As the International Economic Forum in St. Petersburg comes to a close, business leaders from around the world ponder over whether Russia’s political leadership is as invested as it says it is in stimulating the country’s economy. Political analysts, meanwhile, continue to scuffle over ostensible squabbles within the ruling elite and how the upcoming presidential elections will affect Russia’s future.

On the other side of the globe, Russian opposition leader Garry Kasparov appeared before United States congressional leaders on Friday to explain that Russia’s economic and political situation need to be seriously considered in an entirely different light.

Fred Hiatt from the Washington Post writes:

He is the greatest chess player of his generation, but when asked to predict Russian leader Vladimir Putin’s next move, Garry Kasparov demurs.

“When you play chess, you have rules,” Kasparov told a few of us during a visit to The Post Thursday. “He can change the rules whenever he needs.”

Still, Kasparov isn’t reluctant to offer sharply delineated views on Russia’s future, and for a couple of reasons they command attention. His intellect is as formidable as you might imagine — he is probably best known in this country for taking on IBM’s chess-playing computer more than a decade ago — but it’s not just that. Kasparov is also far more charismatic than you might imagine, coming across as balanced, funny and very human. Given that chess champions are rock stars in Russia, he could have settled into an easy life of celebrity there. Or he could have joined the opposition to Putin’s kleptocracy, as he has, but from a safe and comfortable apartment in London or Manhattan.

Instead, he has maintained a life in Russia, where — given the grisly fate met by many journalists and human rights advocates — he lives with bodyguards and anxiety.

He does not live without hope for Russia’s future, however. And to that end, he came to Washington (meeting with executive and congressional officials) with three essential messages:

First, the ostensible power struggle between Putin, now prime minister, and his hand-picked president, Dmitry Medvedev, is a sham. Putin pulls the strings. Americans, including the Obama administration, have been taken in by this shadow play, Kasparov says, which is useful for Putin — Medvedev gives the regime a friendlier face to the West — but essentially irrelevant.

Second, Putinism is not working, and therefore its continuation is not inevitable. Despite being an oil exporter at a time of sky-high oil prices, Russia’s economy is ailing. Capital is fleeing, infrastructure is decaying, and people are noticing.

“I think the patience of ordinary Russians could be running out,” Kasparov said. “They can see that the one thing that’s going up is the number of Russian billionaires on the Forbes list.”

And having quarantined Russia from democracy movements that flared in Ukraine, Georgia and Kyrgyzstan, Putin now has to worry about infection from the Arab Spring. “Putin did everything to prevent an Orange Revolution, but now comes the ghost of Tahrir Square,” Kasparov said.

Finally, the United States has at its disposal a practical tool that could help undermine Putin’s hold on power — specifically, a bill sponsored by Maryland Democratic Sen. Ben Cardin that would ban visas for and freeze assets of Russian officials implicated in rank abuses of justice or abrogations of freedom inside Russia.

“To outsiders, this may not seem like much,” Kasparov said. But it would undermine what Kasparov sees as the fundamental principle and purpose of Putin’s regime: that officials who are loyal to Putin can accumulate assets and park them abroad — and that Putin can protect them.

“If you are loyal to the boss, to the capo di tutti capi, you are safe, inside Russia and out — in Dubai, London, Lake Geneva,” Kasparov said. “If something happens to even a small group of these people, it will cause a dent in the monolith of power.”

Putin has bought off and corrupted so many European officials that Europe will not act first, Kasparov said. But the United States could — and because Russian oligarchs increasingly are investing in the United States, U.S. action would make a big difference.

“Don’t tell me you don’t have leverage,” Kasparov said.

Your move, Congress.

Luzhkov and Baturina have recently been noted skipping around Europe in a probable attempt to flee the country, and now it appears that Bank of Moscow President Andrei Borodin may be joining them.

As RIA Novosti reports:

Bank of Moscow President Andrei Borodin has fled Russia after the police were ready to charge him with illegally granting a 13 billion ruble ($444 million) loan to Elena Baturina, wife of former Moscow Mayor Yury Luzhkov, sources said on Tuesday.

“Last week the police asked the court to relieve Borodin of his duties after which he was to be charged and a restraint on travel imposed,” a police source said.

A Moscow court rejected the request and Borodin then left Russia, the source said.

Banking sources told RIA Novosti that Borodin, whose duties are being temporarily performed by Bank of Moscow Vice President Sergei Yermolayev, was in London, where former Moscow Mayor Yury Luzhkov and his wife Yelena Baturina are thought to be resident. The Bank of Moscow said Borodin was on sick leave.

Investigators raided Premiere Estate, a property company owned by Baturina, in February as part of a probe into misuse of Moscow city funds in connection with the 13 billion ruble loan to her. Police also raided the Bank of Moscow and the homes of some of its directors.

Police think some of the bank’s staff helped embezzle money which ended up in Baturina’s account. The loan granted by Bank of Moscow was allegedly used in a complex series of deals to buy land in Moscow owned by Inteco, Baturina’s construction and real estate firm, at an excessive price, in order to slash the firm’s debts.

Both Inteco and Baturina have consistently denied any impropriety in connection to the deals.

Meanwhile, a fight for control over Bank of Moscow has been going on since February, when Russia’s second largest bank, state-controlled VTB announced a gradual acquisition of Bank of Moscow, the capital’s investment vehicle. The Moscow government sold its stake in the bank to VTB for 103 billion rubles after President Dmitry Medvedev fired Luzhkov last fall.

VTB now owns a 46.48% share in Bank of Moscow and plans to gain a 100% control. Borodin and his business partner Lev Alaluyev hold a 20.3% stake in Bank of Moscow.

Borodin gained a court injunction blocking the acquisition of Goldman Sachs’ 3.88% stake in the bank, which would have increased VTB’s share in Bank of Moscow to a controlling interest.

Not only is Russia one of the most quantifiably corrupt countries in the world, but several high-profile businesses have come out with scathing criticism of it in recent years. Swedish businessman Lennart Dahlgren wrote an entire book, Despite Absurdity: How I Conquered Russia While It Conquered Me, on his nightmarish experience running Moscow’s first IKEA. William Browder of Hermitage Capital Management has been an outspoken critic of the country ever since one of his lawyers, Sergei Magnitsky, died in a Russian prison after discovering a corruption scheme involving government officials.

So it was only natural that Browder showed up to burst Russia’s bubble at Davos. As the Moscow Times reports:

William Browder, who once had about $4 billion invested in Russia through his Hermitage fund, spoiled on Thursday a Russian show in Davos meant to woo investors.

Browder said he had to flee Russia after accusing officials of corruption and saw some of his firms being stolen from him by Interior Ministry officials.

One of his lawyers, Sergei Magnitsky, died in jail in 2009 from what Browder says was torture.

The case has shaken investor confidence and drew criticism from Western organizations and governments. President Dmitry Medvedev ordered an investigation into the case and fired several officials, but Browder says the main culprits remain unpunished.

“The president of the country called for an investigation into the people who killed my lawyer,” Browder told a panel chaired by First Deputy Prime Minister Igor Shuvalov and a hall packed with Western executives.

“One year after the investigation, people who killed the lawyer have been promoted higher by state orders. … My question to you, Igor, is what will prevent other investors to have the same experience after my experience in Russia,” he said at the discussion, titled “Russia’s Next Steps to Modernization.”

Shuvalov took more than five minutes to answer Browder’s questions, but his remarks seemed addressed more to the audience than to Browder himself.

“We know this case very well. … Twenty people were fired immediately. … It was not a case which was forgotten the next day,” he said in English.

“Unfortunately, I don’t know the results of the investigation and the end of the case. … The past is always very important, although not always positive, but we need to concentrate on the future,” he added.

“You have to acknowledge the country is changing for the better. If every year we can say that the rule of law is becoming better — not perfect but better — then I think I’m doing my job,” he added. “We need to work together.”

It was just as natural that officials would feel the need to justify the new guilty verdict of Russia’s most famous businessman, former Yukos CEO Mikhail Khodorkovsky:

President Dmitry Medvedev has compared jailed former Yukos CEO Mikhail Khodorkovsky to the mastermind of the biggest Ponzi scheme in U.S. history in an apparent attempt to present the Yukos case as triumph of justice and highlight the ruling tandem’s unity.

“An investor, Russian or foreign, should observe the law, otherwise they can get a jail term like it happened with Khodorkovsky and Madoff,” Medvedev told Bloomberg Television at the World Economic Forum in Davos.

Bernard Madoff was sentenced to 150 years in prison in 2009 for organizing a Ponzi scheme worth $18 billion. Prime Minister Vladimir Putin also compared him to Khodorkovsky during a televised call-in show in mid-December, shortly before a Moscow court added six years to Khodorkovsky’s previous sentence at a second trial.

Medvedev also said Wednesday that he did not wish to weigh in on the Khodorkovsky case because it would be an “interference with justice.”

He said he would not grant Khodorkovsky a presidential pardon — as supporters have sought — because it would mean that the Russian judicial system was so flawed that “you could ask the president to change the verdict.”

Given the wealth of worldwide criticism that Russia has received because of the Khodorkovsky verdict, it is doubtful that the president’s words will assuage any concerned businesses.

According to Sarychev, the fact that emergency repairs are often needed for unsafe bridges and roads in Russia “is connected with our poverty.” Even before any new roads are built, he said, routine maintenance of the existing transportation system would require one trillion rubles a year – about $32.2 billion.

“At the very height of development, in 2008, 300 billion ($9.67 billion) was spent on repairs and 270 billion ($8.7 billion) on construction. Automobile owners’ share of this sum is 200 billion ($6.5 billion),” said Sarychev.

The director went on to say that the management system for road repair and construction itself needs to be modernized. As an example, Sarychev noted Leningradsky Highway, which has been suffering daily since June 26 from traffic jams that stretch on for miles at a time due to emergency roadwork. The traffic has been particularly problematic due to the fact that the highway leads to Moscow’s Sheremetyevo Airport.

Moreover, the construction of Moscow’s central ring road, or TsKAD, was “mistaken,” said Sarychev, proposing instead that roads be built that stretch from one side of capital to the other to solve the region’s transportation problems. Raising the number of roads in Moscow thrice over and reworking the rules for automobile usage in the city would also be a partial solution to the problem, he said.

The cost of such new roads would approximately fall between $15-55 billion per lane, the same as they cost in Europe and the United States, said the director.

Russia has long suffered from a lack of proper transportation infrastructure and the deterioration of what has already been built. Critics blame the government for failing to use burgeoning oil and natural gas revenues to invest in a modern, country-wide infrastructure. Not a single highway or expressway has been built in Russia over the past two decades, and the smaller roads that have been constructed are very few. China, which is commonly given as a comparison, has laid more than 40,000 thousand miles of high-volume roadways over the same amount of time.

A telling photo essay of the single federal road that leads to the Siberian city of Yakutsk can be viewed by clicking here.

In remarks today at the official opening of the St. Petersburg International Economic Forum, Russian President Dmitri Medvedev spoke about his goals for Russia’s economy and how state policy would be shaped to achieve them, Interfax reports.

“Russia,” the president said, “must become an attractive country that people from all over the world will aim for in search of their dreams. In search of the best opportunities for success and self-realization, which Russia can give to everyone ready to heed this call and love Russia as their new or second home.”

“Such are the goals of our modernization – they are realistic and achievable,” Medvedev asserted. He added that favorable conditions for modernization are currently developing in the country’s economy. He also said that state fiscal policy would be shaped with this in mind.

The three-day forum, which began Thursday afternoon, brings together European leaders, representatives from international corporations, economists, and other global policy makers to discuss modernization and development in emerging economies. A range of topics, including energy and security policy, are expected to be covered.

A presidential aid had stated earlier that Medvedev’s speech “will be mainly dedicated to Russia and the way we have changed.”

The Russian president singled out inflation in his opening remarks as one of the primary issues faced by his country’s economy. He also said that the inflation rate has fallen over the course of the year and is now hovering at about 6%.

In his turn, Russian Prime Minister Vladimir Putin pledged that inflation would not rise above 5-7% over the next three years, with the top target for next year set at 6.5%. He stressed that citizen trust in state policy was the key factor for successfully overcoming economic difficulties, and that Russians do indeed trust the ruble and their domestic banking system.

Former Economics Minister and Scientific Director of the Higher School of Economics Yevgeny Yasin said that the figures cited by the prime minister are realistic, but that inflation in Russia must necessarily fall to around 3-4%. In an interview with Ekho Moskvy, he also stipulated that the best time for prices to fall – the crisis period – had already passed.

While Russia has reported a decline in inflation each month since August 2009, some analysts say that the government’s reliance on consumer prices to calculate the rate presents a false reading of actual inflation. “Consumer prices,” says political commentator Sergei Shelin, “only make up a part of all prices. All the remaining prices are growing, and seem to know absolutely no shame.”

A panel entitled “Finance after the Crisis” was held in the same room after Medvedev’s remarks. There, according to the newspaper Vedomosti, influential global financial analysts discussed whether or not the presidents’ goals were achievable. The newspaper reported that of those present at the panel, 61% believed that the Russian financial system faces stagnation over the course of the next 2-5 years. About 5% expect another crisis, and the last third are optimistic that Russia will see a speedy rate of growth.

At another panel later in the day, Russian Finance Minister Alexei Kudrin said that the task of cutting the budget deficit is harder for Russia than other European countries. This, he explained, has to do with the fact that the state treasury is highly dependent on the oil and gas sector. Kudrin reminded his audience that the current cut in Russia’s deficit is happening as a result of high oil prices – not because of the efforts of the government.

The finance minister also said that a rise in the retirement age would be an unavoidable result of the budget deficit, and confirmed plans for substantial increases in taxes on gasoline, alcohol, and tobacco.

Igor Bolotov of the Russian Ministry for Regional Development said on Wednesday that one trillion rubles (about $33.8 billion) would be required to modernize one hundred of the country’s so-called “monotowns,” small to mid-size Stalin-era establishments almost entirely dependent on a single industry. This dependency has made them particularly prone to the global economic crisis, threatening total economic collapse for the town if just one company goes under.

As opposed to the trillion cited by Bolotov, the government’s 2010 allocation for the struggling provincial outposts is only 25 billion ($846 million) – a number that is itself far below the 100 billion ($3.38 billion) estimated last August for a federal development program.

Additionally, investment programs have only been developed for 27 monotowns, 24 of which are currently being reworked. Only 8 of these programs, Bolotov noted, are focused on creating new industries, and only 11 include proposals for modernization. “But they do not solve the problem of single-industry,” he said.

Bolotov’s comments came ahead of Thursday’s session of a government commission on monotowns in the industrial city of Tolyatti. They also stand in stark contrast to President Dmitri Medvedev’s statement last November that plans for developing monotowns was one of the government’s primary concerns.

In his turn, Vice Prime Minister Aleksandr Zhukov said he was certain that the country’s monotowns could overcome their problems and become “points of growth” for innovative economics in the post-crisis period.

Monotowns became a widely discussed topic in the Russian media last May, when residents of the town of Pikalevo blocked a federal highway to gain attention to their desperate economic situation. Workers had been left with long unpaid wages after the town’s three aluminum plants shut down without warning, and the situation was only rectified after Prime Minister Vladimir Putin staged a personal intervention to ensure that the factories were reopened.

See also: • Darkness on the Edge of Monotown, New York Times

St. Petersburg resident Vera Kamkina, who lost both her mother and husband last year, told the publication that “I don’t drink, I don’t smoke, and I’m not a drug addict. Of course, my family is extremely poor. I raised my children by myself and wasn’t able to work. But I had help from relatives and charity.”

The officials told the woman that her children would be returned after she repaid 140 thousand rubles (about $4,600) in debt to the housing authorities for rent on her apartment.

In an interview on Ekho Moskvy radio, children’s rights representative Pavel Astakhov said that the authorities should take all aspects of a child’s family life into consideration in such cases, and not only material issues.

An unnamed municipal custody official denied to Novye Izvestia that children were taken from their families “because of poverty,” and that “the fairy tales about how their children were taken away are told by alcoholics who have enough money for the bottle but not for their their children.”

An amendment currently under consideration in the Russian State Duma would raise the standard for parental responsibilities to children. If adopted, parents would be required to provide children with “material support, including providing nutrition, clothing, shoes, and housing,” in addition to the appropriate care currently required by law.

Despite the clear importance for children to be properly provided for, Marina Ozhegova of the parental advocacy organization “Lots of Kids is Good!” fears that such an amendment will be harmful for both parents and children. “In Russia, 80 percent of families with multiple children live below the poverty line,” she said. “Many have their gas and electricity turned off because of debts to the housing authorities.”

Rosstat, Russia’s federal statistics agency, estimates that 5,877 children were taken into custody as a result of unfulfilled parental obligations in 2008, compared with 2,557 children in 2000.

According to the survey, conducted by the professional services firm PricewaterhouseCoopers, 71 percent of Russian companies have suffered from at least one instance of economic crime in the past year, and a 48 percent increase in the number of cases.

The financial services sector suffered the most from the prevalence of fraud, with 26 percent of respondents admitting to having committed economic crimes. Following that was the fuel and energy sector (15 percent), manufacturing (9 percent), pharmaceuticals and automobile manufacturing (8 percent), and insurance and retail (7 percent). Last were the technology and construction sectors, with 5 percent each. The survey also found a 66 percent decline in financial performance.

The most widespread form of economic crime found by the survey was asset misappropriation, which includes all forms of theft and embezzlement of cash, supplies, or equipment within a company.

The second most common form of crime was bribery.

Following Russia on the list for highest prevalence of economic crime were South Africa (62%) and Kenya (57%). Those with the lowest levels of economic crime included Japan (10%), Hong Kong (13%), and Turkey (15%).

According to the first survey conducted by PricewaterhouseCoopers in 2003, not a single Russian company at that time admitted to having suffered from even one instance of economic crime.

Russia has long suffered from widespread corruption. A 2009 survey by Transparency International ranked Russia as 146 on the global Corruption Perceptions Index, saying that almost one third (29 percent) of Russians have given a bribe at least once in the past year. Russian Prosecutor General Yury Chaika announced in early November that 22 criminal cases were being brought against state-owned corporations, most involving the misappropriation of assets.

According to Chaika, all seven of Russia’s state-owned corporations were found to “fail to comply with their statutory functions” or to “engage in activities not envisaged” in their founding.

Particularly problematic was the Russian Corporation of Nanotechnologies (Rusnano), which spent only ten of the 130 billion rubles allocated to the company in November 2007. Most of the funds had instead “been placed in bank accounts as idle money.”

Konstantin Chuychenko, head of the Presidential Control Directorate, said in the same meeting that the government should be required to submit proposals that would consider privatizing the corporations. “Where there is no competition,” he said, “the Cabinet should set a lifetime for the corporations…determined by the particular purpose of each.”

Chuychenko went on to say that the government should appoint state representatives to the supervisory boards of these corporations because of a current lack of transparency. He also proposed making them accountable to the Audit Chamber and other supervisory bodies by March 2010.

President Medvedev’s call for an audit in August was preceded by widespread criticism of state corporations earlier this past summer. A leaked report by the Federal Anti-Monopoly Service called state corporations a main threat to economic competition, and representatives of the Audit Chamber and Anti-Monopoly service were among politicians calling for their elimination altogether.

Government control over Russian business increased dramatically under the presidency of Vladimir Putin. The current seven state corporations – the bank Vnesheconombank, the industrial firm Rostekhnologii, the Deposit Insurance Agency, Rosatom State Nuclear Energy Corporation, the Sochi 2014 Olympic management firm Olympstroy, the Housing and Utilities Reform Fund, and the Rusnano nanotechnology firm – were created to perform specific state functions, and a separate set of regulations allows them to function under significantly less transparency and supervision than their public counterparts. As a result, they have been repeatedly criticized as prone to corruption and harmful to competition.

Russia has seen many battles with inflation since the fall of the Soviet Union. The financial crisis of 1998 saw inflation skyrocket to as high as 84.4%. It’s current financial crisis has roots in the world economic crisis, as well as heavy dependence on sharply falling oil prices and investors’ concerns both over military conflict with Georgia and state interference in the economy.

Immortal Inflation
By Sergei Shelin
October 28, 2009
Gazeta.ru

If you believe the government statistics, then we have had no inflation since August. It ended. Just as it piled up from January through July, it has stopped in the past few months. Even our enemies at The Wall Street Journal admit it: “Recession quells inflation.”

And that’s not all. Prices won’t rise any further as well. At least, that is, through the end of December. This prediction came out easily from the words of Prime Minister Putin at the Russian-Finnish Forestry Summit: “You know that we are striving for a reduction in inflation… This year already it will be, perhaps, a bit more than 8 percent…”

Judging by the fact that we already have “a bit more than eight,” nothing will increase through to the end of 2009. Thus was resolved by the Prime Minister.

A good six months without inflation – that’ll be a historical record for post-Soviet capitalism.

Or to be more accurate, it won’t be; or, perhaps it will. That’s because in reality, the growth of prices has no intention of stopping. It’s also because this “inflation” that the authorities talk about liquidating is not representative of the entire price growth in our economy. It represents but one part: the growth of consumer prices. To be precisely exact, it’s not even that, but just the growth (or lack of growth) of prices of a carefully selected sample of consumer goods. Part of a part.

Calculated in this way, it’s true that the index of consumer prices (CPI) didn’t rise in August, September, or the first three weeks of October. But, like you’ll surely guess, much depends on the technicalities of choosing the sample, and the finesse that goes into the calculations. For example, the so-called core inflation in this same consumer market (but with a slightly different sample) not only didn’t stop, but even grew: having reached its minimum in the summer (with a 0.3% monthly increase in June and July), it then rose again (to a 0.5% monthly increase in August and September).

The “zero growth” CPI is itself the sum of a seasonal recession in food prices and the continuing growth of everything else. In the first three weeks of October, for example, the country was rescued from the general growth of consumer prices by four single vegetables: potatoes (which fell in value by 6%), onions (by 7%), carrots (by 8%) and white cabbage especially, which fell by almost 10% in just three weeks.

Meanwhile, non-food goods rose in price like nothing had hit them (in August by 0.6% and in September by 0.7%; figures for October have yet to be calculated).

But consumer prices, I remind you, only make up a part of all prices. All the remaining prices are growing, and seem to know absolutely no shame. Indeed, they have no public accountability. The index of wholesale manufacturing prices, for example, rose 1.4% in August and 1.7% in September.

In an honest assessment, inflation has in no way stopped. By most measures it is many, even dozens of times higher than in wealthy countries, where the recession has indeed “quelled inflation” and prices have virtually halted.

Here they are rising for sure, although not so rapidly as last year. But that’s understandable. A recession in production as big as ours ought to have induced a powerful wave of deflation. In certain sectors it did, but on the whole, as we see, it has not. You could call it an economic miracle, albeit a special one. And if our domestic inflation, shaky thought it was, withstood the terrible recession of last fall and winter of this year, then why on earth would it stop now, when the worst of it, as they say, is already behind us?

In order to appreciate its full potential for growth, let’s compare our pre-crisis CPI (13.3% in 2008) with the CPI of both wealthy countries, and poorer countries whose economies are stronger than ours. In 2008, the consumer price index in the European Union grew by 3.5%; in the US – by 3.8%; in Brazil – by 5.7%; in China – by 5.9%; in India – by 8.3%. Now the recession in all of these countries is smaller than ours; in some cases their economies have begun to rebound.

In twenty years of high inflation, an entire scientific discipline has formed that wittily demonstrates the benefits of money pumping and the accompanying rise in prices, which our national economy supposedly could not function without.

By this logic, a common man, unhappy with inflated taxes, ones that in reality are worse than any others, just doesn’t understand that this is his advantage. That’s because a stop in price growth, allegedly, is comparable to an absolute halt of the Russian economy. Most amusing is that anti-inflation experiments, conducted from time to time by Russian authorities, have supposedly confirmed these projections, while in actuality they chronologically correspond with successive economic recessions.

Therefore, we have emerged in the current crisis as a world champion of price growth among larger economies. But here, in this difficult hour, it did nothing to help us see straight.

We shall therefore recall the story of our national war with inflation. What went wrong?

We shall remain silent on the first half of the nineties out of tact. After that, however, came three interesting incidents.

The first great battle with inflation took place in 1997-98. The M2 money supply was being more and more strictly held back from growth. At the end of ’97 it stopped increasing altogether, and then until August ’98 even shrunk. Inflation on an annualized basis began to number in the single digits for the first time in post-Soviet years.

But then came the default, generating what later became were clear were the erroneous hopes of the authorities to save the overvalued ruble and excessive fiscal spending both at the same time. The time then came to save the economy at any cost. The inflation at that point was immeasurable. The money supply, as well as the prices, rose rapidly.

The next round of anti-inflation battles occurred several years later, when the dust had settled and the economy was operating normally. In 2002, the money supply grew altogether 32.4% (the minimum growth during all those rich years). Inflation quickly dropped, but the rate of GDP growth fell by two percent. Although the rebound continued and nothing terrible transpired, the slowdown was unbearable for the top authorities. For that reason they gave the economy a fundamental zap the next year in 2003, and greatly built up the money supply. The rate of GDP growth immediately went back to normal, and inflation cased to decline.

But hope did not perish. The next couple of years saw fiscal policy zigzag about – here tightening, there loosening up.

The consumer price index was again measured in the single digits in 2006. Diminish it another two or three times and it might have fit the European standard. But then and there came the time to radically abandon all financial sanity. The nationalized economy demanded new magnitudes of stimulation, and the ambitious authorities demanded new, unprecedented rates of growth.

In 2006, M2 growth was as much as 48.8%, and in 2007 remained at the same level – 47.5%. Consumer prices began to pick up speed – not immediately, but all the more certainly.

Anti-inflation policy was then sacrificed a third time, and in essence for the same reasons as before – poorly chosen developmental indicators, megalomaniacal dreams, and, just like always, the aspirations of the elite to realize their vested interests.

And now our present crisis. What is happening to the monetary supply? At the beginning of October 2009 it was 5% lower than one year prior. As this money maintains the economy – which has shrunk in size by 10-11% this same year – the inflation has remained perceptible. Large new expenditures planned for the near future, however, will drive it up even further.

Additionally, there is something else that is more important than any formal plans – the fact that decision-making logic has remained just as it was before.

All the mechanisms to support the inflation that rose in the nineties before being almost completely eradicated are in the same working condition as they were before.

It is a power that looks strong but is inherently weak, capitulating to the financial extortion of coalitions of lobbyists and acquiring masses of their costly undertakings.

Here we see the perpetual inability to solve the problem of such gigantic petrodollar revenues. On its own, the existence of such massive profits might not drive up domestic inflation. However, this would only be under two conditions: if the country received no income from exports (precisely the Chinese approach; unacceptable here since it provides too great a temptation to grab and split up all the free money) or when the national currency is aggressively consolidated (also an unacceptable choice, as our monopolized economy would then lose its last shreds of competitive advantage).

Therefore, in the years before the crisis, our authorities would coil away every few months from anti-inflation policy (when they allowed the ruble to grow) towards a policy of inflation (when, as a result of the war on ruble growth, they printed fiat money and used it to buy up petrodollars). The crisis itself interrupted both their mental and financial agony; but now, with the new jump in oil prices, it’s amusing to see how they spin right back around.

Now to the most, perhaps, secretive mechanism of inflation: our unique banking system. To be more exact – the lack of one. Our banks are massive points of currency exchange and (or) distributors of government money. Therefore, just as there never was, there is practically no normal credit lending, where money is lent at a reasonable rate of interest; but they do this so that the money is spent rationally.

This banking defect is no accident and is constantly supported from above, attaching irresistible power to lobbyists’ demands to organize widespread distributions of government money – which the lobbyists themselves can’t get through any normal channels. On one hand, such thoughtless infusions of cash are a reliable motor for inflation. On the other hand, without them, and without normal banks, the economy caves in, as if confirming the theory of the seamlessness between low inflation and economic downturn. Not for everyone, to be sure; just for our country and its current methods of economic organization.

Indeed, all of the aforementioned mechanisms have successfully survived the first year of the crisis. Everything in the old system is ready for action, and has even in part already gone back to work.

Mechanisms of inflation are as firmly fixed in the system as mechanisms of corruption.

So from that we have our forecast. A departure from high inflation will occur sometime, of course, but certainly no sooner than a departure from the system.

Translation by theotherrussia.org.