The only other time Putin had to cope with a plunge in oil prices — during the 2008-2009 financial crisis — he kept the money taps flowing, thanks to the reserves built up over nine years of budget surpluses.
That permitted higher social spending, pensions and state salaries, says Olga Sterina, an analyst at UralSib Capital in Moscow. “Now, there’s no possibility to increase spending,” she said by phone. “All they can and should do is cut it.”
The stash is evaporating fast, down by about $90 billion this year as the central bank moved to slow the ruble’s descent.
Putin may exhaust more than half of the country’s rainy-day funds within two years on the budget, indebted companies and banks as well as to keep the ruble from total collapse, according to Valery Mironov, deputy head of the Moscow-based Higher School of Economics’ Center for Development Institute.
“The reserves will be used up but even that won’t be enough,” said Dmitry Oreshkin, an independent political analyst in Moscow. “They’ll have to limit social benefits, and state salaries won’t rise in line with inflation.”
Under Putin’s rule, between 1999 and 2007, Russia went through “one of the biggest booms in the world” as average living standards rose from Indian to Polish levels, according to Roland Nash, chief investment strategist of Verno Capital in Moscow.
Putin used to promise Russians that their country would overtake Germany as the world’s fifth-largest economy by 2020. In May 2012, he signed a decree pledging to increase real wages by half by 2018. That goal is already a distant memory as real wage growth slowed to almost zero by October.
I’m sure we can get to India’s living standard by 2020, if we work at it.