A financial crisis strikes Russia—the value of the ruble plummets; big companies are under siege; families fear loss of their savings; and commentators predict an uncertain future for the regime. But is it 2014, 2008 or 1998? Today we are witnessing the third episode of economic crisis in post-Soviet Russia. Each time the crisis barged into Russia from beyond its borders, carrying a significant threat to the regime, which nevertheless survived the first two times. Will this one be any different?
In 1998, declining oil prices and a financial crisis in Asia sent foreign capital fleeing the country, causing the state to default on its huge foreign debt and pushing the major banks into insolvency. A weakened President Yeltsin was forced to name an opponent, Yevgeny Primakov, as prime minister and Communists to high-level cabinet positions. However, eight months later the crisis passed, Yeltsin recovered, and Primakov and his cabinet were unceremoniously fired.
Ten years later, the 2008 financial crisis and Great Recession sent demand for Russia’s exports plunging. Russia’s GDP fell by 7.8 percent in 2009, the largest decline of any major country at the time. Having learned from the 1998 crisis, Russia had accumulated hard currency reserves of almost $600 billion from years of huge oil export revenues. The state used the reserves to bail out the big companies and banks controlled by Russia’s oligarchs, which had borrowed heavily abroad and accumulated a foreign debt of over $300 billion by June 2008. In 2010, oil prices recovered and the crisis passed.
Once again Russia is buffeted by a crisis stemming from events outside its borders. Western sanctions over Russia’s role in Ukraine have combined with sharply falling oil prices to drive the ruble down and undermine faith in Russia’s financial system. On December 17, the ruble briefly hit eighty to the US dollar, a decline in value of nearly half from that of two months earlier, before stabilizing in the mid-fifties a few days later. This time, instead of bailing out companies and banks, it has been reported that the government is forcing them to spend as much as $1 billion per day of their foreign currency earnings to prop up the ruble. This reflects the supremacy of Putin’s presidential office over the private-sector oligarchs, reversing the relation from the Yeltsin era.
The current crisis, like the two before it, demonstrates the peril facing any petrostate, which is always vulnerable to events outside its control. Oil and gas revenues bring about 60 percent of Russia’s export revenues and fund an estimated 50 percent of its federal budget. Western commentators often criticize Russia for its oil export dependence, which shows a failure of historical memory. It was the post-Soviet Russian regime’s slavish following of the neoliberal “shock therapy” policies urged by the IMF and US Treasury Department that transformed Russia’s economy from the diversified industrial economy inherited from the Soviet period into a giant-size version of Kuwait, but with some 145 million people, a big army and nuclear weapons.