ECONOMICS Bloomberg Businessweek November 9, 202042
○ The Kremlin has money to spend but wants to
keep it in reserve in case it faces new sanctionsDuring his decade-plus tenure as finance minister,
Alexei Kudrin became President Vladimir Putin’s
most trusted economist by keeping a lid on spend-
ing and salting away hundreds of billions of dol-
lars in a rainy day fund that helped the Kremlin
weather economic crises with confidence. Now
the fiscal conservative says Russia should be
spending more.
The Kremlin is turning a deaf ear, despite a 40%
rise in the value of Russia’s National Wellbeing Fund
this year. Putin doesn’t want to risk running down
his savings now, even if it means starving the econ-
omy during the pandemic. That’s because after
more than five years of escalating tensions withthe U.S. and Europe, including countless rounds
of sanctions, the Kremlin is digging in for more.
“The fund was set up to accumulate proceeds
from high oil prices so that it could be used in
difficult times,” Kudrin, who was finance minister
until 2011 and now heads a government audit
agency, said in an interview. “A pandemic is exactly
that kind of situation.”
After Russia’s 2014 annexation of Crimea,
Kudrin was one of the few voices among the
country’s elite arguing that the Kremlin should
tone down its confrontational line to reduce the
economic cost of an interventionist foreign pol-
icy that’s led to standoffs with the West over
its meddling in the affairs of its neighbors, the
Middle East, and foreign elections. But Putin
wasn’t swayed—not even when Kudrin gave him
a PowerPoint presentation showing the country
risked slipping in rankings of global economies.
Putin brushed off Kudrin’s criticism again
when asked about it at an investor conference on
Oct. 29, saying any increases in spending would
be done “very carefully” in order not to run down
the country’s foreign exchange reserves. Unlike
other major economies, “we can’t just hold out
our hand for more money,” he said.
Putin spent most of his first decade in office pay-
ing down Russia’s foreign debt, in part to prevent
creditors from using it for political leverage over
the Kremlin. Lately the U.S. and the European
Union have used sanctions to restrict borrowing
by the government and state companies.
Russia dodged the worst of the coronavirus
recession, thanks to an economy dependent on
exports of commodities such as oil, gas, steel, and
coal, which were unencumbered by lockdowns
in cities. But the economic cost of Putin’s foreign
policy is becoming clearer by the day as the govern-
ment holds back on spending.
The government has boasted that fiscal stim-
ulus this year amounts to almost 10% of gross
domestic product. But Kudrin and other econ-
omists say the number is closer to 3%, making
Russia one of the most frugal major economies
in pandemic outlays. Much of the spending has
been funded by borrowing from domestic banks,
even as a slump in the ruble has boosted export
revenue. As a result, savings in the government’s
rainy day fund have climbed to $172 billion. The
government plans to cut back borrowing in 2021 to
tighten the budget, which has moved into deficit
following three years of surpluses.
By contrast, ordinary Russians had to dig
deep into savings to survive a six-week lock-
down that ended in mid-May. By then, almost○ Kudrinnew relief funding of at least €1.5 billion. These
efforts are being supported by a European Central
Bank pledge to keep borrowing costs low and
add stimulus.
Governments are having to pick winners and
losers as they patch up their economies on the fly,
and subsidizing bankrupt industries can’t go on
indefinitely. Amid pandemic fatigue, discontent
is building. Germany has seen anti-lockdown pro-
tests, and riots have taken place in a dozen Italian
cities. In France, local politicians and businesses
have defied orders to close small shops that sell
items deemed nonessential during a pandemic,
such as clothes, books, flowers, and toys.
In an attempt to calm protests, the French
government said it would ban supermarkets
that remain open from selling those goods sold
by the shuttered stores. That’s led to further
confusion, including a minister debating on a
radio show whether toothpaste or makeup were
more essential.
For the maintenance of Europe’s social fabric,
as well as its economy, policymakers are banking
on this lockdown being a short one. —Alessandra
Migliaccio, Carolynn Look, and Piotr Skolimowski,
withJanaRandowTHE BOTTOM LINE Partial lockdowns in France, Germany, Italy,
and Spain to contain rapidly rising virus counts have increased the
likelihood that Europe will experience a double-dip recession.Stingy Putin