Russia’s stress test

Like the U.S. financial system, the entire Russian economy is also facing a huge stress test - but one where we won't know the complete answer for some time to come.
Those numbers we do know don't look good, however.
The biggest cost is not financial, it's human. Unemployment has hit 10 per cent, and is still rising. The government's estimates are that the rate of people being thrown out of work will slow over the rest of the year, in part because of state help for people to set up small businesses.
But to be honest, this looks more like wishful thinking than a confident assessment - particularly if you add in all the people who are currently on short-time working, or have had their wages unpaid for months.
In these circumstances, it's understandable if Finance Minister Alexei Kudrin is not so concerned about being served a writ to appear in a U.S. court about the Yukos case, as he has much more pressing problems to solve right now.
Speaking at the Peterson Institute for International Economics in Washington last week, Kudrin laid out the bleak situation that the Russian economy finds itself in.
Chief among the problems are the severe fall in GDP in the first quarter (9.5 per cent), largely caused by a catastrophic fall in industrial production of 14 per cent, and a drop of 15 per cent in investment. The credit situation is also still dire, with few banks lending.
And if non-performing loans due to Russian banks edge up from 8 per cent to 10 per cent, Kudrin said the government would have to step in with another bailout for the financial system.
Any number of problems in the global economy can push Russia over the edge into an even deeper recession - the country's stock market is already showing signs this week of starting another big slide that could wipe out most of the modest recovery in share prices this year.
If oil drops much below $50 per barrel, or if U.S. banks fail stress tests, or if a European economy looks like defaulting, the Kremlin's hopes of soon reaching a bottom in the crisis will disappear.
Perhaps one of the best indicators how much ordinary Russians are really hurting will be the May Day protests this Friday.
Although an imperfect stress test - traditionally the holiday has been an occasion for nostalgia about the Soviet era - the unprecedented higher number and range of protests will give the Kremlin plenty to think about.
Many workers across the country, it seems, have been giving the authorities the benefit of the doubt - waiting to see if the jobs and wages situation gets any better.
And if there are mass protests, will the response be some kind of crackdown, as Ian Bremmer of the Eurasia Group warns is a real possibility?
These are indeed tough times, where the whole economy from top to bottom is under great stress.
It will take much more than uplifting Victory Day parades next week to lift the economy's mood - that's for sure.