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.

During the highly choreographed production, the prime minister told the country not to hold its breath for his departure from politics, expressed interest in running for president again in 2012, accused jailed Yukos CEO Mikhail Khodorkovsky of murder, blamed the United States for preventing Russia’s inception into the World Trade Organization, and expounded upon the subtleties of understanding Stalin, among other things.

The Crisis

Even before Putin began to speak, host Maria Sittel took the floor and exalted the government for its handling of the economic crisis. “We all know perfectly well how the year of the crisis began: millions of Russian citizens feared poverty; tens of thousands expected to be fired; business calculated future losses,” she said. But instead of throwing its citizens to the “mercy of fate,” she continued, the government “laboriously, step by step…scrutinized the affairs of individual companies, made agreements with businesses, and helped our national manufacturers.”

Putin himself turned out to be pleased with his work on the crisis. He assured viewers that “the peak of the crisis has been overcome,” although “turbulent phenomena in the world economy, and consequently also in Russia, do remain.”

Despite a nearly 9 percent fall in GDP, a 13 percent fall in industry, and growing inflation, Putin listed a 0.5 percent growth in agriculture and a rising birth rate as commendable compared to the government response to the economic crisis in 1998.

Putin on Terrorism

In the wake of last week’s bombing of the Nevsky Express luxury train, which authorities are calling a terrorist attack, Putin addressed the problem of terrorism in Russia on the whole. “We’ve done a lot to ‘break the spine’ of terrorism, but the menace has not yet been eliminated.”

“It raises the question,” he said, “can we prevent crimes of this type? Our country is enormous, our territory is large, and there is a lot of infrastructure. Nevertheless, we need to work effectively. We need to be on the advance.”

Putin Saves Pikalevo, Again

Among sites chosen to host camera teams to field questions live to the prime minister was Pikalevo, one of Russia’s so-called “mono-towns” dependent on a sole industry – in this case, aluminum. The majority of the town’s 21,000 residents lost their jobs when all three plants were shut down last winter, and the city shut off all heat and hot water in May. A massive protest erupted when the long-unpaid citizens blocked off a nearby federal highway and demanded Putin’s personal intervention. The Prime Minister responded with an embarrassing public chastisement of Oleg Deripaska, the oligarch owner of the largest of the three plants, and ordered him to negotiate a decision that would reopen the factories.

During the broadcast, a manager of the largest of the plants asked the prime minister whether he would return to the town. The reason that this might be necessary, he said, was that the promised negotiations had not yet been signed.

In response, Putin promised that he would travel to any place in Russia where he was needed. “If the situation demands it, I will go to you again, or to any other place at any different point in the Russian Federation – that is my duty,” That aside, Putin said he currently saw “no such necessity.” He promised, however, that the government had control of the situation and an agreement would soon be written.

Indeed, even before the end of the broadcast, reports came in that the agreement between Pikalevo and the company had been signed.

The United States and the WTO

At one point, host Ernest Matskyavichyus told the audience that many questions had come in regarding Russia’s inception into the WTO. In response, Putin abruptly pounced on the United States, blaming it for not annulling the Jackson-Vanik amendment, a piece of Cold War-era legislation intended to help Soviet dissidents and religious minorities emigrate to America. Russia now criticizes the amendment as anachronistic and harmful for trade relations.

Putin said the amendment is used by “representatives of various lobbies in the United States Congress” for “decisions of rather narrow and selfish sectoral economic problems.”

“Entry into the WTO remains our strategic goal, but we get the impression that, due to motives that we are aware of, several countries – including the United States – are hindering our entry into the WTO,” he concluded rather sharply.

Love for Belarus

One question focused on recent angry remarks that the totalitarian Belarusian President Alexander Lukashenko had aimed at Putin. “You were harshly criticized by Belarusian President Lukashenko. You don’t answer him. Why?” a viewer asked.

“Maybe it’s love?” Putin replied.

The prime minister added that he has very kind, warm feelings for the Belarusian people, and especially for its government. The Russian government, he said, imports nearly all Belarusian agricultural products and has given the country 3.5 billion dollars over the past two years.

Putin Clarifies his Relationship with Tymoshenko

The prime minister’s position on upcoming presidential elections in Ukraine turned out to be less ambiguous than four years ago, when the Kremlin supported Viktor Yanukovych.

“Why do you support Yulia Tymoshenko in the presidential elections in Ukraine?” one viewer asked.

“I do not support Yulia Tymoshenko in the presidential elections in Ukraine,” Putin replied. “I am cooperating with Yulia Vladimirovna Tymoshenko as the prime minister of the Ukrainian government,” stressing his role as a “humble servant” while also misstating his Ukrainian counterpart’s patronymic (which is actually Volodymyrivna).

Recent agreements concerning Russia’s sale to Ukraine of natural gas have raised speculation that the Kremlin would back Tymoshenko in the upcoming Ukrainian elections.

The Police

A recent slew of high-profile incidents has brought a renewed wave of criticism on Russia’s police forces, and one of the key questions in Thursday’s broadcast reflected this concern.

“The police are now out of favor, and every day there are reports of police attacks on citizens…Maybe, [we should] just dissolve them and create a police force from scratch?”

Putin began his response by saying that no police reform would occur in Russia as has occurred in Georgia and Ukraine.

“In Ukraine, our neighbors and friends have already had this experience. They dissolved what we call the GAI, the road services – nothing good came from this. Bribes increased, and there came to be less order on the roads,” elaborating no further on the situation in Georgia.

In general, Putin said, the police should not be excessively slandered. “I consider it unnecessary to smear all police officers with red paint,” he said, but noted that the reaction to police offenses should be “especially critical, fast, and severe.”

Media attention to problems with the police, which have long plagued Russia, was renewed in April when police chief Denis Yevsyukov killed three people and wounded six in a Moscow supermarket while drunk. Novorossiysky Major Aleksei Dymovsky drew unprecedented media attention in November when he posted two YouTube videos of himself discussing corruption that he had seen in the police force.

Khodorkovsky and Murder

For the first time since the 2005 arrest of oligarch and former Yukos CEO Mikhail Khodorkovsky, Putin allowed himself to comment on the controversial case. Khodorkovsky’s trial, in which he was sentenced to eight years in prison for oil embezzlement in the sum of 900 billion rubles (approx. $31 billion), is criticized as highly flawed and politically motivated. Until Thursday, no questions on the subject had been posed during a live broadcast.

“When will Khodorkovsky be released?” a viewer asked via text message.

“This well-known figure is in prison by the sentencing of the court. And the problem is not when he will be released,” Putin stressed, “but so that crimes of this type are never repeated among us,” referring to economic crimes.

The prime minister went on to say that the money resulting from the case went a housing and communal services reform fund that has helped 10 million Russian citizens. “If at some point this money was stolen from the people, it needs to be returned to those same people,” he asserted.

In an unexpected additionally commentary, Putin went on to accuse Khodorkovsky of murder.

Referring to chief Yukos security official Alexey Pichugin, currently serving a life sentence for conspiracy in several murders, Putin remarked that “nobody remembers, unfortunately, that one of the leaders of the security services of the Yukos company is in prison. What, you think that he acted on his own discretion, at his own peril and risk? He had no concrete interests. He is not the main shareholder in the company. It is clear that he acted in the interests and by the instructions of his bosses,” implying that Khodorkovsky had ordered the murders.

Putin for President, Again

Two questions were posed in regards to speculation that Putin might run for a third term as president in 2012.

“Don’t you feel like leaving politics with all its problems and live for yourself, your children, your family, and finally rest?” one viewer asked. “If that’s it, I’ll take your place, just give me a call.”

“Don’t hold your breath,” the prime minister replied.

The second question was from a St. Petersburg student, who directly asked whether Putin was planning to participate in the 2012 presidential elections.

“I’ll think about it,” replied Putin. “There’s plenty of time.”

Approximately an hour after this statement, an Italian reporter asked Russian President Dmitri Medvedev whether it was possible that both he and Putin would run for president in 2012.

“Prime Minister Putin said that he isn’t ruling out this possibility, and I’m also not ruling out this possibility,” replied Medvedev, who was at a press conference in Rome with Italian Prime Minister Silvio Berlusconi.

“We can agree in what way not to elbow each other, and make a rational decision for our country,” he asserted.

Putin and Stalin

At the end of the program, Putin answered a number of questions that he said he had chosen himself. One of these turned out to concern Stalin.

“Do you consider the activities of Stalin on the whole to be positive or negative?” the question asked.

Saying that he understood the “subtlety” of the question, Putin qualified his answer by saying that there were both positive and negative qualities to the dictator’s reign. “One cannot, in my view, make a judgment on the whole,” said Putin. He praised Stalin for successfully changing the country’s focus from agriculture to industry, and said that victory in World War II was Stalin’s achievement.

At the same time, he continued, these positives “were nevertheless reached at an unacceptable price.”

Putin called Stalin’s repressions, which killed an estimated 30 million people, “a fact,” saying that “millions of our fellow citizens suffered from them. Such a means of managing the government to achieve a result is not acceptable.”

“Here, Thank God, There Aren’t Any Elections”

Putin’s most significant slip of the tongue came the prime minister was asked whether his recent appearance in the hip-hop contest “Battle for Respect” was motivated by his falling ratings.

“Ratings have absolutely nothing to do with it. Here, thank God, there aren’t any elections,” he responded.

Elections in Russia are notoriously fraudulent. Regional elections on October 11 delivered sweeping wins for Putin’s leading United Russia party across Russia, continuing the political monopoly it has held since its conception in 2001. Observers noted massive electoral violations, including ballot stuffing and multiple voting with the same absentee ballot, much of which has been statistically documented. Medvedev himself has admitted that the elections were flawed and chastised United Russia for “backwardness.”

Compiled from reports by Gazeta.ru.

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.

Sergeyev, who writes for the Nezavisimaya Gazeta newspaper, delves into the statistics, which seem hardly promising, and suggest an economic recovery is still far in the future.

In the rearguard of the former USSR
Mikhail Sergeyev
Nezavisimaya Gazeta
August 6, 2009

Russia has shown some of the worst results in economic decline, inflation rate, and income decline among the CIS countries

The statistical data of the country’s socioeconomic development for the first half of the year looks gloomy. The domestic economy is experiencing shocks much worse than those of developing countries, i.e. members of the BRIC (Brazil, Russia, India, and China), and neighboring CIS countries.

Statistical offices of the CIS countries have recently published data on the development of national economies for the first half of the year. They could not withstand delivering a blow to the Russian ego. The largest economy in the post-soviet territory had once again, just as in the last quarter of 2008, displayed some of the worst results in the key indicators – the severity of GDP decline, rate of inflation, and income trends. The only results that were worse were those of the second largest economic power in post-soviet territory – Ukraine. Excessive dependency on foreign capital and monopolization of the economy are some of the reasons listed by experts for the domestic misfortunes.

On Tuesday, Russia’s Federal State Statistics Service (Rosstat) suddenly announced that in July, contrary to the initial calculations made by the officials, the consumer market inflation rate surpassed last year’s indicator making it 0.6% versus 0.5%. As a result, since the beginning of the year, prices increased by 8.1%.

Compared to last year’s indicators, one tenth of a percent difference, at first glance, does not seem significant. However, what’s more important is the fact that the summer inflation slowdown anticipated by the authorities did not occur. In the beginning of July, Deputy Chairman of Russia’s Central Bank Aleksey Ulyukaev said that, according to July’s results, a zero inflation rate could be fixed in the country, and in August – deflation (fall of prices). Deputy Prime Minister and Minister of Finance Aleksey Kudrin shared similar hopes of an inflation rate decrease. In the beginning of July, he proudly reported on the fall of price rate increase. “In annual terms, by March, inflation was about 14%, by June – compared to 2008 – it was slightly below 12%. We are already living with the inflation rate of less than 12%,” emphasized the finance minister.

However, Kudrin’s optimism was premature. According to the Statistical Committee of the CIS, in Russia, in the first half of the year, comparing to the same period in 2008, price increases amounted to 13.1%, which became one of the worst indicators among the countries of the CIS. The annual rate of price increase greater than that of Russia was found only in Belarus (14.6%) and Ukraine (17.6%). Above all, in other countries that depend on exports of raw materials, inflation was several times lower. For example, in Azerbaijan and Kazakhstan, the annual inflation rate was only 3.7% and 8.5% respectively.

Russia also markedly stands out from its neighbors in its industrial rate of decline. In Russia, industrial production fell by 14.8% in the first half of the year, but in Azerbaijan, for example, industrial production increased by 1%. In Kazakhstan it fell by 2.7%, and in Belarus – by 3.6%. Such modest decline rates seem unreachable for Russia, which was surpassed only by Ukraine where industrial production fell by 31.1% in the first half of the year, compared to last year’s figures.

Compared to other CIS countries, Russia also does not look so good in terms of the population’s real income rates, which, considering the current inflation rate, basically did not increase in the first half of the year. At the same time, in Azerbaijan, Belarus, and Kazakhstan, if one were to believe national statistics, real income increased by 12.5%, 6.6% and 5% respectively.

Experts provide several reasons for Russia’s poor figures in levels of decline, inflation rates, and decreased income levels among countries of the CIS. “The first reason – Russia’s openness of the economy in regards to trade as well as to financial markets. The second and most important reason is the highest level of dependency on commodity market conditions. Kazakhstan depends on oil prices no less than Russia does, and its borrowing as a percentage of GDP was even greater than in Russia. But that is exactly what led to Kazakhstan being hit by the crisis in the third quarter of 2007, when financial markets were closed,” notes the Head of the Economic Analysis Unit of the Eurasian Development Bank Yevgeny Vinokurov. By the end of 2008, Kazakhstan’s economy had a chance to adapt to the crisis, while Russia reached its peak in the fourth quarter of 2008.

“The lower rate of decline of industrial production in Kazakhstan and growth in Azerbaijan are related to the predominance of the industrial structure in the mining industry: production volumes continued to grow, albeit at a modest pace. With regard to Belarus, here, relative protection of the economic system of the country was an active factor,” considers Vinokurov. The cause for the collapse of industrial production in Ukraine, the expert attributed to political instability, which superimposed the crisis and made its effects more prominent.

Experts also explain the abnormally high rate of decline of the Russian economy, as compared to other CIS countries, by a dramatic change in terms of foreign lending. “In Russia, the industries that suffered from the crisis most were those that were developing most dynamically before the crisis in construction, the auto-industry, and the financial sector. Before the crisis, real estate prices were overvalued, whereas now, construction is not at all supported by financially reliable methods. The auto-industry is experiencing a similar situation due to a significant decline in auto loans, consumers are refusing to make purchases. The Russian financial sector was also severely inflated, and very dependent on Western money.” Believes Tamara Kasianova of 2K Audit – Business Consulting. The expert explained the reason for the high inflation rate against the backdrop of other CIS countries not only to the devaluation of the rouble, but also the systemic lack of competition. “Because small and medium sized businesses have not developed in Russia, large enterprises can dictate their prices and maintain their pre-crisis rate of return,” noted Kasianova.

The highest rates of decline are observed in sectors related to investment demand – the production of machinery, and equipment. The importance of these sectors in the industrial production structure largely determined the pace of industrial production decline in Russia, adds Olga Naidenova, Financial Corporation, Otrkitie analyst. She explains high inflation rates by lack of competition and a large tax component in the price structure. In addition, according to her, the combination of high shares of imports and devaluation of the rouble negatively impacted prices.

The Economic Development Ministry, which keeps track of monthly changes in GDP, revealed that Russian GDP fell .4% for the month, accounting for seasonal fluctuations. According to Minister Elvira Nabiullina, the major reason for the drop was a slowdown of industrial output, which fell by 2.4% during the month.

The World Bank and the Organization for Economic Cooperation and Development (OECD) have also slashed their estimates for Russia’s 2009 GDP growth. The OECD, which cut their estimate from 6.5 to 2.3%, said that falling oil and resource prices were to blame, as well as receding capital markets. Oil has dropped to around $50 per barrel, down from an all-time high of $147 in July.

Inflation outlooks were also being re-evaluated. Citing Rosstat, the Russian statistics agency, the RIA Novosti news agency reported Wednesday that consumer prices had risen by 12.3% since the start of the year. According to revised estimated by the Economic Development Ministry, the official yearly inflation figure will exceed 13%. Unofficial figures have pegged the metric at higher than 15%.

Russia’s job loss rate has also accelerated to its highest point in five years, with Rosstat reporting that 76,000 Russians lost their jobs in October.

Equally troubling was the collapsing public confidence in banks and financial institutions. Experts from Russia’s Deposit Insurance Agency, which insures bank deposits, estimated that between 5 and 7 percent of all deposits were taken out of banks in October. Final figures will be released by Russia’s Central Bank at the end of November.

According to Kommersant, some banks were starting to use schemes reminiscent of the 1998 default, when banks entering bankruptcy issued promissory notes instead of paying out obligations. While not technically illegal, the move was seen as problematic by some experts.

In responding to the financial crisis, Russian authorities were also burning through the country’s cash reserves. One sixth of the reserves have been spent in the past three months alone on efforts to prop up the rouble and support domestic companies, leaving the state with $475 billion.

As a whole, the economic cards seem stacked against Russia. By itself, each economic indicator would raise concern. Together, they likely spell increasingly hard times ahead.

The new model, called the Shopper Centric Information Flow (SCIF) index, measures consumption by households, and monitors growth in consumption and costs. A number of households are asked to scan the barcode of every item they purchase for home use, from groceries to toilet paper. Over time, the model allows researchers to track both increases in prices of goods, and also increases in consumer incomes. The SCIF index ultimately tracks which items are consumed, where and when they are purchased, the price paid for them, and even who they are purchased for.

The firm’s experts believe this provides an alternative to official inflation figures, which only keep track of changes in price for a wide basket of goods.

For their latest finding, Romir polled 8520 residents (3000) households in 32 major Russian cities. The group discovered that urban residents have seen expenses rise by 40.7% from the start of 2008 to the end of August.

Andrei Fedotov, the general director of Romir Panel, which released the report, said lower-income households were hit the hardest. “Inflation hits low-income groups most of all, whose consumer basket consists of basic food-stuffs,” he said. “The SCIF index turned out low for high net worth groups—the price of the consumer basket has risen less for them.”

Last week, the Ministry sent updated predictions to the Ministry of Finance, based on macroeconomic indicators from the current year to 2011. The data will be cross-checked and forwarded to the Government.

“The inflation prognosis for 2007 was also raised to 7.5-8 percent,” the source said.

Russia’s government has had trouble dealing with rising inflation, which has accelerated sharply since last fall.

According to Rosstat, Russia’s statistics agency, inflation has numbered 8.7 percent for the first half of 2008.

The numbers suggest that inflation is becoming worse, and that prices growth is accelerating. In May alone, consumer prices are expected to grow by more than 1%. The largest price hikes were seen in food products, including sugar, rice and flour.

It was earlier reported that President Vladimir Putin’s government was not planning to take major steps to battle inflation, in an attempt to maintain strong economic growth. Responsibility for inflation has been entrusted to Russia’s Central Bank.

The Russian Ministry of Economic Development and Trade has also continued to raise its inflation forecasts. In April, the agency upped their predicted rate for 2008 to 9.5%. Currently, that same forecast has grown to 10.5%.

Many economists are skeptical that the Ministry is adequately gauging inflation, and predict that the actual rate will be closer to 15 or even 20%.

The inflation rate is significantly higher than previous years. The first quarter of 2008 saw a 4.8 percent rise in inflation, as compared with a 3.4 percent rise in the first quarter of 2007. Rosstat’s figures also seem to indicate that inflation is accelerating. Weekly inflation in March rose from .2 percent at the start of the month to .3 percent in the last week.

The highest price growth was noted in bread, baked goods and wheat flour.

Prime Minister Viktor Zubkov was furious with the Finance Ministry: “Over the past several years the government managed to meet the forecast inflation target only once,” Itar-Tass quoted. “That was in 2003. In all of the subsequent years inflation proved higher. Last year alone the forecast level was exceeded by a hefty 4 percentage points,” the prime minister said.

The official prognosis for the year was initially 8.5 percent, and was raised to 9.5 percent in March. Many economists discount this estimate as conservative, and believe the real rate could come to 15 percent or more. In 2007, the rate reached 11.9 percent, 3.9 points over the 8 percent estimate.

A recent poll conducted by VCIOM, the state-owned public opinion organization, found that nearly three fourths of Russian residents believe inflation to be very high. 18 percent believe inflation is moderate, and 2 percent, insignificant.

Gennady Kuranov, the director of the agency’s macroeconomic forecasting department, explained that the higher rate was connected directly with rising prices on foodstuffs, and especially grain. According to Kuranov, the expected inflation for 2009-2011 remains unchanged, ranging from 5 to 7 percent.

Other independent experts have a somewhat gloomier outlook, the Gazeta.ru online newspaper writes. Maria Kataranova, of the Economic Expert Group, predicts that consumer prices will rise by 10 percent in 2008. Igor Shibanov, the director of the Russian Development Bank’s conversion operations, expected inflation to reach 13 percent. In the opinion of Agvan Mikaelyan, the general director of the FinEkspertiza (Financial Expertise) LLC, the rate could reach 15 percent.

One deputy from the Russian State Duma believes that the new prognosis is self evident. Raisa Karmazina, who serves on the budget committee and hails from the Krasnoyarsk Krai, spoke with the Mayak radio station:

“The Government of the Russian Federation is currently working out a program of anti-inflationary measures, but maintaining it within limits in this year will not work for many reasons, including external ones. These include a rise in world foodstuffs prices, and a reformation of the energy system, which needs a transition period of three-four years, and of course, the world financial crisis, which influences us to a lesser degree than other countries, but still puts pressure on the economy.”