On December 16, the Russian market suffered one of its worst financial crashes, known as Black Tuesday. In the wake of an emergency move by the Russian Central Bank to raise its benchmark interest rate to 17 percent, Russia’s currency plunged unexpectedly to 80 rubles to the dollar and 100 rubles to the euro. According to political analyst Tatiana Stanovaya, in the face of these new challenges, the Russian government is proving both powerless and inept, while its inertness threatens to bring the country to the brink of chaos.
Since the January 2014, Russian ruble lost about 40 percent of its value against the U.S. dollar. It became the second-worst performing currency in the world.
The events of December 16 upended Russia’s currency market and sent the population into shock. Tens of thousands of people across the country lined up at ATMs and exchange bureaus. Multiple Russian banks reported an increase in withdrawals from deposit and savings accounts. The country’s major retailers saw their lines of home appliances cleaned out within days. Fueled by panic, the general population scrambled to shield their savings before prices hit record highs and the Russian ruble reached a record low. The panic spread even among the business community, as many import-based companies halted their sales and some even closed down.
While the financial sector has been hit hard by the perfect storm of bad news, the policy put forth by the Russian government is cause for overwhelming pessimism. Clearly, Russian authorities still underestimate the extent to which the ruble’s collapse affects the lives of ordinary Russians. In his annual state of the nation address, Russian president Vladimir Putin only spoke of a “short-term rise in prices.” Prime minister Dmitry Medvedev has continued to assure the public that the Russian ruble is still undervalued, while finance minister Anton Selunov maintains that in early 2015, Russia’s currency will begin to appreciate—promises that now sound like a litany of magical incantations. The president’s annual address and his December press conference showed that the government has no contingency plan. President Putin still believes that the ruble’s collapse is the result of outside factors, such as slumping oil prices, which, in turn, were part of deliberate plans by the United States to weaken Russia.
The government’s refusal to acknowledge the real reasons behind the ruble’s dramatic fall could have disastrous political implications. President Putin’s first response to the drop was to declare war on money speculators. Apparently, he is convinced that the problem is caused by international organizations, which, according to him, are controlled by the State Department. On Putin’s signal, the Russian Investigative Committee and the Security Council made it a priority to find the culprits and threaten criminal prosecution. They quickly had to abandon that plan, though, after Russian businesses stated openly that the entities primarily responsible for the ruble’s fall were the export companies. Take the state-controlled oil giant Rosneft, for instance, which struck a behind-the-scenes deal to sell its bonds at low interest rates and attract large financial resources to cover debts. This deal, according to market analysts, was the primary cause of the Black Tuesday events.
In his December 18 press conference, President Putin had already changed his tune on the current developments by calling currency speculations a common market practice. This shift in position is not surprising: otherwise Rosneft president and close associate to Putin, Igor Sechin, would have to be held directly responsible for the ruble’s collapse.
At his last meeting, Putin asked Russian government officials to refer to the 2008–2009 financial crisis in an effort to find solutions to the current crisis, and cited the need to return control of the Russian economy to the government. The latter does not mean, however, that the Kremlin is ready to develop a plan to salvage the nation’s economy, carry out long-term structural reforms, or establish crisis management organizations. The only tactic the Russian government seems to be employing is one of subdued anticipation of a new spike in global energy prices.
In the near future, the Russian people will have to brace for a declining standard of living and rising unemployment. Many experts maintain that next year, Russia will slide into recession, with the GDP dropping by 4 percent.
One of the bailout measures put forth by the government was to apply increased pressure on Russian export companies to sell their currency returns. The measure was initially highlighted by Prime Minister Medvedev at a special cabinet meeting. Then, on December 19, President Putin zeroed in on it at a meeting with major Russian companies. The problem was that Rosneft again ended up receiving special treatment. At his last press conference, Vladimir Putin suggested that Rosneft will not be one of Russia’s saviors, and that other export companies should be called upon to pay their dues. These other businesses would be right to voice concern over having to incur currency exchange risks without Rosneft’s participation, though.
Russia continues to look for other culprits to blame for the financial crisis, which will inevitably lead to a deepening rift within Russia’s business elite and escalating conflicts between lobbyist groups. Russian mass media, for example, is currently conducting a witch-hunt against leaders of the central bank. On the one hand, the Russian “siloviki” and supporters of state-control criticize the central bank for its lack of tough measures that would shield the ruble. On the other hand, leftist leaders and populists accuse the central bank of betraying Russia’s national interests.
A particularly polarizing statement was made by Sechin in reference to former finance minister Alexei Kudrin, who is now heading the Civil Initiatives Committee. Sechin flatly denied Kudrin’s allegations that Rosneft and its transactions set off the ruble’s fall and said, “Now we have to pay close attention to those who are spreading these rumors. There are some government departments that like employing a tried-and-true method of distracting public attention by finding a scapegoat, which allows interested parties to achieve a certain goal. In our case, Rosneft was given the role of a scapegoat; however, we have to deal with these provocateurs and understand who and what these people are, who the Navalnys, the Nemtsovs, and the Kudrins are, and whose goals they pursue.” In other words, one of Putin’s long-time associates pointed the finger at another influential government official close to the president. Given the deepening economic crisis, this ongoing war of words will only intensify.
This all underscores Russia’s apparent vulnerability in the face of its current economic and social challenges. The government has proven itself unable to provide adequate and timely strategies in response to the developing crises. In the near future, the Russian people will have to brace for a declining standard of living and rising unemployment. Many experts maintain that next year, Russia will slide into recession, with the GDP dropping by 4 percent.
If that happens, Putin’s approval ratings will begin their inevitable descent. This means that his hold over Russia’s political life will take a hit, triggering a rise in the political opposition. Moreover, the current crisis could diminish the decision-making power of Russia’s political elite, as criticism of the regime, from both inside and outside of the system, becomes more vocal. If crude oil prices, the cornerstone of Putin’s stability, continue to drop, the crisis in the country could lead not only to social unrest, but also to a rebellion of the elite.
