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Opinion
December 1, 2017 www.intellinews.com I Page 22
FPRI BEAR MARKET BRIEF: MinFin Impossible – Russia’s self-inflicted regional debt crisis
Chris Jarmas in Moscow
Domestic policies in Russia can sometimes
feel immune to change – until Vladimir Putin intervenes, that is. At a late-October meeting
with government officials, Putin again voiced
his concerns about growing debts on regional balance sheets. Turning his attention towards regions in which debt substantially exceeds annual revenues, Putin cautioned, “At this level
of debt, regions will not be able to effectively deal with the challenges of development.” Worse yet, failing to address sub-sovereign indebtedness stands to “lead to serious financial imbalances” between the regions. Putin is right to pay attention to domestic fiscal problems – especially as the March 2018 presidential election approaches. But this is a case of “too little, too late” and obscures that federal government policies sparked the regional debt boom in the first place.
As the Russian economy lurched into stagnation in late 2012, then tumbled downward as low oil prices and Western sanctions combined in 2014 to slash tax revenues, the Kremlin was busy pressuring ill-resourced regional governments to boost expenditures. Within hours of his
third inauguration, Putin delivered on populist campaign promises and unleashed a program which included, among other costly endeavors, a decree mandating that public-sector salaries be increased by 50% by 2018. Regional governments were tasked with executing the orders, known collectively as the May Decrees, but were not provided adequate funds to do so without turning to commercial banks for high-interest loans. Total regional debts have increased fivefold over the last decade, but consolidated figures mask an even more dire reality in many regions. Mordovia’s
While the federal level economy is starting to recover, some regions are falling deeper into debt. The cash strapped centre is no longer able to bail them out.