Photo: Antonis Shen (flickr)

If salaries are increasing, do people really care about democracy? Today's Economist takes an in depth look at what Putin has really done for the Russian economy.

When asked by a foreign journalist about the lack of political competition and dialog, Putin responded: “The salaries here are going up by 16 percent. There's the answer to your question.” According to this article, Putin cannot fairly claim to be the main cause of this economic success.

The rapid growth is not meeting Russia's full potential and simultaneously trapping them into a dangerous dependency on energy. The economic growth has also been accompanied by rampant corruption. Are you wondering which country equals Russia in corruption levels? Togo. Despite this fact, foreign capital and investment continues to rise at a pace that would be unheard of for that small African nation.

The share of oil and gas in Russia's GDP has increased, according to the Institute of Economic Analysis, from 12.7 percent in 1999 to 31.6 percent in 2007. Natural resources account for 80 percent of exports. Like a powerful drug, oil money has masked the pain caused to the Russian economy by the Kremlin. But the disease remains.

To appreciate the impact oil prices have on the economy, compare real GDP growth of about 7 percent with growth measured in international prices. In dollar terms, says Rory MacFarquhar of Goldman Sachs, Russia's economy has grown on average by 27 percent a year, the fastest of any big economy since 2000. The flow of petrodollars is fanning a massive consumption boom, making Russia the sixth-biggest market in Europe. Disposable incomes (and retail trade) have been growing twice as fast as GDP.

The problem, says Peter Aven, the head of Alfa Bank, is that Russia has failed to convert the oil stimulus into domestic production. Imports are growing much faster than manufacturing. The rapid real appreciation of the rouble is hurting Russia's producers, and many goods are of poor quality. This is why Algeria says it wants to return 15 military jets it purchased from Russia.

The BBC takes a look at the contrast between India's high rate of economic growth and the widespread poverty that continues to plague the country. Though India has become a major global player in information technology, some are worried this high-tech development will only lead to "silicon bubbles" that do little to improve conditions for the Indian poor. Anand Mahindra, managing director of one of India's largest conglomerates, disagrees:

"The IT sector was a kicker to growth," he says. "Its impact was psychological. It signalled to the world that India was much more than its old historical stereotypes. It suddenly in an exaggerated manner, if you ask me, made the world think that every Indian was smart and could fix their computers. But that helped entrepreneurs in India from all industry segments, because it gave them a more receptive environment in which to do business."

Food distribution line. Photo: L. Boscardi/UNHCR

The UN is preparing plans to ration its food aid to people in need if new donations don't provide more money soon, according to an article in the Financial Times this week. Rising global food prices are putting serious pressures on the World Food Program (WFP)'s budget, to the tune of several million dollars each week.

"The WFP crisis talks come as the body sees the emergence of a "new area of hunger" in developing countries where even middle-class, urban people are being "priced out of the food market" because of rising food prices.

The warning suggests that the price jump in agricultural commodities - such as wheat, corn, rice and soyabeans - is having a wider impact than thought, hitting countries that have previously largely escaped hunger."

It is not just the UN that will have to ration its food aid. Countries like Egypt and Pakistan are reinstating or strengthening rationing systems for the first time in decades. Unfortunately, the crisis will be getting worse in the short term. According to the US Department of Agriculture "high agricultural commodities prices [will] continue for at least the next two to three years."

Photo: dziner (flickr)

Like all policy choices, the decision of many developed nations to pursue greater conversion to ethanol and biodiesel has consequences. But who will pay the costs associated with the shift from oil to biofuels? According to the World Politics Review, it is the world’s poor who are going to suffer the most from the negative effects of the biofuel craze.

With current technology, almost all of the biofuel produced today has to be made from corn or soybeans. Though other sources may be able to be used in the future, the use of crops for fuel rather than food has already taken a huge toll on the world’s commodity markets. The UN Food and Agriculture Organization estimates that global food prices have increased by almost 40 percent in the last year, after a 14 percent increase in 2006. Many countries have introduced price controls on staple foods, and food shortages have caused protests in Pakistan and Indonesia.

Photo: Cassandra Nelson/Mercy Corps

South Sudan is so far away and so deep in the shadow of the crisis in Darfur that few would give the region a second thought. It borders one of continental Africa’s largest oil reserves but is one of the poorest regions in the world as a result of the two decades’ long civil war, waged between North and South Sudan. The war ended in 2005 with the Comprehensive Peace Agreement (CPA), but Sudan’s President Omar Al-Bashir, who is from the North, is slowly pulling out of that agreement. His armies, without reason or provocation, have begun creating conflicts in the south. New York Times journalist Nicholas Kristof recently visited the region, where he examined signs of Khartoum's renewed interest in controlling the area through violence if necessary.

We think about Darfur as almost synonymous with Sudan these days, forgetting other parts of the country, where the conflict has left communities destitute and vulnerable. The limited media coverage tends to only focus on Darfur and the hope for successful execution of the CPA to resolve the crisis.

What we don't hear is that what is brewing in South Sudan might easily lead to the reawakening of a deep conflict that haunted the country for decades.

Kristof writes;

"Although people speak of renewed 'war,' the violence is more likely to resemble what happens in a stockyard. If it is like the last time, government-sponsored Arab militias will slaughter civilians so as to terrorize local populations and drive them far away from oil wells."

With such strong words, I expected to find coverage of this issue with ease – and was surprise to note that, except for a briefing published in March by International Crisis Group, [a few weeks after my original post], the growing violence in South Sudan is not being reported. I almost want to believe that Mr. Kristof has made a mistake – except he was there, not me.

As a result of a huge surplus of petrodollars in the United Arab Emirates (UAE), "a secretive, government-controlled investment fund is helping to shift the balance of power in the financial world," explains the World Business section of today’s New York Times. The Abu Dhabi Investment Authority is investing in markets in every region of the world and quietly playing a role in the success, or failure, of companies on a global scale.

Sovereign funds are state-owned funds that manage state savings for the purpose of investment. Basically, they are pools of money governments use to invest for profit, and, generally, these investments are made in foreign companies. For a more in-depth explanation, see the Council on Foreign Relations' Sovereign Wealth Funds fact-sheet.