This article emphasizes Russia’s need to create a
better business climate in order to grow its economy and to bolster its credit
ranking. Currently Russia ranks the 120th easiest country to do
business in according to the World Bank. Furthermore, Russia is the world’s
largest exporter of energy, a resource that is falling in demand. Recently,
President Putin has proclaimed that he intends to reduce Russia’s reliance on
its oil and gas revenue and boost investment to 25% of the gross domestic
product by 2015. Additionally, he intends to improve the countries ranking ease
of doing business ranking to 20th. A paradox to this ambitious goal
is that it requires a reducing state interference in private enterprises, while
government spending and regulations have typically been a source of providing
votes. Most economists advocate that it is imperative for Russia to move away
from its reliance on natural resources because a further drop in the price of
oil would drop Russia’s credit ranking and have a significant impact on its
economy.
The
impact of further decline in the price of oil may potentially have a
catastrophic impact on Russia as well as many nations that are heavily reliant
on oil. How catastrophic the impact will be depends on the foresight of leaders
and their ability to take preventive steps to protect their people and economy.
Russia’s current economic stability is almost entirely a product of high oil
prices around the world. Putin was able to utilize “petro dollars” to bring
some sense of order to the nation and provide much-needed public service. The
president was also able to seize an almost authoritarian power through this
stability. His general rhetoric seemed to be I have provided prosperity and
thus I will hold the power. This sentiment has begun to stir up some resentment
and public protests throughout the nation as was evidenced during the past
election. The popularity rating of Putin’s United Russia party has continued to
slide. Valdimir Milov, an opposition leader, has suggested the party in in need
of a “physiological rehabilitation” for it to continue to thrive. While there
may be sentiment against Putin, his greatest advantage is that that no single
candidate that can legitimately challenge his power.
Putin
takes much of the praise for Russia’s economic revitalization post Yelstin, but
increased criticism will ensue if he cannot figure out a way to reduce reliance
on oil. The occasional public protests that we see today will potentially turn
into hordes of angry mobs if the economic situation worsens. There are signs
that Russia is making small steps towards improving its fiscal outlook buy
minimal reductions in its budget. However, just as in any democracy, leaders focus
on short term benefits that will help them to be reelected. Today’s Russia is a
radical transformation from fifteen years ago but it is time for a second
transformation if the nation intends to be a competitive global player.
Sandy Shore http://www.usnews.com/news/business/articles/2012/10/19/oil-prices-flat-ahead-of-eu-summit-conclusion
Anna Kasyan http://www.forbes.ru/sobytiya/175100-vybory-na-kotorye-ne-puskayut-hakery-kak-oppozitsiya-vybiraet-liderov
Nice post, though I’m not sure I agree with your assessment that ‘energy is falling in demand.’ China sold more than 8 million cars in 2011 and the trends point in an upward direction. I agree that Russia must diversify its exports, but as long as there is such a global thirst for oil and gas, the temptation will be for the Kremlin to remain on the ‘fossil-fuel needle.’
ReplyDeleteIt seems that most of the data suggests a fall in the global demand for oil. The reduction in demand can be attributed to a fall in economic activity, due to the global recession, and an increasing reliance on alternative sources of energy. http://af.reuters.com/article/energyOilNews/idAFL3E8L32KA20121003
ReplyDeletehttp://www.guardian.co.uk/world/2012/oct/29/gazprom-develop-vladivostok-pipeline-russian