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Tuesday, December 6, 2016

The main paradox of Russia: why living worse people support the government


Last September the state Duma elections showed that the majority of Russians supports the economic policy of the government. United Russia won in all regions. There is a flip side to the coin. Spoon of tar in the honey ruling party, the low voter turnout. If five years ago in elections to the lower house of the Federal Assembly came almost 60% of eligible voters, this time the turnout has not held up to half of the voters. Oil on the fire adds the low level support “edrosov” in Moscow and St. Petersburg. Many believe that even the current, more modest success of “United Russia” due to the fact that it is associated with Vladimir Putin, whose support among the people is high, although based on the thought “who, if not him.” However, to write off the government in the scrap is not worth it. The number of steps taken by the Cabinet of Ministers, whatever the critics claimed, helps the economy stay afloat and finally to collapse into the abyss of the crisis.

Photo: the Agency “Moscow”

What course are we going?

The recent elections seem paradoxical, especially to those who predicted the imminent “collapse of the regime.” True, the economic crisis greatly affects the well-being of Russians. According to the study, conducted in the spring of 2016 the Institute for social analysis and prediction Ranepa, the lion’s share of respondents noted a significant reduction in quality of life. More than half the income they spend on food. Other products to buy are much less likely. At the beginning of the year the share of Russians who receive salaries below the subsistence minimum rose to 13.4%. The government headed by the leader of “United Russia” Dmitry Medvedev, on the eve of elections has not shown generosity to the vulnerable voters, focusing on reducing government spending, including “social”. We have all heard the aphorism Medvedev: “there is no Money, but you hold fast.”

Instead of rebellion, the majority of voters showed that “hold” is ready. After the victory of “United Russia” means support for its economic policy.

You can ask the question: what course is it? At first glance, any specific program, in addition to the standard slogans, the government does not. Attempts to create the concept of a conclusion of economy from crisis appeared only this spring.

On the one hand is the concept of ex-Finance Minister Alexei Kudrin, including business support and private investment, reducing dependence on the Treasury from oil, balanced budget and low inflation. But to achieve this it is proposed at the expense of unpopular measures — raising the retirement age and a number of taxes.

On the other hand — the “Stolypin club”. It includes support for the industry at the expense of soft monetary policy, deregulation of inflation at a low level, the strengthening of social protection.

In the Kremlin, both programs are characterized as a “set of ideas”, which will inform the development of future strategy. But while things are there. Before the elections, the authority decided not to be based on any of the alternatives.

Systemic crisis not happened?

By the end of the third quarter, our economy has begun to show signs of recovery. Annual inflation was about 7% (in January—September 2015 — 12,9%), and in September inflation rose only 0.5%. At the end of August for the first time since 2011 there was deflation, albeit seasonal.

Annual inflation is expected at 6.5–7%. The slowdown in growth in 2016 due to a gradual, albeit volatile increase in oil prices and the strengthening of the ruble. In this regard, the Central Bank in September lowered its key interest rate to 10%. The country’s foreign reserves are about $400 billion and keep the economy on the final descent into a tailspin and a complete collapse of the ruble.

Alarming is the fact that GDP was still in negative territory (data for the second quarter), industrial production recovering from the crisis very slowly. Production growth in some sectors offset by a decline in others. The budget deficit is almost 3% of GDP. The reserve Fund has decreased sharply, according to the Ministry of economic development forecasts that by 2018, may be exhausted.

However, it is too early to put the Russian economy on the brink of “systemic crisis”. For financing the budget deficit there is a possibility of borrowing. Russia has recently placed the amount of Eurobonds in the amount of $4.25 billion But the Finance Ministry could issue bonds and the ruble, because Russia is one of the world’s lowest ratios of government debt to GDP and debt capital market there is a shortage of reliable and profitable investment tools. To replenish the Reserve Fund to mobilize funds from other extra-budgetary funds and use revenues from privatization of state property or dividends of state companies.

Sanctions as an incentive

Voting for United Russia, the population expressed their vote of confidence in such unpopular decisions as anti-sanctions and the food embargo.

As the officials said, the main purpose of the embargo was not revenge West for sanctions, and domestic support in the areas where imports were allowed to gain a higher market share. Therefore, if the embargo can be called a reform of the economy, it will be one of the most successful reform in Russian history.

For the first half of our agriculture showed an increase of 2.6% over January—August by 3%. Food industry for 8 months grew by 2.3%. Now they are drivers of economic growth.

But any growth in costs. Liberal circles were trying to start a panic. Supposedly there is a shortage of products, will increase prices and reduce quality.

The deficit arose. Prices rose, but it is not only the role of the embargo. About the quality of products every judge, and it is not the best criterion.

So the victory of “United Russia” was inevitable. As for the embargo, the authorities won’t rush to cancel it. The people have spoken in support of the current course, then we can move further in the direction of the ruling party.

Women’s logic in saving against inflation

In the regulation of our economy plays a significant role of the Central Bank. In the spring of 2013 he was appointed head Elvira Nabiullina. Many experts were skeptical, especially because for the first time in the history of the Bank of Russia was headed by a woman. But with her arrival immediately began to see some mild reforms. In Russia there is a new tool to regulate monetary policy — key interest rate (instead of refinancing).

First, in 2013, the key rate was set at 5.5%, which was even below the inflation rate, then greater than 6.4 percent. But due to the fall in oil prices and devaluation of the ruble in December 2014, the Central Bank drastically raised to 17% to “bind” the excess money supply on Bank deposits and prevent the growth of inflation.

It was a revolutionary decision — the first in Russia to rescue the economy used exclusively monetary instrument instead of Directive power. This bore fruit: in 2014, inflation was kept at the level of 11.35%.

In 2015 the rate is reduced to 11%. Central Bank held the growth in inflation expectations, the people did not run to withdraw deposits to buy dollars and spend money. As a result, last year the inflation rate amounted to 13% (with GDP falling by 3.7%), which was even below the crisis levels of 2008 (13,28%).

This year, the Central Bank continued to lower its key rate. In early autumn it was reduced to 10%. This reflects the low annual inflation in September did not exceed 4%. Nevertheless, the market kind of disappointed by this decision, his players were expecting a decrease to 9.5%.

The next decline will be before the end of the first quarter of 2017. This is due to the fact that there is no clarity with the terms of the stabilization of the oil market, and oil, the Russian economy still heavily depends. However, if at the end of November OPEC decides to cut production and the price of a barrel goes up, the Central Bank will return to this issue.


photo: Ivan Skryplev

Burned on milk, blow on water

Of course, the stakes are still high and loans are not available to everyone. Therefore, the industry and small business expect more activity of the Central Bank. But the Bank of Russia prefers to measure seven times and cut one (the key rate). In this no great obstacles to economic growth. Import substitution, embargo and a moderate strengthening of the ruble plays a large role in the recovery of our industry. Restrictive monetary policy restrains inflation, and incomes depreciate less noticeable.

That is, the state Duma, Nabiullina put at the head of the Central Bank, may be written in a number of achievements. Monetary policy in Russia is quite effective. It is obvious that this appointment will change the mood of conservative voters.

Note that our Central Bank is as a major regulator of the economy, as Central banks in developed countries, the quality of the policy-which affects inflation, and economic growth, and ultimately the level of welfare.

The Ministry of Finance does not prevent people

However, as a rule, in countries with developed market economy the efficiency of regulation of the economy is determined not only monetary policy but also fiscal. That is, in terms of crisis management measures must take not only the Central Bank but the Ministry of Finance, which is directly accountable to the government. And since most of the world’s Central banks, including the Bank of Russia, are legally independent from the government, then it follows that the government itself should also participate in the regulation of the economy, not relying only on the Central Bank.

As the Ministry of Finance may regulate the economy? The answer is simple: through effective management of revenues and expenditures. For Russia the high prices for oil and gas is clear: the revenue budget provides the Ministry of Finance and major oil and gas companies-exporters. When the price of oil and gas is low, the ball is in the field of Finance and the government. In this case, the financial unit shall take measures to raise additional revenues and cut expenditures to avoid a growing budget deficit and inflation.

Our Finance Ministry shortly before the election suggested a number of measures aimed not so much at the conclusion of economy from crisis, but on plugging holes in the budget. Among these proposals was the idea of increasing the VAT and the gradual elimination of its preferential rates, and changing rates of insurance premiums and the elimination of free medicine to the unemployed.

If the first two ideas were rejected, then a third, according to media reports, has now taken on the status of the bill. However, this bill is likely to is unlikely to take place.

The question arises: why is the population voting for the ruling party adopts a policy that withdraws from the crisis, and the welfare of many for sure get worse? Are they really talking about the properties of the “mysterious Russian soul” and Putin’s personal charm? Or to blame the press and television has on voter demonic influence?

In fact it has its own logic. Many people employed in the public sector and receiving a penny salary, causes outrage: some voluntarily refuse to work and pay taxes and live by unaccounted sources, and workers of budgetary sphere have to pay them health insurance, etc. In 2015 from $ 77.5 m of the working population formally employed in the public commercial or non-commercial sphere only 64.5 per cent. At the labour exchange were registered not more than 5% of the population. What occupied more than one third of the others and why two thirds of citizens must contain one-third of not wanting to work or evade taxes?

And that’s not to mention the fact that the voluntary unemployed can get good returns by playing the stock exchange, dividends and interest on deposits, rental property to rent, while many state employees are forced to earn another 2-3 jobs (and everywhere to pay taxes), to at least be able to pay utility bills and not stay flat.

And the state then read such headlines in the mass media: the Moscow unemployed stole a Ferrari or stole a million dollars. How is he to respond to this need? Correct, most democratic way is to go to the polls and vote for a government that intends sooner or later to punish these parasites. The fact that the majority of voters support such specific ideas of government, it is understandable from the point of view of social justice.

Forward, the Chinese way?

Summing up, we can ask the question: which economic model is voted the majority of voters? For the return to the Soviet Union? In any case, because the government is leading the country quite market rate.

Maybe the Chinese way of development? The question is more complex. The fact that the road of socialist Russia (or USSR) and China in the late 1980‑ies of the last century was distinguished by the fact that China began to reform the economy before policy, which has proved very effective. In the USSR it was the opposite: political reforms, a hasty and ill-conceived, led to the collapse of the economy and the country.

But recently, about the last 7-8 years, the development path of China and Russia, including regulation of the economy, can be comparable. The population of both countries prefer stability over radical change, and sovereignty in the economy and politics — hypocritically-friendly embrace of the West.

The population of many developing countries is voting for stability and against the brutal intervention of the West in economic and political activities. The governments of many of them would like to do only as they are told the voters, not someone from the outside, but to preserve the sovereignty, coupled with the stability so far only China and Russia.

China — because over the last 30 years there have been created effectively functioning political, legal and economic institutions that ensure the country’s sovereignty and stability. In Russia such institutions are only just emerging. But it is clear in which direction the country is moving, so the voters ‘ choice appears to be natural. It is possible that many Russians would like to see the government a little more adjusted towards a socially oriented policy, but on matters of principle, the people, the government still supported. Despite the deterioration in well-being and the ongoing crisis. We will remind that Medvedev said, “there is no Money, but you hold fast.” All known this, and such advice is not new. All hold on and hope. But whether this choice and this hope is justified — will show time.

Sanctions . Chronicle of events
source

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