Russian Correspondent – Rouble Trouble

The rouble is devaluating so quickly that you don’t need to know much about economics to see what is going on and where it could lead. It is free falling and, as anything does when it gets a good taste of speed, it’s only going to go faster and faster. In the past four months I have been here the value of Russia’s currency has halved. The combined effect of the sanctions and the falling oil prices are like an avalanche, pushing the rouble into dangerous depths. It is a vicious circle, one step triggers another, and it is impossible to find the way out.

Since summer of this year, oil prices have started to fall as a result of new technologies and a lack of demand. Not all of the oil producing countries are suffering already, but some are in deep trouble. While Russia is not as chaotic as Venezuela, it is certainly facing difficulties – one might even say a crisis. As Russia’s main source of income is oil, the rouble responds to the slightest change in oil prices. What could help the rouble to get back on its feet is higher oil prices, which would be achieved if OPEC (Organization of the Petroleum Exporting Countries) would cut their production, thus letting the prices go up again. They have no intention in doing so. So, while people rejoice over cheap petrol, countries such as Venezuela and Russia are feeling the painful side to it.

Major credit rating agencies already rank Russia just above ‘junk’ classification. If the likely scenario of a downgrading happens, many investors will flee the country and thus even more money would leave. As part of the sanctions, Russian companies cannot borrow money from foreign banks. Foreign companies are already leaving. Clothing companies, such as River Island and Esprit announced their departure as early as September, blaming the falling rouble for their decision. Back then it was ‘only’ by 20% that the rouble has fallen against the dollar. Now it is 40%. The stores who decided to stay have had to hike up their prices. For a few days in December it was possible to buy an Apple product for technically half price, since the prices have not been adjusted to the weak rouble yet. Russians went on a shopping-frenzy, buying electronic appliances and changing their roubles into currencies that are more stable, thus saving whatever money they had. Many electronic appliances’ store reported record sales in December. People were stocking up on several imported products, from IKEA furniture to European medicines, before the prices would go up.

When I first arrived in Russia on the 1st of September, it was 62 roubles to a pound. Wednesday, 21st of January 2015, it was 98 roubles to a pound. There were days, when a rouble was worth less than a penny; on the 16th of December it was 107 roubles to a pound. The following day the Central Bank decided to raise the interest rates from 10.5% to 17%, but it had little effect on the falling rouble.

While my parents can be happy about cheaper petrol and that their daughter’s money suddenly doubled, Russians might have to say no to foreign products they have got used to or to travelling abroad. Many had to cancel their holiday plans for New Year since the prices doubled. Prices in the supermarkets are crawling up too. Not much – let’s say 10 roubles, maybe 20 – but if all the products go just a bit higher, a weekly grocery shopping will end up being significantly more than a few months ago.

The crisis Russia is experiencing now will cause long-standing problems and setbacks. And of course I agree with the general opinion that Russia deserves it. Yes, the sanctions are just and, well, the wrong timing of the oil prices is just more like karma. But, will they push Russia and most importantly Putin in the right direction? Will all those troubles that they are in for now convince them, that it is impossible to keep up such an aggressive behaviour? Will the devaluation of the rouble bring Putin to senses? I might be a pessimist, fearfully dreading drastic changes, such as a currency rapidly devaluating, but I highly doubt that masses of Russians, led by biased media would understand where their suffering is coming from. The fights are still going on in Ukraine, the ceasefire that was more theoretical than actual is only beginning to come into effect now. While on Tuesday, the Ukrainian media announced Russian troops were crossing the border and fighting on Ukrainian territories. This is not the direction Russia should be heading.

[Anna Molnar]

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