Famous Russian economist Krepach: Russia is losing the "war of attrition" and faces the risk of social crisis

Andrei Klepach, one of Russia's most famous macroeconomists, said at a financial forum in May that Russia was losing a "war of attrition" with the West. His remarks were exposed by Russian media last week.

"We are falling behind. We are at a disadvantage in global technological and economic competition. And we are losing not only to China and the United States, but in some aspects even to Ukraine," he said, adding that this was because Kyiv received financial support from the West.

"We will not win in this competition in a war of attrition. We have the illusion that everything there (in Ukraine) will collapse. But it has not collapsed, and it will not collapse. Our costs are increasing," he said, predicting a possible social crisis in Russia.

Klepac pointed out in his speech: "From an economic point of view, we will not collapse, but our backwardness will continue to intensify and bring various corresponding consequences." He predicted that social crises may suddenly break out "when people are unprepared."

The speech was posted on the website of the Nikitsky Club, a forum for economists, academics and government officials. As a top executive at a Russian state-owned bank, it is rare for Krepaci to publicly criticize the costs of a war launched by Moscow in 2022.

Before joining Russia's state-owned Development Bank (VEB), Krepac served in various economic institutions and worked at the Russian Ministry of Economy for 10 years.

Russia's state-owned Development Bank, which finances state projects, confirmed in a written response to Reuters that Krepaci was no longer its chief economist but did not say why. Klepac, who took the post in 2014, also confirmed his dismissal to Reuters.

In a speech in May, Krepaci emphasized Russia's resilience to Western sanctions but also noted that pressure was growing due to Ukraine's attacks on Russian energy and logistics infrastructure. He pointed to Russia's growing income inequality and lower GDP growth than the United States and Ukraine.

In July, Russia's central bank said the country's economy might not be able to grow this year. This summer, a series of attacks in Ukraine on Russian refineries and warehouses of Wildberries, Russia’s largest e-commerce platform, triggered a supply shock, heightened inflation risks and stoked public unease. On Sunday (August 16), Russia said that hundreds of drones attacked Moscow overnight, killing a total of six people in Moscow and the Rostov region in the south.

However, Russian President Vladimir Putin still said that the Russian economy remained stable.

At present, there are no signs of serious social unrest in Russia. The Reuters report pointed out that this is not unrelated to Russia's strict wartime censorship, protest bans, heavy sentences for dissidents, and the growing influence of the Federal Security Service.

In his speech, Krepac also criticized Russia's over-reliance on China and pointed out that Russia's lack of coordination between currency, budget and industrial policies is one of the reasons for the slowdown in economic growth this year.

“The quality of [Russia’s] governance has been deteriorating almost continuously,” he said. “Decision-making is often poorly informed and has profound long-term strategic consequences.”