Russian President Vladimir Putin has signed a decree that reduces the state officials’ salaries, including his own, by 10% this year as the economy slides into its first recession in five years.
According to a decree posted Friday on the government website, the salary cut for the president, the prime minister, prosecutor general and head of investigative committee came into effect on March 1, while for Cabinet members and Kremlin officials the reduction of their take-home pay will take effect on May 1. The salary cut will be in effect through the end of 2015.
What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More
Another decree on the website has also announced plans to reduce the number of government officials by up to 20%.
Why has almighty Putin done it? Let’s see: oil prices are falling, sanctions imposed by the West are tightening Russia economy’s throat, the ruble has collapsed, GDP is expected to shrink by 5% in 2015, inflation is soaring (to 16.7% in February), the country prepares for budget constraints, living standards are falling… Crude oil, which is Russia’s key source of revenue, is trading at about $60 a barrel, while the federal budget was based on oil prices of $100 a barrel.
Moreover, Putin announced Friday that the revision of the budget will not affect Russia’s spending on its military programs. Russia currently spends around a third of its federal budget on defense and law enforcement.
A survey conducted by Russian Public Opinion Research Center (VTsIOM) last month shows that a third of Russians expect salary cuts in the next three months, while a quarter fear they or their family members will be laid off. In addition to that, Russia suffers from the biggest drop in consumption in over two decades due to the ruble’s 40% loss against the US dollar in just half a year.
Russian people are expected to spend half of their salaries on just food alone in 2015. Earlier this week, Russian supermarkets announced to freeze prices on food and essential items in an attempt to help their customers. Pharmacies have also pledged to follow suit.
Although so far Russian President’s approval rating stays unshaken. In fact, according to the recent poll, Putin’s popularity increased in February to 86%.
What is Mr. Putin’s Salary?
Vladimir Putin, who has controlled Russia for 14 years, is unlikely to be affected by the reduction of his salary. Here’s his direct quote from the annual Q&A session in December: “Frankly, I don’t even know my own salary — they just give it to me, and I put it away in my account”.
His net worth has been the subject of endless speculation for many years. But whatever it is, he believes he has earned it: “As for my personal perception, I am not ashamed before the citizens who voted for me,” he said back in 2008. “All these eight years I worked like a galley slave, to spare no effort. I am happy with the results”.
Boris Nemtsov, a top political nemesis of Vladimir Putin and the leader of Russian opposition who was mysteriously murdered just over a week ago while walking outside the Kremlin with a female acquaintance, turned Putin’s quote around and published a report called “The Life of a Galley Slave” in 2012. The report stated that Putin owns 20 homes, 58 aircrafts, a large fleet of cars, planes and boats, 4 yachts etc.
While some believe Russian President is the richest man in Europe with his net worth as high as $200 billion, Putin has always dismissed any speculation that he has accumulated a large fortune. Officially, Putin owns 2 apartments, 2 GAZ Volga cars, 1 garage, and 1 caravan.
In April 2014, the Kremlin announced the tripling of Putin’s salary, bringing it to around 9 million rubles per year ($145,000).
In contrast, US President Barack Obama earns $400,000 per year, while German Chancellor Angela Merkel makes $240,000 per year.
Gloomy Forecasts for Russian Economy
Russian Deputy Finance Minister Tatyana Nesterenko has recently announced that the government plans to ask the State Duma to allow the spending of 3.6 trillion rubles (around $58 billion) from the budget’s reserve fund.
Nesterenko said the Finance Ministry forecasts a budget deficit of 3.7% of GDP for 2015, and plans to cut budget spending by 1.07 trillion rubles (around $17.5 billion). She also announced that Russia no longer plans to issue $7 billion in eurobonds in 2015.
In the beginning of 2015, Moody’s rating agency said that Russian GDP might fall by as much as 5.5%. While analysts at Danske Bank in Copenhagen predicted a contract of Russian GDP by up to 8%.
Furthermore, by the estimation of the Economy Ministry Russian economy will shrink by 3 percent this year, and real wages will shrink by around 10 percent.
State employees are the best paid workers in Russia with an average salary of around 250,000 rubles ($4,040) per month, according to the Federal Statistics Service. An average salary in Russia is 32,800 rubles ($530 by today’s exchange rates; before the Ukrainian-Russian crisis it was around $1,000).