Wednesday, April 27, 2011

Window on Eurasia: Despite Rising Oil Prices, Russians’ Standard of Living is Falling

Paul Goble

Staunton, April 27 – Many observers had assumed that recent increases in the price of oil and gas would boost living standards in the Russian Federation, a major exporter, but in fact, according to Moscow’s statistical agency, living standards there are again beginning to fall as is public confidence in the future.

In an article in today’s “Svobodnaya pressa,” Lev Ivanov and Dmitry Ivanov use Rosstat data to show that “despite the growing prices for oil and gas, the standard of living of Russians fell in March compared to a year earlier by 3.4 percent and that popular expectations about the future declined as well (

Moreover, the two journalists point out, “if one looks at the graph of monetary incomes of the population offered by Rosstat, then it is obvious that this spring, the statistically average Russian lives approximately at the level of the height of the crisis, the winter of 2008/2009” and has not benefitted from the rise in the price of oil and gas.

Last month, compared to a year earlier and with inflation taken into account, the two “Svobodnaya pressa” writers say, average pay for Russians fell by 0.4 percent. They note that “the main reason” for this trend is not a decline in pay but rather “the continuing growth of the cost of living.”

And that trend in turn has sent consumer confidence tumbling. According to Rosstat, that index fell three percent in the first quarter of 2011, with only 13 percent of the population now expecting an improvement in their material position over the next 12 months, 23 percent expecting a decline, and 53 percent anticipating little change.

These figures, Ivanov and Ivanov say, put Russia in the range of the crisis countries of the European Union, Greece and Portugal, rather than with those EU states which are coming out of the recent economic crisis. And what is worse, they suggest, is that this decline in standard of living “correlates with the worsening situation of the Russian economy as a whole.”

GDP is falling as is investment, and the growth in incomes from the sale of oil and gas is not having an impact on the standard of living of ordinary Russians. Using Rosstat figures, they show that those at the top of the income pyramid are benefitting from these sales but those in the middle and bottom are not – or at least are not at a rate higher than inflation.

Given these figures, the two asked three specialists whether these figures suggested that there is “renewal of recession in Russia.” Aleksey Mikhailov, an expert at the Moscow Center of Economic and Political Research, replied that “all contemporary statistics are practically useless” because “they reflect the desires of the leaders and not real processes in the economy.”
Prime Minister Vladimir Putin has declared that GDP grew 4.4 percent in the first quar4ter and so “we will soon with surprise find out that there was no fall in the real incomes of the population and no fall in investment in the first quarter .. Just wait for Rosstat’s corrections! All will be well.”
But if one considers the real situation and not that as presented by the country’s leadership, Mikhailov continues, one sees that investment has fallen well below plans and that ruble has strengthened and will continue to do so at ever higher costs to consumers, a situation that the government is doing nothing to correct.
“Russia is a prisoner of liberal fundamentalism,” the economist says, just as it was before the crisis of 1998. And undoubtedly, this will lead to a new crisis” once the price of oil falls or when the regime commits the next “stupidity” and thus sends Russia into a tailspin.
Yevgeny Yasin, the director of studies of Moscow’s Higher School of Economics, was more measured in his language but equally damning in his conclusions. He pointed out that “citizens do not eat oil” and that as a result, income differentiation is increasing with “the majority becoming poorer.”
What is especially worrisome, he continued, is that “when there was a crisis, demand fell and prices should have fallen,” but Russia “did not make use of this situation” and introduce reforms in the economy. Inflation remains high, “and this will lead to a further decline in real incomes.”
“Growing prices for oil will not save the situation,” Yasin said, because “if the temporary extra incomes will be wasted on everyday expenses,” that will only give the illusion that things are well for a time. And “when after this the crisis comes,” the money that could have been put to good use for investment in change won’t be available.
And finally, Mikhail Khazin, the head of the NEOKON consulting company, said that the situation reflects serious distortions in the Russian economy. The price of oil has doubled but domestic production has declined, with all the oil earnings going to the rich rather than being used for social purposes.
“As a result,” Khazin says, “the incomes of the population are falling, [and] real inflation is much higher than what our government says.” Together these trends are promoting “degradation in our economy” at a rapid rate. And that can be seen in particular in the case of inflation.
If one ignores the export sector, one sees that the real disposable incomes of the population are falling and thus the sales of such goods as well. That means, Khazin says, that “the possibility of earning profits” there has declined as well. “Who then will invest in an economy in which profits are falling?”

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