Rating the effectiveness of Russia’s Anti-Crisis Plan

By RMStaff

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Russia has quickly overcome the global crisis and turned toward positive growth going into 2010. How effective has the Russian government been at implementing anti-crisis strategies and what has really brought the Russian economy back to life?

Russia’s economy fell into recession during 2009 as the economy shrank by approximately 8.5% and Russian stock markets shed more than $1 trillion in value. In addition the price of Urals heavy crude, the main source of income for Russia, lost more than 70% of its value since the record high of $147 in July 2008 and Russia’s foreign exchange reserves fell by $210 billion from their high of $386 billion.

To spur economic growth the Russian government allocated over $200 billion dollars, or 14% of GDP, for businesses and banks to “weather the economic storm.” As a result Russia’s economy emerged from recession in the third quarter of 2009 and Russian stocks been the best performing in the world. The Russian MICEX index has doubled in value during 2009 and regained half of its 2008 losses.

Perhaps part of the reason for the dramatic turnaround is the result of limited exposure by Russian banks, financial institutions, and the general population to the risky credit and debt which has plagued the United States or the European Union. The other reason is simply the fact that during 2009 oil prices rose to a level which is sufficient for the stabilization of the Russian economy.

This year the Russian government plans to spend $1.21 billion to reactive the job market, restructure massive corporate debt of Russian companies, and lower expensive lines of credit for companies and individuals. The Russian government has also allocated money for social projects and social security to minimize social unrest during 2010.

Despite the positive results for the Russian economy in 2009, questions remain. How effective will the Russian government be in allocating and controlling the use of funds for the economy? Recent history of widespread corruption by Russian government officials suggests that the effective use of anti-crisis funds will not be as successful as in the US and Europe.

What will the government do during 2010 to slow growing inflation and dependency on oil revenue? Investments into nanotechnology, clean energy, and small to medium sized business must begin to show some real progress for Russia to realistically move away from a commodity based economy. This will also help to create new jobs which are also an issue of importance for the Russian government.

How can the government encourage banks to start lending again, and with more reasonable interest rates? Russian government owned banks must lead the way in both commercial and private lending to encourage private banks to lower interest rates and create a new wave of lending for both business growth and consumer spending.

It is clear that Russia is very much dependent on the growth of the global economy and stable oil and other commodity prices. Should the global economy see a second wave of financial crisis, the Russian economy could be subject to another collapse.

Perhaps most of the positive results for the Russian economy have very little to do with the Russian government and their anti-crisis plan and more to do with global commodity prices? Unfortunately for Russia and the Russian economy, “as oil goes, Russia goes.”

What are your opinions about effectiveness of Russia’s anti-crisis plan?

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Published by RMStaff in Business and Economy, Economy of Russia, Gross domestic product, Russia, Russian government, Stock market