In Ten Years, Russia Has Gone From Bankruptcy to Material Affluence.

Yves Bourdillon, Les Échos, Monday August 18, 2008.

“Today, it’s difficult to hire someone in Moscow for less than a thousand dollars a month. The advance of material affluence hits you in the face and is not limited to nouveaux riches.”

In default on its payments ten years ago, Russia has spectacularly rectified its financial situation thanks to shrewd economic and fiscal policies and the flare-up of oil prices. Six to nine percent growth, depending on the year, has allowed Russia to rank 13th globally in Gross Domestic Product.

The Russia that we see so sure of itself economically as well as militarily and politically no longer has anything to do with the humiliated and financially ruined power of exactly ten years ago to the day.

August 17, 1998, the crisis in public finances that had been brewing for months pushed the Russian government to simultaneously devalue the ruble and declare itself in payment default on its Treasury bonds (GKO). An unprecedented double decision that cost international investors 100 billion dollars and Russia’s middle class most of their savings.

The local financial system was paralyzed; households sometimes had to resort to barter to survive; shortages in essential products resurfaced while food prices increased two to three times in a few weeks. The ruble’s 80 percent drop reduced even average salaries to an absurd … 60 dollars a month.

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Recovery:

Today, it’s difficult to hire someone in Moscow for less than a thousand dollars a month. The advance of material affluence hits you in the face and is not limited to nouveaux riches. Russians are renovating their apartments, traveling, increasing consumer loans and have made their country Europe’s premier automobile market.

Six to nine percent growth depending on the year, has allowed Russia to rank 13th globally in Gross Domestic Product.

The country now enjoys the planet’s third largest foreign exchange reserves and clears the world’s third largest trade surplus.

The ruble, which everyone once fled, is freely convertible since July 2006, and has strengthened 60 percent against the dollar in ten years.

Finally, this country which in 2000 still struggled to service its public debt - then 150 percent of GDP - is now virtually debt-free (8.5 percent of GDP).

In 2005 and 2006, Russia prepaid the totality of its loans from Club of Paris governments, as well as the private debt held by the Club of London, as well as its debt to the International Monetary Fund which had lent it 4.8 billion dollars during the crisis.

Inflation, which had reached 90 percent in 1998, fell back to 14 percent this year.

How to explain such a spectacular recovery?

Beyond the short-term boost of the ruble’s devaluation, the Russian authorities conducted a very effective macroeconomic policy.

Rejecting Keynesian recovery measures, Moscow established a free market fiscal reform of the flat tax variety that had the immense virtue of prompting the underground economy to regularize itself. In consequence, the ridiculous tax receipts which had forced the government to resort to the GKO which carried the seed of the 1998 crisis, improved spectacularly, to the point that Russia now regularly clears a budget surplus before debt service equal to five percent of GDP.

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Prudent Management:

The central bank’s prudent management has been universally hailed and the foreign exchange receipts supplied by hydrocarbon sales, which could have revived inflation, have been skillfully sterilized in a stabilization fund or devoted to infrastructure spending.

Also, Vladimir Putin launched a series of reforms at the beginning of his first term between 2000 and 2002 (new civil, work, trade and land codes) that put Russia back on track.

The country has also been helped by a “slight” stroke of luck: In 1998, oil - which supplies half the government’s revenues and two-thirds of its exports at present - was listed at 17 dollars a barrel. One sixth of today’s price.

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Translation: Truthout French language editor Leslie Thatcher.

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Russian Jerks Meet Western Knee-Jerks, writes Steve Weissman for truthout/perspective
Monday, 25 August 25, 2008.

 http://www.truthout.org/article/russian-…

The photo shows: Georgian President Mikheil Saakashvili and US General John Craddock, head of the US European Command, after a press conference in Tbilisi, Georgia, on August 21, 2008.

The Russians can be real jerks, but they are not the only ones dragging us into a cold war redo. Blockheads on all sides are bringing back the risk of all-out nuclear conflict, along with a new arms race and the thrusting of American power from the Russian borderlands to wherever we see a Russian proxy. Even if Barack Obama and Joe Biden manage to win the election in November, the financial cost of a rush to yesteryear could cripple any real chance for a better tomorrow.

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Strangely enough, the Russians appear to be complying with the six-point cease-fire agreement that French President Nicolas Sarkozy brokered, though no one would know it by listening to the heated rhetoric now coming from Washington and its NATO allies. The agreement, which the French Ministry of Foreign Affairs has posted on its web site, allows Russian troops to remain in the breakaway regions of South Ossetia and Abkhazia. It specifies no limits on the number of troops or types of weapons the Russians may have. And, pending the establishment of “international mechanisms,” it specifically permits the Russians “to implement additional security measures,” such as the checkpoints the Russians have set up on Georgia’s main highway.

Sarkozy now insists that Russia can implement these extra measures only in the immediate vicinity of the two provinces, while Western media have talked about a “security zone” on the Georgian side of the administrative borders of South Ossetia and Abkhazia. But none of this appears in the written agreement the Russians signed.

Even more to the point, the Russians never agreed in the cease-fire to maintain Georgia’s “territorial integrity.” As Sarkozy well knows, they explicitly rejected any such provision and have openly declared they would now support South Ossetia and Abkhazia in seceding from Georgia, just as the United States and most of Europe supported Kosovo in breaking away from Serbia.

None of this in any way justifies the way the Russians are lording it over Georgia, threatening Poland with nuclear annihilation, or threatening to rearm Cuba. They are, as I said, acting like jerks, and hurting their own cause, especially in Western Europe. But they are doing what they agreed to do, and in loudly proclaiming otherwise, NATO leaders seem determined to fire up a new cold war.

Adding fuel to the fire, most in the West ignore the role of Georgia’s President Mikheil Saakashvili in provoking the Russian attack and continue to lionize him as the great democratic martyr of our age. He’s not, and never was. Washington covertly staged his “Rose Revolution,” and his great appeal to Georgian voters was primarily his ultra-nationalistic promise to put down any independence or autonomy for the Ossetians and Abkhazians. The current crisis stems directly from Washington’s attempt to use this Georgian fervor against the Russians, and keeping the hotheaded Saakashvili as our man against Moscow simply keeps the pot boiling.

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If democracy and self-determination are the goal, it would be smarter by far to call the Russians on their bluff as “liberators” and propose an internationally supervised referendum to ask the Ossetians and Abkhazians what they want. But, no. The Western Europeans continue to embrace Saakashvili, even as they put off making Georgia (or Ukraine) a full-fledged member of NATO. No one, either in Europe or the United States, wants to go to war to defend Georgia, not even John McCain, whose foreign policy adviser Randy Scheunemann was a paid lobbyist for the Georgians. But now that the cold war juices are flowing, very few - left or right - seem willing to step away from Saakashvili’s grasp.

This is a particular problem for the Democrats, who are beginning their convention in Denver this week. Barack Obama, the presumptive presidential nominee, has called for costly social programs, from universal health care to the creation of new energy sources. But his vice-presidential pick, Joe Biden, has just returned from visiting Georgia as a guest of Saakashvili, and is pushing a $1 billion aid package for the Georgians. And that’s just the first billion. If the United States leads NATO into a new cold war, the costs could be staggering, which will leave very little for “change we can believe in.”

So far, I’m fairly pessimistic. Obama seems to have absorbed Biden’s zeal for Saakashvili, and on the question of Georgia most of the Democratic Party now sounds like secondhand McSame. But there’s always hope. If we can believe Mikhail Gorbachev, the Russians do not want a new cold war, and most Americans would clearly prefer health care to warfare.

The question is whether American democracy and a new leader committed to change are strong enough for the popular will to prevail.