Real incomes stall despite economic growth and rising oil prices
Real incomes in Russia dropped 3% in the first quarter compared to the same period last year as inflation accelerated amid a growing economy and rising oil prices.
Consumer prices rose 4.2% in January through April and 9.5% over the past 12 months, according to official statistics. This means that all Russians whose nominal salaries or pensions have not been indexed 9.5% or more have seen their incomes shrink. It is unusual that the federal statistics committee, which many believe to be overoptimistic, to put it mildly, should report a decline in real incomes.
Official reports mentioned rising incomes even during the worst phase of the economic downturn, despite the industrial slump, hidden unemployment, inflation and rising utilities bills. Analysts believe that was due to government anti-crisis policies to support underprivileged groups of the population – assuming Rosstat got its figures right.
Its most recent report came as a surprise, however, especially after statements from top government officials about economic revival and social improvements. So why are real incomes declining while oil prices are rising and the national economy grows by 4% a year?
Most analysts blame inflation, which cannot be concealed by clever statistics.
“Price rises have mostly affected food and other essentials as well as housing and utilities – all family expenditures that cannot be rescheduled for later,” said Sergei Shandybin from Razvitie investment group. “These expenses begin to account for a larger part of the family budget, reducing the demand for other goods and services. The prices of those goods and services grow much slower, giving us a moderate average inflation. The resulting figure does not show how inflation really affects people’s incomes.”
Food prices grew 16.2% between March 2010 and March 2011, while the subsistence food basket increased 25.2%. This means that low-income families have seen their essential expenditures surge by a quarter in twelve months, while nominal wages rose only 9%. “The gap is 16%,” Shandybin said. “Low-income families, which constitute a large proportion of the population of the Russian regions, have lost one-sixth of their real incomes. Medium income families are also experiencing a rise in food and utilities spending.”
Growing oil prices may benefit the federal budget, but they also spur inflation. “Higher oil prices only increase the incomes of shareholders and employees in the fuel and energy sector but they have a negative effect on the rest of the economy,” the analyst added. Growing fuel and energy prices encourage inflation, causing the consumer market to shrink and sending employers’ costs up; therefore, they have fewer opportunities to raise salaries.
Economists believe real incomes are also declining because employers are using gray payment schemes to avoid paying greater social security contributions, said Olga Naidenova from the Otkrytie financial company. Many companies have now stopped indexing salaries to keep pace with inflation.
Another reason for declining incomes is embezzlement or inefficient use of government money, which is especially evident in housing construction costs exceeding $2,000 per sq m, or road construction at $15 million per 1 km.
Russia: As free as Zimbabwe
The independent watchdog Freedom House has released its latest global press freedom rating. Despite some positive changes, Russia still remains on the same level as some of the least developed nations in Africa.
Russia was ranked 173rd alongside Gambia, the Democratic Republic of Congo and Zimbabwe: all scoring 81 points. However, this result does represent some progress for the country since 2009, when it was ranked 174th, and last year, when it dropped to 175th place.
Freedom House experts say the Russian courts continue to be used to put pressure on independent media organizations. Moreover, self-censorship spread and government supervision over news agencies persisted. Experts also cited numerous assaults on journalists.
The watchdog uses a scale of 100 points awarded in three categories – the legal and economic environment (30 points each) and the political environment (40 points). The better the environment, the fewer points the country is awarded.
According to the organization’s methodology, countries with a combined score of over 60 points were deemed “not free” in media freedom terms. Those with between 30 and 60 points were called “partly free.”
Finland, with only 10 points, has the world’s freest media, closely followed by Norway and Sweden with 11 points each. The media is least free in North Korea (97 points), Turkmenistan (96 points), and in Burma, Eritrea, Libya and Uzbekistan, all with 94 points each.
Russia’s new Armada
The Russian Army will receive new Armada battle tanks in 2015. These tanks are to replace the T-90s currently in service as the Armed Forces’ main battle tanks, said Lieutenant General Yury Kovalenko, former First Deputy Head of the Russian Defense Ministry’s Automotive Armor Directorate.
“From 2015 the Army will see a new tank come into service, with fundamentally new specifications: a new automatic loader, and separate crew and ammo compartments,” the General said.
This new tank will be an upgraded version of the T-90. The T-90’s predecessor, the legendary T-72, remains Russia’s main export-oriented tank and was a tank industry trendsetter. The T-72 has a 125-mm cannon and a carousel automatic loader with 22 rounds. This loader was also used in the T-90.
However, even though the T-90 is rightfully acknowledged as being the most modern tank in service, it has its limits.
“The T-90 is a good tank but it no longer completely meets current operational requirements,” said Ruslan Pukhov, a member of the Russian Defense Ministry’s Public Council. “In terms of armor protection, firepower and several other parameters, the T-90 is inferior to its competition in the West. Consequently, the Defense Ministry does not see any reason to buy them in large numbers.”
Russia’s defense industry developed the T-90AM Armada tank in response to the Defense Ministry stated needs. Factoring in all the ministry’s requirements, this new tank features an engine that is 130 h. p. more powerful, a re-designed cannon and a new protected machine-gun unit.
It is thought that the Armada will enable Russia to retain its leading position on the global tank market. All the Defense Ministry’s requirements concerning communications systems, armor protection and gun-sights were taken into account.
“The industry must heed the criticism leveled at it by the Defense Ministry and draw the relevant conclusions,” said Igor Korotchenko, director of the Center for Analysis of World Arms Trade. He added that the Armada could be seen as being the first phase of response to this criticism. This new tank will be unveiled at the arms fair in Nizhny Tagil.
The Russian Army currently boasts about 10,000 tanks, of which just 10-12% could be considered truly modern. A few years ago Russia had 23,000 tanks, while the Soviet Union had over 60,000. General Kovalenko said “even 10,000 tanks is a bit over the top, there should be some rationalization here.” The new T-90AM should go some way to realizing this goal. Some analysts believe that tougher Defense Ministry requirements and a reluctance to buy outdated military hardware have spurred the defense industry’s development. For example, the industry is currently working with scientists to develop a standardized platform for future tank models.
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