October 28, 2020

Russia’s economy back in check



Western sanctions imposed on Russia in 2014 for its role in the conflict in Ukraine, along with falling oil prices and a ruble on the ground plunged the country into a recession. Now the coronavirus, in combination once again with crude oil, puts the Russian economy back in check.

In 2015, the Russian gross domestic product (GDP) contracted by 2%. According to Russian President Vladimir Putin, Russia lost $ 50 billion due to international sanctions.

But a study done in 2016 for the Russian newspaper Védemosti put the damage to the Russian economy between 2014 and 2017 at 600,000 million, taking into account not only the sanctions, but also the collapse of the price of crude oil at the time.

Now, five years later, the coronavirus, together – again – with the fall in the price of crude oil and the sanctions still in force, threatens to drop Russian GDP by 5%, according to government calculations.

THE LARGEST GDP FALL EXPECTED SINCE 2009

In Russia, where the economy rebounded only timidly in recent years, this would mark the biggest drop since the 2009 financial crisis, when the Russian economy fell 7.8%.

There is no doubt that for the Russians the exercise will be hard: unemployment will rise this year from 4.6% to 5.7%, the highest rate since 2011, and real disposable income will fall 3.8% this year. year, according to preliminary government estimates.

And, according to business advocate Borís Titov, up to 67% of individual, small, medium and large companies have been affected by the pandemic.

Yulia Alxnitis is autonomous and works as a tourist agent. For her at the moment “it is not possible to survive without assuming great losses”. And it is that everything has been paralyzed: the flights, the reservations and the way of subsistence of many businessmen in the sector.

This businesswoman does not have to pay the rent of a premises or salaries to the employees, but she does not consider that the support of the State is sufficient, since as a freelancer she is “obliged to pay taxes regardless of earnings,” she told Efe.

The Russian president has limited himself to leading the fight against COVID-19 by video conference from his residence outside Moscow and giving orders to the government. He has been present, in “father of the nation” mode, but behind the trench.

“This model works in times of economic growth and patriotic euphoria,” but not in times of crisis, Andrei Kolésnikov of the Carnegie Center in Moscow told Efe.

To deal with the COVID-19 pandemic, Putin has decreed measures to support citizens and businesses worth 3.3 trillion rubles ($ 46.348 million) so far.

“INSUFFICIENT” AID

“The state’s response is absolutely insufficient”, says Kolésnikov.

Among other measures, Putin promoted small grants for families with young children, a deferment of the payment of consumer and mortgage loans and a suspension of the payment of taxes – less VAT – for SMEs and micro-enterprises.

But by declaring six weeks of paid paid vacation for all Russians in late March to curb the spread of the coronavirus, many companies have suffered. They had to close their businesses but at the same time continue to pay wages to their workers.

Finally, Putin decided in a second round of measures to help companies face this challenge with a minimum wage per employee per month ($ 170), but in return they had to maintain at least 90% of the workforce, for many a titanic demand.

“The state capitalism system means big business and no attention has ever been paid to SMEs …”, says Kolésnikov.

The government has created a list of companies essential to the functioning of the Russian economy – large companies – and has promised subsidies and other aid to airlines, airports and the automobile sector.

But what about the freelancers and the small businessman linked to these and other industries frozen by the coronavirus?

“The expenses of the bank account and other work tools are maintained and the State only compensates two months of sick leave and the compensation is equivalent to the minimum wage. This does not even cover taxes,” says tourist agent Alxnitis.

RECOVERY PLAN

To reactivate the economy, Putin will evaluate next Monday the recovery plan of the economy that he commissioned the government and that, according to the Védemosti newspaper, will amount to a total of 8 trillion rubles (112.557 million dollars) for 2020-2021.

He has not wanted to touch the National Welfare Fund for now, a piggy bank of 12.2 trillion rubles (152,000 million dollars) that he can use if necessary.

In the Russian Executive’s action plan, today, it anticipates a return to economic growth of 2.8% in 2021.

The program, with some 500 action measures in various areas, will take into account that the Russian economy has been slowly reactivating in the regions since Putin declared the end of compulsory vacations on the 11th.

The Government ensures that economic activity in Russia has already recovered 79% of the level prior to the coronavirus crisis.

But for many entrepreneurs, there is uncertainty about when they will be able to reopen their businesses.

“In the absence of dates, we cannot even plan anything,” Artur Galaichuk, founder of the ReLab Family restaurant business, told Efe. Restaurants and cafes had to close due to the pandemic and have only been able to rely on home delivery.

“Uncertainty creates a lot of problems because some of them would still be better off closing their business now than keeping the workforce, waiting and paying debts,” he says.

Céline Aemisegger

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