Publication: Eurasia Daily Monitor Volume: 5 Issue: 207

Following on the heels of two of Russia’s top economic officials, the country’s top two leaders (readers can decide for themselves which is No. 1) have made statements aimed at calming the fears of both ordinary Russians and foreign investors.

With the ruble having lost 10 to 12 percent of its value since early August (Associated Press, October 20), First Deputy Prime Minister Igor Shuvalov and Central Bank First Deputy Chairman Alexei Ulyukayev denied in interviews last weekend that the ruble would experience “sharp fluctuations” in its value or be “significantly devalued” (EDM, October 27).

On October 27 the website of the weekly newspaper Argumenty i fakty published an article in which President Dmitry Medvedev answered a question from a reader about what he had done with his ruble savings in response to the global financial crisis. (Medvedev said on his official income declaration that he had 2,700,000 rubles, worth around $98,900, in bank accounts.) “I have kept all of my accounts in the banks,” the newspaper quoted Medvedev as saying. “I have not taken my money out, not changed rubles into dollars, and have not bought shares. I am convinced that my savings, just like the money of the rest of Russia’s depositors, are not under threat” (, October 27).

Meanwhile, Prime Minister Vladimir Putin said on October 27 that Russia would not respond to the international financial crisis with an isolationist policy. “Under the conditions of the world financial crisis, simple solutions are very enticing,” he told a Russian Cabinet meeting. “Naturally, we should take into account the current realities, and we are doing so in our practical policy; but, strategically, isolationism is not our choice at all.” In the face of such a crisis, steps like “the closure of national economies, aggressive protectionism, [and] restrictions on capital flow” are often given consideration, Putin said. “We have a different choice—further participation of Russia in the world economy,” he said (Interfax, October 27).

Meanwhile, Russia’s battered stock market rose nearly 5 percent on October 28. Reuters quoted the chairman of Russia’s state Development Bank (VEB), Vladimir Dmitriev, as saying that the rise was the result of the bank having ploughed 20 billion rubles ($731.3 million) into the market since last week (Reuters, October 28).

Despite the happy talk from Putin and Medvedev and the Russian stock market’s positive response to large infusions of state funds, some observers continue to paint a bleak picture of Russia’s economic future. “The global financial crisis has robbed Russia of two things important for its prosperity—high prices for oil and foreign investment,” Novye izvestia wrote.

“It is officially acknowledged: Over the past three months, the net outflow of capital from the Russian Federation was on the order of $50 billion dollars. By way of comparison, during the first seven months of 2008, the net inflow of capital totaled $30 billion, and for all of 2007, $83 billion. That money supported not only the stock market, which is now sinking, but also the development of the economy. Now [that money] is no more” (Novye izvestia, October 29).

Novye izvestia quoted Vladislav Inozemtsev, director of the Moscow-based Center for Post-Industrial Studies, who contrasted the current situation to the one that Russians faced in 1998, when the ruble collapsed and Russia defaulted. “While the population back then accumulated money, and it was devalued, now everything will be okay with savings—bank deposits are not being reduced to zero and there will not be a devaluation of the ruble—but, on the other hand, current receipts will decrease because of layoffs and salary reductions,” he said. Inozemtsev predicted that such indicators would start becoming noticeable in two months, when the severance pay of those now losing their jobs ended and the economic downturn also hit those who had been receiving income from renting their apartments.

Inozemtsev also predicted that the economic downturn would have a noticeable impact on wealthier Russians and the businesses that catered to them. “All the glamour will disappear—from television screens, from commercial signs, from boutiques,” he said. “There won’t be money to pay for soccer teams, to buy soccer players for 30 million euros, for expensive apartments, for country houses, for expensive travel tours, merchandise, and elite shops.”

Likewise, Boris Kagarlitsky, director of the Institute of Globalization and Social Movements, predicted that falling incomes would make Russians more cautious consumers. “First and foremost, demand for expensive merchandise and luxury items will drop, and the money will be shifted from these things to day-to-day goods,” he said, adding that there were signs that this was already happening. “Demand for housing, for automobiles, is dropping,” he said. “The population has enough money for bread and butter, therefore demand for food remains high.” According to the Institute of Globalization and Social Movements, sales of consumer goods have dropped more than 20 percent since the spring, and the warehouses of many industrial enterprises remain filled with unsold products (Novye izvestia, October 29).