The Ripple Effects Of A Crumbling Russian Economy

The continuing collapse of the Russian economy may bring a sense of pleasure to critics of Russian President Vladimir Putin’s domestic and foreign policy, but the downfall is also causes some concern. Not only is the impact on the global economy unknown, perhaps less knowable is how Putin will respond to his diminishing stature.

“The direct effects are likely to be small,” Ben May, a senior eurozone economist at Oxford Economics in London, tells The New York Times. “It’s more the uncertainty it creates.”

And that uncertainty can have a ripple effect, says Phyllis Papadavid, a foreign exchange strategist at BNP Paribas in London. “There is country-specific risk for Russia. But there’s a larger story. There’s a weakness in global sentiment.”

Noting the financial straits in which Russia finds itself, the Financial Times contends that even “by the standards of emerging market currency meltdowns, the ruble’s gyrations this week have been extreme, plumbing record lows that days — even hours — earlier would have seemed unthinkable.”

International sanctions and a steep decline in global oil prices may be the primary drivers of the devolution of Putin’s economy, but the “depth of the currency’s slide also reflects the growing belief in financial markets that Mr. Putin no longer runs Russia in its economic interests and is instead bent on pursuing illusory geopolitical goals.”

In a surprise move early yesterday, the Russian central bank raised interest rates by the most in 16 years, taking its benchmark to 17 percent. That failed to keep the ruble from plummeting as low as 80.1 per dollar from about 34 in June as the price of oil, the country’s biggest export, dropped by almost half to below $60 a barrel.

Meanwhile, the situation in Ukraine is likely to worsen, argues Krassimir Yankov of Amnesty International.

“The region has suffered six months of fighting between the Kyiv-controlled and pro-Russian separatist forces. At least 4,707 people have died, according to the latest report from the UN, but the worst may still be yet to come with the region sliding into economic blockade,” he writes.

 

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