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| Pleasant surprise from Russia |
| Pierre Briancon / Mar 26, 2009, 00:16 IST |
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The stock market is up 50% in the last two months. The central bank is selling the currency to keep it from rising. This is Russia today and it sounds like a tale. But a conjunction of rising commodity prices and sound fiscal policies seems to have brought an early thaw to the Russian economy. If the government keeps toeing the same realist and reformist lines, it could turn into a lasting spring.
It took a little while, but it looks like proponents of free-market policies and strict fiscal discipline have won the day inside the Kremlin. That wasn’t assured last November, when the government put forward a 2009 budget based on oil at $95 a barrel – when the price was under $60. The government’s anti-crisis strategy then was expensive: throw money at squeezed oligarchs, use a big chunk of foreign reserves to prop up the rouble and hint that the rest would go to boost domestic spending.
Vladimir Putin, the prime minister, then decided to face reality and ordered the government to draw up a more realistic budget, based on oil’s price at the time - $41 a barrel – and on realistic exchange rates. So the government had to admit officially that the economy would contract in 2009, that years of surpluses would turn into a budget deficit of about 7% of GDP and that inflation would keep rocketing.
The sobering up helped the band of reformist cabinet members, led by deputy prime minister Igor Shuvalov and Finance minister Alexei Kudrin, who had pushed for the reality check. They get a budget that’s tight on spending and subsidies, and will try to seize the opportunity to push for more reforms.
To the reforming band, the budget bonus from $50-oil is not necessarily welcome. Shuvalov has gone so far as to wish for another few years of low commodity prices, to force Russia’s economy into “a new model”. That the country would even consider seriously kicking the oil habit is an encouraging sign: this severe crisis could end up helping the cause of reform.
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