Russia: The Crisis and The Potential For Unrest

Global Voices Online
Sunday, December 21, 2008

In mid-October, Global Voices published a roundup of Anglophone bloggers' views on the financial crisis in Hungary, Estonia, Latvia, Lithuania, Serbia and Ukraine. Below is another installment on the effects and the likely consequences of the crisis in Russia.

Edward Hugh of Eastern Europe Economy Watch examines the figures and concludes that "Russia's macro data starts to confirm the severity of the downturn":

[...] So the ruble is falling and the reserves are flowing out at a rather fast rate, but this is not producing inflation in Russia - in fact quite the contrary, disinflation is very strong in Russia right now, and indeed if things continue at this rate (especially given the sharp contraction in internal demand) deflation and not inflation is going to be the big headache.


Unemployment is also rising, as are overdue wages, which were up 93% over the previous month. The unemployment rate rate rose to 6.6 percent in November, which is the highest since April, but still comparatively low by historic standards, although experts suggest we could easily see this number rise towards 10% to 11% in 2009.


So an incredible trifecta - a unilateral decision to recognise Georgia's two separatist regions, a 66 percent fall in oil prices and the worst global financial crisis since the Great Depression - has been whisked up, and has lead to a sharp spike in investor unease such that around $211 billion has been withdrawn from Russia (estimate by analysts at PNB Paribas) since that fateful day in August when the tanks went though roaring through the Roki tunnel. We now await to see just how sharp "sharp" means when we are talking about the slowdown in Russian GDP in 2009, although the real questions which must be in everyone's minds concern the future beyond 2009. If the ruble devaluation produces - as seems likely - a rise in corporate and household defaults on forex loans, just how long will it take Russian consumption and Russia's banking system to recover from the blow that this will represent? And when oil prices do eventually recover (in 2010?) just what will the Russian central bank and those responsible for economic management have learnt from this most unfortunate "boom-bust" episode.

The Economist's Edward Lucas writes that the Russian "economy is looking wobbly":

[...] Russia has been hit by a double blow. One is a collapse in the oil price. Urals crude is trading around $44 a barrel, whereas Russia’s budget had pencilled in an oil price of $70. The other is the credit crunch which means an end to cheap loans for an economy that had become used to a flood of petroroubles.


Public discontent is beginning to simmer. The problem is less the tiny self-proclaimed opposition, but spontaneous protests by citizens fed up with incompetent and arbitrary behaviour. A protest by drivers in the Russian far east brought a nervy response from official Kremlin media. [...]

Oleg Kozlovsky, one of the activists of what Edward Lucas calls "the tiny self-proclaimed opposition," writes this about the crisis:

[...] By the way, the crisis is already beginning to affect the people. Andrei Illarionov (a prominent Russian economist, former Putin’s advisor on economics) publishes the official figures of industrial recession that he calls “disastrous”. Industrial output fell by 6.7% in November alone, which makes 13% in last five months. This is the worst monthly decrease since the beginning of the devastating World War II. It is even worse than in early 1990s (that are considered to be a synonym for nightmare in modern Russia) or during the 1998 crisis.

The gold rivers are dry for the first time since Vladimir Putin came to power and his government doesn’t seem to be prepared. Salaries and pensions are not paid in time anymore. In some regions elderly people only got half of their pension two weeks later and they don’t know when they receive the rest. The government tries to get more money from the people and raises tariffs, taxes and duties. This begins to cause discontent among the citizens. In Vladivostok, several thousands car drivers blocked all the main roads protesting a significant increase of customs duty for foreign cars. They demanded cancellation of the proposed reform and resignation of Vladimir Putin. Their next protest is scheduled for this Sunday.

Streetwise Professor argues that the pace of the Russian rouble devaluation is too slow, which is bad for the economy, and that the reason Russia is "boiling the frog by slowly turning up the temperature gradually, rather than allowing the currency float to a level that reflects the dismal fundamentals now facing the country" is "almost certainly domestic politics":

[...] The most recent–and most serious–protests occurred in Vladivostok in response to the government’s attempt to protect the imploding domestic car industry (misery loves company) by restricting imports of used cars.

As Russia has experienced numerous times in its history–think 1905, 1917, 1991–protests of this sort can snowball.


The car tariff decision reeks of desperation in the Kremlin–and the White House (on the Moskva). An ad hoc response taken in haste to defuse one problem creates another. Putin has few good options. With the entire economy imploding, everybody is hurting, and moves to help one sector will only aggravate the suffering in others. Such clumsy moves will quickly undermine the aura of competence surrounding Putin–an aura created by luck (skyrocketing prices for raw materials and a predictable recovery from an inherited economic disaster) rather than by any real economic policy acumen. Once this aura disappears, the potential for protests and disenchantment grows. He has only made the ultimate reckoning worse by his failure to level with the Russian people about the seriousness of the situation. How will Putin likely respond? I think we all know (and dread) the answer–the answer implicit in the strengthening of the MVD. [...]

In another post, Streetwise Professor cites a number of media stories "that openly discuss the potential for unrest in Russia, and the government’s likely response to it" - and concludes:

[...] Discontent is rising, albeit slowly, and the authorities are very, very nervous. What is remarkable is that the full economic impact of the crisis has not been felt. The layoffs are just beginning. [...]

Sean's Russia Blog has more on the drivers' protest in Vladivostok:

[...] While most international reporting has focused on the arrests of some 90 demonstrators at the sparsely attended the Dissenters’ March in Moscow, on the other side of the country thousands of people paralyzed the city of Vladivostok for five hours in a protest against taxes on the purchase of foreign cars. The increase set to take effect on January 11, 2009 will increase the price of an imported car by 10 to 20 percent.

The action pits the Russian government and citizen against each other in the form of a classic tax revolt. Ironically, the government’s attempt to protect the fledgling Russian auto industry from foreign competition has found its greatest foe among the very people Russia’s economic boom has benefited: those Russians who now have enough disposable income to buy a new car.


The protesters can say that their action was a success. They may have been dismissed by the national television media, but they got the attention of their intended target: local and national leaders. Today, deputies from Primorya voted unanimously to appeal to Medvedev, Putin and the State Duma to reverse the planned tariffs on foreign cars. The Federal Council has already promised to help the protesters. [...]

IZO links to LJ user matroskin-cat's photos from the Vladivostok protest (RUS).

Window on Eurasia provides translation of some of the slogans that were seen in Vladivostok:

[...] But perhaps more worrisome to the authorities both locally and in Moscow were some of the slogans that the protesters carried. Many cars featured printed signs saying “Separate Moscow from Russia,” and at least a few had posters saying “Give Vladivostok and the Kuriles to Japan” [...].

RFE/RL's Russia blog - The Power Vertical - writes this about the crisis-related protests in Russia:

[...] But bread-and-butter issues have greater resonance (and not just in Russia, of course). And there are indications that the number of bread-and-butter issues -- inflation, unemployment, utility-rates hikes, officers released from service because of military reform, etc. -- that Russians might become peeved about is on the rise as the economic crisis unfolds.


But the Kremlin is sure to recognize the danger of giving in to the demands of this small protest (about 5,000 people in Vladivostok). In a country with mounting social tensions and economic problems, with a stage-managed political system and a tongue-tied media, the last thing the authorities will want to do is send the signal that the "feedback mechanism" of mass unrest is a good way of getting a message to Moscow. [...]

At Robert Amsterdam's blog, there is "an exclusive translation from RBK Daily on the preparations being made by the Russian security forces to handle an uprising or unrest over the economic crisis."

Also at Robert Amsterdam's blog, there is a translation of a "handy glossary of politically correct journalistic vocabulary in times of crisis" - and below is a sampling:

"Crisis" - ought to write - "world crisis"
"Threat of devaluation" - financial crisis in the USA
"No job openings" - the personnel shortage in Russia has been overcome
"Oil has gotten cheaper by two" - prices for gasoline have fallen by 0.37%!
"I've been laid off" - I've gone freelance
"Dollar" - the falling-in-the-long-term American currency

This post at Notes on Moscow shows that the Russian media may indeed be using the euphemisms quoted above, in one way or another:

[...] The financial crisis here is entirely blamed on America and excesses of the West by the media, where the press is allowed to speak only of a global financial crisis to which Russia has fallen victim, not that Russia has in any way contributed to its economic issues. [...]

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