“It seems that Russians forgot the golden rule of economics that competitiveness of their country’s economy depends on stability and predictability, which guarantees best possible conditions for capital investment. Love to Russia alone is not sufficient motivator.”
Alexei Kudrin, former finance minister of Russian Federation
“Russia’s credit rating dropped to junk level” reads the headline of January 26’s Moscow Times. Amid falling oil prices and Western sanctions Standard & Poor’s cut Russia’s credit rating likely leading to even more capital flight in 2015. “The new year has just started and the economy already takes a new hit!” says my friend who reads the newspaper next to me. Like many Russians, my friend must brace himself for a very difficult year ahead.
Standard & Poor’s downgrade of Russia’s credit rating is hardly accidental. Last year alone more than $100 billion left Russia for foreign banks, as the ruble lost over 50% of its value against the dollar. The country’s economic and financial outlook is negative, as authorities struggle to keep the country out of recession. It was officially announced by Russia’s Finance Minister Alexei Ulyukaev that GDP is expected to contract by 3% in 2015. It is common knowledge in Russia that these statements from authorities always reflect the most positive. According to Moody’s credit rating website this figure is close to 5.5%.
The recent downgrade was triggered by many “wrongs” of Russian economic and political systems, which unarguably need urgent restructuring. An economic model that is based on a single commodity extraction is helplessly doomed. But the Russian economy has been this way for the past twenty years and stagnant growth with high inflation is not news. The most influential and immediate factor for the downgrade is the increased violence in Eastern Ukraine and the Kremlin’s unwillingness to stabilize the situation on the ground. In words of Alexei Kudrin who is an extraordinary former finance minister of Russia that left his position because of an open criticism towards the Kremlin,” the main problem for Russia’s economy is investors’ total lack of trust in foreign policy”. The evidence is mounting that we live in the new Cold War era and everyone is set to lose from political instability that always harbors economic paralysis.
However, in Russia, geopolitics has always had the upper hand over economy. Despite considerable damage of Western sanctions to its economy, Russia continued to covertly deploy troops and arms to Eastern Ukraine for months. Putin’s statement of Russia’s non-involvement in the conflict looks rather ridiculous in light of how impossible it is to buy T-72BC battle tanks and MRO-A rocket launchers in rural regions of Donetsk and Luhansk. The most recent push to create a coherent military force out of separatist military groups that are on Debaltseve offensive testifies to a Putin’s target to consolidate lands in Eastern Ukraine that will challenge Kiev authorities for years to come.
Whether one views the people living in Eastern Ukraine as separatists engaging in terrorist activity against Ukrainian sovereignty or representative of “the other” Ukraine who fight for their cultural and political identity, the Russian apology in defense of this war on grounds of ethnicity and historic justice for people of Novorossiya cannot be accepted. Novorossiya is an artificial creation of the Kremlin, which labeled these people as Russians and automatically denied them a civic choice of being a part of pro-Western Ukraine. Ukraine needs peace and probably a more moderate government, but Russia’s propaganda of separatism and political division hurt everyone from Kiev to Moscow. Most importantly, this proxy war blinded Russians from seeing the realities of their own living conditions.
During my prolonged conversations with many of my friends in Moscow one thing that became perfectly clear to me is that the anger of Russians regarding the worsening economic situation is not directed towards the Kremlin’s policies, but towards the West and its humiliating sanctions. The immediate response of Russian people to the pressure is not dialogue with the pressing side, but more distance and opposition against it. Authorities effectively channel this widespread public opinion and use it as a political tool to back up its current policies in Ukraine. This has become a self – generating closed circle. The West has to face it: so far sanctions not only have been unproductive in achieving change in Kremlin’s policies, but only intensified its’ anti-Western rhetoric!
How do we move from the current lose-lose scenario? First of all, we need to encourage support of opposition within Russia and establish the channels of contact with civil society groups there. If there is one thing that Mr. Putin fears, it is the outbreak of civil society activism in Moscow, just as spontaneous and powerful as it was in Kiev a year ago. There is enough (if not plentiful) potential for new and young business and political elite to be pro-democratic and liberal, but they need to see clear and uncompromisable support by the West. Most importantly, in no case in time should the West attempt to demonize Russian people. Inertia is the characteristic trait of the Russian state, but the change towards liberalization of Russian politics and society has started and it will be slow and painful, but is already irreversible. In such a set of conditions when Russians feel that they have to defend their motherland this process will be only delayed.
Russia is yet to face the full spectrum of challenges to restructure its economy and politics, but as the fantasy world of miracle economic recovery that is being played on state TV channels is shifting further from reality, people will question what is wrong with their society and politics. I firmly believe that this process has started and the country needs Western support to overcome its own demons more than ever today. If we are to break this vicious circle, we ought to do it together. But for now Russia could not be further from the West and my friend who was appalled by new economic troubles in Russian economy will have to get used living with them, until he finally starts to question the judgments of his government!
Photo attributed to: Dmitry Azovtsev
Liubov Georges is a master’s candidate at NYU’s Center for Global Affairs