Saturday, January 23, 2016

Russian Ruble Plunge

By Stephen Wilson

The Russian Ruble lost 25% of its value to the dollar in the last few weeks due to the falling oil prices.

(Moscow, Russia) --  Against all expectations that the worst of the crisis had passed, the price of a barrel of oil plunged to an abysmal price of 32 dollars which in turn, sent the ruble into free-fall. Over the past two weeks the ruble fell from around 60 rubles to 70,74, 76, 84 ......Some experts believe that worse news is on the way - the barrel of oil might drop to as low as twenty or ten dollars a barrel... The  Russian government has now had to revise its whole economic strategy and may resort to extreme measures - imposing more unpopular taxes, an intensification of yet more unpopular austerity measures, thousands of redundancies in the state sector, refusing to pay workers on time, more publicized corruption scandals to take the heat off incompetent politicians and, possibly printing money which would lead to hyperinflation. Second City Teachers looked at how some Russians are responding to the situation.

              'Only a fool tries to predict what will happen in Russia,'  goes an old dictum. The recent dramatic turn of events vindicates this saying as few people anticipated that the price of oil would fall to an all-time low of approximately 30 dollars and perhaps lower. Instead, President Putin had made a speech in December 2014, stating the worst of the crisis had passed, that things in the economy would start to pick up around 2016 and other economists stated the price of oil would in fact rise.

              They were possibly banking on a miracle of some sort. The vast majority of ministers  and economists failed to anticipate such a steep fall and one bullish banker even thought the barrel of oil might soar to 80 dollars a barrel. One of Russians leading and respected economists did not rule out the possibility the barrel of oil might fall to 20 dollars but stated it would be only a temporarily dip. Even that hope now seems illusionary as the world market is flooded with a glut of oil from Texas, Iran and other countries. Could it get even worse?

              How might we gauge the mood of the country? While the government ministers look as if they are on the verge of a nervous break-down, and could panic, most
ordinary Russians I have encountered remain calm. Perhaps they have developed some solid immunity system over the years. Some local Russians I spoke to were unaware of events. Instead, they were more concerned about travelling through the endless snow storms and whether they had to cancel private lessons to attend a parent teacher meeting.

              My wife informed me, 'You see, Stephen I was right to covert some of our savings into euros. You can never trust government statements about the ruble stabilising and things getting better.'

              Many Russians have seen their salaries cut by over 50% if they are lucky enough to hold on their jobs. Many journalists, doctors and bankers have lost their jobs. Most still have not found new ones. Although most Russians are not panic striken, they are cutting back on spending. Even relatively well-off Russians are flocking to the cheaper supermarkets to purchase food. If one wants to avoid an unpleasantly long queue of people, you should go just when the supermarket first opens. Russians are also
cutting back on trips to Egypt, Turkey and Europe. So more and more Russians are saving up for a rainy day. However, this reluctance to spend money will mean companies can sell less goods and therefore be forced to lay off more workers. Saving up for a rainy day might make a rainy day more, rather than less likely.

              Much is being made about rising protests brought about by wage arrears, an unpopular tax being imposed on truckers , and the strikes of doctors and teachers. Apart from the effective  protest of truckers most of those protests appear to be small scale, isolated and lacking at least active
support if not sympathy of the masses. This could abruptly change in the coming months. The opinion polls which put Putin's popularity beyond the 90% level have always been questioned by opposition figures  who would put it at a much lower estimate. In deed, some surveys suggest that 74 % meets the mark. Nevertheless, even this rating far surpasses the average popularity of so many American
and European politicians. Given the deepening of the crisis, one wonders how long this popularity can be sustained. The Russian government claims to have three reserve funds which should support them over the next few years. The state claims to have gold reserves amounting to 340 billion in the central bank plus two government reserve funds of 70 milliard and 80 billion dollars. Theortically, those reserves should allow the economy to get through at least three or
four years. However, critics state that the government has already spent the last two reserve funds and that the long term security of those reserves is based on the price of oil not falling to as low as 30 dollars a barrel. Now, the reserve fund may run out within the short space of a year or less. A huge amount of money has been flittered away on an on-going war in Syria and pensions are no longer indexed to the rate of inflation.

              Under those stark circumstances the government might attempt to try and spend their way out of the crisis by simply printing money. This seems, to be at least less unpopular in the short than long  term.

              As in every crisis, there are people who resort to desperate and irrational methods to get by. For instance, more people appear in the streets attempting to flog off coins as authentic old ones. They charge thousands of rubles for a supposed coin of Catherine the Great which was made in China. They can be bought from any kiosk for a hundred rubles. I was harassed by a man who tried to flog  me a poor quality laptop he had most likely stolen. I gave him 500 rubles to get rid of him. It was a mistake. He followed me through the park to my work place.

              He stated, ' If you don't give me more money, I will throw myself in front of a car'. I told him, 'Go ahead', and of course, he quickly changed his mind. I lost him by darting into a nearby supermarket.

              Far more serious situations are arising where con artists have been trying to persuade old age pensioners to sign a document which hands them their apartment in exchange for free medical care in a hospital. The American teacher Daniel Ogen and his wife managed to arrive in time to stop 'social workers' from cheating an old professor out of her apartment. It might be just a coincidence, but those attempted apartment scams often increase during a crisis. People lose not only their jobs, but also their minds and conscience.

              For now, most Russians are keeping their composure even if Russian ministers are biting their nails.

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