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Russia readies for long economic struggle

Friday, January 30, 2015

Significance

The currency, which has fallen 14% against the dollar so far this year, fell another 3% in morning European trade, sinking below 70 to the dollar. The rate cut comes after the January 26 downgrade by international ratings agency Standard & Poor's (S&P) of Russia's sovereign credit rating to junk status (from BBB- to BB+) and the January 28 announcement of an economic plan that will see the government spend 2.34 trillion rubles (35 billion dollars) to bolster key industries, including banks, and to boost its troubled economy particularly in the regions. As part of the measures, Moscow plans a 10% cut in the budgets of all but a handful of ministries. Defence, agriculture and social spending are spared.

Impacts

  • Discussions between liberals are not as important to economic policy as they were.
  • Further measures to boost the economy are likely in order to forestall more rating agencies downgrading Russia to junk status.
  • The Security Council will exert greater influence over economic policy, further marginalising economic liberals.
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