A few years back, at the University of Ottawa’s summer convocation, I was startled to see a student come forward to collect his degree whose first name was Brezhnev. One suspects that his parents were African communists who named him after Soviet leader Leonid Brezhnev as a mark of gratitude for the Soviets Union’s assistance in their country’s national liberation struggle against Western colonialism. It’s a striking example of how other people don’t see the world quite as we do.
In the eyes of most Westerners, their countries are bastions of liberalism, democracy and human rights. The Soviet Union, by contrast, was, as Reagan said, an “evil empire.” In the eyes of many others, however, Western countries are colonial oppressors who conquered and enslaved their ancestors. The Soviet Union—and by extension modern Russia—was free of guilt in this regard. It was even an ally in the fight against imperialism.
Consequently, the intense dislike of Russia that has gripped much of the West in recent years is largely absent elsewhere. This provides Russia with an opportunity that it is proving adept at exploiting.
As I mentioned in a previous article for Canadian Dimension, the Russian leadership is nowadays framing its political struggle with the Western world in terms of what one might call “civilizational theory.” This rejects the Western model of history as progressing inevitably towards a common future, normally defined in terms of liberalism, and juxtaposes to it the idea that history consists of multiple different civilizations each advancing according to its own logic. This concept provides a justification for why not just Russia, but also other parts of the world, can resist Western hegemony and assert their right to develop in their own way.
Over the past decade, civilizational theory has been gradually appearing more and more in official Russian rhetoric. Last week proved the point, with the publication of a new foreign policy concept for the Russian Federation, along with an executive order by Russian President Vladimir Putin approving the concept.
In his order, Putin firmly nailed his colours to the civilizational mast. Russia, he declared, was an “original state-civilization, a vast Eurasian and Euro-Pacific power that bound together the Russian people and other peoples who make up the cultural and civilizational community of the Russian world.” This itself was nothing particularly new, but some of what then followed was.
For Putin’s decree specifically pointed to Russia’s status as the “legal successor of the Soviet Union” and as such a state with a “long role in the creation of the contemporary system of international relations and in the liquidation of the global system of colonialism.” Putin continued: “Humanity is passing through a period of revolutionary change. … It is impossible to return to the past, unequal model of global development, which for centuries guaranteed the rapid economic growth of the colonial powers by exploiting the resources of dependent territories and states in Asia, Africa, and the Western hemisphere.” Power was shifting, said Putin, but “some states… refuse to recognize the reality of a multipolar world… and try to hold back the natural march of history.”
These statements mark an important shift in Russian strategy, as Putin has never before played the anti-colonial card with quite such fervour. This shift reflects the factor that the centre of gravity in the struggle with the West has now moved to the Global South. Russia needs the support, or at least the neutrality, of states of the developing world in order to stymie the West’s efforts to isolate it. The civilizational rhetoric and the appeal to the Soviet Union’s record in fighting colonialism are useful tools in this regard, and so far they seem to be quite successful. Outside of Europe, North America, Australasia, Japan, and South Korea—what one might call the “collective West”—few states are actively declaring themselves Russia’s supporters, but almost none are lining up to join the West as active enemies. Not even Mexico has levied sanctions against Russia.
The Russians are enjoying particular success in Africa. In February, for instance, South Africa hosted the Russian and Chinese navies for joint exercises. And in March, representatives of 40 African countries attended a meeting in Moscow held in preparation for the Russia-Africa summit that is to take place in St. Petersburg in July, and that most African heads-of-state are expected to attend. At the Moscow meeting, Putin told the African delegates that it was “common knowledge that the Soviet Union provided significant support to the peoples of Africa in their fight against colonialism, racism and apartheid, how it helped many African countries to gain and protect their sovereignty, and consistently supported them in building their statehood, strengthening defence capabilities, laying the foundations of their national economies and workforce training.” In response, the delegates applauded.
Putin’s message fell on fertile ground. Russia won many friends in the Third World during the COVID crisis by providing them with its Sputnik vaccine. It is also investing heavily in the African continent, while the Wagner private military company is active in a number of African countries, whose governments have hired it to help fight domestic insurgencies. All this is having an effect. A report issued last month by the Economist Intelligence Unit noted that one year after the start of the war in Ukraine “an increasing number of countries are siding with Russia.” The report assesses that only 15 percent of the world’s population lives in countries condemning Russia, and another 21 percent in countries that are “West-leaning.” Just 5.6 percent live in countries “supportive of Russia,” but 27.5 percent are “Russia-leaning,” with 30 percent neutral. Overall, therefore, the numbers pro- and anti-Russia are roughly even, but the tide seems to be drifting slightly in favour of the former. Russian foreign policy vis-à-vis the West is in tatters. Elsewhere, however, its diplomacy is proving quite effective. It is a fact with which the West sooner or later is going to have to come to terms.
Federal authorities charged four Americans on Tuesday with roles in a malign campaign pushing pro-Kremlin propaganda in Florida and Missouri — expanding a previous case that charged a Russian operative with running illegal influence agents within the United States.
The FBI signaled its interest in the alleged activities in a series of raids last summer, at which point authorities charged a Moscow man, Aleksandr Viktorovich Ionov, with working for years on behalf of Russian government officials to fund and direct fringe political groups in the United States. Among other things, Ionov allegedly advised the political campaigns of two unidentified candidates for public office in Florida.
Ionov’s influence efforts were allegedly directed and supervised by officers of the FSB, a Russian government intelligence service.
Now, authorities have added charges against four Americans who allegedly did Ionov’s bidding through groups including the African People’s Socialist Party and the Uhuru Movement in Florida, Black Hammer in Georgia, and an unidentified political group in California — part of an effort to influence American politics.
Authorities said Ionov sought to use the groups to promote Russia’s occupation of part of Ukraine, and the eventual invasion of that country in 2022…
The accumulation of ludicrous moves by the United States and its pawns over the past few months has reached a stage that would be risible if it were not so dangerous. The danger is exacerbated by the insistence of American media on, first, ignoring the most provocative and reckless moves, then proposing explanations for them that can’t withstand three minutes of critical thought. The object is to keep the American public ignorant, make it stupid, and maintain the national-security state’s prerogative to do anything it wants.
High on the list, of course, is the sabotage of the Nord Stream pipeline and the various attempts to divert attention away from the obvious culprit. The US and its poodles’ initial story—that Russia blew up its own pipeline—was put forward under the correct assumption that compliant media would report it as implied fact and then forget about it.
Seymour Hersh’s detailed and plausible account of a Biden-ordered sabotage operation, combined with the public statements of Biden and other administration officials announcing their intention to destroy the pipeline and celebrating its destruction, made it necessary to say something seemingly apposite. The result—a tale of five guys and a gal (fans of Ukraine but totally freelance) in a sailing yacht, which happened to appear in U.S. and German newspapers right after a hurried meeting between Biden and Scholz—elevates the diversion(ary discourse) from the ridiculous to the comic.
Garland Nixon suggests that this story—which I doubt a single sentient adult in the world believes—must have been concocted by deep-state dissidents and masters of irony, who wanted to undermine the Biden administration and the media by having them tell it. I can’t—and as a fan of irony, don’t want to—rule that out. But I tend to see it more like Dan Ackroyd’s classic, precognizant, SNL spoof ad for the three-bladed razor: “Because you’ll believe anything.” The tragedy is that Western—certainly U.S.—media do pretend to believe it, search engine algorithms will be adjusted to promote it, and the U.S. government, ostensibly non-governmental Western media, and impartial international organizations will refuse to investigate it. You are meant to believe it, whether anyone thinks it’s true or not.
But the epitome of delusional and dangerous gestures was reached with the International Criminal Court’s arrest warrant for Vladimir Putin.
To be more precise, in the ICC’s legal terms, it’s a warrant for the arrest of Putin and his Commissioner for Children’s Rights, Maria Lvova-Belova, on the “war crime” charge of “the unlawful deportation and transfer of Ukrainian children from occupied areas of Ukraine to the Russian Federation.”
To be more precise, in real terms, as articulated by Finian Cunningham: It’s a “cheap political stunt” that demonstrates “the ICC is a Kangaroo Court and a political plaything that Western imperialism uses to pursue political enemies.”
Whatever its intention, I think this cartoon from the Washington Post makes that point quite nicely.
Suffer the Children
It is useless to debate questions of jurisdiction (Russia, like the U.S., is not a member of the ICC) or the specifics of the charge, but one should understand how prima facie flimsy the case is.
Of course, Russia claims it is relocating orphaned children from war zones in what it now considers Russian territory for their own safety—particularly the Donbass, in which Kiev has been creating orphans with constant shelling for 9 years. And of course, there are going to be mistakes made in that process, even if done with the best intent. All of this has happened before, to the complete disinterest of the ICC, as we’ll see below.
The ICC apparently based its indictment on a report produced by Yale University’s Humanitarian Research Lab (HRL). Max Blumenthal and Jeremy Loffredo (who visited and filmed one of the “camps” in question) have an excellent piece in The Grayzone (GZ) demolishing that report. The HRL is funded by the State Department, and headed by Nathaniel Raymond, a technologist who describes his previous job as “count[ing] tanks from space for George Clooney.” Raymond says he came under “a lot of pressure” from the US National Intelligence Council to go after Russia for “mov[ing] citizens from eastern Ukraine to the Russian Federation.”
As the GZ says, “the ICC and all other official Western sources referred to these youth simply as ‘Ukrainian,’ as though they were forcibly extracted from pro-Kiev communities occupied by Russian forces and subjected to brainwashing inside Russian internment camps.” It’s “exactly what Hitler did” (Lindsey Graham), straight out of “Hitler’s playbook” (Fareed Zakaria).
Never mind that, to make this report, HRL in its own words, relied “only” on open source information, “[did] not conduct interviews with witnesses or victims…and [did] not conduct ground-level investigations”; that it found “Many children taken to camps are sent with the consent of their parents for an agreed duration of days or weeks and returned to their parents as originally scheduled” and that “Many of these parents are low-income and wanted to take advantage of a free trip for their child…[or] hoped to protect their children from ongoing fighting, to send them somewhere with intact sanitation, or to ensure they had nutritious food of the sort unavailable where they live.” Never mind that “There is no documentation of child mistreatment, including sexual or physical violence, among the camps referenced in this report.” And never mind that, “nearly all of the children referenced in the … report are ethnic Russians from families and communities that have sided with Russia” (GZ) and that Russia and those families consider the Donbass republics part of Russia.
Never mind, because, according to Raymond (and, I presume, the ICC), “Even if that was true, it’s a war crime.” It’s a war crime because, Raymond says, assuming his preferred answer to the question of what “state” Donbass is part of: “Under the Geneva Convention, one state party to an armed conflict cannot adopt or transfer children from the other state party under any circumstances.”
Well, I bet most of us can think of some circumstance where that might be justified. Maybe one in which these children are being moved to safety from a war zone where for 9 years they have been, and still are being, shelled and killed by a “state party” whose president said, “Our children will go to school, to kindergartens – their children will hole up in basements,” whose pundits say they are “superfluous people” who “must be exterminated,” and whose self-identified Nazi soldiers say, “I wouldn’t call those people Ukrainians…They must be slaughtered.”
But nobody believes that the ICC suddenly found itself conscientiously impelled by a strict-constructionist legal theory (or a U.S. State Department/National Intelligence Council sponsored report that did not conduct IRL—“ground-level”—investigations), to take a deep interest in prosecuting Maria Lvova-Belova, or anyone else, for “unlawful deportation.” The ICC is no more interested in prosecuting this specific “war crime” than the U.S. is interested in bringing “freedom” and “democracy” to the countries it invades.
How do I know? It wasn’t, and won’t be, interested in making a “war crime” of this state party’s “unlawful deportation”:
Advocates who spoke with CNN say the procedures for reunifications with parents who remain in Afghanistan or other countries remain unclear.
No one in the U.S.’s “international community” gives a damn about, nor will the ICC be citing as “war crime” precedent, this case of “unlawful deportation”:
…volunteers—who were not involved in the decision to receive or adopt out children—quickly began to doubt whether every child was without family…
“There are unquestionably children in the airlift who are true orphans,” Jane Barton, a translator from the American Friends Services Committee told the San Francisco Chronicle on April 13, 1975. “But I talked to a number of children who said they are not orphans.”…
Did the U.S. save kids—or steal them? The legacy of Operation Babylift is a deeply complicated one
By the way, isn’t it curious that the ICC issued an arrest warrant for this “war crime” (“unlawful deportation”)? As Cunningham asks: “Is this the best case that the ICC and its Western handlers can really find against Russia?” One would think the ICC might rather indict Putin on the more fundamental charge of which he is so widely accused: starting an aggressive war in violation of the UN Charter. It is impossible not to think the ICC went out of its way to avoid raising that “war crime” because it would have been too blatantly servile to do that while ignoring the elephantine presence of aggressive-war-starting U.S. presidents in the room. Thus, we get Child snatchers!—per Cunningham: “the fallback on an emotively appealing issue of alleged child kidnapping. [And look, we named Maria, too. See, it’s not a vendetta against Putin.] The cringe-worthy sense alone tells you it is a fit-up.”
So, baby love the ICC’s gambit is not. It has one purpose and one target: to support the U.S./NATO war on Russia by further villainizing Vladimir Putin. Nobody in the ICC knows or cares what the details of the “kidnapping” crime are, whether it can or will ever be properly adjudicated, or who the hell Maria Lvova-Belova is. The headlines about Putin-Hitler are all. It’s “a cheap political stunt to bolster badly needed authority for the United States and its Western minions.” Everybody not completely captured in the Western media bubble (and even many who are) knows this.
Everybody—certainly everybody in the Global South—knows what the ICC is and what it’s not. It’s another ostensibly impartial international organization that has been intimidated and coopted by the US as a tool against its enemies.
The United States, holding to the principle of American exceptionalism, has always made clear that it will never accede to the principle of equality before the law from the ICC or any international institution.
Here’s how contemptuously the U.S. laid down its law regarding any such foolishness by the “illegitimate” ICC:
So contemptuous has the U.S. been of the ICC that it threatened to ban, “sanction their funds in the U.S. financial system,” and “prosecute in the U.S. criminal justice system” the judges, prosecutors and “any company or state that assists an ICC investigation of Americans.” So important it is that the world know the U.S. “will stop at nothing in its campaign against the court” that it passed a law called The Hague Invasion Act, which authorizes a military attack on the Hague, Denmark—a NATO country—to “liberate any American or citizen of a U.S.-allied country [i.e., Israel] being held by the court.” The U.S. also “effectively blackmailed 100 countries … by forcing them to sign bilateral immunity agreements in which they promised not to turn over U.S. persons to the ICC or else the United States would withhold foreign aid from them.”
All of that, of course, was when the ICC was hinting at investigating U.S. war crimes in Afghanistan or Israeli war crimes in Palestine. Now that it has successfully intimidated the “international community” and rearranged the court personnel, and is involved in a proxy war on Russia (in which no one comes out with clean hands), the U.S., as the Washington Post says, “finally sees the point of the International Criminal Court.”
That point being: to support the U.S./NATO/Kiev war on Russia by villainizing Vladimir Putin.
Even as U.S. government officials and congresspersons were applauding the ICC for indicting Putin, the Pentagon was warning against cooperating with the court, knowing full well that there is no charge that can be brought against Russia that can’t be brought against the United States. But many American pundits and politicians now say (probably correctly): “Not to worry, generals, the ICC knows its place.”
The whole world sees the ICC’s hypocrisy and selective prosecution. This is the culmination of a process that’s been going on at least since the late 90s, in which The United States and its allies have systematically destroyed the already imperfect and fragile architecture of international law based on the United Nations Charter, replacing it with the U.S.-undefined “rules” of the U.S.-selected “international community.” Too many international institutions have now demonstrated they are captured by, and willing to go along with, this obvious imperialist re-arrangement, and have consequently lost all credibility.
Here’s the contempt with which the rest of the world treats the hypocritical and sanctimonious game the ICC is playing:
Vladimir Putin will not be arrested in South Africa. He will not be arrested if he goes to India. He won’t be arrested by any member or non-member of the ICC. He won’t even be arrested if he comes to the United States, so cheap this trick is. Vladimir Putin is never going to be arrested. And he is not meant to be. The point of the ICC warrant, like the Swedish warrant for Julian Assange, is not to adjudicate the ostensible offense, but to leave the “Hitlerite baby kidnapper” charge hanging over his head forever.
No American or Israeli general or politician will ever be indicted by the ICC. All the countries of the world have seen that the ICC has only ever indicted Africans and America’s enemies, and they know the ICC never will indict anyone else.
The ICC has become a court of imperialist injustice.
Everybody knows who blew up the Nord Stream pipeline, and everybody knows who engineered the ICC’s arrest warrant for Putin. The former explosion destroyed the infrastructure of Russian-European economic relations. The latter is a deadly shaped charge that demolishes the remnants of a credible international justice system.
That’s unfortunate, but, as I said in a previous essay, the world is telling the United States and its humanitarian-imperialist allies: You cannot bring questions of international justice to the table because there is no table. If you want to build one, you will have to sit down with everybody, including Russia, China, Iran, etc. And you won’t be at the head of it; it will be round. If you want, with your usual self-righteous hypocrisy, to keep pretending you’re in the seat of judgement, we’ll ignore you.
I Think We’re Alone Now
The arrest warrant for Putin is not only the ultimate display of the sanctimonious hypocrisy of the U.S. and its captured institutions. More dangerous, in the context of ongoing combat and the imminent threat of nuclear war with Russia, it destroys the possibility of diplomacy. Like the Nord Stream attack, it sabotages the possibility of normal state-to-state relations and cements a confrontation that can only be resolved through capitulation—which means it can never be resolved.
This cannot be unforeseen, unplanned, or unintended. It is the deliberate, desired result of those who arranged it. The ICC arrest warrant—as it was meant to—has created a situation in which nothing but escalation is possible. Once you have augmented your international media Hitlerization of a head of state by having an international judicial authority formally charge him with being a war criminal, there’s no more talking. What can you say to him, except: “Turn yourself in!”? What can you say to other parties, except: “Lock him up!”? What can he say to you, except “Fuck off!”?
You have now put up a wall between yourself and your target that can only be breached by his or your capitulation. You may think that means you have successfully isolated and ostracized your target, but you have definitely painted yourself into a corner. What next move can you make? As more and more parties join the “Fuck off!” chorus, it may dawn on you that you’ve isolated and trapped yourself. It may, if you’re not a delusional neocon American exceptionalist.
This is the culmination of a decade of relentless political, economic, and a dash of military (Syria, NATO expansion) warfare designed to excommunicate and weaken Russia.
Its main tactic has been the cascade of economic sanctions that began in earnest with the ludicrous Magnitsky Act and escalated through a series of “crimes” instantly and irrevocably attributed to Russia—the “invasion” of Crimea, the downing of MH17, the Novichok poisonings, the bounty on American soldiers, the election of Donald Trump—that Russia has not committed, or has not been proven to have committed, or are entirely fictional and have not been committed by anyone at all. These sanctions are effectively impossible to reverse because their expressed goal is to extract confession, repentance, and restitution. We will only stop taking your bank accounts, and remove sanctions, and release you from arrest, and let you play with us if you confess and repent every crime we accuse you of. No questions allowed!
This is not a serious framework for respectful international relations between two sovereign nations. It’s downright childish. It’s the US, playing Pope, ordering its subordinate clerics to forbid the apostate communion. Is Russia ever going to abandon Crimea, confess that it shot down the Malaysian jet, tricked us into electing Donald Trump, murdered the Skripals, bribed the Taliban, et. al.? Is the U.S. ever going to say, “Never mind”?
The unmistakable message to Russia—now well and truly received—is that only regime change and submission will permit your country to re-enter the “international community” of the U.S. and its satellites.
The U.S. thought it would finally achieve that through the military conflict with the most powerful European army it had built up in Ukraine combined with “sanctions from hell.” Instead, it has found itself stuck in a cage of its own creating, scrounging for energy and ammunition, with the most populous and economically powerful countries in the world –China (which it’s also antagonizing), India, Brazil, the Middle East—just walking away. And now, faced with the prospect of nuclear war, the U.S. has, with the arrest warrant for Putin, welded a steel door on its cage that guarantees there will be no communication until and unless there is regime change, based on military defeat, in either Russia or the West. What’s the over and under on that? In Germany? In France? In Manhattan criminal court?
Leopards from Germany, and Challengers from England, and MiGs from Poland, and Abrams from the U.S., and—the epitome of pointless belligerence—the arrest warrant for Vladimir Putin from the ICC are weapons against Russia that do nothing but worsen the disaster being visited on Ukraine, harden the division in the world, hasten the isolation and demise of the United States and its “West,” and increase the likelihood of nuclear war.
We are being driven to Armageddon on a train of unnecessary, self-harming aggressions. The U.S. has put itself in a corner from which it’s going to have to shoot its way out, and it’s used all but its biggest guns already.
I’m actually reading Philip Short’s mammoth biography of Putin. I’m about 2/3 of the way through it right now. I think Short gets a few things wrong and I disagree with a couple of points he makes in this interview, but overall I’m finding it to be a reasonably even-handed and interesting account. I will write an in-depth review after I finish it. – Natylie
Household incomes are a sensitive issue for any government. For Russians, the last 10 years represent a “lost decade” in terms of real disposable income (i.e. income after mandatory payments and inflation-adjusted loan repayments). The last time Russians saw a consistent increase in household incomes was back in 2013. Since then, people have had to get used to wage stagnation. A Russian in 2023 is about 6% poorer than in 2013.
What happened to Russian incomes over the last decade?
From 2014 to 2017, incomes in Russia fell. In 2018, they showed near-zero growth (+0.1%) and then increased by 1% year-on-year in 2019. By the end of the pandemic in 2020, they were 11% down on 2013 levels. In 2021, incomes began to grow once more, but this was a consequence of pre-election payments from the state.
Last year, the fall in incomes was likely more than the official estimate (-1.1%) as official calculations do not include anybody working outside of large or medium-sized businesses. Economist Nikolai Kulbaka expects real incomes to fall this year at the same rate as in 2022. “The Russian economy is like a powerful, heavy ship that is sinking very slowly,” he said.
Incomes down, wages up
Russia finds itself in an unusual situation when it comes to employment and wages. As a rule, Russia’s labor market responds to crises by reducing salaries while preserving jobs – we saw this in the 1990s and in 2014-15. Instead of laying off staff, Russian employers prefer to cut wages or put people on extended, unpaid leave.
Last year, however, average salaries did not fall. Instead, they rose — despite record low unemployment (3.5% according to the latest official figures). In January, the average nominal monthly salary was 63,260 rubles ($781), up 12.4% compared with the same month a year earlier. This odd situation is the result of Russian businesses facing a labor shortage following mobilization for the Ukraine war. To retain staff, they have been forced to increase salaries. We wrote more about what is happening on the labor market in a recent newsletter.
Salaries rose fastest in 2022 in the following sectors:
Manufacture of computers and electronics — +25.8%
Public administration and military security — +22.7%
Specialists in pipeline transport — +20.9%
Railway transport — +20.6%
Salaries in manufacturing industries — +16.1%
The highest salaries now are:
Oil and natural gas workers (161,000 rubles a month, +7%)
Air and space transport (142,528 rubles a month, -0,9%)
Tobacco production (130,813 rubles a month, +6%)
Lowest salaries now:
Clothing manufacturing (28,273 rubles a month, +17%)
Leather (35,541 rubles a month, +7,3%)
Furniture (37,378 rubles a month, +8,7%)
The impact of social handouts
Last year, for the first time, Russia began publishing data about how incomes are distributed among different parts of the population. These figures are based on information from the Tax Service, the Social Fund, the Central Bank, credit organization and others. They make it possible to assess the incomes of different social groups.
It shows that the poorest Russians are seeing their salaries increase faster than the wealthiest — mostly due to increased welfare payments, benefits and one-off payments (for example, to soldiers injured in Ukraine). In the last three months of 2022, salaries for this group were up 1.8% compared with the equivalent period in 2021. That’s six times more than the income growth of the “wealthiest” group, which was up just 0.3%. In absolute terms, the per capita income of the “poorest” group was 10,535 rubles ($130), while the “wealthiest” group earned 165,695 rubles ($2,046).
The state spent 4.7 trillion rubles on social payments in the last three months of 2022, up 13.1% on the same period the year before. However, welfare payments are playing a slightly lesser role in overall salaries than in coronavirus-afflicted 2021. Payments have been more carefully targeted and favor low-income families with children, said Alexander Isakov of Bloomberg Economics. Incomes among the middle class barely increased in the last quarter of 2022 (ranging from 0.7% to 1%). While the government supports the poor, the middle class is left to fend for itself, explained expert Natalia Zubarevich.
Increased welfare payments in Russia have reduced poverty levels to record lows, according to the State Statistics Service (Rosstat). Its calculations suggest that, in 2022, the number of Russians below the poverty line fell by 0.7 million people — making up 10.5% of the population. That’s the lowest figure since records first began in 1992.
However, when talking about social handouts, it’s worth remembering that this includes compensation for soldiers injured while fighting in Ukraine and payments to bereaved families. Each of these payments is several million rubles. In addition, everybody mobilized to fight in Ukraine receives a one-time payment of 195,000 rubles ($2,388).
Inflation risks
Some predict real incomes could enjoy double-digit growth this month and, for 2023 as a whole, many believe income growth could reach 5%. This means that the warnings of Central Bank chairwoman Elvira Nabiullina look set to come true and wage growth will significantly exceed labor productivity. And that increases the risk of inflation: firstly, because businesses will pass increased labor costs into prices and, second, because the population will switch from saving to spending.
Bloomberg Economics anticipates the strong growth in labor costs seen in 2022 will continue this year in all private companies (apart from in the financial sector). What will happen next can be seen in Russia’s stagnant construction sector (many builders were mobilized and sent to Ukraine). The sector’s labor shortage has since eased, but only at the expense of cutbacks, output and prices. In the long term, this process will have significant consequences for the Russian economy’s potential growth.
Why the world should care
In the absence of a collapse in incomes or abrupt declines in standards of living, it’s easy to understand why most Russians are passive about the war. It can be summed up in the phrase: “negative stabilization.” Things are not bad enough to spark protests and there is more money available — albeit due to mobilization and an imbalanced labor market. However, income growth is something ordinary Russians are unlikely to see for many years.
The ruble on a rollercoaster ride
In April, the ruble recorded the worst performance of any developing country currency. By 13:50 on Thursday it had passed 81 rubles to the U.S. dollar for the first time since April 15 last year. It hit the psychological mark of 80 rubles to the U.S. dollar the previous day.
Finance Minister Anton Siluanov linked the ruble’s fall to a reduction in foreign currency inflows from exports and an increase in imports: “In recent months, trends have swung from one to another,” he said. He expressed hope that the ruble would strengthen due to rising oil prices. However, there is a time lag before this will buoy the currency.
Another reason for the sudden weakening of the ruble could be foreign companies selling their Russian assets. It emerged on Wednesday that oil major Shell might be able to take $1 billion out of Russia. As well as Shell, other companies could follow suit: for example, Tatneft’s buy-out of Nokian Tyres or Gazprom’s purchase of Salym Petroleum.
Before the Russian invasion of Ukraine, the Russian currency market would hardly have reacted so strongly to this kind of outflow – its daily turnover was five times greater than now. However, without non-residents and isolated from global capital markets, even small volumes can influence the exchange rate.
Although the ruble fell below 80 to the U.S. dollar, analysts are not rushing to revise their projections and still expect the exchange rate this year to be in the 75-80 range against the U.S. dollar. “The ruble is close to its localized low point and in the near future I expect to see it stabilize or even climb,” said Loko-Invest’s director of investments Dmitry Polevoy.
The main problem is actually not the dollar rate itself, but the dramatic fluctuations. The implied monthly volatility calculated on April 4 reached 30%.
Since the start of the war in Ukraine, when the Russian authorities stopped publishing trade data, the ruble’s worth has become the leading indicator of Russia’s international economic isolation. Currency volatility last spring after the invasion was the greatest ever seen. Exchange rates swung by as much as 10% in a single day, a level normally associated with toxic third-tier securities or crypto-currencies. When the ruble eventually strengthened to as much as 50 against the U.S. dollar, it was reflecting a record trade surplus and a collapsing import market.
Russia’s trade surplus is expected to normalize in 2023. In addition, the Finance Ministry is selling off yuan from the National Wealth Fund to smooth over volatility. In the coming months, there are plans to sell 74.6 billion rubles’ worth of yuan.
Why the world should care
In one of her first interviews as head of the Central Bank, Nabiullina said: “a strong economy has a strong exchange rate.” But it becomes difficult to talk of a strong economy when the currency is subject to 30% volatility. In the long term, this weakens the ruble’s payment and savings functions as economic agents set higher costs and postpone investments. And this makes the ruble less attractive as the world transitions to trade in national currencies.
