Putin is hoarding cash for fear of continuing oil slaughter

US, WASHINGTON (ORDO NEWS) — While all the leaders on the planet are competing in ever-larger budget spending, the Kremlin is accumulating hundreds of billions of dollars in foreign exchange reserves, as it fears that low oil prices could hold out for a long time.

Russia‘s gold and foreign exchange reserves exceed $ 550 billion, and the fund provided for a rainy day in the amount of $ 165 billion should be added, however, according to experts at ING Bank, support measures proposed by President Vladimir Putin so far are limited to about 2% of gross domestic product (GDP )

During the global financial crisis of 2008-2009, Russia spent a tenth of its GDP avoiding collapse, but then was able to restore its foreign exchange reserves in just a few years due to rising oil prices. This time, the Kremlin is gearing up for a long period of low export earnings.

“Oil prices have fallen below what everyone thought was unbelievable,” said Alexandra Suslina, budget specialist at the economic expert group of the Moscow Research Center, which advises the Russian government. “Now you need to use reserves carefully, because there is nothing besides them.”

This kind of approach provoked outrage from businessmen and members of lobbying groups who believe that insufficient incentives will lead to massive unemployment, bankruptcies, and also to a deep economic downturn. According to experts of the Central Bank, the government’s decision on the work of most Russians from home throughout April may cost the country from 1.5% to 2% of economic growth this year and, in addition, changes are made to the country’s budget to prepare for the oil price in the amount of $ 20 per barrel.

“So far, there are only promises, and there is no help, and I don’t know a single businessman who would receive help, while almost all of them suffer,” said Alexander Khurudshi, head of the Moscow-based Business Protection Association.

And here is what our economists say:

“Russia on the fiscal front is doing less than other countries to mitigate the blow from the closure of enterprises and the associated additional negative effect. “This may be justified, given the collapse in the price of crude oil, but may lead to a deeper decline and a slower recovery.”

Scott Johnson, Bloomberg Economics

The package of government incentives, which will be partially funded by the tax on the rich, is still 300 billion rubles ($ 3.9 billion), which will be sent to companies in a difficult situation. In addition, it includes tax breaks and deferred mortgage payments. Last week, Prime Minister Mikhail Mishustin said that the government had reserved another 1.4 trillion rubles in case of emergency, but it is not yet clear what the money will be directed to and what amounts will be taken from the existing budget.

“Today the discussion is about what everyone should immediately pay from the budget. This is also wrong, ”said Moscow Mayor Sergei Sobyanin last week in an interview with one state television channel. “Budgets will crack, they won’t even be able to provide a healthcare system.”

Meanwhile, Russia overtook Saudi Arabia in its gold and foreign exchange reserves and took the fourth place in the world in this indicator.

Alexei Kudrin, head of the State Audit Office, called last week to change the strict rules for using the $ 165 billion accumulated in the National Wealth Fund and make these funds available. In his opinion, it is necessary to create a mechanism in order to provide support directly to citizens of the country. Sergei Guriev, a former chief economist at the European Bank for Reconstruction and Development, believes that Russia should spend about 10% of its GDP.

However, while the Kremlin, apparently, is focused on saving its huge gold and foreign exchange reserves and expects that they can last for several years. Representatives of Russia this week are meeting with representatives of other major oil producing countries in order to try to agree on a new reduction in production, but so far there is little hope of a significant recovery in this market.

“The government will wait until the end of May, it will look at what the price of oil will be, and then it will decide whether it has additional opportunities to provide assistance,” said Natalya Orlova, chief economist at Alfa Bank in Moscow. “If oil prices fall to a new low and do not rise, then this will be a warning signal.”


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