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Thursday, May 11, 2006

More Dire Economic News for Russia

Russia had a trade surplus in the first quarter of 2006 just as in the previous quarter, and in fact the trade surplus is growing.

Russia's trade surplus in the first quarter of 2006 grew 15.9 percent to $36.175bn compared to Q4 2005, the Central Bank of Russia reported in an official statement posted on its website. It also rose 47.5 percent year on year. The trade surplus with non-CIS countries amounted to $31.82bn, and $4.355bn with the CIS. According to the Central Bank's data, exports grew 34.4 percent to $67.42bn in Q1 2006 compared to the same period in 2005, imports widened by 27.8 percent to $31.245bn. Exports to non-CIS countries amounted to $57.982bn (up 33.4 percent year on year), and $9.438bn to the CIS (up 40.5 percent). Imports from non-CIS countries equaled $26.162bn (up 24.9 percent year on year), and $5.083bn from the CIS (up 8 percent)

What does this data mean? Russia's export income is increasing not because Russia is making more stuff that foreigners want to buy, and hence creating more and better jobs, but simply because the price of oil is rising. And although foreign money is flowing into Russia in the form of oil payments, this money is not filtering through to the population. If it were, the population would be clamboring to buy foreign goods which in virtually every category are vastly superior to the Russian variant. Yet, growth in imports lags far behind the growth of exports.

This is further explained when we bring in the fact that Russia's gold and currency reserves amounted to $231.1bn as of May 5, 2006, up by $5.4bn from the previous showing. The Central Bank's gold and currency reserves have been growing continuously since November 18, 2005 (up by 42 percent or almost $68bn since then), and have reached a new historic high for both the USSR and Russia. The rise has been prompted by the Central Bank's active acquisition of dollars on the domestic market. Russia was recently ranked fourth in the world in terms of its gold and foreign exchange reserves, having outstripped South Korea. China and Japan are firmly planted in 1st and 2nd place. However, considering the fast pace at which Russia's gold and currency reserves have been surging up, it can outpace Taiwan with the reserves of $260bn and take the 3rd place fairly soon.

What does the growth in reserves mean? It simply means that the Kremlin is hoarding money rather than spending on the population. Putin's recent offer to pay $100 per month for the birth of second children is a good example. Russia has more than $200 billion in currency reserves yet all it can afford to pay for a second child is a puny $100 per month?

But of course, it is easy to understand these facts. To spur genuine growth and healthiness in the Russian population would undermine the Kremlin's power by creating a population that is self-sufficient. The Kremlin, it hardly needs to be said, simply can't have that.

Does that mean Vladimir Putin and his ilk would prefer to preside over a sick, infirm and pathetic country rather than a healthy one?

In a word: Yes.

After all, isn't that what the Russia population has always been? Think it's just a coincidence?

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