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Putin’s next 6 years: shadow of stagnation or light of reform?

After his record landslide victory on 18 March, Russian President Vladimir Putin likely knows he cannot rest on his laurels. With oil prices unlikely to rise anytime soon, national economic stagnation, a still heavily State-and-oligarch-controlled economy and an ever-growing shadow of confrontation with the West, Putin has his work cut out for the next six years.

The turmoil of the Skripal case and the flurry of tensions with the ‘common West’ did not break the spirit of Vladimir Putin’s supporters. Thousands gathered at Manezhnaya Square to celebrate their champion’s historic victory (76.7 %, an increase of 13.1 percentage points since 2012).

But for Russia, nothing has ever been as uncertain as it is today. The question is whether Putin is ready to implement important economic reforms, at the expense of a minority that has backed him since the beginning. In addition, Putin must consider the global ramifications of Russia’s more assertive foreign policy. Finally, with the constitutional limit of two non-renewable terms, the question of Putin’s succession is on everyone’s mind.

Stagnation versus Reform and the limits of ‘Putinomics’

However much of an election or, rather, a referendum of public confidence that this presidential ballot was, it will not hide Russia’s stark economic reality. In spite of impressive progress since the Cold War, Russia remains crippled by economic stagnation. The still substantial power of the State apparatus and its enfeoffed oligarchs has led to an undiversified economy, low wages and endemic corruption.

There is no doubt that Putin has achieved substantial success in restoring order over the Russian economy. He has pursued privatization in a much less opaque way than predecessor Dmitry Medvedev, while maintaining control over key industrial and financial sectors. Since 2000, Russia’s GDP per capita has grown by 13%, generating significant improvements in living conditions. Russia’s debt-to-GDP ratio was just 12.6% in 2017, down from a massive 92.1% in 1999. Since the chaotic immediate post-Cold War years in the 1990s, there have been significant improvements in crime rates and public health.

Despite these successes, investment risks remain high. Corruption is still prevalent (with the recent tragic fire in Siberia providing a stark reminder) and remains a serious hindrance to foreign investment. Foreign firms frequently face expropriation, and this lack of long-term legal visibility and security deters investors. The current crisis with the ‘common West’ – as the phrase goes in Moscow – from Ukraine to the Skripal affair, will not help improve the situation.

With low FDI on the one hand, and contained oil prices on the other, stagnation is here to last. In many ways it was precisely through this scheme of economic stagnation, coupled with macroeconomic and political stability, that Putin consolidated his power. For many Russians, no Putin would mean a return to the 1990s, when shops were empty and people queued miles to buy daily essentials.

However, this stagnation/stability dichotomy is increasingly irrelevant. With its worrisome demographic situation, Russian politicians likely understand the need for reforms: the limits of ‘Putinomics’ have been reached. Whomever is appointed Russia’s new Prime Minister, the most probable short-term scenario is an increase in corporate tax (currently just 20%, four points below the OECD average) and personal income tax. Should new economic sanctions be imposed on Russia, a further devaluation of the ruble, albeit softer than Russia’s last devaluation, cannot be excluded either.

A more assertive foreign policy

Putin’s re-election sparked a mixed international reaction. Unsurprisingly it was met with tepid response from the West, persistently vocal in its criticism of Moscow’s obstinate behavior on the world stage. But within Europe, the rift between pro-Russia and Kremlin-wary countries is still wide. Not all of Europe joined the UK in its diplomatic retaliation to the Salisbury attack: only fifteen EU member-states decided to expel Russian diplomats. Recent visits to Moscow from Austrian Chancellor Sebastian Kurz and Belgian Prime Minister Charles Michel likely influenced both countries to stay neutral. This shows how divided Western countries can be when dealing with Putin, an aspect he can continue to exploit.

Though Putin knows the age of the liberal order may not be over, it is solidly challenged in every corner of the world by authoritarianism and ‘democratorship’ (to quote Swiss academic Max-Liniger Goumaz). China and Turkey, two countries whose leaders have recently consolidated their power, were unsurprisingly the first two countries to congratulate Putin on his re-election. Both will hope for tightened relationships with Russia in the years to come. And with a recent comeback in Africa – an old Cold War battleground – that hasn’t gone unnoticed, Russia must believe that current winds blow in its favor.

Most strikingly, Russia has been wearing down the global system of multilateralism that it has claimed to defend. Russia has long upheld the tradition of multilateralism, which has served its national interests well since 1945. But the 2008 Georgian war (later referred to as Europe’s first war of the 21st century), and later the intervention in Ukraine, reflected a significant departure in this regard. The most likely reason for this departure is nostalgia – not so much for the Soviet Union but for the two-player game.

In a world in which Russia’s ancestral enemy, the US, is still in the game, it is likely not bearable for the Russian elite to step aside, wearing the placard of historical loser. Therefrom, things that were unthinkable some years ago (like the so-called annexation of Crimea) became serious policy considerations. Putin is likely not done yet, having signaled his revived interest in solving Moldova’s Transnistria problem. But what is certain is that despite all of Putin’s flamboyant declarations on the modernisation of Russia’s nuclear arsenal, the West’s concern will lie more in Russia’s serious hybrid and high-tech war capabilities, for which development will surely stand at the top of Putin’s priorities for the next 6 years.

Last term for the Czar, but no end of reign

However pressing the challenges ahead, with a constitutional amendment highly unlikely, this is almost certainly Putin’s last Presidential term. In 2024, after almost a quarter of a century in power, Putin may even be keen to step back – back, but not out. As a former top Russian diplomat and senior political analyst informed the author several weeks ago, the most plausible scenario would be that Putin’s successor will rule the country under his mentor’s close and sharp eye. The intelligence services will still report to Putin (like during Putin’s premiership under Dmitry Medvedev’s presidency). Moreover, leaving the Kremlin may not mean leaving an official leadership position. The recent revival of the Russia-Belarus Union State represents a possible way out for Putin, enabling him to become President of an even larger entity.

As hinted at previously, it remains unclear where Putin’s heir will come from. One possibility is from the old guard of siloviki (former top officials or men of influence from the Soviet apparatus who accompanied Putin to the top and helped him reinforce his grip on power). Another possibility is from an emerging generation of young and ambitious protégés that Putin has been breeding for some time now, including his former bodyguard. Other uncertainties remain: will they come from Moscow, or from the rural provinces? Will they have a military/intelligence or civil background? Perhaps more than any other science, Kremlinology is an inexact and often surprising one.

 

This article was first published on Global Risk Insights, and was written by Gregorie Roos.

 

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