iet-union-collapsed/ar-BBhoaXX
The Russian ruble is collapsing, reaching fresh historical lows on a daily
basis. At the same time, oil prices are heading even further into the floor
— the price of oil is down nearly 50% in the past six months.
The currency's fall has crossed the line from a headache to a full-blown
crisis. A massive interest hike Monday night from the Central Bank of Russia
(to 17% from 10.5%) barely held off the ruble's fall for a couple of hours.
It's raising memories of previous collapses in Russia, like the 1998
financial crisis. But for some, it's more like the 1980s oil glut that
eventually brought down the Soviet Union.
Here's Yegor Gaidar writing for the American Enterprise Institute seven
years ago. He was Russia's acting prime minister between 1991 and 1994,
years of extreme economic pain for Russia.
He describes the starting point of the USSR's collapse:
The timeline of the collapse of the Soviet Union can be traced to September
13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of
Saudi Arabia, declared that the monarchy had decided to alter its oil policy
radically. The Saudis stopped protecting oil prices, and Saudi Arabia
quickly regained its share in the world market. During the next six months,
oil production in Saudi Arabia increased fourfold, while oil prices
collapsed by approximately the same amount in real terms.
Sound familiar?
It should. OPEC, the group of oil-producing nations, failed to agree to a
cut in output (the usual response to falling prices) this November.
Statements from the Saudi oil minister and other officials have suggested
that the country, and the other gulf states, are happy to let prices slide.
That leaves countries like Russia in a perilous position.
In the late 1980s, the Soviet Union was forced into an embarrassing scramble
for money. It tried to make deals with numerous banks, but the funding
offered was far smaller than what the country required. Food shortages
worsened, and Moscow needed the help of governments in the West, for which
the USSR effectively had to allow Eastern European countries to assert
independence.
Writing in 2007, Gaidar warned against the consensus that oil prices would
stay high:
What lessons can we learn from the Soviet collapse and apply to the current
situation in Russia? First, we must remember that Russia today is an
oil-dependent economy. No one can accurately predict the fluctuations of oil
prices. The collapse of the Soviet Union should serve as a lesson to those
who construct policy based on the assumption that oil prices will remain
perpetually high. It would seem that in our country, which has lived through
the collapse of the late 1980s and early 1990s, this fact would be evident.
But as soon as the prices went up again at the beginning of 2000 and in 2004
became comparable in real terms to those at the beginning of the 1980s, the
idea that “high oil revenues are forever” has gained an even wider
acceptance.
Russia today isn't the same top-down, command-and-control economy that it
was in the 1980s, but the dynamic hasn't changed entirely. The country is
still hugely dependent on oil, particularly in terms of tax revenues and
exports.
And Gaidar thinks the collapse of the Soviet Union is still relevant for
modern Russia:
One more lesson that is relevant for Russian politics today is that
authoritarian regimes, although displaying a façade of strength, are fragile
in crisis. In conditions of relative stability, society is prepared to
tolerate the lack of real elections. People are prepared to come to terms
with this situation as an inevitable and habitual evil. But they will do so
only until the country encounters a serious challenge, requiring decisive
and tough measures in order to adapt to unfavourable conditions.
Russian banks are watching their share prices go through the floor Tuesday.
The Soviet Union may be over, but the falling oil price still poses a debt
challenge for Russia. This time, its banks are more likely to take the heat.
No comments:
Post a Comment