Publication: Eurasia Daily Monitor Volume: 5 Issue: 196

A distinct note of triumph is entering the statements of Russian officials on the scale and possible consequences of the global economic crisis. It is President Dmitri Medvedev who was doing most of the talking last week, while his “senior partner” Prime Minister Vladimir Putin devoted his attention to problems of cinematography and ice hockey but mostly to his new pet, a tiger cub (Moskovsky komsomolets, Kommersant, October 11). Medvedev was the “guest star” at the Evian conference organized by French President Nicolas Sarkozy, then rubbed shoulders with “comrades-colleagues” at the summit of the Commonwealth of Independent States (CIS) in Bishkek, Kyrgyzstan, and finally rushed to Severomorsk to observe the Northern Fleet exercises (Vedomosti, 8 October).

Medvedev’s increasingly confident discourse on the unfolding disaster includes a bit of self-congratulation (he had indeed started to crow about it before any Western leader was able to utter the word “crisis”), a healthy dose of anti-Americanism (there is hardly any doubt in his audiences where the blame belongs), and much bragging about Russia’s indispensable role (Finance Minister Alexei Kudrin was invited to the emergency meeting of his G7 counter-parts in Washington). This confidence might appear at odds with the “reality check” of Russian stock exchange, which has lost two thirds of its value (or about $1 trillion) since the peak in June and was still looking for a bottom last Friday (Kommersant, October 11).

This catastrophic “correction” has so far remained an abstract notion for the vast majority of Russians who have only vague ideas about shares or dividends, so as many as 57 percent of respondents to a poll expressed little concern about banks but named inflation as the main problem (, October 9). Consumer prices indeed continue to climb even as signs of an economic slowdown appear in such credit-dependent sectors as construction, despite extra subsidies introduced, for instance, in Moscow (RBC Daily, October 10). Public indifference to the looming recession takes pressure off the Kremlin in sending one “rescue package” after another from the seemingly inexhaustible Central Bank reserves to the agonizing financial market. The aggregate size of these measures, including the latest decision to invest $7 billion from the Pension Fund in the stock exchange, is twice as large as the Paulson Plan ( the so-called “bailout” for the U.S. economy) in proportion to GDP, but there has hardly been any debate about the aims and mechanisms (, October 12).

That allows the Kremlin to target the funds to the “most favored” banks and companies, for instance helping Gazprom and Rosneft to refinance their vast external debts. The concept of “moral hazard” does not exist in the Russian business vocabulary, and the crisis has become a pretext for enthusiastic “privatization” of the accumulated reserves (Kommersant, October 8). In this context, Medvedev’s homily in Evian on how the West should manage the devastating and divisive crisis resonates rather oddly (, October 8). His point on “the serious imbalance between the amount of financial instruments issued and the real returns on investment programs” might leave experts puzzled, but the proposition “to ensure maximum information transparency and full disclosure for companies” invites questions about how applicable it is to Gazprom. While Medvedev remained poignantly diplomatic in his anti-Americanism, Putin drew a thick bottom line asserting that the confidence in the United States as the “leader of the free world and free economy” had been undermined forever (Interfax, October 9).

This bold assumption was elaborated by Medvedev into a strategic plan for reconfiguring the European security system that is supposed to cure it from the “unipolar syndrome” and correct the NATO-centric approach. In real terms, his much-advertised initiative on a non-aggression pact amounts to little more than rendering NATO irrelevant and dismantling the OSCE mechanisms, which have long irritated Moscow, while Russia would forfeit “exclusive rights to maintaining peace and stability in Europe.” Meeting with the eight CIS leaders in Bishkek (the presidents of Azerbaijan, Georgia, and Ukraine were absent), Medvedev revealed that Sarkozy had found his initiative interesting, and he emphasized that his plan would raise the status of their Collective Security Treaty Organization (CSTO) to a par with NATO. His counterparts, however, were more concerned about the impact of the financial meltdown; and Kyrgyzstan, balancing on the brink of collapse, pleaded desperately for aid and even indicated a readiness to recognize Abkhazia and South Ossetia (Nezavisimaya gazeta, October 10).

In Evian Medvedev argued at length that “this tragic page in the history of the Caucasus has been turned now,” and he praised Sarkozy’s “bold and responsible action” that had facilitated the peaceful solution. This praise cannot hide the fact that Russia has no intention of implementing the key provision in the six points of the Medvedev-Sarkozy plan concerning troop withdrawal, since its new brigade-size military bases in Abkhazia and South Ossetia directly violate the status quo ante. Nevertheless, Medvedev radiated confidence that “the maturity of relations between Russia and EU” would help in dismissing such minor disagreements.

Indeed, the magnitude of the unfolding economic cataclysm is such that the EU has to prioritize its needs in Russian markets and financial resources, not to mention natural gas, which could reach the shocking price of $500 to $600 per 1,000 cubic meters this winter before dropping in the spring. This cash flow, however, would not compensate for the massive losses that Russia would sustain due to the fall in oil prices and other commodities. These weeks might, in fact, be the last moments in the long period of prosperity and cheap money that the Russians have grown accustomed to taking for granted. Putin’s courtiers are busy reaping the last rewards, suspecting that the social contract that granted public consent for their monopoly on political power in exchange for the fast growth of disposable income is about to end. The discovery that Russia is also vulnerable to economic turmoil is not far away, and with it come questions about the responsibility of the duumvirate for siphoning off the wealth. Kudrin may be the pre-selected scapegoat, but the bucket does not stop even with Medvedev.