Carnegie Moscow Center
Russia’s crony-capitalist economic model requires an ever-increasing volume of funds to be burned on lavish mega-projects that generate huge profits for a dozen families close to the Kremlin. Now it seems to be pensioners’ turn to make the sacrifices needed to finance the appetites of Russia’s new aristocracy.
Washington thinks punitive measures will change Moscow’s calculus, but the Russian economy is doing just fine.
Russian banking system needs a supervisory authority independent of the central bank. Retail banks should be prohibited from investing in non-liquid assets, while the liquid securities market should be saved for investors
Watching the drama of Russia’s private banks collapsing one by one naturally triggers fear: of more than 3,000 registered banks, about 2,600 have already lost their licenses. After the bailout of Otkritie and BIN, the government’s share in Russia’s banking system assets exceeds 80 percent. Fixing Russia’s banking system requires addressing the deep and systematic flaws in the central bank and the financial sector at large.
Andrey Movchan explains what lessons Russia can learn from Mexico, the United Arab Emirates, and Venezuela to deal with the perennial “resource curse.”
Authors of more recent studies almost unanimously state that even though it’s unclear whether the resource curse generally menace on average over the group of resource-rich countries, it definitely threatens nations with weak institutions.
Achieving economic diversification in countries dependent on oil exports is a major challenge. Most diversification strategies have failed, and there are no examples of countries that have successfully managed to fully diversify away from oil.
Between the end of World War II and the mid-1960s, the Soviet Union’s economy was one of the most vibrant in the world. The country had successfully launched the first man into space and was competing with the United States in developing cutting-edge military technology. However, by the end of the 1980s, the economy was in a miserable state.
Having found itself in a lose-lose situation, the West will most probably do nothing—keeping sanctions in place and freezing the situation. The Kremlin will be happy. Russia won’t stop meddling in Ukraine or give up Crimea.
The budget clearly illustrates its authors’ thinking. They fear popular discontent and so don’t want to risk taking unpopular steps. The regime’s main goal is short-term stability, so it keeps supporting the paternalistic governing model, which is increasingly trapped in the cycle of social spending.