Saturday, October 31, 2015

Russia, the Eighth Largest Economy in the World, will Soon Rank 30th, Movchan Says

Paul Goble

            Staunton, October 31 – Russia’s economy is stagnating and will continue to do so for decades, causing the country to fall further and further behind the rest of the world,  declining over time from its current standing as the eighth largest economy in the world to the position of 30th or lower, according to Moscow financial analyst Andrey Movchan.

            He says this trend and its consequences were all unexpected 15 years ago. Then, given the influx of money, most assumed the Russian economy would expand and “Russia would become a civilized country” without corruption, with political competition, and with businessmen actively influencing legislation (

            None of those expectations have proved true, Movchan says. Instead, Russia has fallen back to where it was at the end of the 1990s and risks remaining there “for decades.”  It might have escaped that by relying on small and mid-sized business” but the government chose not to use it. Instead, “the role of the state in economics only grew.”

             That trend appears likely to continue with big business and the state fusing ever more closely to one another, but unless the state bans entrepreneurial activity as such – something even the KPRF is against – small companies will continue to thrive, albeit only at the very lowest levels.

            Unfortunately, Movchan continues, that pattern will not work its way upward very far unless there is a radical change in course at the top of the political system. In practice, private schools and clinics do not exist in Russia, even though they could have “a fantastic influence on GDP.”

            And there is going to be less investment at the top given that businessmen in Russia are skeptical about the future and those abroad view Russia with even greater skepticism and are reluctant to get involved. Moreover, efforts to stimulate growth by below-market interest rates backfire: those paying lower rates have to pay more bribes to get them, eliminating the benefit.

            Regional or metropolitan officials can do little to change this situation, and the stagnation currently in place can last for a long time as the experience of Argentina shows. Moreover, some sectors do work, and US has advantages given its nuclear arsenal and UN veto which gives it the chance to intimidate or destabilize others.

            But to get out of the current trap, Movchan says, Russia needs “either a catastrophe or a change of elites, who would then take on themselves the courage to carry out radical reforms. If we remain in a complete economic blockade, the price of oil falls toward zero, and we trend toward the level of Ukraine, changes are inevitable.”

            Russia might get lucky – countries sometimes do as China and the USSR did at one point -- the financial analyst says, but he adds that he is not optimistic and believes that “the most likely scenario for the future of Russia is stagnation for many years ahead.”

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