Internal and External Impact of Russia’s Economic Crisis

Summary:

Even though Russia's economy has returned to growth-on the back of higher oil prices-the financial crisis of 2008-09 will continue to reverberate across Russian politics and foreign policy.  Domestically, the crisis has called into question the "social bargain" of the Putin years. It has also complicated President Dmitry Medvedev's push for economic liberalization and modernization. By restricting opportunities for rent-seeking among the various politically connected oligarchic factions, the crisis has exposed fissures within the elite.

In terms of foreign policy, the crisis has limited the effectiveness of Russia's principal sources of leverage: energy resources, the military and foreign investment. If the worst is indeed over, much of the momentum for further reform is likely to dissipate, leaving Russia facing a recovery that is slower and less complete than that of other large industrial states (such as China and India). If there is to be a silver lining for Russia in the crisis, Moscow needs to push through the reforms needed to make Russia more attractive to foreign investors.

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