Russia: Russia is fast losing its new-found friends. When oil was trading at around $40 a barrel last December, Moscow embarked on a charm offensive to get closer to the Organisation of Petroleum Exporting Countries. It pledged to go along with the cartel's plans to cut oil production with a view to shoring up prices. Less than a year later, Russia has instead supplanted Saudi Arabia as the world's top oil exporter and is selling all the oil it can to take advantage of prices at $70 a barrel. Opec members understandably aren't amused.
Moscow's flip-flopping oil policy smacks of desperation. The government needs cash because it is pumping rubles into a sharply-contracting economy at a rapid pace. Russia's GDP is expected to contract by some 8% this year. Investment is in free fall. Consumption is suffering a severe slowdown. Government spending seems to be the only economic engine still running.
Meanwhile, Russia’s central bank is trying to counter the government's inflationary policies by some kind of monetary discipline strangely dubbed the "sterilisation" of those extra rubles. This in turn runs the risk of worsening the problems of the banking system, which is facing a rising tide of bad loans. Russia amassed rainy-day funds during the boom years, but they are depleting fast. The rise in the oil price has helped the Bank of Russia keep its foreign reserves steady since the beginning of the year, after they shrunk by one-third in 2008. Those reserves will decline again if oil prices head south.
True, there are some signs that the severe recession is beginning to bottom out, and the monthly GDP contraction rate is slowing down somewhat. But it looks like 2009 is shaping up as a year of lost opportunities for Russia, with the government desperately clinging to oil sales as its main macro-economic tool. Little progress has been made on the path to diversification away from what basically remains a commodities-dependent economy. And the government seems to have all but forgotten its pledges to radically restructure the banking system. All that's left now is finger-crossing – in the hope that oil prices won't tank.