Adam A. Blanco’s Post

Potential fall of Krasnoarmeisk to deal heavy blow to Ukraine’s economy — media According to the media outlet, Russia’s offensive in the area "threatens to finally topple the city of Pokrovsk - and that carries both military and economic risks" WASHINGTON DC, October 12/ The Ukrainian economy will suffer a major blow if Kiev’s forces lose control of the town of Krasnoarmeisk (called Pokrovsk in Ukraine) in the Donetsk People’s Republic, Foreign Policy magazine writes. According to the media outlet, Russia’s offensive in the area "threatens to finally topple the city of Pokrovsk - and that carries both military and economic risks." "The city is the source of most of the coal used for the country’s steel and iron industry, once the backbone of the Ukrainian economy and still its second-largest sector, though production has fallen to less than one-third of its pre-war levels," Foreign Policy notes. "Without steel plants, the Ukrainian economy will die. It is a very, very important part of the economy," Stanislav Zinchenko, chief executive of GMK Center, a Ukraine-based industrial consultancy, said, as cited by the magazine. "A healthy steel industry also pays a big share of Ukraine’s tax take, helping fund an economy that operates hand-to-mouth these days," the media outlet points out. Earlier, the General Staff of the Ukrainian armed forces admitted that the situation remained tense in the area. #business #finance #financialservices

With the beginning of the Russian-Ukrainian war, the Russian authorities increasingly began to intervene in the economy, strictly regulating prices, which, on the one hand, helps in the short term to keep inflation within limits that the government considers more or less acceptable, on the other hand, creates known risks of transformation of the economy, which, although with some significant reservations, was still considered a market economy, into a Soviet-type national economy with its command-administrative methods of management. According to what was developed by the Federal Antimonopoly Service (FAS), this time the state will take on the role of a businessman and will determine the economic justification of the price. At the initiative of the FAS, the concept of “economically unreasonable price” will be enshrined at the legislative level. Those who remember the economy of the country during the Soviet period or studied it from textbooks and scientific works remember what constant strict price regulation entails – scarcity. Of course, it is still too early to talk about the emergence of a deficit in the economy, but the fact that the Russian Federation is gradually taking the path of a gradual return to the Soviet type of economic management is becoming more and more difficult to deny every day.

Far from the glittering glass skyscrapers, sprawling boulevards, and swanky restaurants of Moscow and St. Petersburg, out in Russia’s often neglected regions, something important is happening. There’s the toll of death and mutilation for hundreds of thousands of Russian men sent off to fight in the war against Ukraine. Poor regions like Tyva, Buryatia, and Chuvashia have suffered disproportionately. But men keep signing up to fight, drawn by extraordinarily high wages. That also goes for well-above-average wages at defense factories working full-tilt to churn out tanks, guns, bullets, and other gear. And those wages — plus death benefits for widows and children, and compensation for the wounded — are flooding into regions, fattening bank accounts, and jolting local economies in a way not seen possibly since the Soviet collapse — this time for the better. “There is a restructuring ongoing, from west to east,” said Ekaterina Kurbangaleeva, a Russian political scientist now living outside the country. “The country has undergone a major restructuring…turning to the east and that’s where the streams [of money] are flowing.” “The two-headed eagle, it’s now beginning to look in a different direction,” she said in an interview, referring Russia’s state emblem. “Some sectors and some regions have been winners in Russia’s new war-oriented economy,” according to a paper published last month by the London-based Center for Economic Policy Research. “This is especially true for some of Russia’s poorest regions, where the war has offered many people upward social mobility that was not available in the preceding decades of Russia’s reintegration into [the] global economy.” What’s resulted isn’t just economic. It’s also political, buttressing support for the war despite the toll: more than 315,000 dead and wounded, according to U.S. estimates. British estimates put the toll closer to 500,000. And for Russians who revile the millionaires who emerged overnight in the chaotic 1990s or those who have benefited less from the growth in prosperity in the 2000s, it’s added to a sense of righting past wrongs. “A large-scale redistribution of resources in favor of the less well-off has prompted a widespread shift in perceptions of justice for the first time since 1990,” Denis Volkov, the director of the Levada Center polling organization, wrote. Peace, Land, And Bread During his 25-year tenure, President Vladimir Putin built his popularity in large part on the prosperity the country saw in the 2000s, as Russia expanded its oil and gas exports and rode the wave of high global prices. The growth created a genuine middle class, but the prosperity was uneven, largely concentrated in the country’s traditional centers of wealth, Moscow and St. Petersburg, and to a lesser degree in regional cities like Yekaterinburg or Novosibirsk. The Kremlin stuffed its national “rainy-day fund” coffers with excess

“Russia’s state spending drives growth, and currently the war is dictating this spending. Government spending is set to rise by half by the end of the year compared to 2021. In 2022, the first year of the war, fiscal spending jumped by a quarter, more than double the inflation rate, to just over 32,000 billion roubles. The government increased its spending by 4 per cent in 2023 and will top it up with another 4,000 billion or so roubles (approximately 12 per cent) this year. Adjusted for inflation, this is a 14 per cent rise between 2021 and 2024. It is this colossal spending boost which is fuelling Russia’s evolving war industry. Russia’s direct military spending almost tripled as a share of GDP to 6 per cent from 2.7 per cent in 2021, the last year when it was kept roughly in line with the two decades’ average of 3 per cent. Taking into account classified expenditure, payouts to war widows and war-related spending in the occupied territories of Ukraine, the true share of GDP is undoubtedly higher.”

In a centrally planned economy, the absence of market prices made it difficult for planners to allocate resources efficiently.  In the Soviet Union, planners had no market prices to guide them in planning production, leading to misallocation and waste.  This resulted in shortages of essential goods and overproduction of less important items.  Central planners often made decisions based on political considerations rather than economic efficiency.  This led to the misallocation of resources.  The Soviet Union prioritised military spending over technological innovation and entrepreneurship, which hindered economic development.  Centralised control led to bureaucratic inefficiencies and corruption.  For instance, the Soviet economy experienced a long period of stagnation starting in the late 1960s, known as the Era of Stagnation, which was characterised by outdated production methods and poor quality goods. Many communist economies experienced periods of stagnation.  In the Soviet Union, economic growth slowed significantly in the 1980s, with large budget debts and food and consumer goods shortages.  The economy was relatively backwards, with outdated factories and mines.  The suppression of political dissent and lack of individual freedoms stifled creativity and innovation.  In the Soviet Union, the state lost media control and democratic reform movements grew throughout the Soviet bloc.  The population was tired of widespread corruption and dissatisfied with the police state and censorship. The global economic environment and external pressures, such as trade embargoes and geopolitical conflicts, also played a role in the failure of communist economies.  The Soviet Union’s economy was vulnerable to external events, including the March 1986 oil price drop, which significantly reduced its income.  The collapse of the Soviet Union in 1991 marked the end of one of the largest communist economies.  The economy was in a state of decline, with large budget debts and shortages of essential goods.  The East German economy struggled under centralised planning, leading to economic inefficiencies and a lack of innovation.  Cuba’s economy has faced challenges due to centralised control and a lack of market mechanisms, resulting in shortages and inefficiencies. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

In a centrally planned economy, the absence of market prices made it difficult for planners to allocate resources efficiently.  In the Soviet Union, planners had no market prices to guide them in planning production, leading to misallocation and waste.  This resulted in shortages of essential goods and overproduction of less important items.  Central planners often made decisions based on political considerations rather than economic efficiency.  This led to the misallocation of resources.  The Soviet Union prioritised military spending over technological innovation and entrepreneurship, which hindered economic development.  Centralised control led to bureaucratic inefficiencies and corruption.  For instance, the Soviet economy experienced a long period of stagnation starting in the late 1960s, known as the Era of Stagnation, which was characterised by outdated production methods and poor quality goods. Many communist economies experienced periods of stagnation.  In the Soviet Union, economic growth slowed significantly in the 1980s, with large budget debts and food and consumer goods shortages.  The economy was relatively backwards, with outdated factories and mines.  The suppression of political dissent and lack of individual freedoms stifled creativity and innovation.  In the Soviet Union, the state lost media control and democratic reform movements grew throughout the Soviet bloc.  The population was tired of widespread corruption and dissatisfied with the police state and censorship. The global economic environment and external pressures, such as trade embargoes and geopolitical conflicts, also played a role in the failure of communist economies.  The Soviet Union’s economy was vulnerable to external events, including the March 1986 oil price drop, which significantly reduced its income.  The collapse of the Soviet Union in 1991 marked the end of one of the largest communist economies.  The economy was in a state of decline, with large budget debts and shortages of essential goods.  The East German economy struggled under centralised planning, leading to economic inefficiencies and a lack of innovation.  Cuba’s economy has faced challenges due to centralised control and a lack of market mechanisms, resulting in shortages and inefficiencies. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

Following Russia's recent military embarrassment and the impact of numerous sanctions, few anticipated that its economy would remain so robust. Yet, with GDP projected to grow by 3% this year and unemployment near historic lows, Russia's economy is showing surprising resilience. Despite external pressures, the country's economic performance has defied expectations, highlighting several positive aspects amid the ongoing challenges. But what explains the turnaround? Many are tempted to credit exports, particularly oil, but recent performance has been far from record-breaking. In fact, this economic resilience is largely driven by aggressive fiscal and monetary policies. The government has abandoned austerity, running a budget deficit to fund war efforts and domestic spending, including military bonuses and infrastructure projects. Simultaneously, the central bank's high interest rates have attracted foreign investment and kept inflation in check, while government interventions have mitigated the impact on consumers and businesses. However, the sustainability of the Russian economy currently is questionable. The war's progression, continued rouble weakness, and potential depletion of financial reserves could eventually lead to economic challenges, but for now, Russia's economy remains unexpectedly strong. Vladimir Putin spends big—and sends Russia’s economy soaring https://lnkd.in/gPfJmJNY from The Economist

In a centrally planned economy, the absence of market prices made it difficult for planners to allocate resources efficiently.  In the Soviet Union, planners had no market prices to guide them in planning production, leading to misallocation and waste.  This resulted in shortages of essential goods and overproduction of less important items.  Central planners often made decisions based on political considerations rather than economic efficiency.  This led to the misallocation of resources.  The Soviet Union prioritised military spending over technological innovation and entrepreneurship, which hindered economic development.  Centralised control led to bureaucratic inefficiencies and corruption.  For instance, the Soviet economy experienced a long period of stagnation starting in the late 1960s, known as the Era of Stagnation, which was characterised by outdated production methods and poor quality goods. Many communist economies experienced periods of stagnation.  In the Soviet Union, economic growth slowed significantly in the 1980s, with large budget debts and food and consumer goods shortages.  The economy was relatively backwards, with outdated factories and mines.  The suppression of political dissent and lack of individual freedoms stifled creativity and innovation.  In the Soviet Union, the state lost media control and democratic reform movements grew throughout the Soviet bloc.  The population was tired of widespread corruption and dissatisfied with the police state and censorship. The global economic environment and external pressures, such as trade embargoes and geopolitical conflicts, also played a role in the failure of communist economies.  The Soviet Union’s economy was vulnerable to external events, including the March 1986 oil price drop, which significantly reduced its income.  The collapse of the Soviet Union in 1991 marked the end of one of the largest communist economies.  The economy was in a state of decline, with large budget debts and shortages of essential goods.  The East German economy struggled under centralised planning, leading to economic inefficiencies and a lack of innovation.  Cuba’s economy has faced challenges due to centralised control and a lack of market mechanisms, resulting in shortages and inefficiencies. (Continued) Terence Nunis Terence K. J. Nunis, Consultant Chief Executive Officer, Equinox GEMTZ

"There are two economies in Russia. The war economy sees rapid growth. The civil Russian economy is in full collapse. In my opinion, many people mistake the Russian economy for a “normal economy.” The war economy saw 40 percent growth in the first half of the year. This growth has slowed down, but it is still tremendous. The civil economy has crashed, given this meager growth of 3 percent overall. Elvira Nabiullina talked about the transformation of the Russian economy. From a civil economy to a war economy Russia clearly fired up old Soviet plants that produce weapons, missiles, and ammo. Everything that’s produced is then used up in Ukraine. This war economy can also be called a one way economy. The civil economy declined tremendously. In November alone, the agriculture industry declined by 23.9 percent. Year on year, it declined by 2 percent. There are shortages of eggs, gasoline, diesel fuel, chicken meat, and other items. Most industrial and infrastructure projects have been frozen or stopped. Manufacturing of consumer goods, private cars etc. has crashed. Instead, Russia has to rely on imports paid for in dollars. No one needs rubles to buy things. According to the manipulated data of Rosstat, the inflation in Russia is sitting at 8.5 percent. Experts believe that the inflation is sitting in between 16.5 to 25 percent. Some others, me included, think that for certain goods, it is even higher than that. The war economy is directly to blame for this situation. Nothing is produced for civilians. All of the war production is going to Ukraine. The interest rate in Russia sits at 16 percent, which will make taking out loans very difficult. The only investor left is the Russian government. Konstantin thinks the number of those that fled Russia is close to 3 million people. On top of that, there are also enormous war casualties. Russia’s higher than expected oil revenues are the main reason why the Russian civil economy hasn’t completely collapsed. Still, Russia’s rainy day fund is depleting rapidly. Konstantin states that only 4 trillion rubles (40 billion dollars) are left in the national welfare fund. In my opinion, the Russian economy is in a much worse shape than some analysts are misled to believe. It is very likely that Russia covers up the real damage that was done. These incidents are only the beginning. This will get a lot worse. The Tsar, his boyars, and the war economy will ensure that the Russian middle class will cease to exist. Unless Russia retreats from Ukraine, the Russian empire is likely headed towards its third collapse within a century I would be surprised if the Federation doesn’t collapse within this decade. The Russians and their Tsar continue to pay dearly for their barbaric venture against Ukraine."

Russia could keep the war going by switching to a planned economy, University of Jamestown senior research fellow Pavel Luzin tells #ERR in an interview. He finds the war in #Ukraine to be one of storage facilities, with Russia pulling weapons out while not being able to replace them. ▪ Russia's budget for this year has 35 trillion rubles on the revenue and 36 trillion rubles on the expenses side. Can we trust those figures? We may trust these numbers, but we can be sure that this budget will be changed several times during the year. They just don't know this. And they will change the budget. And especially, of course, they will change it in terms of the national defense part of the budget and national security and law enforcement. We saw this in 2022-2023 because the parameters of those budgets, they have been changed several times during 2022-2023. We don't know the final numbers. And the government doesn't know the final numbers. And Vladimir Putin doesn't know the final numbers. ▪ What should we expect? A third of GDP is currently aimed at the war. Will we see its relative importance grow this year? Yes, it's possible that it will increase even more than the current 10 trillion and 800 billion rubles. It depends not only on the battlefield situation but also the exchange rate of the ruble. Because the Russian military industrial complex still depends on imported components, imported equipment, machine tools, I mean. So if there will be a further devaluation of the ruble, the government will need to recalculate the budget. ▪ Where will the government find the money? Will it be taken from social services? You know, I'm not a fan of this approach when, you know, people try to count the vast spending as a bookkeepers. We should look at previous experience. During the last two years, the Russian government, the Russian central bank, Bank of Russia, they just created trillions of new rubles from nowhere. The government can use anything, including hike taxes. They will increase additional payments, so-called single payments from business, for instance, when the government calls the big corporations and says, guys, we need two trillion rubles. We don't care where you find them. The same is true on the regional level. When governors call local businesses and say, guys, I need money. You must give me money and I don't care where you get it. ▪ But how long can the Russian government fund the war in this way? Russia's ability to continue the war does not depend on money. It depends on political will and that of the people. If you remember ISIS. They fought for four years without having any money. They just had the will to fight.