Gloomy news about Russia's economy -- figures on Monday showed April industrial production plunged 17% year-on-year -- has been mixed with some rare positives in recent weeks. Oil prices are surging, the ruble is up and Russian stocks have taken off.
But even the good news has economists worried. "Oil prices now are as awful as they could be -- not low enough to force real reform and not high enough to allow free spending like before," says Vladimir Mau, a prominent economist who heads an advisory panel to a government team dealing with the financial crisis.
Pressure is high on the government to keep spending to support the flagging economy, while many economists and fiscal hawks inside the regime warn that the Kremlin needs to tighten its belt in order to cut the deficit and bring down surging inflation.
An indication of which approach is prevailing will come by the end of this month when President Dmitry Medvedev delivers his annual budget message, officially starting preparations of a draft to be ready by midsummer. Prime Minister Vladimir Putin and other officials have pledged no cuts in social spending.
As the Kremlin struggles to turn around the shrinking economy, cope with surging unemployment and deal with a rising wave of bad-debt problems among its banks, the recent upturns in oil prices and the country's markets are providing little relief.
Higher oil prices -- now around $56 a barrel, up from less than $40 earlier this year -- don't feed directly into the economy, analysts say, as most of the increase is absorbed by taxes. In Russia, taxes fluctuate with the oil price, effectively meaning revenue above around $30 a barrel go to taxes.
Analysts credit the ruble's recent strength mainly to high interest rates -- which business groups complain are starving companies of credit. The stock-market gains, meanwhile, are being driven by speculative inflows that could reverse if oil prices slide.
Last fall, top Russian officials said the global crisis would largely pass the country by, counting on a "rainy-day" fund saved from oil revenue -- valued at $143 billion at its peak -- and underestimating dependence on exports of oil and metals and flows of cheap foreign credit.
But Russia's economy has been hammered, contracting an estimated 9.5% in the first quarter. Official forecasts now say the recession could continue into next year. Unemployment has surged, reaching 10% in March. Unlike in Europe and the U.S., where price growth has all but stopped, inflation in Russia remains in the double digits, partly as a result of years of heavy government spending.
With public discontent growing, the Kremlin put in place a massive stimulus package. To cover its first budget deficit in nearly a decade, it plans to spend a large part of the rainy-day fund.
Finance Minister Alexei Kudrin -- a prominent advocate of tight budgets -- last month said the fund is likely to run out next year and the deficit will need to be reduced in order not to stoke inflation.
He said the government needs to get used to lower revenue and more modest annual-spending increases because it will be decades before Russia again sees the combination of high commodity prices and cheap credit that fueled growth in recent years.
According to government advisers, other officials dismiss those warnings, calling for continued increases in spending to stimulate the economy, as well as tax cuts for business to offset planned increases in payroll levies.
So far, Mr. Kudrin seems to have strong support from his longtime ally, Mr. Putin, who has often come down on the finance minister's side in policy debates. But even Mr. Putin seemed dismissive when asked last month about Mr. Kudrin's comments on the international economic environment. "Alexei Leonidovich [Kudrin] is stressed now," Mr. Putin said.
Critics warn loosening the purse-strings would fuel inflation, drive up interest rates and stifle efforts to develop new businesses to wean the economy from its dependence on oil.
Oil prices are complicating the picture. The government cut its forecast for crude prices to $41 a barrel early this year. But with prices now nearly $60, that is looking conservative.
"When oil was $40, it was easier for Kudrin to make his argument" about the need for spending cuts, says Yevgeny Gavrilenkov, economist at Troika Dialog, a Moscow investment house.
So far, the Kremlin's stimulus package, which amounts to 1.6 trillion rubles ($50 billion) in this year's budget, hasn't had much impact, economists say.
Mr. Medvedev last week said that a 300 billion ruble program of state-loan guarantees to stimulate lending to industry this year had been a failure. Industry officials say little of the stimulus has actually made it to industry, outside of the oil sector, one of the first to win tax breaks as the crisis took hold.