The topic of the Russian economy and the ruble has been at the top of financial news lately. I originally started a post to talk about the economics of the situation; but Lars Christensen has addressed it much better than I can over on his blog, The Market Monetarist. You should visit there to get the ultimate explanation of the situation from a market monetarist perspective.
Instead, I’ve decided to remark on the politics of the situation. I’ve heard many times on financial news television shows the rhetorical question about why Putin’s popularity numbers, somewhere in the area of 80% approval, aren’t taking a hit given the economic turmoil in Russia related to the collapse in oil prices. This morning I was able to watch some of the Putin press conference and there really isn’t any doubt in my mind about why Putin has been little affected by this “crisis” thus far.
If Putin’s main objective was to have a calming effect on his constituents and markets, there is little doubt he succeeded. The sum translation of his opening statement is basically do-do happens; we have managed our finances well and we have ample resources in order to fulfill our social obligations which we will be adding to on a temporary basis until we can diversify our economy. He said they have no choice but to diversify, and there will be some hurdles to jump along the way, but they will get through it as they did in 2008.
A statement such as this is rather impressive coming from a former KGB boss. It is much different than I expected and different than the kinds of statements made by politicians here in the US during the 2008 crisis that were rather demagogic on the whole, designed to deflect blame, and contributed greatly to uncertainty, fear and panic. And of course, the Herbert Hoover of our generation, GW Bush, was nowhere to be seen (Dear God, please persuade Jeb Bush to stay home; Bush flavors taste-tested thus far = recession and economic ruin).
If there is anything positive to be said on behalf of Putin at all, regardless of how one might feel about his policies, which I likely don’t agree with him on much of anything, it is that there is no lack for leadership skills. At the very least, he survives on this when his weak-kneed, blame-others counterparts simply get voted out. I wouldn’t count on him going anywhere in the next Russian elections, as much as many of us in the west would like to see the door hit him in the rear.
Anyway, I see Putin’s leadership abilities in this particular situation as a net positive for the global economy for having stabilized a situation with potential for limited contagion and guilt by association; situations in which “Rosseveltian resolve” comes in handy.
The interesting thing to watch for is what all of this means for Ukraine. I recall that in the 2007 time frame, Russia had a particular interest in Georgia that, at least to me, appeared to dissipate with the crash in oil prices in 2008. It’s highly speculative on my part to assume that Russia’s geopolitical adventurism had nearly everything to do with oil and gas. But it is a possibility.
Neither Georgia nor Ukraine are particularly rich in energy resources. But they do have geographical significance in transport and delivery of them up against an aggressive petro-state needing to find cheaper ways of transport. At least I hope that the calculus involved in Putin’s choices now make perusing Ukrainian transport resources unprofitable at least in terms of economics. If my assumption is anywhere near correct, additional economic sanctions on Russia are probably counterproductive in leaving Putin with a graceful “out” on Ukraine, tilting the scales toward making it more politically profitable to continue his pursuit than economically. Strong leaders don’t just back down, especially if they have to do it in a way that makes it look like they’re bowing to pressure or it wasn’t their idea. In the west, that outcome is probably the best we can hope for regarding the crisis in Ukraine because regime change in Russia just isn’t going to happen any time soon barring any unforeseen mishaps.
PS: I’ve heard that the supposed crisis in the ruble isn’t really a crisis in the ruble, except for FOREX traders who got caught with their pants down and foreign entities that do part of their business in rubles. It is mostly related to the appreciation of the dollar, as their quasi-peg is related to the dollar price of oil. It was bad policy for the CBR to raise its policy rate by 650 basis points as adding a demand shock to an already weakening economy makes adjustment to the new reality of lower oil prices that much more of an uphill climb. And that would be the one caveat to my assessment of Putin’s political situation – as the shock and initial adjustment may not have a serious impact on him, but the demand shock just might.