It is no secret that Russia’s economy has been hit very hard by the global drop in petroleum prices. The Russian economy is in the midst of the most severe contraction since the global financial crisis with little room for optimism that anything will change in the near term. In fact, the economic climate in Russia is so challenging that President Putin has announced cuts to federal spending of all kinds – including to the military last week. A first since he rose to power.
However, Vladimir Putin’s recipe for recovery is all together different that what we find here in the United States at the hands of the Federal Reserve. Yes, the (Central) Bank of Russia has lowered interest rates to combat the drag of recession and yes it has provided liquidity to banks and financial institutions but that is where the similarities end. Putin does not believe in using inflation to trigger growth. Meaning that the central bank in Russia is not on the path of engineering a stimulus plan the is predicated upon anything remotely similar to quantitative easing.
Putin and the Bank of Russia will be pursuing a course of action that may take more resolve and time but may lead to the longer term objective of structural reform long sought by most leaders that have historically been singularly dependent on commodity exports for growth. The fact is that though Russian has been the world’s single largest energy exporter for years, it is a country that also happens to have a fairly stratified economy. From agriculture goods to manufactured goods and technology. Russia will attempt to pivot to a more diversified economy while not taking the bate of introducing a Fed style stimulus initiative. The effort to effect structural reform, cut spending and allow for exchange rates to in part equal the scales of global trade is rather capitalist.
Russia is the only G20 member country to elect this pathway to recovery. It will be very interesting to see how it unfolds.