Falling oil prices hit Russia

Falling oil prices hit Russia

Protestors and police in Moscow

Police officers clash with opposition protesters during a demonstration in Moscow

The Russian economy is under new strain because of the global downturn. Falling oil prices are threatening government finances, but how bad will things get for the Russian people?

Russia's transition from a centrally planned economy to free market capitalism has not been a smooth one. Now, the global downturn is providing yet another challenge. Jobs are being lost, and wage payments are being delayed. As these people on the streets of Moscow know only too well:

Listen Listen to Russians' views on their economic problems (1 min)

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Budget gap

For the Russian government, the consequences are serious too.

Siberian oil fields

Oil revenues have been the main driver of Russia's recent economic boom

The price of oil has plummeted because of a drop in world demand. So, Moscow's revenues are sharply down too. The gap between what the government spends and what it earns - its budget deficit - is expected to rise sharply this year to around 60 billion dollars.

Olexiy Solohubenko, the BBC World Service's Europe editor, says Russia's new-found prosperity of the last decade or so has evaporated. And that's threatening the country's stability.

Listen Listen to Olexiy Solohubenko (1 min 30 secs)

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Policy implications

So what should Russia do now to turn things round?

Fund manager James Fenkner, at Red Star Fund Management in Moscow, says the government should stop wasting precious reserves trying to prop up the rouble on the international money markets.

Listen James Fenkner's interview (1 min)

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First broadcast on World Business News on 5 February 2009