Bloomberg Businessweek - USA (2020-11-09)

◼ ECONOMICS Bloomberg Businessweek November 9, 2020

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half of households had either no savings or just

enough to cover expenses for four weeks, accord-

ingtoa surveybyMoscow’sCentreforStrategic

Research.Nochlezhka,a charitythathandsout

freemealsfromnightbusesinMoscowandSt.

Petersburg,saysdemanddoubledinthespring

andhasstayedhigheversince.DirectorGrigory

Sverdlinsaysheisn’toptimisticthesituationwill

improveanytimesoon.

“Russia is now one of the only major

economiespursuingausterity,andit’spursu-

ingit forthewrongreasons,”saysSergeiGuriev,

formerchiefeconomistattheEuropeanBank

forReconstructionandDevelopment.Spending

onhealthcareandeducationasa shareofover-

allpublicexpenditure declinedin thethree

yearsbeforethepandemic.Majorinfrastructure

projectshavealsosufferedfroma lackoffunding,

especiallyinregionsfarfromMoscow.Residents

ofYakutia,inthefarnortheastofthecountry,have

beenwaitingfor 30 yearsfora bridgetheKremlin

promisedtobuildoverRussia’sthird-biggest

river.Everyyearmorethan600,000peopleget

strandedononesidewhenthewintericegets

toothintodriveon.Moneythatwasmeantto

havebeenallocatedforit gotdivertedtofunda

$3.5billionbridgetoCrimeathatwasfinishedtwo

yearsago.

HighoilpriceshelpedPutinoverseea surgein

livingstandardsandaverageannualgrowthof7%

duringhisfirsteightyearsinpowerintheearly

2000s.Buttheboomhasgivenwaytostagnation

inthepastdecade.SincetheCrimeacrisis,the

economyhasexpandedatanaverageannualrate

ofjust0.7%.

Putinstartedthisyearwitha promisetogive

backa portionofthemoneythat’sbeensquirreled

awaybyspendingabout2.1trillionrubles($27bil-

lion)oninfrastructureprojectsandbenefitsfor

thepoor.Thenthepandemichit,andsomeofthat

moneywaschanneledintosupportforindustries

affectedbylockdowns.

TheKremlinhasmetwithverylittlepushback,

inlargepartbecauseit’scarefultocontrolthe

narrativeonstateTVthatthepolicyofsaving

ratherthanspendingisnecessarytoprotect

Russia from outside threats. When Putin’s

approvalratingsdroppedtoa recordlowof59%

duringthelockdown,thegovernmenteasedthe

restrictionsinsteadofincreasingfinancialsup-

port.“It’salmostlikethepoliticianswanttokeep

peoplepoorsothatalloftheirenergyis focused

onsurviving,leavingnotimetoprotest,”says

AlexandraSuslina,a budgetspecialistatthe

EconomicExpertGroup,a Moscowthinktank.

THEBOTTOMLINE Putinhasbeenloathtosharplyrampup

spending,despitea 40%increasein Russia’srainydayfund

thisyear.

“Improving living standards just isn’t a priority.”

Putin’sratingsimprovedwiththeeconomy

overthesummer,butnowthegovernmentis

facinganotherspikeincoronavirusinfections

that’sthreateningtorunoutofcontrolinthe

absenceofa newroundofrestrictions.

Meanwhile,theriskofnewU.S.sanctionshas

increased.InthelastdebatebeforetheNov.3 U.S.

presidentialelection,DemocraticcandidateJoe

Bidenwarnedthatanycountryinterferinginthe

votewill“paya price,”addingtherewasalready

evidenceofRussianmeddling.

Successiveroundsofpunitivemeasuressince

theannexationofCrimeameanthereisn’tmuch

leftfortheU.S.totargetinRussia.Oneproposal

putforwardbya bipartisangroupofU.S.sena-

torswouldbarAmericanmoneymanagersfrom

takingpartinauctionsofsovereignrubledebt,

limitingthepoolofRussia’spotentialinvestors

toEuropeandAsiaandpotentiallyincreasing

borrowingcostsforthecountry.TheInternational

MonetaryFundandmajorcreditratingcompa-

nieshaveheapedpraiseonRussiainrecentyears

forkeepingdebtlevelsamongthelowestinthe

worldandforeignexchangereservesamongthe

highest.ButKudrinsaysthatbymaintainingthat

levelofprudenceina crisis,thegovernment

risksdraggingouttheeconomicpainforyears

tocome.“Iimaginethattheyarebeingcautious

withspendingbecausethey’reworriedabout

futurerisks,”hesays.“Butit willbemuchharder

torevivetheeconomylaterif it’sbadlydamaged.”

�NatashaDoffandEvgeniaPismennaya,with

AnyaAndrianovaandAineQuinn

▲A Nochlezhkabus

distributingfoodin

St.Petersburg

▼ Value of Russia’s

National Wellbeing Fund

1/2018 9/2020

$150b

100

50

0

KUDRIN: RUSSIAN STATE DUMA PRESS OFFICE/TASS/ALAMY; SVETLANA BULATOVA; DATA: MINISTRY OF FINANCE OF THE RUSSIAN FEDERATION