Is Russia Prosperous? Depends Whom You Ask

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(Voice of America – – Pete Cobus – MOSCOW – December 29, 2018)

[Text with video]

During the past four years, Russia’s $1.7 trillion economy has been plagued by under-investment, broadening state ownership of enterprise and Western sanctions over Moscow’s 2014 annexation of Crimea. Kremlin economic ministers have even warned of unexpectedly high inflation, but you wouldn’t know that talking to people passing through one of Moscow’s shopping districts as Russians prepare for their legendary Christmas and New Year’s holiday celebrations.

“I don’t plan to economize,” said Andrey, a Muscovite who suggested he personally has no financial constraints. “This is a planned holiday for which the budget has already been allocated without any real economy.”

Others, however, offered more conservative assessments. Some say they are worried about spending this year.

“I’m certainly concerned,” said Tatiana, who lives on a fixed income. “I see that the situation among the ordinary people is not getting better.” Tatiana, like an estimated 40 million Russians who live on a pension, says she feels vulnerable.

“My financial position depends, naturally, solely on the policy pursued by the state,” she said, saying she feels like no one is watching out for her interests. “I wish someone would think more about the pensioners.”

Like many Russians in the post-Soviet era, her greatest sense of security comes from her family.

“Thank God I have a son who takes care of me,” she said. “That’s why the situation affects me less than other people.”

Those concerns are not unfounded, analysts say.

Parallel economies

“Despite the fact that we have economic growth, we have had for years slumping real incomes,” said Andrei Kolesnikov, a senior analyst with the Carnegie Moscow Center who describes the Russian economy as “contradictory.”

“Here’s one more Russian paradox: high salaries, growing salaries and decreasing real incomes. This is all because of the quite big shadow sector, the black economy, without any official taxation.”

A combination of international sanctions and prevailing state economic policies are likely to result in reduced holiday spending compared to the prior four years, Kolesnikov said.

There are efforts to change Russia’s tax laws, and draft legislation is pending in the Duma to tax black market gains. But Kolesnikov and others say a new law could backfire because the notion of additional tax inspections will not go over well with most Russians.

“This isn’t good time for such an intervention from the government side,” he said, referring in part to an impending value-added tax hike slated for January, and the Central Bank’s decision this month to raise interest rates, which analysts warn might only exacerbate inflation and hurt ordinary Russians.

“It will be quite harmful for normal businesses, primarily middle- to small-sized businesses,” Kolesnikov said.

In Moscow, which accounts for 20 percent of total income nationwide, consumers may well weather an economic downturn better than their counterparts in other parts of the nation where much of Vladimir Putin’s support base is.

Sanctions hurt ordinary Russians

Asked about the degree to which Western sanctions are having a direct impact on normal Russian consumers nationwide, Kolesnikov offered a pointed assessment.

“Right now it’s quite harmful when you’re sanctioning oligarchs, which are controlling big sectors of the Russian economy,” he said.

In an economy “monopolized by oligarchs,” he said, the targeted sanctions have an impact distinct from those levied against nations where small- and mid-sized businesses are the primary economic drivers.

“Russians are perceiving the situation not as an attack on oligarchs, but on their own working places,” he said. “At the end of the day, Russians are paying the price. Oligarchs will just get help from government, as they’re quite close to it.”