Tremors Shake the Three Pillars of Putin’s Regime

Prime Minister Vladimir Putin signed a revised anti-crisis program for 2009 last week, asserting that the previous plan had been accomplished and setting the first priority on the fulfillment of the state’s social obligations for the population and the second – on preserving and developing the industrial potential (RIA Novosti, Gazeta, June 19). The fresh data on industrial production shows a decline of 17.1 percent in May compared with the same month in 2008, which bodes ill for the second priority. As for macro-economic stability, which the program designates as the seventh priority admitting that Russian GDP might decline by more than 2 percent, experts now expect that the real contraction will exceed 10 percent (www.expert.ru, 19 June 19). Insisting that a disaster on such a scale would have no consequences for pensioners and other recipients of "social obligations," amounts to denying the obvious, which inevitably raises questions about the political consequences of the growing public outrage.

These consequences may now appear entirely controllable and requiring only a short visit by the crisis-conquering Putin to be quelled, but in fact they reverberate through the hierarchies and networks that form his system of power. In the early years of Putin’s "reign," the main support base for the newly-erected executive "vertical" were the special services, but by the end of his second term, "internecine" wars between competing clans of siloviki prompted him to reformat his "inner circle." Now the three main "pillars" for the ruling "duumvirate" are Finance Minister Aleksei Kudrin, the deputy head of presidential administration Vladislav Surkov, who is in charge of the Kremlin propaganda machine, and the Deputy Prime Minister Igor Sechin supervising the energy sector. Last week, each of this trio stumbled over a problem not of his making and had to contemplate the prospect of early retirement.

Kudrin confirmed to his G7 counterparts that Russia will not reduce the share of U.S. dollars in the composition of its financial reserves, effectively puncturing the balloon of hot political air about making the Russian ruble an international currency. This made President Dmitry Medvedev appear silly at the Shanghai Cooperation Organization summit in Yekaterinburg last week with the proposal on creating an alternative to the U.S. dollar, which found no response at all from China (Kommersant, June 17). Kudrin’s main headache, however, is the need to bail out an increasing number of regions that face insolvency while the income from the state budget has fallen by more than one third (Vedomosti, June 19). Putin is inspecting the regions demanding from the governors not to close the plants that cannot find any demand for their products and to pay salaries to idle workers, but that requires more transfer of funds from the federal coffers – a policy that goes directly against Kudrin’s course on reducing inflation (Kommersant, June 19).

Among the worst hit by the recession are such important regions as Chelyabinsk and Volgograd oblast, Krasnoyarsk krai, Tatarstan and even Moscow oblast, and their governors resent the Kremlin attempts at scapegoating them for the deepening slump. It was Bashkortostan’s President Murtaza Rakhimov who had launched a pre-emptive attack against "over-centralization" – and the mission to dissuade this fake rebellion was entrusted to Surkov, who had contrived the combination for replacing the corrupt "patriarch" (Kommersant, June 20). The reassurances were duly delivered and gracefully accepted but what is far more difficult for Surkov to swallow is the one-man campaign against him conducted by Evgeni Gontmakher, one of the key economists in Medvedev’s favorite think-tank, the Institute of Contemporary Development or INSOR. Three months ago Gontmakher compared Surkov’s role in orchestrating state propaganda with that of Mikhail Suslov in the old Soviet Politburo, and last Friday he published a new article reflecting on the smear media campaign against INSOR and himself personally -suggesting that a public ostracism might help in discarding the failed state ideology upheld by Surkov (Vedomosti, June 19). This bold voice may still be silenced, but the difficulty is that the emphasis on modernization that Medvedev has tried to maintain requires a lively discussion among economists, which naturally translates into political debates targeting Surkov as the guardian of official discourse.

As for Sechin, last week he proudly presided over the annual meeting of the Rosneft oil company that approved fat bonuses and high dividends, which is not necessarily good for public relations (Kommersant, June 20). Another high point was the deal with China on exporting 300 million tons of oil during the next 20 years supported by new loans for completing the East Siberia-Pacific pipeline (Vremya Novostei, June 18). The profitability of this deal is very doubtful as the costs of construction are fast increasing, while Beijing is not known for generosity in bargaining on prices (Ezhednevny Zhurnal, June 18; Novaya Gazeta, June 15). The most difficult situation for Sechin, however, stems from relations with Belarus, where bitter quarrels about the ban on the imports of milk products form only the tip of an iceberg of energy conflicts, at the very core of which lies personal animosity between Putin and Belarus President Alyaksandr Lukashenka (www.gazeta.ru, June 18). Punishment would have been Putin’s policy of choice, but he cannot afford to escalate the squabble with Belarus while a far more important gas conflict with Ukraine is maturing into a new war, so Sechin would have to take the blame for a humiliating compromise.

The travails of Messrs Kudrin, Surkov and Sechin might appear to be merely a bureaucratic tug-of-war, but in fact they have greater significance for the stability of the precariously narrow-based system of power than the discrepancies between Putin and Medvedev -which attract prime attention from over-excited commentators. It might appear that as oil prices have reached the $70 per barrel plateau, Russia’s economic hardships should soften. In fact, however, this "optimal" level constitutes a trap, since oil revenues become sufficient to abandon emergency measures but remain too low to satisfy the accumulated needs (Moscow Echo, June 19). Incentives for reforms dissipate and demands for the "oil dividend" build up, making the status quo both immutable and unsustainable. Which of the three "towers" will crumble first is anyone’s guess, but it is not liberal reformers who are poised to take advantage, but the patient siloviki, and their comeback might define disaster for Russia.