Russia, a Bric economy and the world?s second largest oil producer after Saudi Arabia, has entered 2009 but is hard pressed to maintain economic balance on the oil slick occasioned by sliding hydrocarbon prices. Arrears in unpaid manufacturing wages are going north; so is unemployment, even after hitting its lowest level ever last March.

That has convinced insiders like Arkady Dvorkovich, economic adviser to president Dmitry Medvedev, that the economy may see just about 3% growth during 2009. That would be a far cry from earlier estimated growth rates like 7.5% (for 2008), or 6.8% (estimated for 2009).

But we shall see that even president Medvedev?s advisor is being too optimistic. Ands, we can expect little better as long as petroleum continues to account for 70% of Russia?s export basket; that has made tanking global crude prices the main trigger of Russia?s economic crisis. Indeed, unlike Brazil, Russia even lacks a big enough manufacturing sector; and that makes it more vulnerable to slumps in global energy prices.

Oil?s importance can be gauged from the fact that Russia?s growth has been driven by high oil prices since 2004. Meanwhile, Putin?s part-annexing of the Royal Dutch Shell concessions in 2006, or of BP?s in 2008, were unequivocal statements of intent that the Russian state wanted control over the energy sector. Yet, much still depends on exogenous variables like energy price, or the cost and availability of credit.

Apart from falling oil prices, another crisis relates to Russia?s depleting forex reserves. That explains why Moscow has finally had to desist from defending the rouble?s value via dollar, or euro, purchases. Moscow, in fact, devalued the rouble for the seventh time (in just one month) on December 24, following yet another plunge in the price of crude.

But even the lower rouble has not helped: it exacerbated capital account outflows, and hiked the cost of imports?but left exports unaltered amidst the current recession. Besides, the trouble it has occasioned is one of twin deficits.

One of these deficits relates to foreign investors who have been pulling out. They have taken out in excess of $200 billion since last August. Even Russians, with memories long enough to recall the 1998 rouble collapse, have been shifting into dollars or euros.

The second deficit?the primary federal budget deficit?is actually very new to the Russian Federation, and surfaced during the second half of 2008, in November. Thus, 2008 was a budget surplus year, but in November the government spent 270 billion roubles more than it received. (the year saw receipts amounting to 9.26 trillion roubles, while spending attained 7.56 trillion roubles).

The second half of 2008 was also when Russia?s economic growth slowed down because of the global financial crisis. That too queered Moscow?s fiscal pitch: the Kremlin got less tax revenue from businesses?while world oil prices fell. The government was left spending more in order to lighten the crisis? effects on banks and the economy. In fact, Kremlin?s finance ministry expects the fallout of the deficit to attain 5% of GDP.

Of course, the Bank of the Russian Federation (the central bank) is very keenly aware of the issue. It had spent over $100 billion, and lifted interest rates, in order to shore up the rouble initially. But the depletion of reserves has driven it to the path of depreciation. (A Reuters poll last December pegged expectations for the rouble by 2009-end at 36.24 against a dollar-euro basket. It also says that Russia?s forex reserves are expected to have fallen to about $330 billion by then.)

As for the real side of the economy, a reality check reveals matters to be just as precarious. Accordingly, recent Rosstat data (November 2008) reports a sharp (year-on-year) fall in industrial production, mirrored by an 8.7% fall in the index of industrial production (IIP). But output reduction has been far higher for certain manufactures?falling by 50%, or more.

Cyril Tremasova, an analyst at the Bank of Moscow, has warned that there will be no alteration in this dismal scenario either in December 2008 or over January 2009. In other words, the industrial situation will get worse before it gets better, which might be by February-March 2009. Meanwhile, Russian central bank sources seem to agree that IIP, overall, will fall by between 0-5%. The saving grace would be growth in non-manufacturing sectors, says the minister for economic development, Elvira Nabiullina. Such growth (in service and allied sectors) would offset the slowdown in mining and manufacturing. It would also lead to greater trade & investment in fixed assets.

As for the need to avoid overheating and attain a sustainable growth path, Yevgeny Yasin, scientific director of the Higher School of Economics, pegs the need for fixed investment growth at 11.3%. Only heavy, and continued, doses of fixed investment would rebalance factor of production use and preclude overutilisation of factors like capital or labour. (The need for such a cooling down was earlier stressed in a March 2006 Working Paper of the IMF?The Utilization-Adjusted Output Gap: Is the Russian Economy Overheating? by Nienke Oomes and Oksana Dynnikova). In fact, the good news that has risks being lost is that most surveys of its economy agree that Russia underwent a major hike in capacity utilisation after 1999?hence the overheating and inflationary pressures.

But, right now, all that seems like pre-history: not only is there a downward revision in growth rates, every other commentator seems bent on outdoing his peers in pessimism. That explains why JP Morgan gets accolades from some for forecasting a Russian GDP growth rate of zero for 2009. (That is expected to be the average that will result after three successive quarters of negative growth, followed by one which is positive.) Also, most earlier observers had expected crude prices to stay above $50 bbl.

In sum, the change occurred midway through 2008, following the fall in oil prices and the maturation of the US sub-prime crisis. That had led Standard & Poor?s to award Russia its first sovereign ratings cut in a decade.

Other recessionary signs include reduced power usage, a lowering of electricity prices and a decline in industrial output during November.

And those declines have been accompanied by the war in Georgia and anxieties over investment funds. In fact, difficulties in the refinancing of private-sector debt got compounded when big industry?which had primarily been borrowing from western banks by pledging shares?no longer wanted to sell out, or surrender, collateral even if unable to fulfill conditionalities like bank margin calls. Thus, finding themselves cut-off from global capital markets.

The oligarchs approached the Kremlin which, in turn, assigned VNE Bank to bail them out. The only downside to that would be of enforced equity changes since the lender (Kremlin) can reserve the right to be selective about whom it helps. That would also complete a process initiated by former president Yeltsin, which enabled the oligarchs to enrich themselves by snapping up state-run companies on the cheap. But, by losing their clout now, they may again surrender the firms into state ownership?expectation of which would explain why Russian stocks are languishing, and declined by 69% in 2008.

All these are also excellent reasons why Moscow should hew closer to its Bric compatriots and intensify economic relations with them. That would be the safest way to avoid geopolitical tensions or protectionism. Job creation too would be best served by collective investment in energy and infrastructure.

?Writer is a fellow at the Maulana Abul Kalam Azad Institute of Asian Studies