Distortions in Russian Economic Policy Exposed at Pompous Forum

The St. Petersburg International Economic Forum (SPIEF) was launched in 1997 as a Russian equivalent to the Davos World Economic Forum, and for many years it provided a venue for Western business looking for opportunities to invest in Russia. But not anymore, and in the absence of foreign guests, Russian’s business elites were mainly trying to convince themselves that there was still plenty of money going around (Meduza, June 4). “Vanity fair for domestic consumption” – this apt definition by an opposition politician from St. Petersburg, a city still in partial lockdown due to the Covid-19 pandemic – captures perfectly the spirit of showing-off and fake joy (Moscow Echo, June 4). President Vladimir Putin departed from his now habitual virtual leadership and addressed the carefully selected audience in person, but his assertion that the Russian economy showed resilience and proceeded on a track of recovery was delivered without much confidence and aroused scant enthusiasm (Kommersant, June 5).

Putin’s only “sensational” statement was that the construction of the Nord Stream Two pipeline was completed despite persistent US attempts to block this high-priority project (Izvestiya, June 4). He appeared particularly irked with the accusations that Russia exported “dirty gas” and argued that the production of oil and gas from shale resources in the US was “catastrophic” for the environment (RBC, June 4). The real scope of environmental damage caused by the energy industry in Russia is hard to assess due to the scarcity of data. Still, the greater problem, spelled by Alexei Kudrin, chairman of the Accounts Chamber and former finance minister, is that Russia needs to reduce its oil dependency and invest in modern technologies and human capital (Forbes.ru, June 4). These elementary guidelines are instantly attacked by scores of “experts” serving Gazprom or Rosneft, all too eager to paint a bright future for the extraction industries (Nezavisimaya Gazeta, June 4).

Another sensation of sorts was Putin’s elliptic supposition that Russian energy companies might be compelled to turn away from the US dollar in their export operations (RBC, June 5). Patriotically-minded Russian economists have long entertained ideas of this kind. They are now gaining new traction with the expectation that politically-prescribed disinvestment by key Western oil majors in new production would bring a spike in prices (Izvestiya, June 4). These self-serving forecasts are translated into the Russian finance ministry’s decision to reconfigure the composition of currency reserves and dump some $63 billion while increasing the holdings of Chinese yuan (Nezavisimaya Gazeta, June 3). Concerns about a further tightening of US sanctions are invoked as the primary explanation for this dubious financial maneuver, which counters hopes for an agreement to stabilize Russia-US relations at the forthcoming Geneva summit (Forbes.ru, June 4). Putin might imagine that the move aimed at undercutting the role of the US dollar as a global reserve currency would strengthen his hand in bargaining with President Joe Biden, but it only testifies to his failure to understand the minuscule impact of Russian demarches on the world financial markets (Novaya Gazeta, June 4).

What the forum has proven beyond doubt is the expansion of state control over the economy, which in many states is a temporary deviation caused by the pandemic, but in Russia it is a firmly established trend—and a major cause of a protracted stagnation (Kommersant, June 4). The recovery from the statistically shallow recession brings Russia back to the pattern of feeble growth, contracting household incomes and rampant corruption, and government policies are effectively entrenching these ills (Nezavisimaya Gazeta, June 2). The bureaucratic predilection to confiscate profits by slamming extra taxes may upset some oligarchs, but these quarrels merely provide entertainment at the forum and have nothing to do with stimulating modernization or reducing staggering inequality (Moscow Echo, June 1). Perhaps the most impressive presentation in St. Petersburg was delivered by Anastasiya Tatulova, ombudsman for small and medium businesses. She decried the inefficiency of state support and asserted that security was the most urgent need of private entrepreneurs, who have no protection against predation by greedy bureaucrats (Fontanka, June 3).

The routine extortion, to which small private businesses are subjected, goes hand in hand with suppressing individual initiative and censorship of business-oriented media, exemplified by the enforced closure of VTimes newspaper, branded as a “foreign agent” (Meduza, June 3). Rigid state control is detrimental for technological innovations, but independent entrepreneurs and start-uppers are suspected of harboring liberal ideas, as the example of the high-tech sector in Belarus shows, so the platforms for cultivating modern business culture are resolutely shut down by empowered siloviki (Svoboda.org, June 5).

The economic costs of such micro-management by the all-penetrating special services keep mounting, and Belarus, brought to bankruptcy by the dictatorial regime, provides a stark lesson, which the Kremlin is as reluctant to learn as it is loath to pay the bills (Rosbalt, June 3). Putin was visibly irritated by questions about the consequences of the Ryanair Flight 4978 hijacking in Belarus and the fate of arrested and interrogated journalist Roman Protasevich. He tries to keep his distance from this breach of international rules, even when welcoming Alexander Lukashenka in Sochi (Novaya Gazeta, June 4). There are too many domestic crimes for the Kremlin to answer and Alexei Navalny, who celebrated his 45^th birthday behind bars, remains a major thorn puncturing every propaganda balloon presenting Russia as “open for business” (Znak.com, June 4).

Official reassurances in Russia’s economic recovery are about as convincing as the declarations of concern about climate change, which whitewash the plans for expanding production and export of fossil fuels and minimizing environmental protection costs. Western sanctions can no longer explain declining family incomes, while ignoring the flaws and distortions of steadily expanding state control over an economy heavily dependent on extracting natural resources. It is entirely possible for the repression-reliant authorities to suppress anti-corruption investigations as “extremist” activity, but it is impossible to hide the continuing deepening of inequality caused by systemic corruption. Putin keeps trying to set new channels for exporting corruption to Europe, but his proclivity for and denials of dirty and murderous “special operations” make even the most unscrupulous European politicians wary of Russian connections. New growth opportunities opened by the subsiding pandemic crisis are lost on Russia, but the less competitive in economic terms it becomes, the more pronounced is the reliance on “infallible” military means.