Russia’s Eroding Economy Risks Putin’s Economic Union
Policy + Politics

Russia’s Eroding Economy Risks Putin’s Economic Union

Cracks are already showing up in the new Russia-backed free trade bloc known as the Eurasian Economic Union, as the decline of the Russian economy is increasingly reflected on the export ledgers of countries such as Belarus, Kazakhstan, and Armenia.

Last week Alexander Lukashenko, the Belarusian president and a cautious supporter of Moscow in the past, said his country could not rule out quitting the fledgling economic union, created at the beginning of January. Lukashenko has been in a very public dispute with the Kremlin over the Russia’s decision to ban meat imports from Belarus. 

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The ban was put in place after Belarus was accused of re-exporting European goods to Russia. This was a problem, because the Russian government had placed an embargo on the purchase of these goods – mostly foodstuffs – in retaliation for sanctions imposed by the European Union and the U.S. after Russia invaded Crimea. 

Lukashenko said trade battles within the EEU were unacceptable.

The Belarusian leader’s remarks were delivered just a day before representatives of Russia, Ukraine, and the Organization for Security and Cooperation in Europe announced they would meet in his capital city, Minsk, to try to restart peace talks. Rebels in Eastern Ukraine are fighting to establish an autonomous region more aligned with Russia than the capital in Kiev. 

(Those talks failed on Saturday, as additional reports of civilian and military deaths came out of the troubled region.) 

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The rebels, widely believed to receive materiel and even fighters from Russia, despite the Kremlin’s denials, rose up after Russia invaded Ukraine’s Crimean peninsula last spring and then declared the region had been “annexed” by Russia.

In recent months, multiple European countries, including former member states of the Soviet Union, have reported incidents in which the Russian military – usually military aircraft – have violated other countries’ airspace. Belarus has a 600-mile, largely unguarded border with Russia.

Lukashenko’s threat on the trade pact came as Russian officials admitted their economy is in even worse shape than they’d previously acknowledged. On Saturday, the country’s economic ministry said it was forecasting a 3 percent decline in gross domestic product this year. Private sector analysts have been even more pessimistic, suggesting the decline could be as much as 5 percent.

Last week, the Russian Central Bank announced a surprise cut in interest rates, from 17 percent to 15 percent. The move represents a shift in stance and may have depositors experiencing a bit of whiplash. It was only mid-December when the bank hiked rates from 10 to 17 percent overnight in an effort to halt the ruble’s slide against the dollar and other global benchmark currencies.

The bank appears to be trying to strike a balance between protecting the ruble and choking off credit to an economy that needs all the growth it can get.

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