A brutal start to the week for the ruble has Russia confronting its worst economic crisis in over a decade. While the spectacular drop in its currency has sparked fears of recession, the political system appears insulated from the fallout for now, largely because of an anti-Western narrative pushed in Moscow.
On Tuesday the ruble experienced its steepest one-day decline since 1998 — a time when the country was racked by financial crisis and defaulting on its loans. The currency’s downward trajectory has tracked consistently with the rapid fall in the price of oil, which at about $60 per barrel is at its lowest since 2009.
On Tuesday the ruble fell off a cliff, plunging some 11 percent against the dollar. The drop came even after the country’s central bank raised interest rates to 17.0 percent — from 10.5 percent — in hopes of shoring up the value of the ruble and clamping down on inflation. The Russian currency has lost 60 percent of its value since January.
From an economic standpoint, the analysis was gloomy across the board.
Russian Deputy Central Bank Chairman Sergei Shvetsov said, “The situation is critical. We could not have imagined what is happening in our worst dreams.”
Washington Post economics reporter Matt O’Brien wrote that Russia “is stuck in an economic Catch-22. Its economy needs lower interest rates to push up growth, but its companies need higher interest rates to push up the ruble and make all the dollars they borrowed not worth so much.”
Meanwhile, The Financial Times declared that “even by the standards of emerging market currency meltdowns, the ruble’s gyrations this week have been extreme.”
Yet for all of the economic melancholy, it’s far too soon to suggest that financial woes could reverberate into a political crisis for those at the Kremlin.
Ian Bremmer, president of the Eurasia Group, said that while “there is no question that Russia is in very serious trouble in the long term,” the current setback is “more of a geopolitical problem than an economic one.”
He said that domestically, President Vladimir Putin’s hold on power in the near term will not be adversely affected because he will be able to portray the crisis as one of external making. “He now has a scapegoat,” Bremmer said, referring to the Western sanctions imposed earlier this year after Russia’s annexation of Crimea.
“His aggressive foreign policy has only strengthened his domestic political standing,” Bremmer added in blog post.
While public polling in Russia is notoriously unreliable and subject to state intervention, the Levada Center, a public opinion organization operating in the country, put Putin’s approval ratings last month at 85 percent, nearly 25 points higher than 12 months ago, before the international crisis over Ukraine.
Stephen Sestanonvich, a professor at Columbia University and senior fellow at the Council on Foreign Relations, said that domestically Putin could take heart in the fact that no serious opposition exists in the country.
“Yes, a great surge of discontent with Mr. Putin — from the Westernized proto–middle class — appeared in 2011–12. It then almost totally disappeared,” he wrote in The Wall Street Journal. “Moscow’s liberal technocrat insiders … have no political base in Russia.”
When asked about the Russian economic decline, U.S. Secretary of State John Kerry on Tuesday said that while the issue is multifaceted, this week’s currency fall was partly a result of Western sanctions.
In response, Dmitry Rogozin, the deputy prime minister of Russia, tweeted, “It’s not the sanctions but rather our harmful financial, technological dependence on the West that has become the cause of our vulnerability.”
He added, “Our policy to create our own national financial system, import substitution and development of national industry is absolutely right.”
In his annual speech to the Russian Federal Assembly earlier this month, Putin acknowledged the challenges for the country’s economy — which was already in decline before this week — but placed them in the context of a narrative that the West was pursuing “a policy of containment” with the sanctions over Ukraine.
“The policy of containment was not invented yesterday,” he said. “It has been carried out against our country for many years — always, for decades, if not centuries. In short, whenever someone thinks that Russia has become too strong or independent, these tools are quickly put into use,” he said.
Whatever Tuesday’s currency slump might mean for Russia, it will do little to challenge the dominant Kremlin narrative that most of Russia’s problems were caused by someone else.