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Ex-Russian Officials: Stagnation, Declining Living Standards Loom For Russians

Ilya Ponomaryov, a Russian member of parliament who was the only one to vote against annexing Crimea last year, says Russia's leaders don't fear popular unrest.
Ilya Ponomaryov, a Russian member of parliament who was the only one to vote against annexing Crimea last year, says Russia's leaders don't fear popular unrest.

WASHINGTON -- Russia's economy will stagnate in coming years due to sanctions, low oil prices, and deeper systemic problems, former Russian officials say, but it's unclear whether this torpor will strengthen political opposition to President Vladimir Putin.

Vladimir Milov, a former deputy energy minister and current opposition politician, told an October 26 panel discussion that Russia faced a crisis that is much deeper and longer-term than the 1998 crash, when the ruble devaluation helped boost exports, resulting in a quick recovery.

With real wages down 10 percent compared with last year, industrial output down sharply, and Russian companies locked out of foreign credit markets due to Western sanctions, Russia's economy faced more turbulence than the Kremlin is letting on, Milov said.

"Sanctions and the oil decline have pushed this flightless bird over the cliff," Milov said at the discussion, held at the Center for Strategic and International Studies in Washington.

Russia's economy has limped along over the past two years, hobbled by the sharp drop in global oil prices for oil -- a major revenue source -- and by Western sanctions imposed after the Kremlin's annexation of Ukraine's Crimea territory in March 2014 and the eruption of Kyiv's war with Russian-backed separatists in eastern Ukraine.

Among other things, the sanctions restricted Russian companies' ability to access world credit markets and refinance short-term debt.

The International Monetary Fund said in August that the economy would contract up to 3.4 percent this year, but then stabilize next year. The World Bank said that GDP had dropped 4.6 percent between April and July, compared with the same period last year.

Sergei Aleksashenko, a former central-bank deputy chairman and vocal critic of Kremlin policies, told the panel that Russia's economic problems ran deeper than oil prices and sanctions.

As early as 2013, the year after Putin returned to the presidency after serving four years as prime minister, growth in business investment stopped, Aleksashenko said, a trend that worsened in 2014 and 2015.

The World Bank said foreign direct investment in Russia dropped by more than $20 billion in the first half of 2015.

The fact that this trend predated the sanctions indicates that the source of Russia's economic malaise is political, Aleksashenko said.

"Business doesn't want to invest," he said. "This is the main reason of the Russia crisis that started somewhere in 2012, just immediately after, in September 2011, when Vladimir Putin said, 'I will be back.'"

"That was the very best signal for Russian business that there is not any safety in the economy, that there is no property rights protection," he added.

After being plucked from obscurity to become prime minister under President Boris Yeltsin, Putin served two terms as president, before ceding the seat to his protege, Dmitry Medvedev. Putin then returned to the presidency in 2012.

"There is no collapse of the economy, but there is no desire for businesses to invest," Aleksashenko said.

Aleksashenko said the proposed budget for the coming fiscal year, when national elections will be held for the lower house of parliament, did not call for an increase in social spending, a populist measure the Kremlin has used in the past to bolster the government's popularity.

That meant Russian leaders don't fear political unrest, said Ilya Ponomaryov, a member of the lower house of parliament who faces criminal charges that he says are retaliation for his vote against the annexation of Crimea last year. He was the only lawmaker to oppose the measure.

"The Kremlin doesn't see stagnation as a problem," said Ponomaryov, who now lives in self-imposed exile in the United States. "Stagnation is way better than decline."

For the time being, the full force of Russia's economic problems has yet to hit consumers. What problems consumers have faced are blamed not on Putin, but on the West -- a function of how state-run television and other media portray the crisis, said Ilya Zaslavsky, a former Russian energy sector consultant now with the British think tank Chatham House.

"As many Russian newspapers and media have put it, the TV is winning over the fridge," Zaslavsky said.

Aleksashenko said that with inflation running at 15.8 percent this year and predicted to be as much as 12 percent next year, and with salaries in the public sector -- a major component of Russia's GDP -- not expected to be indexed under the proposed budget, Russian households' wallets will be pinched.

"It is a continuing decline of living standards," he said.

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    Mike Eckel

    Mike Eckel is a senior correspondent reporting on political and economic developments in Russia, Ukraine, and around the former Soviet Union, as well as news involving cybercrime and espionage. He's reported on the ground on Russia's invasion of Ukraine, the wars in Chechnya and Georgia, and the 2004 Beslan hostage crisis, as well as the annexation of Crimea in 2014.

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