WASHINGTON, Feb. 4 (UPI) -- It has become commonplace for Western commentators to assert that Russia's new military exercises, aggressive air patrols and far-flung naval cruises portend a return to a Soviet-style foreign policy and superpower ambition.
That could be a classic example of the conventional wisdom being wrong. The latest U.N. Development Program report on Russia's demographics, based on the birthrates of the last decade, suggests the country's numbers of young males of military age are set to halve after 2020.
Russia's current economic woes, its unemployment doubling in six months and its exchange rate tumbling against the euro and the dollar reinforce the impression that the Kremlin's current ambitions are way beyond its capabilities.
Indeed, a new study by Nikita Krichevsky of Moscow's Higher School of Economics argues that the current Russian economy is considerably less successful than the old Soviet one. It has become far more dependent on exporting raw materials and far less successful at exporting value-added products.
"In 1988, the proportion of exports from the (Soviet Union) of oil, gas and electric power amounted to 42.1 percent, and according to the provisional 2008 results (this had risen to) 65.9 percent," Krichevsky writes in Saturday's issue of the Moskovsky Komsomolets newspaper.
"Twenty years ago, the (Soviet Union) was actively exporting machinery ... means of transport, chemical products, industrial goods and much else. Modern Russia cannot boast of this," he added.
The old Soviet Union did a better job of providing housing, erecting more than a million new apartments in 1980, but only 721,000 in 2007, the peak of Russia's construction boom. Not that it benefited everybody; Krichevsky notes that "only 2 percent of Russian families were able to avail themselves of a mortgage."
The fall in the oil price and the consequent economic downturn has hit Russia hard. A survey of Moscow's consumer markets by the daily newspaper Noviye Izvestia reported this week that city dwellers have cut their food budgets by 10 percent to 20 percent since the start of this year. Russia's media are full of such reports. The Bashkirova polling firm says 40 percent of low-income groups are changing their diets. Ekho Moskvy radio talk shows get callers saying they have stopped buying precooked and frozen meals.
Russia has lost some $200 billion from its reserves, through a combination of capital flight, the cascading decline of the ruble and special loans to its troubled companies. Krichevsky suggests this process could become catastrophic. Prime Minister Vladimir Putin, in his speech to the World Economic Forum in Davos, Switzerland, declared the Kremlin was determined to support the country's economic champions: "If necessary, we will help them and are already helping them to refinance their debts and to refinance their debt service obligations, primarily to foreign lending institutions."
Krichevsky argues that Russia still commands some $386.5 billion of foreign currency reserves and foreign securities. But he argues that the state's budget deficit and its welfare obligations will consume some $225 billion of this, and that $40 billion of the remainder already has been promised by the government to bail out the banking system.
That leaves $120 billion in state funds, but Krichevsky calculates that "Russian enterprises and banks will in the next 18 months have to pay out altogether $171.7 billion."
"By next year, the country's international reserves could have dried up," he concluded.
This is a deeply gloomy picture, and while government economists can quibble with some details of the argument, Krichevsky's perspective is broadly right. The bottom line is that Russia is running through its reserves faster than it built them up.
Nor can Russia's finances expect much help from the most famous of its national champions, the Gazprom energy giant, which is beginning to look like a bubble all by itself.
"From 2004 through 2008, Gazprom's operating costs grew three-fold; its debts rose four-fold and its market capitalization grew ten-fold," he notes. "But the average annual increase in production amounted to only 1.35 percent."
One key symbol of the financial crisis is the dizzying rise in interest rates. Since October 2008 the interest on a three-month ruble loan has more than tripled, from 9.1 percent to 28.3 percent. Another key statistic for the Russian economy is energy production, and in January oil output fell to 9.7 million barrels a day, a 1 percent decline on the year. Less oil, fetching a far lower price on world markets, is an ominous trend. At the same time, gas output fell by more than 10 percent in January because of the price row with Ukraine.
Krichevsky is not alone in his concern. The weekly Novaya Vremya reports that President Dmitry Medvedev at the end of December met a group of the country's leading economists who warned that the country faced "a looming catastrophe and that measures undertaken by the government were not sufficient."
Medvedev forwarded a report on their argument to Putin, who declined to take them seriously, seeing this as a power grab by Medvedev or, in Novaya Vremya's words, "as an attempt to take management of the economic crisis out of his hands."
Other parts of the government seem rather more concerned. Economic Development Minister Elvira Nabiullina last week indicated that the official forecast of economic growth at 2.4 percent for this year had been scrapped, telling a forum: "We should reconsider forecasts of Russia's social and economic development. Most likely, these will show a decline."
The Russian public seems to agree. In December, 23 percent told the opinion pollster VTsIOM that the global economic situation was critical; in January, that number almost doubled to 43 percent. And only 11 percent thought "the government's anti-crisis plan is commensurate with the situation and should bring about positive results in the near future." Andrei Sizov, executive director of the SovEkon analysis group, said, "The producers of meat have proved the hardest hit."
