The combination of Western sanctions and the collapse of oil prices is exposing deep structural problems in Russia’s economy, and it is showing the petro-state model of governance developed by Vladimir Putin is unsustainable. Yet just because Putin’s system can’t last doesn’t mean its demise is imminent.
Voices of reason in Russia readily acknowledge that the economy is in dire shape. In the past few months, Russia’s Central Bank has burned through roughly $90 billion of its reserves to prop up the ruble, but it hasn’t succeeded in stabilizing the Russian currency. “We have entered a real, full-fledged economic crisis,” Aleksei Kudrin, a respected economist and Russia’s former finance minister, said in late December. The prospects for 2015 appear bleak: the GDP is projected to contract by 5 percent while the inflation rate may climb to 15 percent. High prices, high interest rates and low nominal wage growth seem set to drive living standards down.
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Igor Torbakov is Senior Fellow at Uppsala University and at Södertörn University, Stockholm, Sweden.