Playing the Numbers

01.14.16 5:01 AM ET

While Russia’s Economy Crumbles, Putin’s in Wonderland

The Russian president’s description of the country’s economy seems to be disconnected from reality.

MOSCOW — This week, Russia slowly returned to its working routine after the 10-day New Year break. It was icy cold and snowy in Moscow, but warm and sunny in Sochi, the Black Sea resort, where President Vladimir Putin was surrounded with magnolias, palms, and cypress trees. Here in Moscow, you needed a thick overcoat if you dared a walk in the snow, while in Sochi a shirt and a light jacket were good enough. Truly, the Russian president lives in his own world, wholly different from most of Russia’s reality, and his world of the moment is subtropical.

Maybe the warm air and green leaves inspire optimism. Certainly President Putin began the New Year with a sunny analysis of the Russian economy for Bild, one of Germany’s leading newspapers. The president’s confident statements in Russian, with German phrases mixed in, described the country’s budget deficit as low, national reserves as rich, and the collapsing oil price as healthy for the Russian economy.

Russia has “more than $300 billion in gold reserves” in the Central Bank of Russia on top of $70 billion and $80 billion in the government reserve funds, Putin told Bild in Sochi. So, by Putin’s calculation, Russia still has about $450 billion in reserves.

Except that it doesn’t.

Moskovskij Komsomolets (MK), a newspaper read by nearly one-third of Muscovites, came out with a headline: “Putin made a $150 billion mistake evaluating Russian reserves.” The newspaper interviewed state experts and independent financial analysts, who sounded surprised, as the true information could be found on the government websites. Putin’s advisers must have misinformed the president, the paper suggested.

The true picture did not sound optimistic at all. Russia’s economy depends on oil like life depends on oxygen. It represents at least 15 percent of Russia’s GDP. On Wednesday, Russia’s leading economists gathered to hear Prime Minister Dmitriy Medvedev’s predictions for the state budget, which was calculated on the basis of $50 per barrel of Urals oil. But the price is more like $30 per a barrel.

Medvedev said that Russia had to prepare itself “for the worst scenario,” as they do that in other countries.

RBC reported that if the oil price drops to $24 per barrel, Russia’s deficit might increase to 7.5 percent of GDP.

“In fact, we are now in a much worse position than we were in 2008, when our reserves were actually over $600 billion and we had only 15 million people living in poverty,” one of the forum’s participants, Vladimir Ryzhkov, told The Daily Beast. “Now we have a bit over $300 billion in reserves and fast-growing poverty.”

Russia’s usable reserves are shrinking at a dangerous speed. The Central Bank of Russia said last year that Russian international reserves amounted to $364 billion in November. That means that the reserves fell by over $150 billion from $524 billion since Oct. 31, 2013.

In the years since Crimea was annexed and the Ukraine war began, the number of Russians below the poverty line has increased to 23 million. Former finance minister Alexei Kudrin said at the forum that the government had to begin cutting costs. “However, I do not know where to direct these cost cuts. We have already cut education and health costs,” Kudrin said, adding that the “Russian economy is in a vicious circle.”

As Ryzhkov put it, “If the oil price stays at $30 per barrel, we are going to spend about $100 billion of national reserves before the end of 2016; and if it does not grow next year, we’ll go through $200 billion of the Central Bank’s reserves with the ruble devaluing to over 100 to 1 dollar.”

Optimism about stability is Putin’s trademark, and something the president’s fans admire him for. “The president has to stay confident, surrounding himself with people capable of holding power and property (that is what makes a politician strong) and not with idealists,” said Sergei Markov, a member of the ruling United Russia party and the Public Chamber.

Maybe Russia’s economy could recover if state bureaucrats stopped stealing from the Russian budget? In 2014, Russia was 136th out of 175 countries in Transparency International’s global ranking of corruption. But the Kremlin’s loyalists immediately said the ranking was politicized, and that corruption was a non-official deal between authorities and local populations.

“Even if governors and other state officials are corrupt, we are not going to fight that, as a real war against corruption would mean another revolution, and that is what Russian society does not desire,” Markov told The Daily Beast.

Those who criticized the president’s point of view have been cast as provocateurs or liars or foreign agents, fighting against Russia in “the hybrid war” being waged against it at different levels by Western powers.

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On Tuesday, Chechen leader Ramzan Kadyrov declared at a press conference in the Chechen capital of Grozny that Putin’s critics, allegedly hired by foreign secret services, were jumping all over themselves to oppose Putin. “Such people should be treated as enemies of the people, as betrayers. They should be put on trial,” Kadyrov said.

Every Russian knows that Stalin executed “enemies of the people,” so the words sounded life-threatening, especially after one of the high-profile critics of Putin’s politics, Boris Nemtsov, was assassinated outside the Kremlin’s wall last February.

“After Nemtsov’s murder, Kadyrov’s words sound like a direct threat,” said Ryzhkov. “He speaks as a classical dictator, Mao or Stalin. All dictators say the same thing, that opposition is a national threat inspired by foreign powers. But Russia is a democratic state, according to its constitution, and Kadyrov’s dictatorial messages are anti-constitutional.”

Democracy may be struggling, but it is still alive in Russia. Significantly, the Gaidar Economic Forum is named after one of the fathers of Russian democrat reforms, Yegor Gaidar. And the forum put the most pressing issues on its agenda, including the question of spreading political protests.

On the day of the forum President Putin told the government that Russia had to be ready for any developments in the commodities markets and equity markets, to “monitor this very carefully and have scenarios prepared for the Russian economy for any event.”

According to VTSIOM, a state-run pollster, 52 percent of Russians believe that the “hardest times” are ahead.