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Can Russia be Saved?

MOSCOW – Russia’s economy is collapsing, but the situation could be even worse. The global economic crisis has finally forced the government to adopt sensible policies, thereby staving off disaster – at least for now.

Official forecasts for Russian GDP growth in 2009 remain positive, but most analysts, including government officials, are bracing for a severe recession – which, indeed, appears to have started in the fourth quarter of 2008. The stock market’s collapse – its 72% fall is the largest of all major emerging markets – is only the most visible sign of this.

Even Russia’s oligarchs are pawning their yachts and selling their private jets. Signs of political instability are mounting. The approval ratings for Russia’s president and prime minister are heading south. Mass street protests have started – not led by opposition political parties but by workers and middle-class families facing job losses and declining wages. More importantly, protesters are demanding that the government resign –unthinkable just a year ago.

With oil prices plummeting 70% from their peak (and similar price declines for metals, Russia’s other major export), it is no surprise that Russia is facing severe economic challenges. Growth is endangered, the ruble is weak, and the government budget is in deficit. Nevertheless, up to now, Russia’s government and private sector have weathered the storm reasonably well.