Politics Dominate but Cannot Invigorate Economy in Putin’s Russia

Publication: Eurasia Daily Monitor Volume: 14 Issue: 73

President Vladimir Putin speaks at St. Petersburg Economic Forum, June 2 (Source: AP)

The St. Petersburg Economic Forum (held on June 1–3) is a one-of-a-kind high-profile event, where Russian business elites camouflage their worries through demonstrations of loyalty, and in which high-level lobbying for or against reforms is mixed with expensive entertainment. Government officials are allowed a bit of freedom to express their disagreements with one another, but the main attraction is always the presentation delivered by President Vladimir Putin, who is expected to add a few jokes to the message on economic priorities. Prospective foreign investors to the Forum are regularly instructed to prepare thick portfolios of memoranda of understanding: these commit them to nothing but make it possible for the organizers to demonstrate that there is substance behind the annual pokazuha (empty pretenses) (Newsru.com, June 1). Russian oligarchs are now reluctant to travel to Davos and discouraged from throwing wild parties in Courchevel, so schmoozing in St. Petersburg grants journalists the best opportunity to feel the mood of this exclusive crowd.

Putin came to his native city after a short trip to Paris on the unexpected invitation from President Emmanuel Macron. But the hopes for building a useful personal connection with the newly elected French leader were ruined by the host’s remark about Russian propaganda at their joint press conference (Novaya Gazeta, May 29). The irritation was clear in Putin’s remark: “I am not one of Europe’s leaders. They do not think so, in any case” (Meduza.io, June 2). NBC News’ Megyn Kelly, who moderated the key session with the Russian head of state, managed to get under Putin’s skin with pointed questions about Russian interference in the United States’ 2016 presidential elections (Kommersant, June 3). The denials were total and blunt, and Putin even suggested that hackers could have left a trail that would lead to Kelly’s three-year-old daughter, which showed good familiarity with her personal file but poor understanding of cybersecurity (Gazeta.ru, June 2). Putin refrained from any criticism of US President Donald Trump for withdrawing from the Paris climate accord and even made a plea to American businessmen to help restore “normal political dialogue” (Vedomosti, June 2).

Russia’s economic situation does not, apparently, worry Putin too much, and his order to ensure growth above the world average by 2020 departs boldly from the reality of Russia’s economy having expanded by only 0.3–0.4 percent in the first quarter of 2017. Moreover, as Finance Minister Anton Siluanov pointed out, this modest growth was only secured by “eating into reserves” (Newsru.com, June 2). Former finance minister Alexei Kudrin presented a well-developed program for lifting Russia out of its present stagnation by reducing state control over the oil and gas sector and by shifting resources to high-tech industries and education (Nezavisimaya Gazeta, June 2). Putin is apparently enthusiastic about introducing digital technologies; although his primary concern is invariably “information security,” including the regulation of the Internet (Moscow Echo, June 3). Kudrin’s sober assessment of a “lost decade” in Russia’s modernization may give Putin a thought or two, but the main proposition to relax bureaucratic control is a no-go (Ezhednevny Zhurnal, June 2). The business elites are growing increasingly dissatisfied with their diminishing profit margins, but their preference for improving relations with the West cannot be translated into a meaningful signal for the Kremlin to look for compromises (Kommersant, June 2).

Indian Prime Minister Narendra Modi was the guest of honor at Putin’s Forum this year, but his message was about attracting Russian investments into his fast-growing economy, rather than opening opportunities for Indian investors in Russia (RIA Novosti, June 1). China sent a small, low-level delegation, indicating that St. Petersburg is outside its prioritized Belt and Road Initiative (Kommersant, June 2). Perhaps more importantly, this lack of interest betrays the Chinese business community’s frustration with the unfriendly and unstable investment climate in Russia. German Gref, the president of Sberbank and a veteran of Putin’s economic team, asserted that the first in the list of urgently necessary reforms had to target Russia’s legal and law enforcement system. Such reforms, Gref noted, are needed to ensure better protection of property rights and less regulation, which often amounts to predation (RBC, June 2). The complete subjugation of Russian courts to political expediency was illustrated recently by the verdict against Alexei Navalny, an opposition champion in the struggle against corruption, in the libel case filed by Alisher Usmanov, one of the country’s top oligarchs (New Times, May 31).

Navalny dared to refuse to follow the court order, and seeks to bring tens of thousands of people to his next protest rally (Navalny.com, May 31). Usmanov can hardly be happy about the public attention to his connections with Prime Minister Dmitry Medvedev, which Navalny’s anti-corruption investigations have unearthed. But the Russian billionaire has succeeded in demonstrating loyalty to Putin through his readiness to serve as a target for public discontent (Republic.ru, June 1). What lies behind this coming out of the closet of corruption is the mounting anxiety in various groups of Putin’s elite about the fragility of ostensibly monumental political structure (RBC, June 1). Speculation about possible surprises in the forthcoming presidential elections hardly amount to anything beyond media interest in producing excitement out of a tightly scripted and lackluster political show (Moskovsky Komsomolets, May 28). Putin himself is, in fact, trapped at the intersection of the “inner circles” of his own regime; he cannot deviate from the script that he is keeping a firm grasp on Russia’s progressively paralyzed power structures (Moscow Echo, June 1).

The inevitability of Putin’s next presidential term does not necessarily mean that the regime will be able to avoid the prospect of a painful internal transition. The façade of stability presented at the St. Petersburg Economic Forum could not quite hide the Kremlin’s inability to invent a growth-focused economic policy; nor did it eclipse the multipronged clan struggle for Russia’s diminishing cash flows. The professionals in the government understand the incompatibility of the goals of regime consolidation versus economic modernization. Moreover, they cannot fail to see the negative impact on their careers of the country’s ongoing stagnation. The oligarchs are apprehensive that their “safe havens” in the West will be threatened by investigations into money laundering; and they are anxious about becoming the Kremlin’s convenient scapegoats. The public mood is sour, and Putin likely knows from experience that passive acquiescence of inequality and injustice can end quite suddenly. The position of supreme guarantor of regime survival also makes him the main liability for Russia’s development—and this precarious balance is not his to keep.