This is a blog dedicated to a personal interpretation of political news of the day. I attempt to be as knowledgeable as possible before commenting and committing my thoughts to a day's communication.

Wednesday, February 03, 2016

Yearning for Better Days

"I do not know what they will cut, but I know it will affect us. It is clear that the government lacks the necessary resources to give us a normal life."
"Russia always lived with some manner of national idea, a goal: We were building socialism and communism. But there is no national idea. Now, we just go with the flow and it is not clear in what direction."
"The Russian people got what they wanted, a czar ruling the country."
"What we need is an effective manager, but what we got is the Olympics, soccer and war."
"The state, if it suspects you of something, can get access to wiretapping through [a] court even now. No one is arguing — there will still be problems. But the position is clear: The state has the right to listen in."
Sergei Titov, 64, Krasnodar, Russia

"People are more alarmed and more tense, because now we are speaking not only about their well-being, but their lives in general."
Valery Fedorov, Russia Public Opinion Research Center

"The world is drowning in oil. Saudi Arabia is pumping at almost full tilt. It is widely thought that the Saudis want to drive out higher-cost producers from the industry, including some of the fracking firms that have boosted oil output in the United States from 5m barrels a day (b/d) in 2008 to over 9m b/d now. Saudi Arabia will also be prepared to suffer a lot of pain to thwart Iran, its bitter rival, which this week was poised to rejoin oil markets as nuclear sanctions were lifted, with potential output of 3m-4m b/d."
"With GDP in Russia falling, the government could well face a budgetary crisis within months."
The Economist
Russia Economy
Men walk past a board showing currency exchange rates of the U.S. dollar and euro against the ruble in Moscow, Jan. 20, 2016. Photo: Reuters/Sergei Karpukhin
Russia, only a few short years ago, resplendent in its oil and gas reserves plumping up the economy, giving Vladimir Putin that flush feeling that stimulated him to build his immense new palace, to splurge on the Sochi winter Olympics to show the world that Russians know how to party and celebrate, even while waging an underhanded conflict in Ukraine, is now in financial doldrums and nowhere to look to distract the populace, not quite certain they want to be involved in a Syrian conflict.

The world is turning as it must, ordained by nature and the nature of all things, and as it turns events take us by surprise. Conflicts and national umbrage over neighbours' entitlements and imperial designs serve to upset the order of things, not natural necessarily, but man-made of necessity. Falling oil prices going from a high of over $100 a barrel a mere year and a half ago triggered by China's diminishing demand and OPEC's Saudi Arabia war on Iran, to $30 a barrel today.

A worldwide oil glut has impacted investment on extraction and sales from Venezuela to Canada, and Russia's falling income from oil sales packed onto its losses from years of very effective sanctions have placed the country into a financial bind. The sudden transition from big spender to big-time thrift doesn't sit well with ordinary Russians since it's not the Kremlin elites who suffer but those who work for what they earn.

And now the Kremlin is faced with little choice but to state that government spending must now be amended for the greater purpose of keeping deficit numbers under three percent of the gross domestic product. The Russian economy has been given an additional downward jolt by the International Monetary Fund downgrading its 2016 economic forecast. When the mighty fall they fall hard. And now Vladimir Putin can muse on what will happen to his popularity level under the burden of failing public expectations.

The required belt-tightening resulting from a downgrade from a 0.6 contraction to a full one percent will result in an anti-crisis concern put into action that will cost $5.1 billion to impact the weakest economic sectors, including the possible cut of the five-year-old social security program. When you think back to 2014 and the expenditure in preparation for the Socchi Winter Olympics, $5.1 billion is a pittance compared to the Olympics total cost of $51 billion.

The games themselves accounted for $6.5 billion, but it was the infrastructure projects, roads, railroads, power plants and other infrastructure that raised the total to an estimated $51 billion. True, Moscow felt it did itself proud, and Vladimir Putin strutted the world stage as a gracious host to those turning out for the event, but how now does that investment help Russia? Best not to ask. Not even those who were thrilled over Moscow's turn to play hospitable world host at the time.

People whose public service employment wages have been sharply cut back as emergency measures against the drooping economy would doubtless prefer not to linger on the recent past and its exuberant profligate spending. Regional governments are being squeezed to reduce all manner of subsidies for older Russians. Unauthorized demonstrations are being held by disgruntled older Russians to chant "Return our benefits!"

Across the vast country illegal protests and wildcat strikes are cropping up by truckers, teachers, factory workers and all manner of Russians whose steep government cutbacks as a result of falling revenue from oil and gas are being seriously affected. Russia, so hugely reliant on energy exports for a whopping 50 percent of its federal budget is in big trouble. Will that mean that Mr. Putin will decide to pull back from the Syria conflict?

By December of 2015 the economy had shrunk 3.9 percent while inflation hit 12.9 percent. But Mr. Putin interpreted that in a kind of wonky way, using it as an opportunity to regale the population in a new year's speech with the glad tidings that the worst of the recession was behind them, over, done with; to prepare now for growth throughout 2016. Russia has been taught a lesson; it must diversify its economy, and in that sense the oil collapse presented an "opportunity".

How will Russia diversify? Renting out their military to any countries embroiled in civil war who can see the benefits of a mercenary force of skilled fighting men equipped with all the latest that technology and oil money can provide them with? The revenues to help bring food prices back to an affordable level, perhaps, strained by Mr. Putin's sanctions on Western food imports to retaliate for the West's sanctions over Ukraine. Rather circular, isn't it?

As matters now stand, Russian companies and state-operated corporations will revert to Soviet times by cutting working hours or holding back salaries, while keeping the working force intact to forestall social unrest. It can't much help workers grousing about the penalties imposed upon them resulting from the faulty administration by their government, particularly when they can see wealth all around them in the streets reflected by Rolls Royce reporting a 5 percent leap in sales.

And Moscow's City Hall advertising for banquet tenders with the notation that menu items are expected to include foie gras and Parma ham. On the other  hand, Russians are culturally and socially accustomed to hard times, to hunkering down and waiting out the bad times to pass, prepared to welcome a new order in its eventuality when all will once again be returned to a new normalcy of plenty.

Plenty of vodka, plenty of health problems leading off from excessive alcohol consumption, and early deaths. Something else that Russians do, often too well.

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