Putin in Denial

Russia faces a serious – and intensifying – financial crisis. But the country's biggest problem remains President Vladimir Putin, who continues to deny reality while pursuing policies that will only make the situation worse.

WASHINGTON, DC – As 2014 came to a close, an enormous financial crisis erupted in Russia. World oil prices had fallen by almost half since mid-June, and the ruble plummeted in December, finishing the year down by a similar margin. Russia’s international reserves have fallen by $135 billion, and inflation has reached double digits. Things are only going to get worse.

The current oil price will force Russia to cut its imports by half – a move that, together with the continuing rise in inflation, will diminish Russians’ living standards considerably. Add to that ever-worsening corruption and a severe liquidity freeze, and a financial meltdown, accompanied by an 8-10% decline in output, appears likely.

Russia’s ability to negotiate its current predicament hinges on its powerful president, Vladimir Putin. But Putin remains unprepared to act; in fact, so far, he has pretended that there is no crisis at all. In both of his major public appearances in December, Putin referred simply to the “current situation.” In his New Year greeting, he boasted about the annexation of Crimea and the successful Winter Olympics in Sochi, carefully avoiding any reference to the economy.

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