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Russia’s Economic Problems Fuel Discontent

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By William Tucker
Contributor, In Homeland Security

Insults and harsh words are common in politics. Yet there are times when certain comments gain inordinate attention because they reveal a deeper problem.

Several days ago, the president of the Russian Republic of Tartarstan called Moscow’s current economic plan “stupid.” He even went so far as to compare the plan to Stalin’s disastrous collectivization of the 1930s. Tartarstan President Rustam Minnikhanov’s candid comments are surprising, but they do demonstrate just how problematic is Russia’s economic situation.

Russia is facing dark times economically, so it is little wonder that Moscow has decided to scale back its involvement in Syria.

Russia Has a Robin Hood Approach to Regional Economies

At issue is Moscow’s plan to levy higher taxes on the more prosperous regions of Russia to fund other regions that are struggling because of the economic downturn. Moscow has also cut off subsidies to these profitable regions. Of the 83 regions in Russia, only 14 are doing well economically.

Protests have sprung up in several regions of Siberia as companies there have gone out of business. Siberians who are still employed haven’t received wages in three to four months.

Last fall, Prime Minister Dmitry Medvedev announced a pay cut for Russia’s educators, which prompted a backlash from the teachers. Medvedev’s response was to blame them for choosing a non-profitable profession.

Pensioners Feel the Pinch, but Not Russia’s Military

Pension payments, too, were halted. But the central government did move to correct that issue for the pensioners, albeit at a much lower rate than before the payments ceased.

Military members, on the other hand, haven’t suffered nearly as much. Russian President Vladimir Putin has made moves to further concentrate his power. He doesn’t need any retired military officers organizing anything that could resemble armed opposition.

Putin, of course, isn’t ignoring the situation. He addressed the economic disparity between regions and even went so far as to criticize several regional governments for not adhering to the debt rules established by Moscow.

In the long run, those actions won’t matter. These regions will still need money to pay their citizens and that money has to come from somewhere.

Financial Reserves Expected to Run Out This Year

Russia is also expected to exhaust its financial reserves some time in 2017. These reserves were flush with energy revenue just a few short years ago. Then oil prices tanked and have only recently shown modest gains.

Moscow can’t expect an improvement in the reserves financial situation anytime soon. Europe has now entered its 11th year of a financial crisis, which has put further pressure on Russia because its trade partners scaled back their imports years ago. The sanctions levied against Moscow for annexing Crimea have also played a role in strangling economic growth.

As if that weren’t enough, there are indications that the more profitable regions aren’t as strong as they appear. In Tartarstan, there is the problem of bank insolvency. The leading bank in the region, Tatfondbank, had to suspend customer operations to prevent a run on the bank. With the bank not allowing monetary withdrawals, several companies were not able to make their payrolls and had to scale back their operations.

Ultimately, the next decade represents a major test of how Russia will respond to the biggest problems its faced in recent memory.

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