Putin’s Wartime Woes Solving Russia’s ‘Trilemma’ in an Economy on the Edge!’ – Former Russian Official Dishes the Details
Ex-Russian Official Claims Putin is Confronting a 'Trilemma' in Fragile Wartime Economy of Russia
Russia’s economy appears to be booming even 21 months into the Ukraine war. But behind the scenes, Russian President Vladimir Putin is facing a tricky “trilemma” as the country’s economy heads into 2024, according to Alexandra Prokopenko, a former central bank official.
Prokopenko compares Putin’s management of the economy to navigating an icebreaker yacht – a skillful but precarious endeavor. The Russian leader has three key challenges to address.
First, Putin must keep spending on the war in Ukraine to maintain economic growth. The country saw a remarkable 5.5% GDP growth in the third quarter of this year, reversing a 3.5% decline from the previous year. However, this growth is mainly a result of war expenditures, meaning that once the spending stops, growth will significantly slow down or even halt altogether.
To curb inflation caused by economic growth, Russia’s central bank, on Friday, raised its key interest rate to a staggering 16% – the fifth consecutive hike. The high interest rates help tame wartime price raises.
Furthermore, Putin needs to maintain the illusion that he is still delivering on his promises, considering the upcoming presidential election in March 2024, in which he is expected to secure a fifth term. He has a social contract with the people, reassuring them that everything is going according to plan. Prokopenko describes the war as a “special military operation,” ensuring that people can continue with their lives as usual.
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Lastly, Putin must ensure macroeconomic stability after implementing extraordinary measures such as capital controls and breaking the country’s budget rule to support the ruble, which has been struggling. Abandoning these institutions would make it even more challenging for the financial leadership, the Kremlin, and Putin to deal with any future shocks.
While Putin’s administration has successfully maintained a façade of a thriving economy, official economic statistics are challenging to verify, and reports suggest that much of the growth is attributed to extensive military and government spending. Igor Lipsits, a prominent Russian analyst, even stated that “the real situation is bad” for the country’s economy.
Prokopenko points to another quantitative signal indicating the fragility of the Russian economy – the expected double-digit key interest rate for next year. This shows that the economy is not in a healthy state. In a thriving and sustainable economy, such costly money would not be necessary.
In conclusion, Putin’s management of the Russian economy is akin to maneuvering an icebreaker yacht, where even the slightest wrong move can have severe consequences. Despite the seemingly vigorous performance, there are underlying challenges that he must overcome, from maintaining economic growth through war expenditures to preserving macroeconomic stability and managing public expectations. The true health of Russia’s economy remains a matter of speculation, leaving room for skepticism.
