Has Financial Collapse Saved Russia?

MOSCOW: Something surprising has happened to the Russian economy. Last August, Russia experienced financial collapse, defaulting on treasury bills as its stock market plunged 94% from its October 1997 peak. The ruble was devalued to one quarter of its prior value. Half of Russia's banks closed, and many Russians lost their savings, while living standards fell by some 30%. In September, inflation skyrocketed to 38% a month, and industrial production plummeted by 15%. Russia seemed in an economic free-fall. Both GDP and industrial production fell by 5% in 1998, and the IMF forecast a further decline in GDP of 9% in 1999.

Now everything has changed. Russia is turning around. Industrial production has recovered month by month. It surged by 6.1% in May, and it is heading towards growth of at least 5% this year, though GDP might barely rise as many services are contracting with domestic consumer demand. While Russian statistics remain poor, the reversal is too great to be in doubt.

The most obvious reasons for the sudden upturn is the devaluation, which caused an instant halving of imports and made exports cheaper, and rising oil prices. Industries that have grown the most, however, are not raw materials but intermediary goods, such as chemicals, pulp, paper, and construction materials, and some manufactured goods, notably microbiology, pharmaceuticals, machinery, textiles, shoes, glass and porcelain. The expansion for some products exceeds 30% in a year, while other industries continue to contract.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/V80isjP;
  1. Sean Gallup/Getty Images

    Angela Merkel’s Endgame?

    The collapse of coalition negotiations has left German Chancellor Angela Merkel facing a stark choice between forming a minority government or calling for a new election. But would a minority government necessarily be as bad as Germans have traditionally thought?

  2. Trump Trade speech Bill Pugliano/Getty Images .

    Preparing for the Trump Trade Wars

    In the first 11 months of his presidency, Donald Trump has failed to back up his words – or tweets – with action on a variety of fronts. But the rest of the world's governments, and particularly those in Asia and Europe, would be mistaken to assume that he won't follow through on his promised "America First" trade agenda.

  3. A GrabBike rider uses his mobile phone Bay Ismoyo/Getty Images

    The Platform Economy

    While developed countries in Europe, North America, and Asia are rapidly aging, emerging economies are predominantly youthful. Nigerian, Indonesian, and Vietnamese young people will shape global work trends at an increasingly rapid pace, bringing to bear their experience in dynamic informal markets on a tech-enabled gig economy.

  4. Trump Mario Tama/Getty Images

    Profiles in Discouragement

    One day, the United States will turn the page on Donald Trump. But, as Americans prepare to observe their Thanksgiving holiday, they should reflect that their country's culture and global standing will never recover fully from the wounds that his presidency is inflicting on them.

  5. Mugabe kisses Grace JEKESAI NJIKIZANA/AFP/Getty Images

    How Women Shape Coups

    In Zimbabwe, as in all coups, much behind-the-scenes plotting continues to take place in the aftermath of the military's overthrow of President Robert Mugabe. But who the eventual winners and losers are may depend, among other things, on the gender of the plotters.

  6. Oil barrels Ahmad Al-Rubaye/Getty Images

    The Abnormality of Oil

    At the 2017 Abu Dhabi Petroleum Exhibition and Conference, the consensus among industry executives was that oil prices will still be around $60 per barrel in November 2018. But there is evidence to suggest that the uptick in global growth and developments in Saudi Arabia will push the price as high as $80 in the meantime.

  7. Israeli soldier Menahem Kahana/Getty Images

    The Saudi Prince’s Dangerous War Games

    Saudi Arabia’s Crown Prince Mohammed bin Salman is working hard to consolidate power and establish his country as the Middle East’s only hegemon. But his efforts – which include an attempt to trigger a war between Israel and Hezbollah in Lebanon – increasingly look like the work of an immature gambler.