Faced with a Crippled Economy, Putin Strikes a Conciliatory Tone at Davos

The annual World Economic Forum in Davos was a somber event this year. Its trademark bragging and success stories and the schmoozing among the rich-and-famous were overtaken by the scale of damage from the global crisis that the forum had confidently talked out of existence a year before. In the absence of all key figures from the Obama administration, the organizers opted for granting Russia and China an opportunity to deliver the opening addresses for the Forum. The Russian media duly trumpeted the invitation to Prime Minister Vladimir Putin as recognition of Russia’s key role in shaping the post-crisis world (Vremya novostei, RBK Daily, January 28). In fact, however, only one session in the vast forum program was devoted to Russia; and its participants agreed only on the point that Putin’s role remained pivotal, while pondering about his intentions, motives, and political philosophy, as well as Russia’s ability to withstand the collapse of oil prices (www.weforum.org, January 29).

Putin surprised the audience by striking a "come-together" tone and refraining from any anti-Western invectives, in sharp contrast to his famous "Munich speech" two years ago. According to First Deputy Prime Minister Igor Shuvalov, Putin’s trusted economic adviser, his boss was in an "absolutely liberal mood" and saw no point in taking a confrontational stance (Rossiiskaya gazeta, January 30). Describing the crisis as a "perfect storm," Putin had only pipelines to offer as rescue measures, but he rejected "egoism" and "isolationism" as entirely inappropriate responses by "responsible and knowledgeable people" who were in "the same boat." What was perhaps the most unexpected departure from Putin’s own course was his refutation of the "blind faith in the state’s omnipotence" and condemnation of the temptation "to expand state economic intervention to the greatest possible extent" (Kommersant, January 30).

It was President Dmitry Medvedev who spoiled Putin’s conversion to cooperative liberalism. Medvedev had his own liberal moment in Davos two years ago, but last Friday he presided over the annual session of the Federal Security Service (FSB) board and praised this most special of all services as "a key link in our system of providing security to our country" (EDM, January 29, 2007). He assigned it the task of ensuring that the funds allocated for supporting key branches of the national economy would reach "real consumers" and would be spent "according to the budget" (Kommersant, January 30). Capitalizing on the crisis may indeed be a "twofold crime," as Medvedev put it, but there hardly is a surer means of destroying "the spirit of free enterprise" that Putin pleaded to uphold than to put the FSB in charge of monitoring the flow of credit.

Seeking to sway the Davos crowd with sincerity, Putin admitted that Russia was "seriously affected" by the crisis. This admission, however, is as far from reality as was his denial of any crisis in Russian economy last autumn. By every objective measure, Russia is experiencing a far more severe recession than the United States or the EU, or indeed China. The brave statements of Shuvalov and Finance Minister Alexei Kudrin that the negative trends are under control can check neither the devaluation of the ruble nor the collapse of consumer confidence (Moskovski komsomolets, Kommersant, January 31). Andrei Illarionov, Putin’s former economic adviser, argues that the contraction in Russian industry started well before the oil prices peaked and has by now progressed to a stage "beyond catastrophe" (www.gazeta.ru, January 30). Putin predicted that the Russian economy would see recovery before the end of the year, but his economic lieutenants hypothesize about three years of recession, which essentially means that their anti-crisis plan is based entirely on spending the accumulated reserves, which at the current rate would be exhausted by mid-2009.

Putin probably cannot quite understand why the massive expenditure of stored capital does not stop the economic freefall, but he has certainly rediscovered Russia’s vulnerability to global turbulence. Hence, his renewed emphasis on cooperation that might indeed encourage some investors with short memories. For most Europeans, however, the trust destroyed by the "gas war" with Ukraine and the five-day war with Georgia cannot be restored by one "liberal" speech. Putin’s idea about reducing military expenditures rings particularly hollow for anyone who cares to remember his multiple commitments to modernizing Russia’s armed forces. On the day of Putin’s speech, the Russian General Staff indicated that deployment of the tactical Iskander missiles in Kaliningrad Oblast had been postponed, but this goodwill gesture has hardly provided much ammunition for the "peaceful offensive," since these missiles are yet to be produced (Nezavisimaya gazeta, January 29). The Kremlin may rejoice about scoring twice with a non-existent Iskander–first by announcing it and then by canceling its deployment–but Germany and other European countries are hardly amused by this irresponsible brinksmanship.

The compromised reputation of Russia’s leadership and its proven propensity to erratic behavior effectively exclude this important economy from the multilateral efforts to mitigate the crisis. The Russian nouveau riche are still flocking to the Courchevel ski resort, but the Russian contribution to the brainstorming in Davos was thin indeed (Novaya gazeta, January 30). Putin dismissed the question about whether Russia might need help in restarting post-crisis modernization, insisting that "we are not invalids" and suggesting that the West should take a closer look at its own image before poking at Russia’s problems. It is indeed necessary to forget petty disagreements, like the "beef crisis" with Poland, and discard the old hurdles, like the Jackson-Vanik amendment in the U.S. trade legislation. The key issue, however, is that it is precisely Putin’s own leadership that constitutes the greatest handicap for Russia in coping with the crisis, and Western criticism of its lack of transparency and intolerance to opposition is ultimately aimed at helping this key partner overcome the increasing dysfunction of the regime. The organizers of the Davos Forum have a "no-losers" rule for selecting speakers; it might take only a few months to demonstrate that Putin was an unfortunate exception.