Russian leaders warn more cuts needed to avoid repeat of 1998 economic crash

MOSCOW -- Russia's leaders are warning the government will need to make more cutbacks if the nation is to avoid a repeat of the 1998 financial crash, the country's biggest post-Soviet economic trauma.

See Full Article

The economy, which is heavily reliant on its massive oil and gas industry, is getting hammered by the plunge in global energy prices. State revenues are running dry and the cost of living is soaring for Russians as the currency drops.

Faced with the prospect of the economy languishing in recession in an election year, the government sought Wednesday to manage expectations.

"Our task is to bring the budget in line with new realities. If we don't do that, then the same thing will happen as in 1998 and 1999, when the people pay through inflation for what we haven't done," finance minister Anton Siluanov was quoted as saying by state news agency Tass.

At the time, Russia devalued its currency and defaulted on its debts, events that caused inflation to jump to around 85 per cent. Analysts say Russia's situation is not as dire now, as it has very little debt. But its economic prospects grow darker as energy prices drop.

The International Monetary Fund forecast in November that the Russian economy would shrink by 0.6 per cent in 2016. Since that estimate was made, oil has dropped almost another 40 per cent, to about $30 per barrel. The Russian budget drawn up in October is based on oil at $50 a barrel.

That leaves few opportunities for the government's traditional largesse to voters ahead of September's parliamentary elections, a key test for the ruling United Russia party, which has much lower levels of popularity than President Vladimir Putin's soaring personal ratings. The last legislative elections in 2011 saw United Russia win a majority but were dogged by allegations of electoral fraud that led to street protests.

In a warning against "populism" at a conference in Moscow, Prime Minister Dmitry Medvedev tried to temper hopes for the future.

Quoting former British Prime Minister Margaret Thatcher, he said "there can be no liberty without economic liberty," before adding: "However, liberty does not come without responsibility ... It's always nice to make promises about a bright future, but promises must be kept."

As Russia burns through once-ample cash reserves, the budget adopted in October increasingly seems a relic.

"If the oil price continues to fall, the parameters of the budget will require correction," Medvedev said. "That needs to be understood. We need to prepare for the worst-case scenario, as other countries are doing."

Following 10 per cent cuts in most budget areas in 2015, with a few exceptions such as military spending, further reductions will be a test of public support for the government. Alexander Zhukov, a senior United Russia figure who is also deputy speaker, said Wednesday the axe would likely fall first on investment projects, something he said was "deeply unpleasant" but necessary to avoid painful cuts to social spending.

Consumer price inflation was over 12 per cent last year, accompanied by increasing cases of unpaid wages and particular concern over rising food prices pushed up by Russia's ban on food imports from the European Union and other countries.

On the opening day of the Gaidar Forum in Moscow, traditionally a start-of-year showcase for Russian government policy following the 10-day New Year break, there was a mood of grim endurance.

Leading figures did not echo the assurance that Putin regularly made in the fall that "the peak of the crisis is behind us," instead focusing on the challenges yet to come. Low energy prices are the "new normal," Economic Development Minister Alexei Ulyukayev said.

Ulyukayev said that the budget deficit could hit 7.5 per cent of GDP in 2016 because of the low oil price, compared to a planned deficit for 3 per cent outlined in the budget, in comments reported by RIA Novosti.

To raise funds, privatization of state-owned banks and oil company Rosneft has been discussed, though similar ideas have been raised in the past to no avail.



Advertisements

Latest Economic News

  • Postmedia selling Infomart division

    Economic CBC News
    Postmedia Network Canada Corp. has signed a deal to sell Infomart, its media monitoring division, to Meltwater News Canada Inc. for $38.25 million. The cash-strapped media company says net proceeds from the sale will be used to repay debt. Source
  • A new platform for Whole Foods? How deal could upend grocery

    Economic CTV News
    NEW YORK -- Seeing Whole Foods products first in Amazon searches? Breezing through the grocer's stores with an app that scans affordable fruits and seafood? Those are among the possible scenarios that unnerved the food industry last week, when Amazon announced a $13.7 billion megadeal to acquire Whole Foods. Source
  • Foreign home buyers surge 37 per cent in Montreal on growth in Chinese purchases

    Economic CTV News
    MONTREAL -- Canada's federal housing agency says the number of foreign buyers in the Montreal area surged by 37 per cent in the first four months of the year. The 236 purchases by foreigners accounted for 1.8 per cent of all real estate transactions from January to April, the Canada Mortgage and Housing Corp. Source
  • Qatar Airways seeks 10% stake in American Airlines

    Economic CBC News
    State-owned Qatar Airways is attempting to buy 10 per cent of American Airlines, a surprising move that would trigger an antitrust review by the U.S. government and carry political and trade-policy implications. American Airlines Group Inc. Source
  • Boeing plays down Bombardier dispute, still hopes to sell fighter jets to Canada

    Economic CTV News
    OTTAWA - A senior Boeing official says the U.S. aerospace giant's trade dispute with Montreal-based rival Bombardier is a "company-to-company issue." And Leanne Caret, the head of Boeing's massive defence, security and space division, still hopes to sell Super Hornet fighter jets to Canada. Source
  • Full list of 59 Sears Canada stores slated to close

    Economic CTV News
    Sears Canada will be closing stores in every province except Prince Edward Island, as the retailer slashes 2,900 jobs amid a major restructuring effort. Sears filed for court protection from creditors on Thursday, before announcing that it will close 20 full-line locations, 15 Sears Home stores, 10 outlet stores and 14 Sears Hometown locations. Source
  • Canadian retail sales top April forecasts

    Economic CBC News
    Canadian consumer spending in April was stronger than expected, which economists say lends weight to the Bank of Canada's recent suggestions that interest rate hikes could be on the way. Statistics Canada reported Thursday that retail sales for April rose by 0.8 per cent on a monthly basis to $48.6 billion. Source
  • Warren Buffett’s company buys into Toronto-based Home Capital

    Economic Toronto Sun
    TORONTO - Home Capital Group Inc. says American investment firm Berkshire Hathaway Inc. has agreed to indirectly acquire $400 million of its common shares in a private placement and provide a new $2 billion line of credit to its subsidiary, Home Trust Company. Source
  • Sears Canada cutting 2,900 jobs, closing 59 locations

    Economic Toronto Sun
    TORONTO — Sears Canada said Thursday it is seeking court protection from its creditors in order to restructure its business. The struggling retailer has piled up losses and seen its stock dive, losing more than 80 per cent of its value in the last year, despite efforts to reinvent itself at a time when more Canadians are shirking bricks-and-mortar in favour of online shopping. Source
  • New cryptocurrencies offering more than just a way to pay for things online

    Economic CTV News
    OTTAWA -- The success of bitcoin has spurred the launch of hundreds of copycat digital payment systems looking to cash in on the popularity of the cryptocurrency. But now a new generation of digital assets are gaining momentum, offering to do more with blockchain -- the technology that powers bitcoin as a currency -- than just allow a way to pay for things online using virtual Internet money. Source