The world is going to enter in the new political phase as the economic crisis penetrated in Russia, after the whole world experienced the fever of the economic decline. Before going into details of the crisis if we analyze the remarks of Russian government which clearly indicates United States of America as responsible for the recent economical decline.
The government of Russia including President Dmitry Medvedev, Prime Minister Vladimir Putin and Finance Minister Alexey Kudrin has pointed out the liquidity crisis in the U.S. as having major impact on the decline in Russian Stock Market and the internal factors have the less influence over this situation.
But if we see the remarks an intellectual economic advisor from Russia we find something adverse to it as the former economic policy advisor to Russian government Andrei Illarionov declared the internal factors such as lack of transparency in banking and the political risks associated with geopolitical tensions due to South Ossetia war in 2008.
According to Wall Street Journal, the famous newspaper of America the conspiracy theories circulating in Russia pointed the U.S. government responsible for the recent crisis in Russia that U.S. government incited American investors to withdraw capital from Russia to punish for what it did to the Georgia.
Russian financial crisis, of course are the part of recent Economic crisis. But it is also good news for Russia that World Bank remarks positively as it says that Russia with strong short term macro economic fundamentals is ready to deal with the economic crisis.
The simultaneous collapse in money markets of Russia deserved the attention of government and the Central Bank which was duly paid.
Authorities in Russia were threatened as the Russian Finance Minister Alexey Kudrin sought assurance from U.S. treasury secretary Henry Poulson that U.S. not to play politics with Russia in the crisis.
On the other hand Russia found potentially capable of coping the recent economic crisis. Far-sighted fiscal management and substantial financial reserves became the rescuer of Russia from any major loss. The government remained swift, coordinated and comprehensive to triumph over the trouble.
If we glance over the factors which adversely affected the Russian economy, the leading were the decline in the price of commodities which proved hard for Russia as it is major exporter of oil and metals. The act of pulling billions of dollars out of this country by the investors also damaged the economic structure whereas its conflict with the west also added fuel to fire.
If we look into the performance of the stock exchange, on 6 October Russia’s two main stock exchanges MICEX and RTS crashed by 18.6% and 19.1% respectively. It became worst when Federal Financial Market Service was obliged to suspend the stocks at least three times.
However at 9 October the stock market rose by 14.7%.Money market also remained under crisis. The Central Bank of Russia lowered the reserve requirements and on 17 September the government lent 1.13 trillion roubles in other way $44 billion to three biggest banks Sber Bank, VTB Bank and Gozprom Bank for a quarter of a year to boost the liquidity. Situations built to such extent that no bank was willing to lend for more than over night.
Russian President Dmitry Medvedev made sure that financial system receives all necessary support and ordered the ministers to inject 500 billion roubles from the state budget into the market. Russian government also distributed the state loans amounting $50 billion to those corporations which previously relied on the foreign loans. The Prime Minister Vladimir Putin recommended unsecured stabilization loans to Russian banks.
In November Russian government spent 22 billion dollars a week to quench the recession. The government also lifted import tariff on industrial equipment like metallurgy, construction and textile meanwhile increased the tariff on imported cars.
The workers attached with various industries in Russia also faced the hard time. The Magnitogorsk Iron and Steel Works laid off approximately 4000, while some industries observed 4 days a working week and some reduced the wages. Eventually the industrial output reduced upto 60%. The raw material industrial sector also could not hide itself and experienced extreme losses. Automobile and tool making industries declined to their weak.
If we look into the steel industry sector, it also reduced the production. The Novolipetsk Steel, one of the steel industries in Russia shut down two of its five blast furnaces.
Russia’s automobile industry about which ‘The Economic’ remarked in June 2008, “Russia’s booming car market”, declined gradually till the stage that GAZ and KAMAZ, which are the two major automakers declared the production cuts in September-October 2008. It was reported that the stockpile of a hundred thousand unsold cars was there at that time. Avto Framos, a Moscow based automobile manufacturer announced the closure of plant from 12 December 2008 to 12 January 2009. Tyre industry also suffered in such conditions when Amtel Vredestein closed two of its tyre plants.
The increasing interest rates and demands overwhelmed the real estate sector and as the result Mirax Group, Sistema Hals, S T Group and other real estate developers quitted the future and ongoing projects. The government took positive step by allocating 50 billion roubles in construction and real estate sector. Mr Putin emphasized the new contracts at low prices and as the result it was estimated that construction cost will reduce by 30% in 2009. on the other habnd city government pulled out 118 floor Russia Tower project. Such remedies were vital at the time because Russia was to survive under those circumstances as being the world’s second great power.
Russia remained major exporter of paper to China and Western Europe, but the recent economic crisis affected the production of paper over there which simultaneously caused to least export to especially these particular areas. Segezh Paper Mill, the Russia’s largest industrial paper bag producer, running under the control of Bank of Moscow and City of Moscow, declared 10 days shutdown, which caused to the reduction of the production.
Besides other, the airline industry in Russia badly damaged due to intensive blows of economic crisis. Kras Air_an airline was grounded due to the continuous refusal by the fuel suppliers in supplying the fuel because the particular airline could not pay the prices in time. It became the national issue when passengers were obliged to wait for hours at airports. Hence Ministry of Transportation issued licenses to other companies to fly former Kras Air routes. Sky Express, Russia’s first low cost carrier air company remained threatened due to collapse of Kras Air.
If we observe the condition of laborers working in these industries of Russia the situation found unsatisfactory as they were facing harsh turn of their lives. A disease of unpaid vacations reduced working hours and reduced labor cost penetrated in their lean bodies. Federal Migratory Service over there announced in November the layoff of 45 thousand labors by 1123 Russian companies. Most layoffs were reported in metallurgy and the financial services.
Kremlin’s first Deputy Chief of Staff Vladislav Surkov in the late November emphasized on defending the middle classes from poverty during the period of recent crisis.
In addition, the trade unions predicted about the ascending of unemployment to 2 million people in 2009. Not only this, the food prices inflated to 15.3% as well. It was hard to survive especially for the middle classes under such clouds.
We see that recent economic crisis penetrated in every soul and industry in Russia and further more affected the whole region. Whereas Russia found astute in taking remedial actions due to its potential capabilities. On the other end it also declared U.S.A responsible for current economic crisis on their land which can intense the political conditions between both countries. If we look a few months back we find the Russian president declaring that no more unipolar world as it causes to cracks in the peaceful atmosphere of the whole world. These pointers indicate novelty in the world politics and predict a bipolar power structure, if U.S.A is not going to alter the policy of former President Mr. Bush.
