Putin Promises Changes and Curtails Reforms

On the final stretch of the presidential campaign, Prime Minister Vladimir Putin rushes from one region to another demonstrating attention to local needs and asserting his readiness to lead the country for six more years. Governors are competing in staging support rallies and the official media amplifies the message that Putin’s victory in the first round is beyond doubt (www.newsru.com, February 18). Yet his “inner circle” is clearly nervous about the legitimacy of such an over-managed victory, while the irreplaceable leader is apparently at a loss about the direction of his “stability-and-prosperity” course (Kommersant, February 18). Every Monday he publishes an article with a new set of guidelines toward harmonizing inter-ethnic relations (ignoring the continuing civil war in the North Caucasus), and improving the investment climate (ignoring the malignant corruption and bureaucratic predation), and strengthening the system of social benefits and protection (www.gazeta.ru, February 15; Nezavisimaya Gazeta, February 16). The variety and generosity of electoral promises hardly makes them more convincing, and the growing perception of stagnation, which suits the ruling coterie just fine, is driving the multi-vector protest movement.

It is among the economists that the proposition about the imperative need for reducing state control and bureaucratic dominance over business activity has gained a near unanimous approval, as the discussions at the Krasnoyarsk Forum last week confirmed (www.gazeta.ru, February 17). Respected Western experts, such as Nouriel Roubini, expect that Putin would internalize this must-do change and proceed with removing barriers for business, even if too slowly, to generate a desired burst of growth (Vedomosti, February 17). However, when liberal-minded ministers in Putin’s own government, such as Elvira Nabiullina, insist on drawing a master-plan for privatizing the state-owned companies, first of all in the energy sector, they encounter stiff resistance from Putin’s most trusted lieutenants (Kommersant, February 18).

Putin never hesitates to subject private business to his trademark “manual management,” but with market reforms he invents more procrastinations than the economists can think of. The issue here is not only Putin’s unshakable belief in state control, but also his numerous informal commitments to “special friends” and interest groups specializing in appropriating federal funding. These commitments are more binding than his promises to expand social expenditures, amounting to $250 billion from only one of his articles, so fiscal discipline is sacrificed and increases in taxation look inevitable (www.polit.ru, February 17). Entrepreneurs would be ready to pay more taxes if the pressure of systemic corruption were eased, but cannot put such impossible dreams into their balance books (Vedomosti, February 16). They are particularly irked by Putin’s idea to close the question about the “dirty privatization” of the 1990s, by paying a special one-time tax, from which his cronies, who made huge fortunes in the 2000s, would be exempt (www.gazeta.ru, February 17). The plain fact that Putin is not any more a guarantor of stability, but has become instead a producer of conflict, constitutes a powerful driver for capital flight – which is officially estimated at 4 percent of GDP and described as “money laundering” (RIA Novosti, February 16).

Mikhail Prokhorov may have a slim chance to progress to the second round of elections, but still makes a difference with his message: “Putin is bad for business” (Kommersant, February 16). Entrepreneurs have little choice but to play by Putin’s rules, but they come to the conclusion that these rules cannot be rationalized by the whim of the “tsar,” or by joining the WTO, so the investment climate can only be improved through political reform. The “loyalty-above-the-law” system of governance is rigidly resistant to any reforms, and a clear demonstration of that propensity to authoritarianism is the recent wave of attacks on free media. The TV programs that show slight sympathy to the new opposition are censured or shut down; businessmen who dare to support such critical periodicals as Novaya Gazeta are punished; but the most clear signal was the change in the board of Ekho Moskvy, from which its executive manager Aleksei Venediktov is expelled on the order from the owner, which happens to be Gazprom (Moskovsky Komsomolets, February 15; www.forbes.ru, February 17; Novaya Gazeta, February 18). This radio station is indeed one of the key media platforms of the opposition, and an express-poll among its audience, which goes into the millions, showed that only 1.6 percent was going to vote for Putin (Ekho Moskvy, February 17).

The attacks on the suddenly emboldened opposition prove that the corrosion in Putin’s system of power has gone very deep, and it cannot withstand competition even with the huge handicap secured by control over the state apparatus. President Dmitry Medvedev tries to position himself as a man with a plan for revitalizing this system by carefully calibrated reforms, and speaks about his intentions to re-claim the position of supreme power presumably at the next elections (RIA Novosti, February 17). Influential figures in the establishment dare to give Putin unsolicited advice not to seek another re-election (Moskovskiy Novosti, February 17). Medvedev, however, cuts a dubious figure for the hard-core of the ruling bureaucracy, and his “innovations” and initiatives towards opening up the political arena for “modernizers” are resolutely curtailed (www.gazeta.ru, February 16).

The more public support for Putin is eroded by the relentless ridiculing by the tech-savvy opposition the more he becomes a hostage of his own court, where greed is unlimited but supreme arrogance easily gives way to panic. This makes the intrigues become vicious and makes Putin’s commitment to appoint Medvedev as the prime minister less than rock solid, because every attempt to engage the opposition in charting the course of reforms becomes high treason. The tightening economic situation dictates the shift to more flexible and market-friendly policies, but the escalating political crisis determines the march in the opposite direction – towards tighter control and suppression of the dissent. Court intrigues inevitably prevail over the economic logic in Putin’s system of power; however, that comes with the high risk of a sudden breakdown. Great fortunes were made in Russia during the “fat 2000s,” but the gratitude for Putin’s protection does not stop the beneficiaries from regarding him now as a liability. They can hardly afford for it to last six years, and have to pre-empt the gathering “white revolution” with an executive decision.