The Kremlin Has Heard The Economy Cracking

01.07.2025, 07:53 charter97.org

The Kremlin Has Heard The Economy Cracking1.07.2025, 7:43 A very inarticulate statement by Putin.Vladimir Putin's well-prepared impromptu speech about cutting military spending made a lot of noise. But don't be deceived - this is not a return to peace. Rather, it is a regrouping of forces."We are planning to cut defense spending next year, the year after, and for the next three years. There are no final agreements between the Defense Ministry, the Finance Ministry, and the Economic Development Ministry, but in general everyone is thinking in this direction," Putin said, answering questions from the press after the EAEU meeting in Minsk. Before that, he said that military spending at 6.3% of GDP is a lot:"We paid for it with inflation. But we are now fighting this inflation. Yes, we are purposefully going for a "soft landing" of the economy in some ways. But nevertheless, we still have a very sensible attitude to it.According to you, this is a very unclear statement. One can think and reason about anything. Especially if you are ready for the economy to go into recession. However, it is worth noting that this is the first time Putin has recognized a direct link between inflation and war spending. Until recently, only Central Bank Chairwoman Elvira Nabiullina allowed herself to hint very carefully that inflation is driven not by "extra" money from the population, but by budget expenditures - without specifying which ones. Everything seems to have changed during the St. Petersburg International Economic Forum (SPIEF).RealityAs much as SPIEF was unsuccessful in its original purpose - to attract foreign investment (foreign investors did not come, Russian billionaires brilliantly attended by only 6 people), it seems to have become a landmark for changing the picture of the world in at least one head. At the forum itself, a chasm opened up between what many speakers, from economic officials and experts to businessmen, were saying and what Putin was saying in his speech. While the former agreed that the economy was already entering a recession, which could bury the current Russia as the USSR, in Putin's speech even phraseological turns of phrase were taken from the reports of the General Secretary at the next twenty-something congress. That only emphasized the seriousness of the situation and the inadequacy of the reaction to it. But, apparently, something made us turn to reality. What was it?The first reason is on the surface of the content of Putin's full answer to a reporter's question in Minsk: he speaks at length and with obvious irritation about the decision of NATO countries to raise military spending to 5% of GDP. He promises them starvation and, in fact, the words about the possibility of Russia reducing military spending sound as if in opposition to such an imprudent decision.Beyond the irritation is a very real fear: Putin remembers very well what happened after the Soviet Union decided to enter the arms race. And the decision at the NATO summit is the decision for a new arms race. And you can tell as much as you want about how strong our economy is and how fast our (preserved) tanks are, but there is no way to hide from yourself the realization that the Russian economy will lose this race even faster than the USSR. That lesson is too memorable.The second reason is, of course, the alarm that broke out at SPIEF. And not only the economic block of the government: after all, you can always reassure yourself that it's their job to create a fright, and if something happens, they will figure out how to get out of it. But when loyal deputy Andrei Makarov sounds the alarm, or when his like-minded colleague Dmitry Belousov presents a report that leaves no stone unturned in its enthusiasm for "import substitution," you have to wonder.AnxietyBut perhaps Putin is much more concerned not even by experts, but by business. Which, firstly, mostly ignored the forum - and this is a silence that is more eloquent than any loud statements. And secondly, it expressed its displeasure through the mouths of those who arrived: if Putin's old friend Arkady Rotenberg said that he was "surviving", then the CEO of Severstal threatened to shut down the steel plants. This, of course, was all accompanied by all sorts of reservations, but when silence turns to muttering - Putin remembers all too well how it ends. The discontent of one elite group can still be dealt with. But when officials, experts and businesses say quite clearly that their patience has run out, it has to be reckoned with.And then there are reports that OPEC intends to significantly increase oil production at its next meeting. In May, oil and gas budget revenues have already fallen sharply due to falling prices. And the budget deficit also rose sharply and reached Br3.3 trillion. More importantly, budget expenditures are growing three times faster than revenues, which means that the deficit will continue to grow. Trying to compete with NATO in terms of military expenditures under such circumstances is a sure and quick way to economic suicide.Economic problems are already visible to the naked eye. Severstal's CEO did not just threaten to shut down the plants: they are already stopping. The failure of exports, accompanied by a collapse in construction, could in no way compensate for the defense state order. The coal industry is already in such a state that the government has to decide which regions to help first. The only sector still enjoying the effect of budget injections and high interest rates is the financial sector, according to the Central Bank. But Bloomberg predicts bankruptcy for it in the next 12 months due to client defaults on loans.Which is quite likely: the same Belousov's CMACP writes about the growth of mutual non-payments of enterprises - a threatening harbinger of bankruptcies. But the volume of corporate debt is even greater than consumer debt, including mortgages. It is common to worry that citizens, having accumulated exorbitant loans, may shake the stability of the financial system. But what if businesses become the first defaulters? Regions, some of which are already virtually unable to service their debts? And then the payments of citizens who have already had their wages cut or simply delayed for several months will follow? Will the banks feel good then? The question is rhetorical.SequesterOf course, like any autocrat, Putin is the master of his word: he can give it, and he can take it back. And he has formulated the message about cutting spending, as already mentioned, rather vaguely. But, most likely, it will still be necessary to cut military spending. How much? There are estimates that it is necessary to cut at least 3-4% of total expenditures. This is less than 10% of military expenditures - not a small amount, but not critical for the continuation of the war. Most likely, the state order for armaments that have shown their ineffectiveness in the current war - for example, tanks - will be reduced.But they may increase spending on drones and electronics. They will probably go over the efficiency of spending: the appointment of economist Andrey Belousov as Minister of Defense has shown that one man is not a warrior in the field, a complex struggle is needed. The Prosecutor General's Office has uncovered multibillion-dollar theft on national projects - does anyone doubt that an audit of military contracts will not uncover even more interesting things? Contractors will be shaken down and show trials will be held to reduce the appetite of the defense industry.And the economy will continue to be the economy of a warring country, with all the unpleasant consequences that this entails. It has been decided not to allow a rapid defeat in the arms race. We will fall slowly, smoothly - to be sure.Tatiana Rybakova, The Moscow TimesPATREONSupport the website Write your comment You can support the website Charter97.orgMULTI-CURRENCY ACCOUNT FOR ASSISTANCE:Bank's name: Bank Millennium S.A.Address: ul. 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