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Europe

World Bank Sees Slump in Russia Worsening

Published: March 30, 2009

MOSCOW — The World Bank released a grim report on Russia on Monday, projecting a 4.5 percent contraction in the economy in 2009 and warning that the financial crisis would push 5.8 million Russians into poverty unless the government shifted more spending to poor families.

The report was a sharp revision of the World Bank’s November forecast, which predicted an increase of 3 percent in gross domestic product in 2009. World Bank analysts also took a more pessimistic view than the Russian government, whose experts are predicting a 2.2 percent contraction.

The report praised the government’s $85 billion anticrisis program, which stabilized Russia’s banks and prevented financial panic. But it said too little had gone to households — a hazard in a society where 37 million people, a quarter of the population, lives near the poverty line.

“It is a somewhat disturbing development that we would like to draw attention to,” said Zeljko Bogetic, the World Bank’s chief economist on Russia. “The challenge is now to act quickly.”

During the hours after the report was released, the ruble slipped to about 34.2 per dollar, its lowest rate in 10 days, and both of Russia’s main stock indexes dropped more than 3 percent. Deputy Prime Minister Igor Shuvalov told reporters that he believed that the World Bank report was too pessimistic and said the government had asked experts to review the forecast.

Among the bank’s discouraging conclusions was that Russia cannot expect the kind of vibrant, “V-shaped” recovery that it saw after its 1998 currency crisis.

Though Russia weathered the “rapid tsunami” that followed the collapse of Lehman Brothers last September, Mr. Bogetic said, lower household spending and a pileup of collapsing corporate loans could develop into a “silent tsunami,” suppressing global markets until at least the middle of 2010.

“As the crisis continues to spread to the real economy around the world,” the report said, “initial expectations that Russia and other countries would recover fast are no longer likely.”

The World Bank report addresses a particular worry of Russian authorities: that unemployment will translate into civil unrest. Already, nearly 6.4 million Russians are unemployed and 1.1 million are on forced leave or working part-time schedules.

By the end of 2009, unemployment will probably reach 12 percent, the World Bank predicts. The poverty rate will climb to 15.5 percent, erasing some of the gains made in the last decade, when poverty fell to 10 percent from about 20 percent, the report said.

The report recommends a package of payments, including increases of 70 percent in unemployment subsidies and 220 percent in child welfare payments, which Mr. Bogetic said “could alleviate some of this social pain.”

“These instruments are better than all the others in reaching the poor,” he said. “You need to jack them up sufficiently.”

The report gives high marks to Russia for “responding fairly massively” to the onset of the financial crisis, spending a projected 6.7 percent of its G.D.P. on anticrisis measures when the internationally recommended rate is 2 percent. As a result, Russia avoided a wave of bankruptcies and bank closings, an achievement that “somewhat surprised” most foreign analysts, Mr. Bogetic said.

The World Bank revised its forecast for the price of crude oil to $45 a barrel, increasing slightly to $53 in 2010. The average price of a barrel of oil in 2008 was $97.