Saturday, December 20, 2014

Russia Digest: ruble plummets, prostitutes and condom makers hike their prices

December of 2014 is proving to be a very interesting month for Russia-watchers. Western sanctions are taking their toll, devastating the country’s already weak economy. Russia’s Hamas-style activities in Ukraine carry an expensive price tag, as oil prices continue to fall and the ruble is close to turning into rubble. Russia’s central bank has used $100 billion worth of its $400 billion foreign reserves since July, 2014. These desperate attempts to prop up the country’s currency are failing, as the ruble continues to plummet. The ruble has lost more than 40% of its value against the dollar and 60% against the euro since the start of this year. On December 11, 2014 the central bank implemented the fifth rate hike this year, which raised interest rates to 10.5%.

So far, Russia’s central bank has refused corporate requests for subsidies to the private sector. Corporate leaders are warning that their companies may become insolvent without state support. Investors are expected to pull out a total of $240 billion from Russia by the end of 2015. Russians dumped $20 billion worth of their own currency this year. The central bank doesn't expect economic growth to return until 2017. Plunging global oil prices are crushing the Russian economy, because of its dependence upon the country’s massive energy sector. About half of the Russian government's revenue comes from oil and gas exports.