Russia stability unravels after major fall of ruble

Henry Meyer
Associated Press

Moscow – — The foundations on which Vladimir Putin built his 15 years in charge of Russia are giving way.

The meltdown of the ruble, which has plunged 18 percent against the dollar in the last two days alone, is endangering the mantra of stability around which Putin has based his rule.

While his approval rating is near an all-time high on the back of his stance over Ukraine, the currency crisis risks eroding it and undermining his authority, Moscow-based analysts said.

The president took over from an ailing Boris Yeltsin in 1999 with pledges to banish the chaos that characterized his nation’s post-communist transition, including the government’s 1998 devaluation and default. While he oversaw economic growth and wage increases in all but one of his years as leader, the collapse in oil prices coupled with U.S. and European sanctions present him with the biggest challenge of his presidency.

“People thought: he’s a strong leader who brought order and helped improve our living standards,” said Dmitry Oreshkin, an independent political analyst in Moscow. “And now it’s the same Putin, he’s still got all the power, but everything is collapsing.”

The ruble hit a record low of 80 to the dollar — down a catastrophic 24 percent — before making a modest improvement to trade at 72 to the dollar by late Tuesday afternoon. The market plunge defied a whopping pre-dawn interest rate hike of 6.5 percentage points by Russia’s Central Bank aimed at defending the currency.

The ruble’s collapse spurred Russians to rush out and buy imported cars, refrigerators, washing machines, TV sets and other major appliances in a bid to spend their rubles before stores put on new higher price tags.

“Now is the exact time to make all the purchases you’ve been putting off, because tomorrow there may already be another price,” said Alexei Malakhov, a 27-year old IT worker who bought a Google phone for 18,000 rubles ($250) at a Moscow electronics store.

Malakhov said he bought a washing machine two weeks ago, and its price has swelled by 25 percent since then.

“We haven’t bought everything we need, but there’s no money left,” he lamented.

The higher interest rate will crush lending to households and businesses and deepen Russia’s looming recession, according to Neil Shearing, chief emerging-markets economist at London- based Capital Economics Ltd.

“How many bankruptcies await us in January?” opposition lawmaker Dmitry Gudkov said on Twitter. “People will be out of work, out of money. The nightmare is only just beginning.”

Along with Western sanctions, the ruble’s depreciation has been driven by a slump in the price of oil to below $56 a barrel from a summer high of $107. The bulk of the government’s revenues come from oil.

Yet the selling went beyond what would be justified by the mere fall in oil prices.

“It’s easy to use the word, ‘panic,’ but I think that’s what it has been,” said Philip Hanson, an expert on the Russian economy at the Royal Institute of International Affairs in London.

“The fall in the ruble is more dramatic than the fall in the price of oil would indicate, and I think there’s a crisis of confidence, if you like, a crisis of trust, on the part of everybody involved in the market.”

Associated Press contributed.

More sanctions

President Barack Obama will sign legislation imposing new economic sanctions on Russia, the White House said Tuesday, as the U.S. claimed some credit for sparking Moscow’s roiling currency crisis and moved to deepen the pain.