Russian economy haunts Putin

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Russian economy haunts Putin

Vladimir Putin’s electoral appeal has always been the guarantee of stability. This resonated with the masses following the post-Soviet upheaval, but this March the President faces a different challenge. With real wages in their third year of decline, Russians seek socio-economic change. The fast cash from a decade of high oil prices has dried up and the president’s campaign for a fourth term looks to be his hardest.
 
At a recent lengthy press conference, it was clear that the 65-year-old Putin does not have the spirit to run as an agent of change. He is expected to use internal and external circumstances to his advantage. Foreign policy crises were used adeptly during his current term so as to divert attention from problems at home. However, with internal economic stagnation becoming more noticeable, the Kremlin will need to be more innovative if Putin seeks to retain control.
 
The Russian economy began to slow down before international oil prices started to fall. In 2013, as prices were comfortably above $100 per barrel, the economy began to lapse as it became clear systemic reform was needed for growth to continue. Since then, the compound effects of tumbling oil prices and international sanctions have seen low growth continue. Voters sense stagnation and, as they prepare for yet another Putin presidency, economic transformation will feature highly on their list of priorities.
 
Putin’s Kremlin is well aware of this public feeling. In 2017, it worked assiduously to try and get the economy on track. The central bank brought inflation below 4 percent, after it reached as high as 15 percent in recent years, and a renewed round of budget cuts has kept the national deficit to a minimum. However, the central government’s actions seem increasingly erratic and indeed reactive, with the presence of a coherent strategy to strengthen the economy lacking.
 
Ahead of elections in March, the president commands an ever-smaller inner circle and will increasingly need to arbitrate between powerful and wealthy figures, whose feuds are of growing concern to the state.

Zaid M. Belbagi


The economy that once grew by 7 percent during the president’s first two terms is now predicted by the World Bank to grow by 1.8 percent or thereabouts. The president, who had once been hailed as the savior of a failing economy that was being parceled out for sale to wealthy foreigners by Boris Yeltsin, can no longer claim to be an economic reformer.  An assertive foreign policy and a strong sense of nationalism have come to be Putin’s hallmarks — it hasn’t escaped the eyes of many observers that the chosen date of the election, March 18, coincides with the anniversary of the Russian annexation of Crimea.
 
For a country the size of a continent to have an economy the size of Italy’s illustrates the scale of the problem. However, Russia’s greatest economic challenges are caused by internal dysfunction. The country’s vast uninhabitable expanses and ethnic challenges are trumped by the scourge of corruption. Russia’s vital energy sector is subject to a great deal of political influence. Ambiguous laws and a weak judicial system plague energy production, which suffers from the misuse of billions of dollars of revenues. A lack of transparency with regards to the production and sales of the world’s largest oil producer often suits the government and the interests of oligarchs, whose loyalty Putin’s empire is built upon. The level of such intrusion is clear in how the state’s giant energy companies Rosneft, Transneft and Gazprom have ministers and deputy prime ministers on their boards.  Despite the fact that the country complied with the Council of Europe’s Group of States against Corruption (GRECO), its position did not change in the most recent Corruption Perceptions Index.
 
The fiasco around the prominent opposition leader and potential 2018 presidential candidate, Alexei Navalny, illustrates the extent to which the courts remain biased. His trial last year resulted in a five-year suspended prison sentence for embezzlement, thus barring him from running. The fact he was sentenced in connection with the embezzlement of half a million US dollars from a state-owned company, whilst billions misappropriated by others close to the Kremlin remain unaccounted for, highlights the extent of institutional failures in regards to Russia’s economic woes.
 
The president commands an ever-smaller inner circle and will increasingly need to arbitrate between powerful and wealthy figures, whose feuds are of growing concern to the state. Within this context, more money urgently needs to be allocated to education and healthcare as opposed to security. The state’s plans to open up the economy have proved to be ineffective, as foreign investors grow squeamish over how the US will implement its latest round of sanctions.  Economic successes veil the reality that the Kremlin seeks to keep from view — it is estimated that as much as 90 percent of domestic investment last year came from three large state-backed projects. The heavy hand of the state may be able to prop up the president for one more term, but increasingly acute economic challenges may prove overwhelming. 
 
• Zaid M. Belbagi is a political commentator, and an adviser to private clients between London and the Gulf Cooperation Council (GCC).
Twitter: @Moulay_Zaid

 
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