Russia’s Economic Crisis

rubleThe Russian ruble continues to plummet despite a last-ditch effort by the Kremlin to stabilize the currency by sharply increasing interest rates. Since December, the Central Bank of Russia has nearly doubled its benchmark one-week rate, from less than 9.7 percent at the start of the month to 17 percent by month’s end. Meanwhile, the Russian ruble continued its slide, falling more than 45 percent against the US dollar. Inflation is sharply higher, and the Russian government forecast the country’s economy would shrink by half a percent for 2014.

Russia’s economic crisis has been driven by two factors. First, Western sanctions against Russia are starting to have an effect. Sanctions were imposed after Russia took control of Crimea, a region formerly under the control of Ukraine. Second, and more importantly, the sharp decline in global oil prices have sharply curtailed Russia’s foreign exchange earnings, making it difficult for the country to finance governmental operations. Oil and natural gas exports account for about one-third of the country’s gross domestic product and about half of the federal budget.  Oil is trading at just over $55 per barrel today, down from more than $115 per barrel less than a year ago. This is by far the biggest drag on the Russian economy today.

All of this is having a dramatic impact on the lives of ordinary Russians, who now face savings that have little real value, higher mortgage and interest rates, declining real wages, and higher prices for most consumer goods.

What do you think? How will Russia’s economic crisis affect President Vladimir Putin’s popularity? Will the country’s economic crisis affect Russian policy in Crimea? Why?


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