|Moscow Business Center|
In response to Putin’s speech today, I just explained on Press TV that in talking about Russian economic news, its easy to lose sight of some important facts.
The fundamentals of the Russian economy are sound:
1. Russia still has the 8th highest nominal GDP in the world
2. Russia has the 5th largest Gold reserves, surpassing Switzerland and China this year – its important in looking at the real strength of a currency to see what precious metal it has behind it. These Reserves are now back to Soviet era levels, before 1993 when Yeltstin nearly destroyed all of Russia and his policies depleted the gold reserves.
3. Regarding Putin’s speech today saying that it will be 2 years before the Russian economy ‘returns to normal’ – I was asked if this is optimistic. I said it’s conservative. Putin actually said it could be one year, if external factors change (this includes oil price, I think they could, see below)
4. I emphasized that Putin’s call for diversification of the economy is realistic – pressed as to whether this was optimistic, I responded – no, its realistic.
In fact a weakened ruble and higher interest rates are compatible with developing ‘Import Substitution’ (which means industrialization, or ISI). It protects savers and workers, and reduces speculators in sectors outside of the national economy. The weakened ruble promotes exports (didn’t have time to drive that last point home. Khazakis and Chinese are already rushing to buy Russian goods right now)
5. Whatever number the ruble stabilizes at is not as important as that it does stabilize. Eliminating volatility is more important than ‘a number’. A national economy (especially in light of ISI) can adjust its own costs and prices to meet the needs of consumers, production, and the economy in general. The more a country is internally producing, the less the ‘number’ (vs. the dollar or euro) is important.
6. I confirmed that Putin accurately states the origin of the weakened Ruble being in low oil prices. But its also the product of sanctions from the US and EU. This affects the banking sector, and will force Russia to change the role of its own central bank – this last point I did not have time to drive home. But I did have time to say that while the price of oil per barrel is down from $100 to $55 (for Brent Crude), that this low oil price can’t be the norm forever, and that they are conservatively estimated to rise by this time next year to about $65 and as much as $70. The ruble will ‘strengthen’ in relation to this.
Joaquin Flores is an American expat living in Belgrade. He is a full-time analyst at the Center for Syncretic Studies, a public geostrategic think-tank. His expertise encompasses Eastern Europe, Eurasia, and the Middle East. Flores is particularly adept at analyzing the psychology of the propaganda wars. He is a political scientist educated at California State University. In the US, he worked for a number of years as a labor union organizer, chief negotiator, and strategist for a major trade union federation. He presently serves as the Europe wide coordinator for New Resistance, a US based movement. Flores regularly appears on Press TV to analyze relevant news items relating to Eurasia. He has been published at Oriental Review and the Journal of Eurasian Affairs, among others.