Russia
Author`s name Dmitry Sudakov

Revolution in Russia: The impossible is impossible

For the last couple of years, the Western press has been feeding upon numerous reports and articles about the proposed collapse of the Russian economy and Russia as a nation. Many would often compare today's Russia with the USSR during the late 1980s, or with events in 1998 and 2008, when oil prices were in their decline too, just like they are now.

The most common method for making forecasts is to find analogies in the past. However, the present-day situation in Russia is significantly different from the era of the late Soviet Union. Therefore, the forecasts that we can read today will most likely never materialize. It goes about such predictions as mass protests, the break up of the country, the change of the ruling regime, etc.

Can Russian economy collapse?

Firstly, today's Russia is a full-fledged market economy that quickly adapts itself to changes in the external environment. It was not the declining oil prices that caused massive shortages of everything in the USSR and then in Russia at the turn of the 1990s. The primary problem was about fixed prices on all goods. The authorities had to constantly increase the money issue against the backdrop of the growing budget deficit. As a result, the ruble became a candy wrapper.

During the 1990s, people could not buy anything as nothing was available. People would spend their days rushing from one store to another in an attempt to buy at least something. As a result, mass riots in the country sparked. Nowadays, the Russian ruble is a freely convertible currency. Mass shortages can not happen in the Russian economy, even if oil prices continue falling. Empty shelves and endless lines - this is not something that the country may experience some time soon.

Secondly, the economic block of the Russian government is the most professional economic administration that the country has seen during the last one hundred years. The crisis in 1998 occurred because the authorities did not want to adjust the country to new economic realities. The price of oil in autumn of 1997 was $20 per barrel, before it went down to $12 in August of 1998. However, the ruble exchange rate changed by only five percent over the same period of time. The support for the fixed rate of the ruble led not only to the depletion of foreign exchange reserves of the Central Bank, but also to a large-scale budget crisis that ended in default.

In 2008, the Central Bank was trying to support the ruble as well. The efforts led to a drop in the reserves by more than $200 billion in six months. Nowadays, despite the fact that Russia has experienced the strongest decline in oil prices in recent history, the nation's gold and currency  reserves have not changed much in 12 months: $376 billion in February 2015 and 372 billion in February 2016).

A sharp change in the economic situation, the devaluation of the ruble, sanctions and counter sanctions could not but cause serious problems for many Russian banks. At present, the Central Bank administration prevents an uncontrolled wave of bankruptcies, public panic, massive withdrawal of deposits and the loss of confidence in the banking system.

In a nutshell, the sitting economic team is handling the crisis much better than its predecessors.

Russia in the crisis in 1998, 2008 and 2016: The difference

Thirdly, the top administration of the country has finally realized that oil prices are not going to grow for ever and ever. Importantly, the government is not putting pressure on the Central Bank to print money. Noteworthy, many Russians have saved a considerable stock of capital goods during the 2000s. These days, most Russians consume essential goods only as they had acquired long-term essential goods (cars, apartments, household appliances, etc) before. During the 1990s, the people had nothing.

Despite the fact that oil costs about the same as it did 20 years ago, the same money can buy a lot more products than it could 20 years ago, because the rest of the world has been developing very rapidly.

Some products that cost a lot 20-25 years ago have become virtually free. For example, long-distance and international calls used to be considered as a luxury service. Nowadays, many people use free international video and voice communication. Watching a new film, listening to new music, reading books and newspapers - prices on all these services have collapsed (some of them to zero). Twenty years ago, a person with a cell phone was viewed as a master of the universe. Today, a cell phone is an item that 100% of the population has.

The reasons that we mentioned above indicate that a collapse in the Russian economy is not likely to occur. Dry statistics say the same. According to the World Bank, per capita GDP (PPP) for 2015 amounted to about 25,000 USD. If GDP stagnates by two percent a year (the average decline over the last two years), it will fall to the level of 20,400 dollars in ten years (the level of 2008). If we fall by four percent a year, we will go down to $16,600 (the level of 2006). The people did not suffer much either in 2006 or in 2008. Therefore, there are no objective reasons for hunger riots in Russia in the next ten years.

Politonline

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Based on materials from thequestion.ru