Russia's Economy Is Going Down the Abyss: Oligarchs Have Found a "Scapegoat," and It's Not Putin
Date: 2024-12-19 Author: Кирило Загоруйко Categories: ECONOMY
For more than two years, Russia's war economy has fueled consumer spending and increased corporate profits. Recently, the war has driven up inflation and interest rates, hurting corporate profits.
The Wall Street Journal reports that rather than blaming the war for the hostile business environment, Russia's business elite is blaming the head of the central bank. Elvira Nabiullina, in an attempt to curb inflation, has raised the key interest rate to a record high, causing borrowing costs to skyrocket.
"The elite is fighting for survival, and while they remain loyal to Putin, discontent is growing," says Alexandra Prokopenko, a former employee of the Russian central bank. "Nabullina has become a convenient target."
Russia’s benchmark interest rate is set at 21%, and the central bank is expected to raise it again on December 20, but inflation remains high at around 9%. A sharp rise in butter prices has led to thefts from supermarkets. Vodka prices have also jumped.
In the executive suites of Russian companies, where interest rates and inflation are rising simultaneously, margins are shrinking as costs rise. MTS, Russia’s largest mobile operator, recently attributed a nearly 90% drop in third-quarter net profit to rising interest-related expenses. Rosneft, Russia’s largest oil producer, said last month it would be forced to delay upgrades to its refineries, citing high interest rates.
Fears of a wave of bankruptcies are also growing. More than 200 shopping malls in Russia are at risk of bankruptcy due to mounting debt, according to an industry association. Almost a third of Russian freight carriers said they feared bankruptcy in 2025.
Sergey Chemezov, who heads Russia's state-owned defense conglomerate Rostec, called interest rates "a serious brake on further industrial growth."
At the same time, oligarch Oleg Deripaska, earlier this year demanded that the "enslaving" rate be lowered to 5% so that the country "could breathe."
Amid the growing backlash against Nabiullina, some are calling for her resignation. Putin has remained on the sidelines, urging business leaders to look beyond monetary policy.
"The economy is about more than interest rates," he said.
Observers say the Russian president, who remembers the deep economic crisis of the 1990s, when inflation soared, is likely to prioritize price stability.
"Nabiullina has Putin's full support. She could even push the Russian economy into recession if she needs to control inflation," says Janis Kluge, an economist at the German Institute for International and Security Affairs.
"Russian businesses and bureaucrats work with an extremely short planning horizon," says Prokopenko. "If they had a roadmap for, say, 2026 or 2030, they might be willing to tolerate short-term difficulties, including Nabiullina's policy of reducing inflation. But without such a long-term perspective, frustration is growing."
