“The ruble will rise again in a couple of years”, Putin said during the annual press conference. But it is not clear if it was good news. Two years is enough to mess up the state budget and to make damages for the next years to come. Moreover, the argument that a weak ruble stimulate the Russian economy becomes a mantra. So, what is better?
In recent weeks, there was a joke in Moscow that went something like this: “What do Putin, the ruble and oil have in common? All three will soon reach 63”. The forecast was exceeded by reality indeed. The Russian president has not yet reached 63 years, the price of Brent touched 59,5 dollars a barrel and the ruble collapsed to 68 for a dollar. The doomsday predictions about the future of Russia – not only from an economic but also social and political point of view – have proliferated on Western media. In the same time, in Russia the dominant thesis are essentially two: the country is under attack by the US-led Atlantic coalition and, after all, the shock is pushing the economic system towards drastic modernization it needs.
Scapegoat
The encirclement syndrome has always worked with the Russians. Why should not work this time too? Saying that the collapse of the ruble and oil price are a result of foreign operations to damage the country (and humiliate Putin, as someone said) is a great way to distract the public from the real responsibility of the ruling class. It is the theory of the scapegoat. And the United States are always good for the purpose.
But there are a few considerations to make. The value of a currency, expressed by the exchange rate, is a reflection of the strength of the economy that supports it, as perceived by economic operators. The fall of the ruble means the international confidence in Russian economy has fallen. It is more an effect, in short, that a cause.
The theory of a ruble under attack is possible but not credible. One more factor should be considered. The Ukrainian currency is suffering the same fate as that of Russia. The gryvnia – which has lost about 50% of its value in the last year – follows the trend of the ruble. It is obvious, given the ties between the two economies. But no one in Ukraine or Russia, dares to say that it is all orchestrated by the West.
Black gold
The second argument, namely that the devaluation of the ruble spurs on the Russian economy, is even more difficult to believe. I already heard something similar about the sanctions, which are said to favor domestic production, and is a little what happened with the South Stream, for instance. The European Union has put a spoke in the wheels of the project, making it unfeasible, and Putin has transformed it into a Russian strategic move.
One might ask however why, if the weak ruble is a good thing, the Russian central bank has raised interest rates to 17% to stop the fall.
After that, there is the oil price issue. Beyond the fact that a low price does blow the public accounts, it also makes extraction in the Arctic not profitable. Russia has in recent years embarked on a massive program of drilling to the North Pole for the exploitation of offshore oilfields. But it is a very expensive oil to drill, due to the extreme environmental conditions. If it makes sense to do it when the price is $ 100 a barrel, it has probably not sense with the price at $ 60. So what will become of the huge investments of Gazprom and wealth glimpsed in the Arctic?
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“The ruble will rise again in a couple of years”, Putin said during the annual press conference. But it is not clear if it was good news. Two years is enough to mess up the state budget and to make damages for the next years to come. Moreover, the argument that a weak ruble stimulate the Russian economy becomes a mantra. So, what is better?
