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‘Russia in a trap’, - Polish experts on economic situation in the RF

Division line is drawn not only between the government and the business circles, but also within the parties. It was reported by the Bloomberg agency that struggle spreads out in Kremlin between two parties with the opposite views on further directions of Moscow. Supporters of ‘strong-headed’ stand by the isolation policy that originates from the Cold War time. Their political priority is to strengthen geopolitical role of Russia as a superpower state and to return to the status quo of a country as at the time of the USSR. Supporters of tough position on the West majority of which are people from law enforcement agencies and directors of the state companies attempt to reimburse losses which they faced due to the Western sanctions. At the same time, ‘economic realists’ think pragmatically realizing that the only chance for positive development of the country can be provided by the open market economy as well as symbiosis with the USA and Europe. Majority of macroeconomic indicators shows that when following aggressive strategy Russia lost more than gained.

Internal controversies existing in Russia are clearly visible in a specific schizophrenia of the undertaken measures. On the one hand, we observe tough military actions and support of pro-Russian separatists, on the other hand we hear official Moscow’s statements on protection of democracy and own interests. On the one hand, two-sided sanctions from the USA and Europe have been imposed; on the other hand, trading relations with foreign partners are preserved. Political links between Moscow and the West are broken, while the network of mutual economic relations remains strong.

High interest

What is the Putin’s gain in this game? Let alone here personal ambitions of the president, the content of which can be hardly clearly defined. Indeed, we do not have any information from ‘behind the curtains’ from the core of Russian powers. We are aware of certain piece of information that has been disclosed for public information by the ruling authority. However, with high level of probability we can identify three main strategic goals of Moscow. The first one is to change of geopolitical layout in Europe. The second one is obtaining control over Ukraine (along with its defense industry). And finally, the third one is to create the basis for emerging Eurasian Union.

First goal is the least transparent. Making it simple, it implies the movement of the so-called border between Russia and Western Europe until the east of Poland. After Ukrainian events, the EU and the USA stopped believing that Russia is turning into democratic country with peaceful intentions. Events on the East led to the change of political and economic discourse like at the time of Cold War. Russia permanently makes the pressure higher, in particular, having regularly violating air space of the European countries with its military planes. Goal of such actions is to strengthen authority of Putin and his team inside the country. Strong president of the great country who fights against external imperialistic threat is more needed than the president of the safe country. Putin wants Russia to be ruled by a strong leader, not by an effective manager.

Second goal of modern politics of Moscow is making Ukraine a vassal country. It means not only gaining political influence, but also crucial economic grounds of Russia. It is rarely said that significant part of defense industry maintaining Russian army is located in Ukraine and depends on Kiev. Military industries of two countries have been closely cooperating with each other. Up to 80 % of Russian ballistic rockets and the significant part of aviation production, including the latest helicopters and military fighter aircrafts are built jointly with the western neighbor (data of the portal defence24.pl). Import of Ukraine is not high (it comprises only 4, 4%), but it has a key role for the defense industry and the modernization program of Russian army. Moscow is not capable to replace 30 % of components (as aviation engines, system of targeting or components for ballistic rockets) that are produced in Ukraine, writes defence24.pl.

It goes without saying that the aforementioned dependence originates from the USSR times, but it has remained after its dissolution. Problems arose when apparent threat of losing control over these industrial objects appeared. Besides the military industry, also Eastern Ukraine with its industrial zone in the vicinities of Donetsk has a crucial role for Moscow.

Third important goal of Putin is to create the basis for the Eurasian Union. It should become an alternative of the EU and the consolidating western world. It is believed that its structure will be completely opposite to the one in Brussels. At the same time Putin is interested in the gradual (not necessary formal) annexation of the other states to Russia.  After the annexation of Crimea, destabilization of situation was observed at the northern Kazakhstan, while the next apparent target can become White Russia. Situation looks different in the Baltic States because they became the NATO members. Future of these countries indeed depends on the resistance force of the Alliance.

Russian business circles are against the isolation strategy. Current policy followed by Russia probably was effective in the twentieth century, but not in the time of globalization and open markets. All the attempts of economic and political isolation ended up in the financial default of the states that applied this kind of policy. This fact is perfectly described in the book of Francis Fukuyama ‘End of history’, where the author proves that democracy accompanied by the market economy is the future system, and there is no reasonable alternative of it.

Market response

The market gave the best answer to the question on economic sense of Moscow politics. Russia has lost the world financial system’s trust formed during the last ten years that found its reflection in serious problems with ruble and the fall of the economic growth rhythm. According to the source of the newspaper ‘Data’, from the beginning of the year ruble in relation to euro lost around 25 %. Existing large foreign currency reserves are shrinking. Since the beginning of the year in order to save its currency Moscow has spent around 65 milliards US dollars. The rate of foreign currency reserves has fallen to the rate of March 2010. 

Capital leaves Russia too. In the first three weeks of October investors withdrew 1,3 milliards US dollars from the international funds investing in the Russian market; in one year the funds lost 2,7 milliards US dollars that is 4,4 %. At the same time Russian companies and citizens are leaving the country. Export of natural resources remains the basis of Russian economy. However, currently oil prices are falling. Decrease in price announced by the Saudi Arabia led to the situation at the stock markets where the oil of Brent costs 83 US dollars per barrel and the WTI   - 76 US dollars. Oil price for Brent that considered a world sample, reached the lowest indication in the last four years, informs bankier.pl.

There are two possible scenarios of the further actions of Russia. Increasing isolation will finally lead to marginalization of Russian concerns, unprecedented weakness of currency and significant inflation. Decrease of income from the oil trade along with the increasing race of armament can lead the country close to bankruptcy. It gives rise to the risk of explosion of people’s dissatisfaction and internal dissolution in power.

Second option is to bring peace to the situation in Ukraine by Moscow and refusal from the aggressive imperialistic policy. It is considered that democratic Ukraine has finally chosen western direction and the only thing that Russia can do is to destabilize situation in the eastern regions of this country ‘silently’. Any kind of tough military actions will discredit Moscow as a member of international community and the situation of long-term marginalization will be reached.

Russian example provides unarguable grounds in favor of effectiveness of market economy. Though normal functioning of the authoritarian state with open economy (China) is possible, however balanced development of a state with democracy ‘for show’ and closed market is not feasible. It is obvious that Russian strategy looks as a strategy of a secret service employee rather than a strategy of a professional economist.

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