Permanent devaluation

12 Febrero 2009
The Russian government has a reason to be quite happy. The oil price has reached this winter $41-42 for a barrel, which is half the price written in Russia’s 2009 budget, but which is better than $25-30 for a barrel that the oil market sought to fix in the autumn. It is not a surprise: oil prices have a tendency to come up in winter since it is cold in the northern hemisphere and the fuel demand is growing. When it gets warmer the oil will fall in price again against a background of the economic recession. Incidentally, the Russian government believe that they have found a way out of the budget impasse: the ruble devaluation not only made more profitable the oil industry, which receives dollars for oil exports and pays cheap rubles for the production costs, but also allowed the Central Bank of the Russian Federation to earn a trillion rubles or more. The politicians complain of unpatriotic bankers, who play against the ruble, but it is the Central Bank that is in the front line here. Russia’s gold and currency reserves have to be spent within the country indemnifying for the extremely deficit budget. The devaluation of ruble would make it possible to prolong this pleasure. Russia will have run out of the budget money by the middle of summer in any event, but the devaluation would make up for the budget gap for some time. The point is that Russia’s financial institutions, while playing against the ruble, destroy the people’s savings, thus undermining the domestic market. As a result, tax receipts will decrease and the slowdown will be still sharper. Russia will run out of money in any case. The country’s gold and currency reserves are shrinking rapidly. Under the circumstances, new devaluation has to be invented soon, or even devaluation can become a permanent process – a kind of the revolution in Lev Trotsky’s theories. Such an approach has its good sides in terms of economy. Of course, it is bad but it is the least evil in comparison with other scenarios, for example the state bankruptcy that may take place soon. However, the constant decline in the national currency has also a political and psychological aspect. When people come to distrust their national currency, the state, as a rule, ceases to enjoy authority over them. After 2005 the government came to realize that if they ignored the pensioners’ interests, old people might revolt. That’s why the pension payment is getting the top priority, but the purchasing value of money is dropping. The private sector workers are found in desperate straits and experience all the crisis hardships. The manufacturing industry is the first to suffer, it produces goods in Russia but depends on purchasing foreign components. More expensive imports lead to the rise in prices of the Russian cars, household appliances and even food. Aggravation of the economic recession increases the number of those who are displeased. They include the young and vigorous people whose interests are sacrificed to the budget stabilization. At the same time a grave education crisis unfolds: the deplorable consequences of neoliberal reforms join the negative economic factors. The students, who pay for their education, cannot do that any more. Charity projects are difficult to carry on, credits become more expensive or are not given, while the single state examinations may turn 50% of A-students into D-students. Rebellions may break out, but this time there will be no “uprising of old women” about which press tenderly and half-jokingly wrote four years ago. Instead, young, vigorous and embittered people are expected to rise in revolt. It is possible that the government is ready to pay this price for a way out of the budget impasse or, at least, for determent of the financial collapse. But there is a question: will the current government remain in power after this price is fully paid?
Boris Kagarlitsky, a fellow of th Transnational Institute, is Director of the Institute of Globalization and Social Movements, Moscow