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RUSSIA The paradoxes of Russian finances in support of Putin

Inflation in the country remains at around 8-9%, far from the 4% target set by the head of the Russian Central Bank, Elvira Nabiullina. But precisely by showing her limits, the economist is allowing a rationalisation that would otherwise risk blowing up the Russian war machine from within.

Moscow () – Russian Central Bank Chairwoman Elvira Nabiullina’s attempts to combat rising inflation are failing, as was to be expected given the involvement of the entire Russian economy in the war. The paradox is that it is precisely these failures that provide President Vladimir Putin with the guidelines for organizing military actions, indicating to him the limits that must not be exceeded.

Nabiullina’s goal is to keep inflation below 4% per year, and her competence is questioned not only within Russia but also by international experts. In Politico’s ranking for 2023, she is given the title of the main disruptor, the “economic destroyer”, in the sense of “the main technocrat capable of running Putin’s war machine”, creating an unprecedented dynamic of liveliness in the world of Russian finance, accompanying military investments.

Inflation soared above 11% in 2022 after the start of the special military operation, and there were unsuccessful attempts to keep it at 6-7% in 2023 and bring it down to the desired level this year, but so far these targets have not been met, remaining at around 8-9%. The forecasts were slightly revised, indicating a target of 4.3-4.8% by the end of the year, but a further upward correction is expected soon. According to the most pessimistic experts, inflation could even reach 15-20%.

At the same time, the current interest rate is already very high (16%), and could be raised to 17-18%, in an attempt to achieve increasingly unrealistic targets even by 2026-2027. Logic seems to be trampled on in this maelstrom, in which Putin’s economists continue to fail in their objectives and repeat corrective measures that do not yield any results, without being reprimanded or replaced, as if everything had to be this way. Nabiullina, after all, has been at the head of the Central Bank since 2013, and has already accumulated considerable experience of victories and defeats in this ups and downs of the Russian economy.

After the financial collapse in 1998, consumer prices soared for a couple of years, then slowed down at the start of the Putin era, whose first decade was stable at around 10% inflation, falling to 6% in 2011-2013. The start of the conflict with Ukraine in 2014, and the first waves of sanctions against Russia, led to a significant drop in oil prices; the ruble began to fall, severely damaging imports and increasing inflation to 12% per year. Against this background, the new head of the Bank prepared to overcome the difficulties in a short period of time, not realising the slope that Russia was heading towards.

In the five-year period 2016-2020, Nabiullina managed to keep control over the “magic” figure of 4%, but from 2021 everything was thrown into disarray by the pandemic, and then by the war. The gigantic investments in the military industry (+5.2% in the first quarter of 2024 alone) are struggling to be reflected in consumption and in the goods necessary for civilian life, creating an effect of internal stagnation. Based on banking signals, Putin and Finance Minister Anton Siluanov are orienting themselves in the management of military expenditure, trying not to fall below thresholds that would make life prohibitively difficult for society. In short, by showing the limits, Nabiullina allows a rationalisation that would otherwise risk blowing up the war machine itself from within. The more the economists fail, the less the military will fail, in a true “reverse economy” based solely on Russia’s state of permanent war, against itself and against all its enemies.

Photo: Flickr / Robert Yusupov



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