Russian Economy's Dependence on Oil Might Have Negative Consequences — Kudrin
Interfax - 4.9.12 - JRL 2012-66
MOSCOW. April 9 (Interfax) - Russia's former Finance Minister Alexei Kudrin says that a sharp drop in oil prices might cause a shock to the Russian economy and even mean a government change in the country.
file photo"The country has already gone through such a crisis in 1990 and 1998 driven by a drop in oil prices. This essentially ended with a change in all state authorities. This could happen again," Kudrin said in an interview published on the website of the newspaper Moskovsky Komsomolets on Monday.
He said that following the 2008 crisis, Russia moved to an absolute new level of oil dependence.
"I repeatedly warned about this and said if policy doesn't change I can't continue my work in the government. If the course was changed, it was only for the worst. This is exactly how I, for example, perceived the decision to boost defense spending sharply. The government will boost total budget expenditures by 4% of GDP over several years even though they need to reduce them. Under this dependence we now have the danger of economic shock in the future. And this danger is much higher than it was in 2008," Kudrin said.
"Oil prices are generally unpredictable. But a decrease to 60 dollars is likely and it might be even lower. Bearing in mind the current economic situation, problems for use start once it goes below 100 dollars. We would already experience a shock under 80 dollars. The state would be forced to cut expenditures sharply and this will impact on the economy for a second time. We boosted expenditures in 2008 and lightened the force of the crisis. But after a new shock will be forced to reduce them. We won't have our own resources and resources won't be provided to us on the global level. We will only be able to get by with our own resources for a year. If the decrease in oil prices is less (we will have) two years," Kudrin said.
"There's really bad news now from Europe. I am sure that key countries will be unable to deal with their debt problems. I believe that the maximum amount of funds from the European stabilization fund and European Central Bank funds will be tapped. And even with this, the debt crisis might not even be overcome. There then would be a difficult economic crisis, which might spread to other countries," Kudrin said.
Kudrin said that a financial crisis in Europe and capital outflow could have a negative influence on the Russian economy.
"Now three fourths of capital outflow from Russia is tied to the economic situation in the world. Funds, which once were invested in our country, are now being sold in order to mobilize resources for battling the crisis in Europe. But if we continue to worsen our economic position ourselves, we raise the risks. And (investors) will let go of our securities and assets even faster," the former minister said.
Keywords: Russia, Economy - Russia, Oil, Energy -