When All the Smoke Clears
Since the authority agreed on an anti-crisis plan, the number of incompatible and confusing opinions coming from Russia's top officials has only increased over the past weeks. With the proclamation of the government's program for combating the crisis and the State Duma's approval of a revised budget for 2009, the confusion over Russia's future has also increased. Neither the program nor the budget clearly set out the authorities' priorities.
The only thing that was made clear was the government's desire to maintain the status quo -- preserving the political model based on Prime Minister Vladimir Putin's power vertical and maintaining a state-capitalism economic model that hinges on the hope that oil prices will return to high levels before the state's foreign exchange reserves run out. Meanwhile, the political and economic situation in the country is becoming increasingly unstable.
The greatest cause for optimism came from Central Bank chief Sergei Ignatyev and First Deputy Chairman Alexei Ulyukayev last week. They announced that the worst was behind us -- the economy had already hit bottom and the Central Bank's lending rates would drop, meaning that a return to positive growth is not far away.
By contrast, Sberbank chief German Gref rained on everybody's parade. He believes that the banking crisis is only beginning. It will reach critical levels later this year, when the banking industry is hit with a deluge of defaults from corporations and individuals.
First Deputy Prime Minister Igor Shuvalov was equally downhearted about Russia's prospects. He said the crisis would last at least three years and that measures taken by some Group of 20 countries to stimulate demand would likely be insufficient.
There is a debate among the ruling elite over how to manage the country's happening. Igor Yurgens, the head of Institute of Contemporary Development, of which President Dmitry Medvedev is the chairman of the board of trustees, said the management is divided into two groups -- one led by Deputy Prime Minister Igor Sechin and the other by Shuvalov. The first group advocates control support primarily for businesses, and the second wants to stimulate consumer demand. The first group wants to retain the existing economic system and corporations, and the second calls for structural reforms to the economy. Such disputes prove that, despite having already approved the revised budget and the anti-crisis program, the political elite could not achieve a consensus on their basic strategy for coping with the crisis.
On a recent trip to Altai, I met with the head of a major bank and the director of a holding company. The bank is suffering a serious cash shortage and has been forced to restructure its growing number of bad loans. The prognosis for this bank matches the suggestion given by Gref and Kudrin: The banking system is headed for some very tough times.
The owner of the holding company with assets in agriculture, real estate and manufacturing is expecting the worst. The main problem is high interest rates exceeding 20 percent, which automatically makes any new project funded by a bank loan breaking even. He also expects a huge increase in unemployment in the near future as a result of factory closings. This matches sociologist Yevgeny Gontmakher's forecast that 8 million to 9 million Russians may lose their jobs this year.
If the pessimists in the direction and sovereign analysts are right, then by 2010 the money remaining in the state's reserve funds will be meagre to finance the budget deficit, much less to bail out the banking system. High unemployment and falling incomes could spark social unrest and undermine trust in the authorities.
At that point, the supervision will no longer be able to get away with blowing smoke by offering vague anti-crisis programs. Nor will it be able to fool anyone with the kind of empty, pie-in-the-sky statements that Shuvalov made in Voronezh on March 24 -- that the sway is doing "everything so that Russia becomes the most desirable place to live in the world." The authorities will soon realize that their Newspeak and PR spinning don't work anymore. Then they will have to face the harsh reality and make some tough choices by fundamentally reforming the country's woefully unfruitful economic and political institutions.
Vladimir Ryzhkov, a State Duma deputy from 1993 to 2007, hosts a political talk show on Ekho Moskvy.
The only thing that was made clear was the government's desire to maintain the status quo -- preserving the political model based on Prime Minister Vladimir Putin's power vertical and maintaining a state-capitalism economic model that hinges on the hope that oil prices will return to high levels before the state's foreign exchange reserves run out. Meanwhile, the political and economic situation in the country is becoming increasingly unstable.
The greatest cause for optimism came from Central Bank chief Sergei Ignatyev and First Deputy Chairman Alexei Ulyukayev last week. They announced that the worst was behind us -- the economy had already hit bottom and the Central Bank's lending rates would drop, meaning that a return to positive growth is not far away.
By contrast, Sberbank chief German Gref rained on everybody's parade. He believes that the banking crisis is only beginning. It will reach critical levels later this year, when the banking industry is hit with a deluge of defaults from corporations and individuals.
First Deputy Prime Minister Igor Shuvalov was equally downhearted about Russia's prospects. He said the crisis would last at least three years and that measures taken by some Group of 20 countries to stimulate demand would likely be insufficient.
There is a debate among the ruling elite over how to manage the country's happening. Igor Yurgens, the head of Institute of Contemporary Development, of which President Dmitry Medvedev is the chairman of the board of trustees, said the management is divided into two groups -- one led by Deputy Prime Minister Igor Sechin and the other by Shuvalov. The first group advocates control support primarily for businesses, and the second wants to stimulate consumer demand. The first group wants to retain the existing economic system and corporations, and the second calls for structural reforms to the economy. Such disputes prove that, despite having already approved the revised budget and the anti-crisis program, the political elite could not achieve a consensus on their basic strategy for coping with the crisis.
On a recent trip to Altai, I met with the head of a major bank and the director of a holding company. The bank is suffering a serious cash shortage and has been forced to restructure its growing number of bad loans. The prognosis for this bank matches the suggestion given by Gref and Kudrin: The banking system is headed for some very tough times.
The owner of the holding company with assets in agriculture, real estate and manufacturing is expecting the worst. The main problem is high interest rates exceeding 20 percent, which automatically makes any new project funded by a bank loan breaking even. He also expects a huge increase in unemployment in the near future as a result of factory closings. This matches sociologist Yevgeny Gontmakher's forecast that 8 million to 9 million Russians may lose their jobs this year.
If the pessimists in the direction and sovereign analysts are right, then by 2010 the money remaining in the state's reserve funds will be meagre to finance the budget deficit, much less to bail out the banking system. High unemployment and falling incomes could spark social unrest and undermine trust in the authorities.
At that point, the supervision will no longer be able to get away with blowing smoke by offering vague anti-crisis programs. Nor will it be able to fool anyone with the kind of empty, pie-in-the-sky statements that Shuvalov made in Voronezh on March 24 -- that the sway is doing "everything so that Russia becomes the most desirable place to live in the world." The authorities will soon realize that their Newspeak and PR spinning don't work anymore. Then they will have to face the harsh reality and make some tough choices by fundamentally reforming the country's woefully unfruitful economic and political institutions.
Vladimir Ryzhkov, a State Duma deputy from 1993 to 2007, hosts a political talk show on Ekho Moskvy.
