Russia Just Shot Itself in the Foot

Governments are either doers or, at the very least, simulate to be doers. They shouldn’t  go around conceding defeat before even trying to do something about it.

dream vs realityLast Thursday we shockingly read the appalling statements made by Alexei Ulyukayev, Russia’s economy minister, slashing the long-term growth forecast to 2.5% through 2030, instead of the 4.3% published in April: “The drivers behind the brisk economic growth in the years before the 2008 economic crisis are exhausted.”

The economy ministry also stated that it expected the growth in salaries and corporate earnings to decelerate, and the wealth gap to widen further, with the share of the middle class falling from half to just one-third of society.

In over thirty years of closely following important developments in major countries of the world, I have never seen anything like this.

The straightforwardness of those statements is unprecedented. If anything, governments from all sorts of ideologies always, as a principle, try to bolster their performance, however mediocre —or even unacceptable— it could be.

Furthermore, those statements reflect some fundamental lack of coherence within the Russian government. Does Vladimir Putin agree with those statements?, or were they pronounced unilaterally by the economy minister without prior consultation?

For practical purposes, the answer is not that relevant, because in either case this is about a major inconsistency, an offense to the basic principles of good governance. Granted, Russia is not exactly a role model in this paramount area. Nonetheless, no senior government officer anywhere on Earth will dare to publicize the outrageous statements that Mr. Ulyukayev said last Thursday, regardless of how grim the future appears to be.

The basic reason of the existence of government is to serve society.

Yes, unfortunately that is usually more wishful thinking than a reality, even in the most developed economies in the world. Yet, at least in paper, most politicians and public servants in general go out of their way trying to persuade the society how competent and reliable they are. It is simply inconceivable and utterly unacceptable to throw the towel without even fighting. The economy minister’s statements are an open admission of incompetence and a lack of the most elementary spirit of problem-solving of the entire  Russian government.

slowdown

On what I completely agree with Mr. Ulyukayev is that the main drivers behind Russia’s vigorous economic growth during the past decade are exhausted. Alas, how about uncovering some equivalent drivers? That’s the major reason of existence of the Russian government —or any other in the world. Russia is far from being a developed nation, with an estimated GDP per capita of US $18,000 during 2012, slightly over 40% below Italy’s, one of the poorest nations of the developed group. As copiously explained in my book GLOBALIZATION, the major drivers of growth of any underdeveloped economy, like Russia’s, lie precisely in closing the huge gap that separates them from the developed world. Any developing nation has a great deal to learn from the the developed countries. Naturally, in order to effectively start closing the gap it is imperative to implement structural reforms in the political and economic system. There is no other way around it.

Something has to give. Either the Russian government does the improbable and begins a profound wave of badly needed structural reforms, or the bad times ahead will be tumultuous with a great deal of misery and unnecessary suffering.

Russia’s fate is of great importance for the rest of the world, being the country with the largest landmass on Earth, the tenth most populated nation, and the seventh biggest economy on the planet, with a 2012 GDP (ppp) of about US $2.5 trillion, right between Germany and Brazil.

The global economy has made us all more interconnected. It is really a great pity to see these horrible developments taking place, and much more so in a country of the prominence and influence of Russia’s.

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About Martin Marmolejo

Global Investment Manager | Founder & Managing Director at MMA Global Investment Management | Proud husband and father | Follow me @globalmarmolejo.

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