense therefore actually became less developed.

Nevertheless, the surge in energy prices, based around a global economic boom and concerns about "peak oil" dramatically improved Russia's financial position from the point where they defaulted on their debt on August 15th 1998. Russia became awash with liquidity- much of it provided by the global banking system, which was chasing yield wherever it could find it. Yet, even in these good times, there were significant problems. The increasing use of state power against certain oligarchs was greeted with concern, particularly the arrest of Mikhail Khordokovsky, the chairman of Yukos, an oil company which had gone the furthest in adapting to a Western business model and was, from the Kremlin point of view showing worrying signs of independence. However for most people, the murderous history of these so-called Oligarchs actually made the idea of the Kremlin cracking the whip against them quite popular.

The government of Vladimir Putin, it was suggested. was built upon Order. However, it was not built upon Law. The continuing high levels of corruption were only part of the problem. There was simply no recourse anywhere in the Russian constitutional or legal system. The government was not a government dependent on laws, but on the personal decisions of its occasionally capricious leaders. Without any legal order, disputes have often turned violent. The murderous habits of the Oligarchs were adopted in full by the Siloviki- the tight-knit and shadowy members of the former Soviet security services such as the KGB like Vladimir Putin himself-who often turned out to be the same people as the Oligarchs.

This lack of legal certainty meant that completely arbitrary decisions were being taken. Massive contracts involving major global companies were cancelled without warning or redress and technical skills that these companies had brought to Russia were stolen. It became quite clear that intellectual property, like every other property in Russia, could not be protected from arbitrary theft by the state. The cancellation of the Shell Sakhalin-2 consortium was a major example of this.

Then came the dispute between BP and their partners in TNK. here it was not just the technical expertise that was under threat, but the very concept of ownership at all. BP executives were forced to flee for their very lives as it became clear that even BP could not protect its own legal interests against those of the Silovik-Oligarch ruling elite. At this point, confidence in Russia was being seriously shaken, and several major investments planned by global investors in the country were abandoned.

At the same time, the power elite in the Kremlin, seemingly awash in petrodollars, had been putting forward an increasingly assertive foreign policy. Popular at home, these policies often seemed to be nothing more than doing the opposite of what Western powers wished Russia to do. Hostile rhetoric became the order of the day and the myth grew that Russia had somehow been humiliated by the West and was now simply restoring their rightful place in the world order. However the invasion of Georgia, after a series of provocations designed to lure the erratic Georgian leader, Mikheil Saakashvili into an ill advised military response, was a spectacular own goal. Although the Western political response was weak, the invasion led to a dramatic loss of investor confidence in Russia.

Since the invasion of Georgia in August, Russia has seen a spectacular market rout, which dwarfs anything seen in the West. The market value of Russian companies has fallen by over $1 trillion. The credit freeze in the West has been even more severe in Russia and the market collapse firstly triggered margin calls and then essentially bankrupted the Russian banking system. Despite the amassing of $450 billion of Russian reserves, more than a fifth of this carefully husbanded war chest was lost in a single month.

In a single quarter Russia has gone from hubris- riding high in confidence and expectations- to nemesis- a spectacular meltdown across their entire economy.

Yet the political response to this crisis from the Siloviki has been pitifully inadequate. They have continued their aggressive foreign policy: responding to the anti-Iran missile shield by moving short range Iskander missiles into the Kaliningradskaya oblast was a highly unwelcome distraction to President-elect Obama. However since Russia only has six functioning missiles, the threat is ultimately empty. It does, however, underline the fact that Russia would like to be a strategic challenger to Western interests and thus reduces western goodwill to Russia still further.

The determination of Vladimir Putin to return to the Presidency has also been underlined by the increase in the Presidential term proposed by his successor. Yet by doing so he has given reinforcements to those in Russia who speak out against the regime. Until now supporters of Putin have argued that his respect for the constitution was absolute, yet this move makes it clear that it is not, and that threats of dictatorship are not so wide of the mark after all. A Putin return to the Presidency before the expiration of President Medvedev's four year term expires will only add to the perception that Putin is indeed a tyrant. Should he do so, his popularity is likely to be well below the high levels he enjoyed during his first period in office.

In fact the change in the Presidential term only underlines the contempt for Law that has been the hallmark of the Putin regime. It is this contempt that is destroying the economic and social fabric of the Russian State. The root of the popularity of Putin's first term was not so much in any particular policy that he adopted, but in the fact that the overall levels of Russian wealth were being increased by the commodity boom. The end of the boom has thrown the Russian economy sharply into reverse. The regime, whether under Medvedev or under Putin, now faces a return to bad economic times. It will be impossible to eliminate a gathering background noise of criticism, although it is said that there are advanced plans for a further political crackdown should the country hit a period of unrest.

In the end, Putin will discover that Order without Law is highly unstable. Unless the regime faces the demons of corruption and violence and creates a constitutional and legal order it risks a revolutionary explosion. The fact that the regime patronises militant paramilitary "youth" groups such as "Nashi" shows how far away they truly are from understanding the realities of a state of laws. It is not impossible that they could retreat into their authoritarian comfort zone and attempt to create a quasi-fascist government. Yet that might even lead to the break up of the country- a significant and growing proportion of the population of Russia is not ethnically Russian, and the support for the tiny number of Ossetians and Abhaz in Georgia has also woken up the several million Tartars, Bashkirs and of course Chechens.

Hard on the wings of the economic crisis, Russia now faces a constitutional and political crisis.

19 comments:

fh said...

Cicero – To a very large extent, I agree with you on this and on your post last night on PoliticalBetting.com. These truly are the risks confronting the Russian power elite: Rouble collapse, banking crisis, industrial paralysis, layoffs, hyperinflation, etc., followed quickly by plummeting political support, divisions within the ruling clique, and potentially one or more factions fancying their chances at taking over, either succeeding or prompting the current regime to crack down ruthlessly.

But I’m not sure Putin really “chose” oil & gas as his central plank as much as the opportunity was thrust upon him. That’s the nature of the Dutch disease – a commodities boom almost invariably narrows, rather than expands, economic opportunities, by rewarding rent-seeking and making everything else less competitive.

And I would emphasize that the bleak outcomes above are still risks, not certainties. This crisis might prove to be cathartic, an opportunity to start to get things right, with a sensible industrial strategy, agricultural development and so forth. The things that should have been done post-1998 but were swamped by the resource boom.

Sadly, in the absence of authoritative dissent – most of which was sacrificed in Putin’s second term – the odds tend to favour a darker future, but we’ll see.

fh said...

I'm very glad you're back by the way. I mean on the blog.

fh said...

The World Bank's latest Russia forecast is just out.

http://siteresources.worldbank.org/INTRUSSIANFEDERATION/Resources/rer17_eng.pdf

Forecasts 3% growth next year, compared with a pre-crisis forecast of 6.5%. But bases the new forecast this on $74.50 oil (avg for the year).

And it says: "The government's policy response so far -- swift, comprehensive, and coordinated -- has helped limit the impact."

What to make of that? Nice, polite World Bank or what?

Craig said...

Cicero--

It sounds like we are of like minds, both on broad philosophical grounds (I too am an "economic/classical liberal) and on the issue of Russia in particular. You may be interested in checking out my blog, Streetwise Professor. I have myriad posts on Russia which echo themes similar to yours. Click on the Russia category link and you may get more than you bargain for. There is also a robust ongoing debate in the comments suggestion. I invite you to join--right now there is a pretty even balance between those who express views similar to yours, and self-described Russophiles (i.e., Putin-boosters.)

Re your post specifically, I agree with the earlier comment. Specifically, Russia did not choose the resource curse, it was endowed with it. That said, the government has done everything imaginable to exacerbate the curse, and to magnify its deleterious political effects.

I have written that resource rents are the glue that holds an inherently unstable system together, and that the erosion of these rents could lead to civil unrest and a political crisis.

You might be interested to know that the military-focused website Strategy Page has a new entry in its prediction market: that the financial crisis will lead to massive unrest.

I'll check out your blog regularly. Glad I found it (via the Adam Smith Institute's blog roundup.)

Regards


Craig Pirrong A/K/A The Streetwise Professor

Da Russophile said...

"And it says: "The government's policy response so far -- swift, comprehensive, and coordinated -- has helped limit the impact."

What to make of that? Nice, polite World Bank or what?" - fh

Or perhaps, amazingly enough, neutral realism?

"This crisis might prove to be cathartic, an opportunity to start to get things right, with a sensible industrial strategy, agricultural development and so forth." - fh

So please define a "sensible" industrial strategy and agricultural development, and elaborate on how Russia lacks it.

(I mean soundbytes about hyperinflation and the repressive regime are all good and all, and if asking for real data makes me a "Putin-booster" then so be it).

Cicero said...

Da Russophile: Where does it lack sensible policy? Unenforcibility of ownership rights and absence of protection of intellectual property rights drastically curtail both investment and operations inside Russia. Arbitrary and corrupt planning decisions and limited land title stops meaningful agricultural investment. Long term neglect of infrastructure is creating breakdowns along the whole Russian supply chain.
fh: Of course the hydrocarbon bonanza was not "planned", however the promotion of the oil and gas sector, and the creation of huge national champions prioritised the extractive sector at the expense of Russian manufacturing. That the Dutch disease would have harmed the manufacturing sector is a given, but the state investment in Rosneft and Gazprom only reinforced this process.
Streetwise Professor: will certainly take a look.

La Russophobe said...

Reading the addled gibberish of those who defend Mr. Putin, even in evidence in this comment thread, one can only ask:

What sort of apocalyptic disaster would have to occur in Russia before you would blame the Kremlin?

Would every single Russian citizen have to perish in a Gulag?

Or would you, even then, say they were better of than in a world ruled by Evil America?

So it goes in Russia. With "friends" like these the nation needs no enemies.

Da Russophile said...

@Cicero,

Anything a bit more specific (e.g. stats, references to research papers, etc) than "unenforcibility", "absence", "drastic curtailment", "arbitrary", corrupt", "neglect", "breakdowns"?

So far nobody here - fh, SWP, the ever charming LR and yourself - have accepted my challenge to move beyond soundbites.

Cicero said...

Da Russophile, I think you are setting up a false proposition- and your contention that concerns about Russia are not well merited and are based simply on soundbites is mischief making. If you want detailed research I would suggest the CREES at Birmingham http://www.crees.bham.ac.uk/
or SSEES-UCL. http://www.ssees.ac.uk/
There are also several papers published by Chatham House
http://www.chathamhouse.org.uk/research/russia_eurasia/
But, frankly, just reading the speeches of Vladimir Putin will support the contention that Russia is "hostile".

If you want a specific examples of actions, then I would suggest reading up on the history of the Sakhalin-2 deal with Shell. Shell was forced to yield control of its operations off Sakhalin Island in exchange for a payment of $7.4 billion from state-dominated Gazprom. Most outside analysts estimated at the time that Shell's share was worth $15 billion to $17 billion- that is just the reserve value. The propriatory technology which Shell brought was not compensated for, at all- and is now being used by Gazprom without payment. In this case, the pressure used to drive out Shell was a questionable envronmental impact study which the Russian directors of the EBRD themselves supervised.
Here in Tallinn there are pictures of the Russian Ambassador literally directing the Nashi thugs who came to Tallinn to start the "Bronze Statue" riot.
The Polonium used to kill Sasha Litvinenko had an isotope signature that meant it could only have been made a research reactor just outside Moscow within a narrow time frame of a few days. This is a highly secure reactor, with access controlled by a very limited number at the highest level of the Russian state.
There is very clear evidence that the first denial of service attacks made against Estonia after the bronze crisis were launched by servers physically inside the Kremlin.
Examples of corrupt officialdom expropriating land and property around the City of Moscow are very well attested.
If this does not add up to at the very least a questionable, erratic and unstable system of government then I fear things must be very bad indeed in California.

fh said...

DR - Cicero having beaten me to it, I’ll not dwell on the state’s extreme carelessness – to put it politely -- with Russia’s international good will over the past decade.

With regard to economic strategy, here is the World Bank’s "neutral realism" on the subject:

“Oil and gas exports continue to account for more than two-thirds of Russia’s export revenue and more than 15 percent of GDP. But the crisis shows how dependent the Russian economy is on oil prices and how much it needs to diversify and strengthen its financial sector for sustained, long-term growth. Despite strong macroeconomic fundamentals, structural weaknesses in the banking sector and a limited economic base make Russia vulnerable to highly correlated, multiple shocks of a decline in oil price, a sudden reversal in capital flows, and a drop in the market sentiment and the stock market. Russia’s economic recovery will depend largely on its ability to regain the confidence of domestic consumers and domestic and foreign investors. The crisis can be a catalyst for continuing the structural reforms to improve productivity and the business climate and fiscal reforms to strengthen the economy’s non-oil tax base. The way forward is diversification through greater openness, greater macroeconomic stability, more use of cutting-edge technology and knowhow, more foreign direct investments, and a stronger and healthier banking system.” [Link noted above.]

As Cicero notes, property rights, physical and intellectual, are critical, but I would include all legal rights -- the "dictatorship of the law," as Putin described it without irony long ago.

To infrastructure investment, I would add major investments in education, including a full-on war on academic corruption, to stop the disgraceful diploma bazaar. A mandatory ethics class in the secondary school curriculum might be useful too.

Da Russophile said...

@Cicero,

"Da Russophile, I think you are setting up a false proposition- and your contention that concerns about Russia are not well merited and are based simply on soundbites is mischief making."

Sorry for making mischief by asking for serious analysis. I forgot that all anti-Russian Western commentary is infallible. My bad.

"If you want detailed research I would suggest the CREES at Birmingham..."

In other words, you fail at getting anything specific...

"But, frankly, just reading the speeches of Vladimir Putin will support the contention that Russia is "hostile"."

It's funny you should say that. Anybody who actually reads the full speeches (as opposed to sensationalist out of context snippets the Western MSM doles out) would know that Putin's speeches are well reasoned. They do frequently raise issues about Western double standards, but silly me, I do have a knack of forgetting that for Russians doing this is hostile whereas Western criticism is invariably "well merited".

"Here in Tallinn there are pictures of the Russian Ambassador literally directing the Nashi thugs who came to Tallinn to start the "Bronze Statue" riot."

I wish...

"The Polonium used to kill Sasha Litvinenko had an isotope signature that meant it could only have been made a research reactor just outside Moscow within a narrow time frame of a few days"

And back in the real world as opposed to one of unsupported sensationalist claims...http://www.nysun.com/foreign/specter-that-haunts-the-death-of-litvinenko/73212/. A few select quotes from it (or read my summary of it here http://darussophile.blogspot.com/2008/04/editorial-lying-liars-and-their-lies.html).

The main, if not only, source for the revenge-murder scenario were people funded by Mr. Berezovsky. A Web site in France, which had received financing from Mr. Berezovsky's foundation, circulated a report that there was a Russian "hit list" that had Litvinenko's name on it. Even though the "hit list" itself never materialized, it helped link the death of Litvinenko in the public mind with that of Anna Politkovskaya, the crusading journalist who had been murdered a month earlier, in October 2006, and whose name was also on the putative hit list. Meanwhile, a Chechen website, also supported by Mr. Berezovsky's foundation, ran stories such as "FSB Attempted to Murder Russian Defector in London."
...
The minute amount found in London — possibly no more than one-millionth of an ounce — could have come from many sources, ranging from the American industrial supply and stockpiles in Russia to the remnants of the A.Q. Khan network in Pakistan and the North Korean surplus. So news reports, such as the one in the Washington Post that "Polonium is produced and held almost exclusively in Russia," are at best speculation.
...
Not only was there no extradition treaty between Britain and Russia, but Article 61 of the Russian Constitution prohibited the extradition from Russia of any of its citizens. Further inflaming matters, Sir Tony Brenton, the British Ambassador to Moscow, suggested that the Putin government should disregard the Russian constitution and "work with us creatively to find a way around this impediment," since British authorities had "cooperated closely and at length with the Russian Prosecutor General's Office." After Russia rejected the extradition request, Ambassador Brenton objected that its decision was not made "on the basis of the evidence," which implied that Britain had furnished Russia with compelling evidence to back up its request. Then Britain expelled four members of the Russian embassy in London, effectively holding the Russian government responsible for Litvinenko's death, and began an international imbroglio.
...
Not only did the Itsu have traces of Polonium-210, but Mr. Scaramella was contaminated. Since Mr. Scaramella had just arrived from Italy and had not met with either Mr. Lugovoi or Mr. Kovtun, Litvinenko was the only one among those people known to be exposed to Polonium-210 who could have contaminated him. Which means that Litvinenko had been tainted by the Polonium-210 before he met Mr. Lugovoi as the Pine Bar.
...
Britain may have had more incriminating evidence against Mr. Lugovoi than it chose to provide to Russia. It may not have wanted to share data that would reveal intelligence sources. But why would it refuse to share such basic evidence as the autopsy report, the medical findings, and radiation data? And if Britain wanted to extradite Mr. Lugovoi, why would it send such embarrassingly thin substantiation?


"If this does not add up to at the very least a questionable, erratic and unstable system of government then I fear things must be very bad indeed in California."

For once I agree. If California's politicians had taken a cue from Russia and took decisive action to tackle its unsustainable fiscal policies, it wouldn't be in the hole it is in today.

@fh,

"With regard to economic strategy, here is the World Bank’s "neutral realism" on the subject:"

I agree with that. Note that it says "continuing the structural reforms to improve productivity and...", which (correctly) implies that it is already doing so.

"To infrastructure investment, I would add major investments in education, including a full-on war on academic corruption, to stop the disgraceful diploma bazaar."

Actually education is one area where Russia is in the league of advanced countries, although I am loathe to repeat arguments made before (http://streetwiseprofessor.com/?p=927#comments). It also assumes that nothing of the sort is being done, whereas that is patently not the case for anyone familiar with the matter (http://www.cdi.org/russia/johnson/2008-74-29.cfm, http://www.rian.ru/society/20080317/101490460.html).

"A mandatory ethics class in the secondary school curriculum might be useful too."

So you think Russians are a pack of amoral savages who must be taught civilized ways. Thank you for revealing your true colors.

Cicero said...

Da Russophile- now you are just being crass. I give you a link to access massive resources on these subjects and you say "so nothing specific"- to make an analogy, it is like asking for the time, and then when being shown a clock you say, "so you don't know the time then?". Since I was one of those who spoke at the 90th Anniversery colloquium of SSEES, and largely on this very subject, I am very well aware that single soundbites do not sum up the positon, thus the access to the full ambit of papers from the most respect sources. If you don't want to read them, then you can hardly be taken seriously as a commentator, can you?
As for Putin's speeches critical of the West: sure, we do not live a perfect societies either but it is an example of "whataboutism"- if you criticise the fact that current regime does not acknowledge the scale of the deathtoll in the Gulag, then Putinistas will say "what about -for example- slavery?". Now leaving aside that fact the Slavery was never legal in Great Britian, the Russian state itself only abolished slavery ("serfdom") in 1862, so they share that same history in full measure, but Stalin goes even beyond whatever crimes the West is accused of.
The Federal Republic of Germany is the legal heir of the Nazi regime, and they apologise constantly. The Russian Federation is the legal heir to the Soviet Union, and far from apologising, they actually glorify aspects of that regime and continue to threaten their neighbours. One third of the population of the Baltic countries was shot or exiled by Stalin- this is never acknowledged by the Kremlin.
neverthless I don't think anyone here has argued that Russians are amoral savages: the memory of Sakharov or Staravoitova or Politkovskaya or any number of the private kindnesses that individual Russians constantly display, is too good for that. You, however, by being relentlessly one-eyed in your support of a totally corrupt and pretty immoral regime show a wilful blindness that undermines your credibility as a serious analyst.

Da Russophile said...

@Cicero,

"now you are just being crass. I give you a link to access massive resources on these subjects and you say "so nothing specific"- to make an analogy, it is like asking for the time, and then when being shown a clock you say, "so you don't know the time then?"."

Actually the real analogy would be a person not knowing where he is asking for the time and being shown 24 clocks showing times in different places of the world like the sort of thing they have at airports.

"As for Putin's speeches critical of the West: sure, we do not live a perfect societies either but it is an example of "whataboutism""

And what about it?

Complaining about whataboutism is the squeal of the hypocrite.

"if you criticise the fact that current regime does not acknowledge the scale of the deathtoll in the Gulag, then Putinistas will say "what about -for example- slavery?"."

1. The death toll is highly uncertain, and anti-Communist historians have been known to inflate it upwards to serve their own polemical purposes.

2. That said, I don't see why Russia's democratically elected government has to grovel at the feet of several east European states who refuse to leave history behind (and who also show minimal attention towards acknowledging their own histories of pro-Nazi and anti-Semitic tendencies).

"Now leaving aside that fact the Slavery was never legal in Great Britian"

I agree. Off-shoring brutal exploitation is one of the crowning achievements of Western civilization.

"The Russian Federation is the legal heir to the Soviet Union, and far from apologising, they actually glorify aspects of that regime and continue to threaten their neighbours."

Glorify =/= recognize that it did some things well and efficiently, which in turn =/= the rehabilitation of Stalinism. And I for one have no desire to see Russia apologize to ingrate scum who desecrate the resting places of soldiers who fell liberating them (it did too much of that in the late 80's and 90's).

How has Russia threatened its neighbors? (Saying anti-Russian military installations would be targeted is simply logical).

More bluster as usual.

"You, however, by being relentlessly one-eyed in your support of a totally corrupt and pretty immoral regime show a wilful blindness that undermines your credibility as a serious analyst."

If questioning the accuracy and legitimacy of the dominant Western dialog towards Russia and criticizing its sensationalist, patronizing basis undermines my "credibility as a serious analyst", so be it. I value truth and decency far too much to be dissuaded by your demonizing totalitarian rhetoric against the bearer of any viewpoint that differs from yours.

I won't be replying any more to this post. Despite your intellectual pretensions, your real interests lie in hate-filled hyperventilation towards any who dare try prick holes in your cosy bourgeois reactionary worldview. As such, trying to continue dialog is no different from banging one's head against a wall.

Cicero said...

Well I am very glad you will not be posting again: Gulag denial would get you barred anyway.

Ignorant, Arrogant, Effluent.

Craig said...

Cicero--

Welcome to the Bourgeois Reactionary Club! Da Russophile is the membership chairman. He nominated me some weeks back. LOL. Say it loud, say it proud--I am a bourgeois reactionary!

SWP

fh said...

:-)

The guy's a disgrace. Whoever bankrolls his operation really ought to take stock of the strategy. It ain't working.

I say that well aware that the same or worse applies to his opposite number.

It's virtually impossible to hold a serious discussion about Russia without these two yahoos horning in.

And not a lot could be more serious than the prospect of a major nuclear power in Europe descending into fascism/chaos/civil war/coup/take your choice.

I suspect I am slightly more supportive of current authority in Russia than either of you gents, if only because I see no better options in the short or medium terms, and I really do not want to see fascism/chaos/etc visited (again) on a remarkable people and a remarkable country which have made me feel at home for 20 years.

Oil is up a bit today (and the dollar is down). Russia's fiscal measures last week were actually quite sensible -- considerably more so than Gordon Brown's in London.

Who knows? Maybe this really will prove to be a positive change point for Russia, instead of a catastrophe.

Craig said...

fh--

I presume by "opposite numbers" you mean Russophobe & Russophile. At least I hope so;-) I watch the crossfire between these two (and a couple of other folks) arch over my head over at SWP.

More seriously, re your substantive point: I share your concern about the prospect of chaos in Russia, and would spare its long suffering people another tragedy if I could. I am less sanguine that the dysfunctional, chekist-dominated, political system can withstand prolonged stress. Putin's strategy is hard, but brittle. My concern is that although it may muddle through, it presents very large "tail risks"; there are no safety valves, no checks and balances. If it breaks, it will shatter--with all of the dire consequences that you suggest. And if they muddle through, it will only solidify Putinism rather than provide a catalyst for constructive change--which only defers the risk of collapse.

So--we share similar hopes, but perhaps place different odds on the realization of that hope under the current Russian government.

Re the price of oil up, dollar down. Well, we've seen that more than once since August. I, for one, am hardly optimistic that this is the light at the end of the tunnel. Burned too often, as it were. More importantly, it just points out that despite Putin's and Medvedev's cocky assertions that Russia is an independent actor, in fact it is hostage to what transpires in the US and Europe. And, apropos your remark re Gordon Brown, that means Russia is hostage to western policymakers. Russia can make some sensible macroeconomic decisions, and it will mean bupkus if the meltdown continues here, or if policymakers here make major mistakes. And the risk of that is very, very high.

fh said...

"Russia can make some sensible macroeconomic decisions, and it will mean bupkus if the meltdown continues here, or if policymakers here make major mistakes."

I certainly agree with that. Russia, like the UK and most others, has a huge stake in what Washington does. And the US has a huge stake in what the international holders of its debts do. Never before has interdependence taken such a tangible form.

It's not a good time for schadenfreude in any quarter.

kiki said...
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