No Joy for Putin in Hand-Managing the Post-Election Economy

Publication: Eurasia Daily Monitor Volume: 9 Issue: 60

Vladimir Putin and Ukrainian PM Mykola Azarov (Source: Moscow Times)

The “spring retreat” in the protest activity in Moscow has brought relief and jubilation to the Kremlin and the White House (the one on the Moskva River) where courtiers now devote themselves to the really exciting matters – dividing the bureaucratic spoils of the fraudulent victory. Premier-President Vladimir Putin, however, does not seem to much enjoy the role of supreme arbiter in these dog-fights. He also remains wary of the sudden explosion of discontent, which he cannot explain away as American “intrigues” (Ogonyok, March 19). The political after-shocks in the regions – from the tightly contested mayoral election in Yaroslavl to the oil workers’ strike in Bashkortostan – are low-magnitude but prove that uncontrollable social processes are eroding the monolith of bureaucratic dominance (Vedomosti, March 21). It was the generosity of economic give-aways that decided the outcome of the electoral “war-to-the-crushing-victory,” and now Putin has to return to managing the real economy, which is rather different from the picture he painted in his articles and speeches.

He may find a bit of confidence in the reasonably stable economic growth amounting to 4.3 percent for January-February, but the stock exchange remains nervous and registered no rally whatsoever since early March (Nezavisimaya gazeta, Mach 23). The massive outflow of capital has become a new norm, which helps in checking the inflation. However, the increases in pensions and officers’ salaries have pushed the federal budget deep into the red (, March 19). The sustainability of Putin’s crucial commitment to securing “stability” depends entirely on the volume of petro-revenues, so Russian officials listen with acute alarm to the statements from the International Monetary Fund and from Saudi Arabia about their intentions to bring the oil price down to or below the benchmark of $100 per barrel (, March 23).

It was because of this trouble-loaded background that Putin gathered a meeting on the situation in the gas industry last Friday, and even this topic, which used to bring so many rewards for his priority attention, is now highly quarrelsome. The Ministry of Energy prepared a sharply critical evaluation of Gazprom’s performance, and the Ministry for Economic Development objected resolutely to the gas giant’s demand for an additional increase of regulated gas prices by as much as 26.3 percent (Kommersant, March 23; RBC Daily, March 22). It is not entirely clear why Gazprom advanced such a claim, which would have made gas twice more expensive in Russia than in the US, but at least it provided Putin an opportunity to command that there would be no price hikes beyond the 15 percent increase scheduled for July (Vedomosti, March 23). That does not bode well for profitability, since Gazprom’s management is now primarily concerned with selling assets to the “right hands,” and the operational expenses are steadfastly on the rise (Moskovskie novosti, March 22).

Putin certainly has reasons to be dissatisfied with Gazprom besides the glaring but hardly exceptional inefficiency. The cold spell last winter provided an opportunity to gain an extra share of the European market and rescue Gazprom’s dismal reputation, but the super-giant was too slow to move and very unconvincing in its vindications (Vedomosti, March 23). It keeps complaining about the “third energy package” adopted by the European Commission and even tries to take Lithuania to international arbitration over its implementation (Nezavisimaya gazeta, March 13). The plain fact behind the feebleness of Russia’s “gas diplomacy” is that Gazprom cannot adjust to the reality of a buyer’s market that is shaped not so much by regulations issued in Brussels as by business plans of German energy “champions” that now have very mixed feelings about their traditional Russian partner. The only muscular bargaining where Gazprom has an upper hand is with Ukraine, since President Viktor Yanukovich has stubbornly marched into such a tight corner where concessions would only prolong economic misery (, March 20). Putin knows perfectly well that the EU has neither the capacity nor inclination to come to the rescue of “post-orange” Ukraine in distress, so he is set to not only dispossess it of its gas infrastructure but also to enforce Kiev’s accession to the Custom Union.

This long-craved triumph could not alleviate the pain from the postponed but inevitable price rise on electricity and gas, which is certain to hurt exactly those “workers and peasants” whom Putin mobilized so purposefully in his electoral campaign. Seeking to preempt their dismay, he has launched a new offensive against corruption targeting particularly the communal sector and the energy suppliers, while toning down his criticism of Gazprom (, March 23). Putin’s demand to investigate the connections between the top management in state corporations and the affiliated companies that get lucrative contracts appears right on target but, in fact, it is merely a means to restore a modicum of control over the self-serving “loyalists” (Moskovsky Komsomolets, March 22). Meanwhile, the still acting President Dmitri Medvedev tries to revitalize his own “war” on corruption, aiming at a deeper shake-up of the government than Putin is willing to make so that his next position as the Prime Minister would be endowed with more bureaucratic power (Kommersant, March 23).

There is a striking gap between Putin’s very Soviet belief in the virtue of state control over the economic “commanding heights” and his intimate familiarity with the corrupt schemes of extracting enormous profits from that control. He is now caught in an impossible dilemma where the inefficiency of dirigisme – as exemplified by Gazprom – has reached a level where normal economic activity is stifled, while the scale of corruption has enriched the bureaucracy so much that it is past caring about the orders from the supreme authority. Every modest recommendation for economic reforms, like the polished version of “Strategy-2020,” begins with the imperative of curtailing state interference in the economy, and every practical step in the persecution of corruption stumbles over the dense ties linking one case with dozens more – and these networks constitute the real fabric of Putin’s system of power. The omnipotent boss is in fact a double hostage of his core support base, which demands more state patronage, and the greedy bureaucratic clans, which steal the disbursements. His need to retain the illusion of power is akin to “Stockholm syndrome,” but frustration and anxiety are building up to a sudden breakdown.