Putin turns deaf ear to warnings on economy amid Ukraine crisis

GMT 08:39 2014 Monday ,06 October

Arab Today, arab today Putin turns deaf ear to warnings on economy amid Ukraine crisis

Russian President Vladimir Putin (second L)
Moscow - AFP

Senior Russian officials are sounding dire warnings as prices rise, the ruble plunges and growth grinds to a halt, but President Vladimir Putin is ignoring their advice amid the standoff with the West over Ukraine.
Speeches at an investment forum in Moscow this past week by Putin and key members of the government exposed glaring differences.
While the Kremlin strongman sought to reassure investors and stressed the situation was under control, senior officials gave an alarming picture of an economy battered by Western sanctions and struggling to eliminate structural weaknesses.
Economy Minister Alexei Ulyukayev warned of an "explosive situation" created by a combination of inflation that is set to reach around 8 percent this year and economic growth expected to be less than 1 percent.
The chief executive of Russia's largest bank, Sberbank, Herman Gref, himself a former economy minister, compared the current state of the economy to that of the Soviet Union when it broke up amid falling oil prices and "huge structural problems".
"We cannot allow the same situation," Gref said, urging the authorities not to repeat the those mistakes if it did not want to suffer the same fate.
Oil prices have recently fallen under $100 per barrel, the level at which Russia needs to shore up its public finances.
Such public critical comments suggest that the speakers are not getting their opinions across to Putin, experts said.
"Gref and Ulyukayev's speeches reflect a situation where they are losing influence," said Andrei Yakovlev, the director of the Institute for Industrial and Market Studies at Moscow's Higher School of Economics.
"Evidently today they have no other way of getting their opinion across," he told AFP.
Independent Moscow-based political analyst Maria Lipman also said the influence of the liberal wing in the government, or what she called "supporters of economic rationality", has shrunk.
"They used to be able to reach a compromise" on policy and debates remained behind closes doors, she said.
- Economic development sacrificed -
The economic turmoil comes as Russia's role in the raging Ukraine crisis has prompted Western sanctions and cast a pall over international ties.
"The interests of politics and geopolitics have clashed with economic priorities," Lipman said. "In such situations, Putin has always sacrificed economic development for the sake of control and geopolitical interests."
But the severity of the current situation means "this choice has become a dramatic one bringing irreparable consequences for Russia," Lipman told AFP.
The IMF on Wednesday called Russia's economic outlook "bleak", despite "substantial buffers" including a large level of reserves and low public debt.
Strongly dependent on exports of raw materials, the Russian economy is seeing its companies cut off from international capital markets and unable to access new technology under Western sanctions.
Massive capital flight from the country is expected to reach $120 billion this year.
The ruble has lost more than a fifth of its value against the dollar this year. The central bank, which has been weaning the currency off support, was forced to intervene the past week for the first time since May to keep the ruble sliding too far too fast.
Adding to the bad news for ordinary Russians, the finance ministry has reported steep price rises for numerous foods, due to a retaliatory ban imposed by Moscow on Western food imports.
 - Defence spending prioritised -
To cope with the added fiscal pressure, Finance Minister Anton Siluanov has called for broad cuts to state spending while  investment be aimed at supporting top companies and developing infrastructure.
Ulyukayev complained last month however that the budget plans are unbalanced as spending on the economy, education, health and the arts was just a third of that on defence.
Experts say the budget plans indicate that Putin has imposed his priorities, with the economy taking a back seat.
In Russia's "monopolistic political system headed by Putin it seems that in a critical situation, all the decisions are taken by the leader himself," Lipman said.
"He has priorities that are more important than Russia's economic development" which would improve the well-being of people, she said.
"The priority has become defence spending -- this is the priority of an authoritarian state."

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