Russia In Conditions Of Financial Turbulence And Cumulating Chaos

Abstract

The paper characterizes global societal processes, including financial turbulence, spread of the coronavirus pandemic, struggle for leadership across the globe. It addresses hot buttons in the socio-economic development of Russia (GDP index, investments, damage from corruption and lack of management, social problems). The authors present an expert assessment of a modern crisis fallout and the comparison of the threats and opportunities of Russia in countering crises. There are new drivers of the economy – the defense industry, agriculture, and IT-industry, bringing billions of dollars in export revenues. A powerful material and technical base has been established, the financial system has been strengthened, and Russian society has been consolidated. Major challenges are as follows. A fierce struggle for leadership is being unfolded across the globe, in which the United States and the G7 are gradually losing their positions, their dollar-centric model of the economy is collapsing, and globalization is going into oblivion. They are being gradually replaced by China and other Asians with a synthetic model of governance and market mechanisms. Meanwhile, Russia continues to use Western models, as evidenced by the export of capital and a high volatility of the national currency. All in all, despite serious deformations in socio-economic development, Russia has every reason to cope with the crisis and make overdue alignment of its economic model.

Keywords: Financial turbulence, cumulating chaos, crisis, threats and challenges

Introduction

At present, the planet is undergoing truly tectonic changes: stock indices and stock prices have dropped sharply, oil markets have collapsed. The coronavirus pandemic has halted tourism, air travel, the entertainment industry, and manufacturing. Some researchers describe this situation as cumulating chaos. The authors have a similar point of view.

Nevertheless, even in chaos, cause-and-effect “chains” can be traced. The paper endeavors to identify them both globally and nationwide.

Problem Statement

With Russia’s entry into an open economy, its position began to be largely determined by geopolitical processes. Currently, these processes are becoming controversial and sometimes contradictory. Therefore, understanding these intricacies is one of the main national problems.

Research Questions

The subject under study is:

• Analysis of global societal processes (financial turbulence, spread of the coronavirus pandemic and its impact, reformatting of the global matrix, world conflicts). Evaluation of the major socio-economic problems in Russia (GDP rate, investment, poverty, social stratification, corruption).
• Identification of threats and challenges induced by the cumulating chaos for Russia (a drop in the GDP, incomes, unemployment). Assessment of Russia’s capabilities in countering the current crisis (the national welfare fund, gold and foreign exchange reserves, government debt, the state of society).

Purpose of the Study

The paper aims to assess the prospects for the development of Russia based on the analysis of world and domestic trends in socio-economic processes.

Research Methods

The study is based on the following methods: economic analysis, comparative analysis, logical moderation, calculation, expert assessments.

Findings

Based on a critical analysis of literary sources, the main vectors of modern societal processes determining the face of the globe are: financial turbulence, the coronavirus pandemic, reformatting of the global matrix, exacerbation of armed conflicts and trade wars. An expanded illustration of these processes is presented in Table 1. Its most crucial point is the fact that the United States and the G7 countries are gradually losing world leadership.

Today, the dollar-centric system is a pyramid scheme with a US national debt of over USD 26 trillion dollars and quadrillion derivatives. Its collapse threatens world civilization. The attempts to avoid this cataclysm involve the arms race, military conflicts, trade wars, etc. The question remains how far the United States and its satellites can go to maintain their leadership at any cost.

The coronavirus pandemic has further escalated the contradictions in the capitalist world. Insurance medicine collapsed, and the campaigns and principles laid down by the People’s Commissar Semashko showed their high efficiency. The global organizations of the EU, NATO and others did not come to aid their partners and allies. No other than China and sanctioned Russia have offered a helping hand.

In Russia, there are enough challenges even without a crisis fallout (Table 2).

Admittedly, the most crucial challenges are high rouble volatility, huge export of capital and corruption. Caused by corruption and deformations in the economy, the country loses annually half of the budget, and in just the years of the existence of the new Russia, several trillions of dollars were exported, which is about ten budgets of Russia.

Colossal poverty of the population (20 %) and social stratification still remain.

The rouble enormous volatility should be expressly indicated (Fig. 1), (Glazyev, 2020), which is several times higher in the context of oil-producing countries.

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Note: 1) standard deviation of a daily change in the exchange rate against the U.S. dollar, calculated for the period from 01/01/2020 to 03/25/2020; 2)* for the United States, the U.S. dollar index (DXY) is provided Source: Bloomberg, EEC calculations

Today, these challenges are supplemented with the impact of financial turbulence and cumulating chaos (Table 3).

According to experts’ forecasts, the GDP is expected to drop by 15–20 %, unemployment will rise by 10–15 %, and budget revenues will go down by RUR 2–4 trillion.

In this regard, the new Russia faced even worse times. During the local crisis, the GDP dropped threefold, the dollar against the ruble rose from 6 to 21. The unemployment rate reached 13.9 %.

Table 4 presents an assessment of Russia’s resources and capabilities in countering these threats and challenges.

According to some experts, the National Wealth Fund alone will last for 10 years. Besides this, there are huge gold and foreign exchange reserves – 5^th in the world, a relatively small government debt – 14.9 % of the GDP. There are also contributions from colossal natural resources, solid material, technical and financial bases, and, importantly, the consolidation of Russian society.

In modern conditions, it will be necessary to align the structure of export-import and use of hydrocarbons, to be engaged in domestic tourism, to pay close attention to a new driver – medicine and biology.

Conclusion

The study suggests that the major societal processes that determine the modern face of the globe are: financial turbulence, the spread of coronavirus pandemic, reformatting of the global matrix, trade wars, escalation of military conflicts.

China and the BRICS countries were found to be ahead of the United States and the G7 in world leadership, which indicates the collapse of liberal models and globalization and the viability of Asian models synthesizing public administration and market mechanisms.

The Russian economy is still in the wake of Western economic models, as evidenced by the enormous rouble volatility and the export of capital. Almost 20 % poverty of the population and great social stratification still exist.

Nevertheless, the course taken towards investment trends, import substitution, de-dollarization and deoffshorization, growth of the domestic market, reduction of hydrocarbon dependence, implementation of 12 national projects suggests that Russia has every chance of getting rid of liberalism “birthmarks”. The state threats and opportunities indicate good prospects not only for overcoming the culminating chaos, but also for further progressive development.

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