WORLD_ Russian government takes flak as it fails to stem economic crisis

Russian government takes flak as it fails to stem economic crisis

AFP

By Germain Moyon 
January 19 2015
4 hours ago

Moscow (AFP) - Faced with a crippling recession, Russian authorities are coming in for growing criticism from economic insiders concerned over a lack of clear policies to deal with the crisis.

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MarketWatch After a year that saw growth slump and the ruble nosedive on the back of falling oil prices and Western sanctions over Ukraine, officials have predicted that Russia's economy will contract by some five percent in 2015.

As government income shrinks, the overall rate of inflation also looks set to hit around 17 percent by spring. And -- with the situation hitting the wallets of ordinary Russians -- alarm bells are ringing that the authorities under strongman President Vladimir Putin are floundering in their efforts to find a way out. "I have read all of the government documents and I did not understand the aim of their economic policies," said Herman Gref, head of Russia's largest lender, Sberbank.

Speaking at an economic forum in Moscow last week, Gref, a former economy minister and member of the Kremlin's marginalised liberal clan, called for a "radical" shift in direction to restore global confidence in Russia's battered economy.

But, for now, these appeals for a sharp change of tack seem to be having little impact.

View gallery
A woman walks past the head office of the Central Bank … A woman walks past the head office of the Central Bank in Moscow on December 17, 2014 (AFP Photo/Yur …

- Alarm bells ringing -

Taking to the podium at the same event, Prime Minister Dmitry Medvedev promised increased assistance to pensioners and large families and insisted that Moscow had no intention of turning its back on globalisation or plans to transform the economy into a "Western model".

Like Putin before him, however, he failed to announce a single concrete measure or reform, leaving his ministers to debate how best Moscow should be using its roughly $385 billion of reserves or whether the country needs to be tightening its belt.

"This is what I feared: the discussion focused on how much we should be spending and for how long. This is the worst model of economic policy," responded Gref to the Kommersant newspaper.

Over the past month the Russian government has scrambled to put out the growing number of economic firestorms. It has stepped in to bail out struggling banks, supported faltering airlines and unblocked funds for infrastructure projects.

On Friday Medvedev announced a series of "crisis meetings" aimed at tackling the problems battering different sectors of the economy.

View gallery Alarm bells are ringing that the Russian authorities … Alarm bells are ringing that the Russian authorities under strongman President Vladimir Putin are fl … But the steps taken so far have left some experts scratching their heads.

Leading business daily Vedemosti this week denounced the "contradictory measures" between supporting some sectors and plans to slash spending for others.

"In a time of crisis, it is better to do nothing than to be all over the place," the paper wrote.

- Lack of direction -

Analysts say that those in power seem to have not yet figured out a way to tackle the growing trouble.

"You get the impression that the authorities don't have an anti-crisis strategy," said Nikolai Petrov, a professor at Moscow's Higher School of Economics.

Petrov put the lack of direction down to infighting between the hawkish and liberal clans inside the Kremlin that Putin has played off against each other since coming to power 15 years ago.

The limited room for manoeuvre for the government has meant the pressure has also been ramped up on the country's central bank as it has struggled to steady the collapsing ruble.

The bank was criticised for reacting too slowly to the crisis and frittering away ten of billions in hard currency reserves in a failed bid to prop up the currency.

That led to a decision to hike interest rates radically in December but the move backfired as borrowing rates shot up, stifling the economy even more.

The failures have now prompted Putin to recall veteran economist Dmitry Tulin to take over from US-trained Ksenia Yudayeva as the person in charge of the ruble's fate.

Business portal RBK reported that the decision to bring in Tulin was made directly by the Kremlin and Putin's economic advisor Andrei Belousov said there would be "changes" to monetary policy as the current ruble rate was making it "practically impossible to do business."

But while economists seemed to welcome the appointment of Tulin -- whose experience stretches bank to the Soviet era -- there seemed little hope that the move would solve the economic problems.

"Just one person, however remarkable cannot change the way the institution works, and even more so as the problem is not just with the central bank" but also with the government, economics professor Petrov said.

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