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Thursday, July 25, 2024

Russian Economy Is Sinking. Expert: Putin's People Are Talking About It Openly

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– Last year head of the Russian Central Bank Elvira Nabiullina She raised interest rate up to 16 percent., hoping that a tough monetary policy would be able to curb inflation. It did not work, because Inflation is still rising. Currently, the head of the Central Bank admits that on July 26, the interest rate will most likely be increased to 17 or 18 percent – said Miłow, who sympathizes with democratic opposition Russian economist and former Deputy Minister of Energy (in 2002).

War, isolation, sanctions, reorientation towards China, huge labour shortage – These are strong pro-inflationary factors – he assessed.

As he explained, the huge amount of money that goes to Russian arms industry, drive inflationary pressure, but not the economy. – Money invested in the arms industry does not translate into economic growth, because they do not generate added value, they do not stimulate new production chains, the expert noted.

As he argued, the Russian model is heated economy, or even overheated with state money, which, however, does not really develop.

According to official data On July 1, year-on-year (yoy) inflation was 9.13 percent. Miłow pointed out that a much more realistic picture can be obtained by referring to the research of the Romir center, which presents the FMCG (Fast Moving Consumer Goods) price index, i.e. everyday goods. On an annual basis in May, prices were to increase by 34 percent. Meanwhile, the Kremlin's original goal is 4 percent inflation by the end of this year.

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Russia's Economic Situation: Failed Attempts to Bring Down Inflation

High interest rates and tough policies have failed to bring down inflation. At the same time, the high rate limits the possibility of crediting economic development to the maximum. This is visible in the data – the share of credits in investments is only 10%, because they are simply unavailable to business,” Miłow explained.

– The authorities are constantly bragging wage growthbut no salary increase can outpace such inflation, the economist noted.

– Besides, since the war has to be financed, taxes are rising, which will also harm investments and reduce production, he said. This is what happens lack of trust in courts, institutions, protection of property rights.

Russian authorities refer to figures GDP growthhowever, according to Miłow “it means absolutely nothing“, because the growth of domestic product alone, in isolation from other indicators, does not reflect the situation of the economy.

In the USSR, GDP grew until the very end, until the country collapsed. There was nothing left in the shops, but the GDP was growing. Why is it growing now? The authorities took money from the reserves and put it into the armaments complex. The military part of the economy is growing rapidly, yes, but precisely because of this money. Everything else is either not growing at all or is shrinking. The total growth is 3 percent. However, it must be remembered that the war economy is 5-7 million people, less than 10 percent of the workforce. Military spending is 6-7 percent of GDP, but there is also 93-94 percent, i.e. the rest – calculated Milov.

“Closed Cycle Economy”

As he noted, “in the conditions of general stagnation, this the armament 'addition' may create the impression that the economy is growing“. – The problem with her is that she depends solely on money in the budget, and that is running out. This is a short-term model – said the economist.

GDP growth is not the only optimistic indicator that they like to refer to the bards of Putin's prosperity. The World Bank recently placed Russia in the category of high-income countries. For four years now, Russia has been in the World Bank's classification the fourth largest economy in terms of purchasing power parity.

– Why didn't anyone notice? – this question was asked by the chairman of the Duma (State – editorial) committee on budget and taxes, Andrei Makarov, during the International Economic Forum in St. Petersburg. “Because it doesn't affect anything” – he answered himself and noted that indicators such as GDP growth are important, but we should not talk about them, but “about the real level of prosperity” – he said.

Makarov is one of the most “sincere” representatives of the Russian government, although not the only one. He ironically described the Russian economy as a “closed-cycle economy.”

– First we give money to produce the goods and then we give the money so that the state buys it. Then we pay to build a warehouse to store this product, because no one needs it. Then comes the fourth stage: we give money to dispose of it, Makarov said in St. Petersburg.

The Russian army needs money

According to the expert, the remedy could be private investmentsbut these require investor confidence.

– Liquid reserves of the National Prosperity Fund (FNB), that is, the real money at the disposal of the Ministry of Finance has decreased almost twice since the aggression against Ukraine, while the budget deficit is constantly increasing (and it is from these funds that the deficit is financed – ed.). They have now adopted amendments to the budget, the deficit is expected to increase to over 2 trillion rublesand this is at least 40 percent of the money that remained in the Fund – Miłow calculated.

The Russian FNB, accumulated during the fat years of Putin's rule thanks to prudent economists, is, as economists explain, gradually being lost to support the economy. However, this well has a bottom. Meanwhile, according to Milov it is necessary to further increase the army budget.

– Military spending must be increased, it is already visible. It must be increased significantly money for personnel and equipment of the army. Recently even retired Russian general Sergei Stepashin, former prime minister and head of the FSB, publicly stated that “Russian soldiers are begging”! Pay rises for the military are also needed – assessed Milov.

– With the current inflation it is necessary indexation of military salaries. Besides, nobody wants to join the army. This is also very clearly visible in the numbers. Two years ago, the authorities offered a one-time payment of 200 thousand rubles. This amount has long since exceeded 1 million, and in some regions it has reached 1.6 million! – the expert emphasized.

Officially, the authorities say that they are recruiting 30,000 new “volunteers” per month. According to Miłow, “the same rules apply here as everywhere else – the price increases when the supply is low.” – And this means that the authorities have huge problems recruiting people for the war – he added.

“Putin is running out of money”

In his opinion, “in this situation It is no coincidence that Putin talks about peace talks“. – Because he sees the moment when the money will run out – Milov concluded.

– Those experts who write that everything is fine in the Russian economy – they are simply participating in Putin's information war on Putin's side – assessed Milov, according to whom many Western media fall under the spell of propaganda and the temptation of easy and catchy bad news. – Everything is bad, sanctions are not working, Putin is doing great, etc. Bad news sells better – he said.

– The real picture is that this economy is collapsing. Maybe not as fast as the countries imposing sanctions wanted, but it is happening – he added.

– The war economy is temporary and is possible as long as there is money. The head of the Central Bank, Nabiullina, has put a lot on the table, because everyone except her is against hard monetary policy. Everyone wants it to be relaxed and for cheap money. Lobbyists, the military, the arms industry, and business are all pushing for a reduction in interest rates – Milov said.

Russian arms industry “in survival mode”

Sergei Chemezov, head of leading Russian arms giant Rostec In a May interview for RBK he stated directly that the Russian arms industry operates with a critically low profitability (2.28 percent), i.e. at a level “absolutely insufficient for development”and Rostec's enterprises operate “in survival mode”.

At the current interest rate, defense companies cannot afford taking out loansunless they receive subsidies from the state. Besides, about 25 percent of transactions are conducted by barter.

– For (Elvira) Nabiullina (President of the Central Bank) to admit that it has failed (to reduce inflation) is suicide. On the other hand – following the advice of supporters printing money, will transform Russia into a second Argentina hyperinflation, falling purchasing power, impoverished society – said Milov.

In his opinion, monetary acrobatics are not enough to save the Russian economy. – Inflation can only be defeated by changing the economic modelreturn to normality, reconciliation with the Westbut Nabiullina cannot say this, Milov said.

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Adrian Zandberg in “Graffiti”: The Left Must Be Brave and Consistent/Polsat News/Polsat News



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