Russia Pakistan China

Russian Foreign Minister Announces Massive Stimulus

Russian Foreign Minister Announces Massive Stimulus

Ahead of the important G-20 meeting in Mexico, Russian Finance Minister Anton Siluanov announced a much needed financial uplift that could encourage not only Russia but also other European crisis troubled estates to think on the same line.

As per the minister, Russia has been able to build a cushion of $40 Billion as a support to the economy in the event of worsening of European crisis. As a measure against the crisis, the Finance Minister is considering a plan to recapitalize the banking system by issuing government bonds in exchange of shares. The Government is also planning to create a reserve mechanism worth 500 billion rubles ($15.4 billion) for 2013 to be spent on supporting “socially needy” people, and recapitalize the banking system mentioned above.

The above announcement though soothing may seem insignificant when one hears what the Russian Economics experts have to say about the current Russian plight. Many economists say that Russia’s economic situation is worse when the crisis it went through in 2008. The current outflow of capital ($7 Billion in April) is comparable to most critical quarters in 2008-2009.

Experts show that the state of affairs with the foreign debt was better, whereas the growth of the bank crediting was based on the financial support from the Central Bank, rather than on deposits or foreign borrowings, as it was in 2008. Experts also said that in order to realize grandiose plans, the government needs grandiose assets. The assets can be attracted only if the investment climate in the country improves. Its currency has lost two rubles to the US dollar since March 2012. The Russian economy is too dependent on oil prices with oil and gas close to 10% of GDP.

The above announcements are also marred by the fact that Vladimir Putin put forward a raft of spending commitments ahead of the elections, the size of which is variously estimated at between 1.5 percent and 5 percent of GDP. A more productive use of the money would be in improving Russia’s logistics performance, as it currently ranks lower than the global average in the World Bank’s logistics performance index, scoring 2.38 points out of 5, on par with Ecuador and Guatemala, and far lower than the other BRIC nations.

The Finance Minister’s announcement though with good intentions may prove insignificant as for Russia, the debate has much less to do with short-term survival, since public debt is only around 10 percent of gross domestic product, as with the country’s fiscal future.



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