Yesterday the Russian ruble fell by some 11 percent against the US dollar, a sudden collapse that suddenly made a major global power look a lot less stable and sent jitters through the international financial system.
The Russian economy—which has become increasingly dominated by state-run enterprises—has been in trouble for some time, but the combination of US-led sanctions against Vladimir Putin's government and the falling price of oil (the country's chief export) has put it in an especially dire spot. Russia's central bank has raised a key interest rate to a stunning 17 percent in an effort to stave off high inflation and further depreciation of the ruble. For any fan of palace intrigue, the prospect of Putin losing power in some shadowy Kremlin coup as a result of all this is, however remote, fairly riveting.
Putin, he of the 87 percent approval rating, $50 billion Olympics, and shirtless propaganda, is failing at the one thing he needs to do most: prop up the nation's middle class. Russia is, by some measures, a borderline developing country lacking both a free press and a political counterweight to Putinism, and possesses whatever smooth veneer it has only because of its oil revenues. The economy could shrink by 4.5 percent a year if oil stays below $60 a barrel, Russia's central bank said—that could mean defaults, capital flight, and waves of street protests that could dwarf the demonstrations surrounding Putin's return to the presidency in 2012.
Certainly, Russia is feeling the pain of being isolated by the West after invading Ukraine; today President Obama signed a new package into law today placing even more sanctions on Putin's government. The Russian leader may favor bold gestures to demonstrate his power—like cutting off the flow of natural gas to Europe as the Ukrainian crisis ramped up—but it's hard for a country to demonstrate strength when its citizens are unloading their currency as fast as they can by buying appliances.
For Russia to teeter on the brink of prolonged economic contraction undoubtedly means pain for its citizens, but it might also be a blow to its newly assertive posture on the world stage—unless, that is, Putin decides to make a big move like re-establishing Russian hegemony over another lost limb of the Soviet Union. But what are the odds of the 15-time Russian Man of the Year doing something rash like that?
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