Russian Living Standards Fall for First Time in 15 Years retaliatory

For the first time in 15 years, figures from Russia show a declining standard of living for the average Ivan in the street. Oil prices have plummeted, and the Kremlin has done a very poor job of diversifying the Russian economy. Sanctions imposed over the Crimea and Ukraine situations have aggravated the situation. Thus far, President Vladimir Putin has avoided blame by his sabre-rattling behavior and because Russians give him credit for the rising standards of the last decade and a half. As the economy worsens, the world may expect more crackdowns on the opposition and more shenanigans in the international realm. President Putin is secure in his power, and he will remain that way.

The figures are depressing if one lives outside Moscow or St. Petersburg, or if one does live in those two cities but earns less than the top 10% take home. The first problem is the ruble’s 50% decline against the US dollar. This means that everything imported costs about twice as much. Another issue is the retaliatory ban on various imports imposed by Moscow, reducing supply and thus driving prices up higher. Add to that the decline in demand affects those paid on commission and hourly workers, and one has falling incomes while prices rise.

The Russian government does have a reserve fund that is meant to ease harsh times. However, the New York Times offered this observation, “‘They have no way out,” said Sergei Guriev, a professor of economics at Sciences Po in Paris. “Unless oil prices go up, they are really looking at a dead end.” Without further spending cuts and if oil prices remain around current levels, the government will use up its reserve fund, created when the price of oil was high, in about a year, he added.”

The NYT also noted, “Across Russia, the crisis has prompted a collapse in consumption. International airline travel has fallen almost a fifth since last year, and car sales are down 36 percent in the first half of this year. The production of train cars fell by a third, said Natalia Zubarevich, a researcher at the Higher School of Economics, because fewer goods needed to be transported. In another measure of economic distress, household ruble debt in arrears is up 43 percent since July 2014, according to the Central Bank.”

So, to distract everyone from the shortages (nothing like Soviet level shortages, but maddening nonetheless), the Russian government is stirring up trouble in Ukraine’s east again. Despite a cease-fire between Kyiv and the pro-Moscow militias of the east, violence has spiked again.

NBC News reports, “Ukrainian forces said Wednesday that separatists attacked their positions 82 times overnight, including using artillery banned under the shaky February truce brokered by European leaders. ‘The situation is still most tense in the area of the militant-controlled city of Donetsk,’ the military’s so-called Anti-Terrorist Operation (ATO) said on Facebook, according to a translation by Ukraine’s Unian news agency. The statement came after more than 100 explosions, ‘both incoming and outgoing,’ were heard on Monday night and early Tuesday in the rebel-held city of Donetsk by Organization for Security and Cooperation in Europe monitors.”

Winter is coming in a few short months, and that may make military endeavors in the region difficult. However, Moscow has European natural gas markets to toy with until the spring comes. Promoting a general sense of instability in supplies is an almost inevitable ploy.

Elections to the Duma are scheduled for next year, moved from December 4 to September 18. For the next year, the harassment of opposition politicians and parties and of anti-Putin media will increase.