Russia At Crossroads

Ruble’s unexpected and sharp plunge on December 16, triggered by the Russian Central Bank’s sudden decision to raise its key interest rate from 10.7 per cent to 17 per cent, at a single go, brought back the memories of black Tuesdays, back Thursdays of the unstable Yeltsin years when the local currency was once devalued in 1998 by 400 per cent in a matter of two days. This time the ruble registered a historic decline, dropping as much as 20 per cent to reach a dangerous low of about 100 rubles to the euro and 80 rubles to the dollar before regaining some lost ground in several hours. There was a panic in the country leading the people the go for panic buying of huge amount of goods that they do not need before the steep price rise takes place and sending their last ruble in purchasing the US currency. Government intervention in the subsequent days propelled the ruble to recover some lost ground, bouncing back to 60 rubles per dollar.

Although the ruble was under pressure for the last few months because of the fall in oil prices and Western sanctions against Moscow, nobody at all expected this steep fall in the exchange rate, particularly when the country has foreign currency reserves worth nearly US $ 500 billion. Obviously, the immediate trigger for the ruble fall was the Central Bank’s surprise decision to raise its key interest rate sharply. The Central Bank authorities explained their step by arguing that the decision would deprive the currency speculators access to cheap credits. Central Bank chief Elvira Nabiullina justified the step by saying that decline in the ruble’s exchange value would create opportunities for local producers and these opportunities would stimulate indigenous production. She further argued that the decision is designed to reduce inflation as well as inflationary expectations.

While the Kremlin declined to comment on the decision saying the Central Bank was an indepen-dent body, the entire political Opposition in the country has protested against the move. Leaders of the Communist Party of the Russian Federation, Liberal Democratic Party and Just Russia have expressed deep anguish and opposition to the Central Bank’s decision to raise its key interest rate, holding the bank responsible for the precarious economic and financial situation unfolding in the country. By the way, this is the sixth time in the year when Central Bank has raised its key interest rate from five per cent in the beginning of the year.

The Central Bank’s decision would make it difficult for businessmen to have access to cheap credits thus delivering a blow to their production and trading activities. Experts apprehend that the Central Bank decision would seriously aggravate the situation in the sphere of housing loans and would lead to mass bankruptcy of enterprises. They predict that mass bankruptcy of enterprises might happen even before the year end as they cannot survive in such a precarious financial system. Though the Central Bank’s move was designed to curb the activities of currency speculators, now it seems it is currency speculators who would reap the maximum benefit out of the emerging crisis. Many experts refuse to accept the argument that the decision would help in curbing inflation. Rather they argue that the Central Bank’s decision would only facilitate mounting inflation in the economy.

There is a growing belief among Russian experts that the current crisis is a result of ‘sabotage’ by certain circles, particularly the neo-liberal circles surrounding the President. They point their accusing finger towards the Prime Minister, Dmitry Medvedev, and Central Bank head Elvira Nabiullina, who apparently are close allies of the neoliberal elements. Indeed, the economic block in President Putin’s government is still dominated by the neo-liberals like the Economic Development Minister, Finance Minister, Deputy Prime Minister, Central Bank Chairman etc. While the broad masses and Opposition were expecting that Vladimir Putin would sack the neo-liberal Prime Minister and Central Bank head, they have escaped by receiving just light reprimands from the President.

Indeed, Russians were hoping that President Putin would explain the real reasons and name the people responsible for the current crisis in his annual press conference, held on December 18 at Moscow’s World Trade Centre. However, the President, just stating that the current crisis has been provoked by external factors, went on to emphasise that the current situation is the result of lack of sufficient efforts to diversify the economy and get the country out of the ‘energy riddle’ of the past two decades. Analysts believe that President Putin, in an attempt to maintain the unity in the ruling elite, did not take action against the people responsible for the current crisis, and he did it at the risk of losing his high popularity among the masses.

One thing at the moment is very clear: that President Putin would concentrate his efforts to neutralise the adverse effects of Western sanctions and decline in oil prices by pursuing a policy of import substitution and diversifi-cation of the economy. In fact, the fall in oil prices and Western sanctions imposed in the wake of the Ukrainian crisis have created the space for import substitution and diversification of the economy—an opportunity that should not be missed. In the wake of the 1998 financial meltdown followed by Russia’s sovereign bankruptcy, the Russian Government, led by Primakov and Maslyukov, used this kind of opportunity to turn around the economy creating conditions for rapid economic growth through import substitution in the subsequent years.

The people’s expectation that President Putin would sacrifice some of the persons responsible for the current crisis may have been belied, but his press conference has no doubt helped to calm down the market and society as a whole. President Putin has predicted that the current crisis in the country would be overcome within a period of maximum two years.

Russians are very resilient people who managed to survive through the chaotic years of Yeltsin. So it may not be too difficult for them to live through the current crisis, particularly in the backdrop of the tide of patriotism stemming from Russia’s rise as a sovereign, assertive global player under Putin. The bigger issue right now is the West’s, particularly the US’, attempt to overthrow Putin from power through organisation of a regime change in Russia. Russian Foreign Minister Sergey Lavrov has directly and publicly accused that there is a sustained attempt for overthrowing Putin from power through forcible regime change. The regime change is being planned to be breught about by destabilising the country’s economy through orchestrated oil price fall and impositions of growing sanctions. The West apparently believes that economic hardship, resulting from by the oil price fall and sanctions, would fuel an anti-Putin movement in the country and push the common Russians to the streets heralding Putin’s ouster from the Kremlin. Russia’s largely marginalised neo-liberal opposition is being used as a tool in this anti-Putin campaign. While some of the Western media outfits have launched a full-fledged campaign to demonise Putin by calling him an aggressor, fascist etc., some of the leaders of the neo-liberal opposition have started talking that the fate of Ceusescu or Milosevic is awaiting Vladimir Putin.

Why has the West, which was so full of praise for Putin in the initial years of his presidency, suddenly became so hostile towards the Russian President? The reason is that Russia under Putin is emerging as an independent sovereign global power, which is not to the liking of the West, first of all the US. The West expected that President Putin would follow the subservient policies of Yeltsin to keep Russia as its junior partner and would not pursue any agenda to make Russia once again powerful. However, Russia under Putin has emerged as a sovereign country pursuing an independent, assertive foreign policy designed to defend its own national interests across the globe. Russia’s assertive policy, starting from Putin’s famous speech in Germany in February 2007 in the security conference, became a watershed in its bid to exercise its strategic autonomy in the domain of foreign policy-making. Russia’s independent position, stemming from its national interests, on a host of international and regional issues affected Western interest adversely. Moscow’s permission to Edward Snowdon to live in Russia and its outstanding diplomatic success in preventing Western military intervention in Syria, aimed at overthrowing President Assad from power, became too painful a bone in the West’s throat. And hence there is this Western campaign to demonise President Putin with the sole objective of throwing him out of power by organising a “Maidan†or “colour revolution†. The Ukrainian crisis came in handy and provided fodder for this anti-Putin and anti-Russian campaign.

President Putin is right when he says that the Ukrainian crisis is just a pretext to punish Russia through imposition of sanctions, an attempt to isolate Russia internationally. Even without the Ukrainian crisis, the West would have looked for a pretext to punish Russia for pursuing a sovereign independent foreign policy according to its own national interests. President Putin, in his address to the nation in the first week of December, emphatically said that Russia would fight for its sovereignty as it constitutes the very foundation for a strong Russian state. Russia has overcome many a crisis in history and its people demonstrate unprecedented patriotism and resilience in times of crisis. The same is again visible in Russia. The economic crisis, largely the result of Western sanctions and steep fall in oil prices, has pushed Russians to solidly rally behind their national leader, boosting his popularity to record levels and strengthened their resolve to tighten their belt and make sacrifices in order to turn their motherland into a truly sovereign independent superpower. The Western attempt to precipitate economic crisis aimed at making President Putin unpopular and thus overthrow him from power through the politics of regime change is destined to fail.

Prof Arun Mohanty, Chairperson, Centre for Russian and Central Asian Studies, School of International Studies, Jawaharlal Nehru University, New Delhi, is the Director, Eurasian Foundation.