Russia No Longer to Rely on Petro-Dollars
By Haider Ali
Posted: 11th October 2012 09:55
Since the recession has hit worldwide, states such as Russia have not featured so prominently in the media. With the United States bearing the brunt of a fiscal deficit that seems to be ever-widening and Europe in a perilous position facmg austerity measures, Russia has managed to navigate itself through a quagmire to safer economic shores.
They have provided themselves with a cushion to lean on in these tough times with huge currency reserves that have been emblematic of the Putin era. The cushion has come in the guise of oil, which Russia has in abundance, though not on a similar level to its Arab counterparts in the Middle East. Oil has protected Russia because of the petrodollar surplus that has gradually been accumulated for almost fifteen years.
This however will not be a trend that’s maintained after recently released forecasts by the Russian Central Bank suggested trade surplus’ will turn into trade deficits by 2015, as imports gradually take over from exports. Just after the turn of the millennium going on to 2011 the vast oil exports brought in $800 billion. Vladimir Putin shrewdly accumulated these monies, much in the same manner that the Chinese have been doing for the last two decades and such a wise decision it has turned out to be.
Of the $800 billion saved, the Kremlin has delved through a quarter of its reserves in order to help protect its populous from the gripping vices of austerity that currently much of Europe is going through. $88 billion of that has been spent on the National Welfare fund, boosting the coffers of small business enterprises especially. The money has also been spent on improving infrastructure offering more jobs in the building industry, which steady employment levels thus maintaining steady consumer growth.
The predictions made by the Russian Central Bank have been based on the gradual decline of incoming petrodollars since 2011, which saw it take $80 billion. In 2012 just a quarter of that has been taken in with a little over $25 billion expected to be lining the coffers of the Russia economy. Finally by 2015 a paltry $4 billion is expected leading to many expert analysts appraising that innovation will be the key to Russia’s position to maintain itself as one of the world’s leading economies.
The International Monetary Fund has similarly stated the same thing with Russia’s balance sheet going from black to red for the first time in a decade. When this happened in 1997 it was immediately followed up by the collapse of the Rouble in 1998, but many are confident that this won’t happen again. There is a lot of faith in Russia’s present currency and there isn’t likely to be a catastrophe on such epic proportions anytime soon.
There is an array of reasons behind Russia being able to rely on a strong reserve. The mainstay behind Russia’s success as previously stated has been Vladimir Putin. It feels an epoch ago when Russia was in the doldrums, marred with economic mismanagement and corruption. Whilst corruption is still rife on lower bureaucratic levels, the country as a whole has made gigantic strides forward. They are now as a result far better equipped to deal with any global financial crisis then they would have been during the post-communist era of the early 1990’s.
But the lack of oil revenue will doubtlessly be playing on the minds of Russian policy-makers as they try to get to grips with new alternatives for a steady income of revenue. The lack of oil exports could lead to the Kremlin courting foreign investment with both China and Western Europe champing at the bit to sink their teeth into the plethora of resources Russia has at its disposal.
On the other hand we could see the lack of incoming petrodollars as a blessing in disguise for Moscow. With green targets to meet a new opening for greener and cleaner energy could kick down the door for a completely new market to be explored. This will lead to more innovation, improved technologies, which in turn can be exported around the world and kick-starting businesses that will maintain longevity and provide prosperity to more people than ever before.
Like it or not Russia will be a place to keep an eye on with their importance as a vital cog in the world’s economy being highlighted ever more.