Russia Unprepared for Radical Downturn

Experts are saying that the current Russian economic crisis is worse even than the 1998 disaster. Russian leaders pranced about upon the stage, declaring that only the under-regulated laissez-faire western countries would suffer -- and good riddance! But Putin's chickens are coming home to roost, and the stink of their homecoming is getting harder to ignore.

Russia's dependency on oil is pushing the country's economy into a tailspin. Oil peaked at $147 a barrel in July but has since plunged as low as $35 a barrel. As a result of the plummeting oil price and the global financial crisis, gross domestic product shrank by 8.8% in the 12 months to January, the rouble has lost one-third of its value since September and unemployment is expected to rise to 10 million by the end of the year. The Kremlin has spent more than $200bn of its reserves to cushion the devaluation of the rouble and avoid public panic.

Neil Shearing, emerging Europe economist at consultants Capital Economics, believes the situation is going to get much worse. "The news from Russia has gone from bad to worse in recent weeks. The economy looks likely to contract by 5% this year, which would be close to the drop in output witnessed during the 1998 rouble crisis," he said, referring to the year when the government defaulted on its debts, sending shockwaves through the global financial system. "In contrast to the 1998 crisis, a weak external environment makes a sharp bounceback in growth unlikely."

"The situation is worse than at the beginning of the 1990s," said Ilya Roytman, president of IBR Consulting in Moscow, which helps companies such as Nestlé set up shop in Russia. "Before it was just in Russia. Around Russia there was a stable economic climate which helped us. But now there is a global economic crisis and because many governments have protectionist values it will not be possible to borrow resources."

Unemployment is widely expected to soar to 12% this year from 6.3% in 2008 as firms struggle to access finance. "This will spell disaster for an economy in which private consumption accounts for over half of GDP," said Shearing. About 500,000 Russians are waiting to be paid wages which are late and since inflation is running at 13%, their purchasing power is slipping rapidly.

Stephen Dalziel, executive director of the Russo-British Chamber of Commerce (RBCC), believes that the financial crisis in Russia is much worse than in Britain.

"I think that the problem is that they were unprepared to the point of being arrogant," he said. "When sub-prime happened in 2007 they were arrogant because they thought it was a western thing. They said it wasn't like 1998 and then it suddenly hit them."

He believes that the situation for businesses is far worse than 1998. Guardian

Before the economic downturn, both China and Russia had what they considered "ample cash reserves." Russia's reserves are melting away, and China is having some economic problems as well. But China's economy is not based upon the sales of fossil fuels and other raw materials and weapons. China is more diversified, with a more healthy, stable, intelligent, and productive population base than Russia. In short, Russia is a walking dead man, while China is merely a dyspeptic with symptoms of early PUD.

Both Russia and China are busily engaged in building military and commercial infrastructure in Latin America and the Caribbean. They are taking advantage of the presumed weak presidency of Obama to put advance forces into place, just in case a good opportunity for mischief arises later on. As Russian demographics collapses, and the Russian economy continues being stripped and shipped out of the country by insiders, desperation may force Putin's hand.

A desperate Russia is more likely to use proxies to attack its enemies. Deniable attacks via dirty bombs, biological weapons, or EMP weapons are not out of the question, should Russia's economic and political situation become too dire. Since Russia's client, Iran, is also establishing itself in South and Central America, expect such a surprise attack to come via one of Iran's cats paws such as Hezbollah, Hamas, or other Iranian armed and financed terror groups.

While the Keystone Kops of Washington DC dance on the media stage in outrage at AIG bonuses, the tragedy of the real world is unfolding around them, beyond their focus.