Anders Aslund on the Russian Economy

After forcefully savaging the Russian invasion of Georgia, controversial Swedish economist Anders Aslund lays out ten reasons he expects an impending economic collapse in Russia. Each point is sound, although some are more problematic than others.

Particularly cogent are the following Aslund points IMO:

4. Renationalization is continuing and leading to a decline in economic efficiency. When Putin publicly attacked Mechel, investors presumed that he had decided to nationalize the company. Thus, they rushed to dump their stock in Mechel, having seen what happened to Yukos, Russneft, United Heavy Machineries and VSMP-Avisma, to name a few. In a note to investors, UBS explains diplomatically that an old paradigm of higher political risk has returned to Russia, so it has reduced its price targets by an average of 20 percent, or a market value of $300 billion. Unpredictable economic crime is bad for growth.

5. The most successful transition countries have investment ratios exceeding 30 percent of GDP, as is also the case in East Asia. But in Russia, it is only 20 percent of GDP, and it is likely to fall in the current business environment. That means that bottlenecks will grow worse.

6. An immediate consequence of Russia’s transformation into a rogue state is that membership in the World Trade Organization is out of reach. World Bank and Economic Development Ministry assessments have put the value of WTO membership at an additional growth of 0.5 to 1 percentage points a year for the next five years. Now, a similar deterioration is likely because of increased protectionism, especially in agriculture and finance.


8. Oil and commodity prices can only go down, and energy production is stagnant, which means that Russia’s external accounts are bound to deteriorate quickly.

9. Because Russia’s banking system is dominated by five state banks, it is inefficient and unreliable, and the national cost of a poor banking system rises over time.
(Moscow Times via Robert Amsterdam)

As for all this leading to a Russian economic apocalypse, it should be noted that the accuracy of Aslund’s predictive powers leaves more than a little to be desired. I note that we’re still waiting for his prediction of a military coup against Medvedev to come true.

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