The explanation which is usually pushed is that in 2009 Russia was still wallowing in oil dependency, relying on its oil and gas exports and the world price of oil. There’s plenty of truth in this. But in that case, how come Saudi Arabia, the world’s largest oil producer, whose economy is even more dependent on oil than Russia’s, not only did not suffer a fall in GDP but actually manage a slight growth – of 0.2%?
The decline is Russia was one of the sharpest seen in the CIS . In fact, 8 of the 12 CIS actually achieved economic growth in 2009! Apart from Russia, only the Ukraine, Armenia, and Moldavia suffered declines.
Yet while the economy trends ever down, Russia retains relatively high inflation of 9% a year, while in Western Europe prices are not rising at all and in the US, Japan, and China they are actually dropping.
What sort of economic monster has Putin actually built that it can produce both deep depression and high inflation simultaneously?
Putin’s “economic miracle” for his second presidential term was built on the influx into Russia of short-term speculative money from abroad. This did indeed lead to the high economic growth rates of 2005-2008 when over $140 billion flowed in. But this money was mainly in the form of loans. So when the crisis started, capital poured back out of Russia and the “economic miracle” finished.
Putin’s growth model was rickety because it was not founded on investments in modernising production, increasing labour productivity, or conducive to the development of small and middle business.
Economies like this can only “rise from their knees” if they get constant injections in their joints in the form of cheap credits from the West.
Looking back we can therefore see for ourselves that the main myths of Putinite economic success were outright lies. Russia’s development rates did not stand out in any particular way from the other CIS countrie s. This means that the economic growth of the 2000s was more probably the result of the post-Soviet countries riddingthemselves of Soviet economic ways. Growth rates in oil-rich Russia were amongst the lowest in the CIS. Back in 2000, Russia enjoyed the 2nd highest GDP growth rate in the CIS. By 2008, it was in 8th place. By 2009, we led the pack for rate of decline.
Having been granted a spectacular gift from heaven – unprecedentedly high oil prices – the Russian economy should have grown considerably faster. Export oil prices were three times as high under Putin as they had been under Yeltsin (average $47pb in 2000-2009 and $60-90 during 2006-2009 as against $16.7pb in the 1990s).
With a windfall such as this, our economy should have shown growth of 9-15% a year, like our oil-exporting neighbours Kazakhstan and Azerbaidzhan.
Furthermore it is not Putin we have to thank for what economic growth we did show. All he did was hitch onto the positive trends that had appeared before he came to power. Economic growth resumed in Russia as early as 1997 and then again, after the default, in 1999, when the country GDP grew by 6.4%. Putin had nothing to do with this.
If only the last decade had been used to really modernise the country, to make long-term investments in the renovation of industry, to build roads and airports, to create a modern army and pension system… We may never again be presented with such a chance and painful changes (for example, pensions reform) will be far harder to carry out.
Structural reforms were needed in order to modernise. But everything was done back to front and inside out: assets were expropriated – from Yukos to Sakhalin-2 to Euroset while more and more was spent on paying for the growing apparatus of state, the special service, and financing the newly reformed state corporations.
Putin began the 2000s with a budget surplus and and ended the decade with a growing deficit (which in 2009 amounted to 5.9% of GDP) . How to patch the holes? Putin found an answer: raise social security payments and the pensionable age. Russia also went back to borrowing abroad .
Based on Putin: What 10 years have brought by Nemtsov