March 20th, 2012

How do you pay for a campaign promise?

President-elect Putin

The New York Times reports that President-elect Vladimir Putin needs to pray for higher oil prices if he hopes to pay for his expensive campaign promises that include “raising wages for doctors and teachers, padding retirement checks for everyone and refurbishing Russia’s military arsenal,” not to mention a “baby bonus” that would pay Russian couples up to $8,300 for having a third child.

Citigroup estimates oil would need to reach $150 a barrel, a price it has never reached, and sustain that price in order to pay for these promises. (Ural Blend crude was trading $120 earlier this week.)

Reacting to these numbers Sergei Guriev, the rector of the New Economic School in Moscow, said:

It’s very hard to overestimate how vulnerable the Russian economy is to external pressures from the oil price. That vulnerability is huge, which is why Russia must be very vigilant. The [proposed] spending is a risk.

Citigroup says Putin’s new commitments would tally almost $100 billion per year, while Fitch cautions that “the absence of fiscal tightening…would have a damaging impact on the Russian economy and public finances and would likely lead to a downgrade” of the nation’s credit rating.

Read the full story here.

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