A Crisis Crash Test

March 6, 2009 - St.Pete Times by Yulia Latynina - Of all the official statements coming from the government and big business over the past few weeks, three stand out as most important. First, multibillionaire Oleg Deripaska announced that he would not request any more government assistance for his ailing business empire. Second, Olimpstroi, the state corporation responsible for preparing Sochi for the 2014 Olympics, will reportedly return 50 billion rubles ($1.4 billion) to state coffers. (Rosnano and Russian Railways will also hand back 130 billion rubles and 80 billion rubles, respectively.) The third most important announcement was made by Prime Minister Vladimir Putin on Friday when he met with United Russia leaders: “The crisis is far from hitting its peak,” he said. Translated from “Kremlinese” into ordinary English, the first statement means that even Deripaska — the most-connected oligarch among Putin’s favorites — won’t get any more cold cash from the government. The second means that financing for Putin’s pet project to turn Sochi into a winter wonderland is drying up. When oil prices were high, the Kremlin suffered no political fallout for making poor decisions. After former Yukos CEO Mikhail Khodorkovsky was sentenced in May 2005 to eight years in a prison located in a remote, radioactive Siberian town, the markets had a brief scare, but they recovered relatively quickly because the economy was in the midst of an oil-driven boom. Almost a year after Khodorkovsky was arrested, then-President Putin abolished elections of regional governors, but few seemed to care too much because most Russians enjoyed higher living standards as petrodollars flooded the economy. Now, of course, the situation has reversed completely. The political cost of making bad decisions is extremely high, but poor decisions are the only kind the Kremlin is capable of making — in good times as well as bad. The authorities are unable to grapple with the crisis because it was precisely their actions that caused it in the first place. When a drunk driver slams into a tree, the tree is not the cause of the accident. Russia’s leaders are like a drunk driver. Intoxicated by petrodollars and racing along the highway at 200 kilometers per hour in his armor-plated Mercedes, the driver slammed into a huge tree called the global financial crisis. The driver is still alive thanks to the car’s fat air bag — the country’s stabilization fund. Although heavily bruised and injured, the driver is able to get out of the smashed car, look at the tree and scream, “It was you, America, that caused this whole mess!” Russia’s economy is falling at a record rate, comparable only to its rapid decline in fall 1941. The country has spent a whopping $200 billion on “supporting” the ruble. In the end, the only support to speak of is that the ruble has lost about 50 percent of its value since last summer, while the $200 billion spent on this accomplishment is gone forever. Few know for sure how much money is really left in the Reserve Fund. Meanwhile, the market value of Russian companies has decreased by roughly 75 percent on average since their peaks last year, while their huge debts have not gone away. This imbalance could easily result in mass defaults or bankruptcies. The ruling elite were willing to forgive Putin for his mistakes during the prosperous years, but when the magic goose stopped laying its golden eggs, they started taking a hard, sober look at the person who sparked a gas war with Ukraine in the heat of a dire financial crisis and who threatens to shoot protesters at unsanctioned political rallies.
Yulia Latynina hosts a political talk show on Ekho Moskvy radio.