Not for the first time, we have been misled about the true nature of the Russian economy. The perception for more than a decade has been of a state ridding itself of a reliance on oil and gas exports and diversifying in a manner befitting an entrepreneurial, high-tech, modern economy. How wrong. The woes now afflicting Russia are those most associated with an emerging country, complete with currency collapse and the flight of investors' capital occasioned in large part by a commodity price shock.
That may not, in itself, have been too dire. In 1998, following a devaluation and default, Russia was bailed out by the International Monetary Fund and the World Bank. As much is common enough when emerging countries strike problems. But there will be no bailout now because Russia's annexation of Crimea has made it a diplomatic outcast. It has exhausted the international goodwill that existed when Boris Yeltsin was opening its financial markets. Indeed, the banking and energy sanctions that followed its aggression have deepened the economic crisis.
President Vladimir Putin may have gambled that Russia could make light of the economic blowback from Crimea and meddling in eastern Ukraine. That, however, was predicated on rising oil and gas prices continuing to swell the country's foreign currency reserves. It also overlooked the fact that international investors would need little prompting to exit an economy riddled with cronyism and corruption that paid scant heed to the rule of law.
Mr Putin's response to the current crisis, which has seen the ruble hit an all-time low, has been weak. Economics is not his strong point. This, he would like to believe, is an appreciation of geopolitics and how these may be manipulated to fuel Russian patriotism and his own popularity. Therein lies the greatest peril of the foundering economy. If it continues down its present path, Mr Putin will have to find some device to distract Russians from their plight. Playing the nationalist card by ramping up international tensions would achieve that, while also securing an increase in oil and gas prices.
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That does not appear to be uppermost in his mind. With Russia's central bank already having had to bail out the first victim of the collapsed currency, he has announced emergency talks with Western leaders to try to resolve the stand-off over Ukraine. Success there holds the key to a gradual improvement in the Russian economy. Sanctions could be lifted, confidence in Russia would trickle back, and the ruble could stabilise.
If there is no resolution in Ukraine, Mr Putin still has a little time before the ruble's tumble leads to rising prices. If that point is reached, his anti-Western rhetoric is sure to increase. So will the danger of a more aggressive foreign policy. Much rides on the talks with Western leaders.
Longer term, time is certainly not on Mr Putin's side. The Russian economy's true state has been revealed, and investors have delivered their verdict. Cronyism and corruption must be the first targets of a deep-seated reform if anything approaching full confidence is to be rebuilt.