THE WARSAW INSTITUTE REVIEW

Date: 15 May 2018    Author: Ksawery Czerniewicz

The Sum of All Fears. Putin 2018-2024

The emperor does not explain himself to his subjects, he does not curry favor with them. The emperor’s only role is to ensure safety and peace. How? It does not matter. During the latest presidential campaign, Vladimir Putin did not present any electoral program, nor any comprehensive plans for his fourth term.

Moscow, Russia, December 23, 2004. Headquarters of the state oil company Rosneft in the center of the capital. © (PAP/EPA)

Because there will be no major reforms, and no liberalization, either political or economic. It will be six years set towards maintaining the status quo — because Putin is afraid. For his power, for his property, for his life. So even if there are any changes, whether economic or administrative, it will be only for the maintenance of the regime.

In terms of the length of his rule, he passed Leonid Brezhnev, to whom he is more and more often compared. There is a basis for it after all. What links Putin to Brezhnev is not only the length of his rule and the conflict with the West. In today’s Russia, one can already see what was characteristic of the second phase of the rule of the Secretary General of the Communist Party of the Soviet Union: gradual economic collapse, no reforms to prevent it, the retreat from liberalization (Brezhnev withdrew from Khrushchev’s “thaw”, Putin withdrew the country from the path of democratic reforms, which had been introduced in Yeltsin’s time). Sooner or later, however, reforms and liberalization will be unavoidable. Perhaps after Putin there will be a new Gorbachev. But it will mean for the Russian Federation what perestroika meant for the USSR — disintegration. Putin’s policy will be reduced to pushing back the time when it will be necessary to come to terms with the unrelenting logic of economics. The problem with the system created by the former KGB officer is that it is essentially not oriented towards development and change. It resembles a disposable article — when it stops working, it will go to the trash. The end of Putin’s reign will be synonymous with the end of this model of government that was formed in the basic framework of the first two presidential administrations of Vladimir Vladimirovich Putin.

In forecasting the development of events in the next six years in Russia, certainly many more question marks accompany international issues than internal policies — in which much more depends on the Kremlin itself. However what course will be chosen is now quite clear. Putin’s fourth term will undoubtedly bring the most challenges. On the international stage, the continuing confrontation with the West awaits the Kremlin, as well as the challenge of China’s growing appetite and the still unresolved problems of Crimea, Donbass and Syria. Internally, it will be necessary to deal with the negative effects of economic stagnation, maintaining stability without risking reforms, and at the same time to solve “Problem 2024”; that is the political future of Putin after the end of the term. The latter will be largely influenced by the situation at the highest echelons of power. There is no doubt that the above-mentioned external and internal factors will foster the increase of tensions within the ruling elite. Is it to the point of triggering an open domestic conflict or a rebellion of part of the establishment against Putin? It is unlikely, but the possibility shouldn’t be ruled out completely. Over the course of six years, circumstances could drastically change.

The Domestic Situation

This was always a weak point of Putin’s Russia. Even the boom from the previous decade, the Kremlin owed not so much to its economic policy as to the high world oil prices. This will not change in the coming years. Especially that every year the efficiency of the economic model based on the export of energy resources is diminishing. This is a model that will not provide stable growth, and which means that the economy remains dependent on fluctuations in the commodity market (and the long-term prospects here do not look good for Russia) and other external factors. It is enough to mention the panic in Moscow caused by one tweet from Donald Trump on April 20, in which the US president fretted over high oil prices and wrote that “it will not be tolerated”. Washington’s policy will certainly continue to be a very important factor affecting Russia’s economic situation — it is enough to recall the collapse of financial markets in Moscow after the sanctions package was imposed on April 6, 2018. Americans have a large arsenal in this respect, which could potentially total the Russian economy (even by cutting off the SWIFT system). Besides, problems with sanctions have a very negative impact on the investment climate, and the shortage of foreign investments is one of the reasons for the economic slowdown. At the very least it retards the modern technologies sector, limiting economic opportunities, that is felt especially painfully in Russia’s most strategic sector: oil and gas extraction.

Moscow, Russia, October 18, 2011. Alexei Kudrin, President of the International Guild of Financiers (IFG). © Mitya Aleshkovsky (PAP/ITAR-TASS)

Keeping the dependence of budget stability on world oil prices will put the Kremlin in a difficult situation without a good solution. If it abandons the agreement with OPEC and starts to increase oil production for export, it will provide a much higher budget income initially. But after some time, increasing the supply on the global market (it is hard to expect that other players will stick to a restrictive production policy, if Russia breaks ranks) will cause a drop in oil prices, and thus a decrease in the petrodollar stream to the coffers of the Russian Federation.

With all of these problems, limitations and challenges for the Russian economy, one cannot forget about two factors — demographics and politics — that Putin must take into account in the next term. If he does not decide on an unpopular move, or raising the retirement age, Russia will face a serious crisis in the already too expensive pension system. With the aging of the population, in 2030, every third Russian will be a pensioner. An even bigger brake may be the domination of siloviki (strong men) also in the economic sphere of the state’s operation. They have always been an important voice in determining the state’s economic policy, forcing state capitalism and opposing free-market reforms. Along with the adoption of the policy of expansion and aggression since 2014, they have also gained huge influence on the entire economic policy.

Only carrying out structural reforms would stem Russia’s decreasing participation in the global economy, but this should not be counted on. Despite this, Putin is reportedly planning to increase spending on health, education and infrastructure by $160 billion over six years. Where will the money come from? Expenses for defense cannot be significantly reduced, because the siloviki will not allow this. A tax increase is all that remains. The government is to consider a completely new, four percent sales tax. Perhaps the flat tax rate will be raised from 13 to 15 percent. Tax hikes increases social dissatisfaction. And again, we return to the key role of siloviki. Because they are supposed to quell all types of unrest. And additional funds from raising taxes may well not go to hospitals or schools at all, but into the pockets of Putin’s people or to the military.

Economic growth reached as high as eight percent during Putin’s first two terms. In 2014, however, lean years began — recession. What of the fact that in 2017 growth was again positive — it was just 1.5 percent. And better results in the next six years are rather not to be expected. Russia owed the recent rise solely to profits from exports of oil, gas and coal. This is a fragile foundation — all it takes is for oil prices to fall. There will not be development, because the conflict with the West means that there will be no investment in the Russian economy, and the ever-increasing isolation from the global economy means no modern technologies. Without them you cannot capitalize on huge hydrocarbon reserves in the Arctic. Economic isolation is not just the effect of sanctions resulting from aggressive external policy. It is also the result of the corruption and domination of siloviki in the economy. If the final word belongs to Igor Sechin, who built the Rosneft juggernaut on destroying his subsequent business rivals, commencing with Yukos and Mikhail Khodorkovsky, it is hard to expect that in such a situation a Western company would decide to enter into Russia with investments.

The concentration of capital in the hands of the state and the absence of the rule of law (courts decide in favor of the authorities and their favorites) effectively blocks the development of the economy. Of course, there are people in Moscow who see this. And they even offer Putin a solution. The face of the “reform party” is the former finance minister, who reportedly enjoys the president’s confidence, Alexei Kudrin. The main author of the “National Development Strategy in 2018–2024” has urged Putin to reform, to liberalize. Without it, there will be no growth, and without growth there will be no means to implement social promises. Following the road proposed by Kudrin — more spending on health and education, instead of military and security — would hit the key components of the ruling camp.

The regime is based on the security apparatus, military, arms contractors, and state-owned behemoths, that control about two-thirds of the Russian economy. Kudrin’s rivals say that the most important thing is to maintain macroeconomic stability at all costs, low deficits, low inflation. Even at the expense of growth. Instead of developing and modernizing the economy, they want to buy the support of certain social groups, mainly retirees. Maintaining the current policy will ensure stability, but also stagnation. One should not expect a serious fight against corruption. Because it is an inseparable element of the regime’s functioning. Bribes and thievish government contracts are the life-blood of the regime: businessmen, the military, the arms industry, Gazprom and Rosneft — entwined by parasites in the form of companies controlled by people close to Putin.

Foreign Policy

Although Putin has had no recent successes on the international arena to boast of, it was generally foreign policy that was always his strong suit. Most Russians evaluate it not only as effective, but also as a reason for national pride. To what extent this is a matter of fact, and how much propaganda is at work here, is another matter. In any case, the president must first of all maintain the conviction among his countrymen that Russia was reborn under his rule as a great state that the entire world has to take into account. Moscow wants the West to recognize Russia’s zone of influence and give up the idea of ​​accepting Ukraine, Moldova, Georgia or another post-Soviet republic into NATO in the future. International crises are to be jointly regulated, under the aegis of the UN Security Council. At the same time, Russia would like to restore normal economic cooperation with the West. The problem of Donbass could be solved on the basis of the Minsk Agreements of 2015, with the participation of a UN peacekeeping mission. Crimea could be recognized as part of Russia. Where Russia’s interests coincide with those of the US, the Kremlin expects cooperation (seeking agreement in the fight against terrorism or North Korea). Meeting all these expectations in the fourth term will be extremely difficult. There is no shortage of challenges.

A composite image showing leading Russian business personalities from top (left to right): Oleg Deripaska, CEO of the Russian aluminium giant United Company Rusal, Russian billionaire Suleyman Kerimov, Russian billionaire Viktor Vekselberg; and from bottom (left to right): Kirill Shamalov, member of the board of directors of the Russian oil and petrochemical processor Sibur, Alexey Miller, Chairman of the Management Committee (CEO) of Gazprom and Andrey Kostin, President and Chairman of the Management Board of VTB Bank. The six are among a group of seven leading Russian businessmen. Twelve companies they control or own and 17 government officials that, according to reports from April 6, 2018, have been put on sanctions list by the US Department of the Treasury Office of Foreign Assets Control (OFAC) in consultation with the US Department of State. The Department of the Treasury said in a statement the Russian government “operates for the disproportionate benefit of oligarchs and government elites”, and “engages in a range of malign activity around the globe, including continuing to occupy Crimea and instigating violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities”. © STAFF (PAP/EPA)

Above all, this is a conflict with the West, whose dynamics indicate that sooner than sanctions being abolished, we can expect their strengthening. With an extremely low level of mutual trust, it will be difficult to change anything. The Trump Administration has not met the expectations of the Kremlin, and attempts to establish good relations with some EU countries may sooner bear fruit than rapprochement with Washington. With his aggressive actions (annexation of Crimea, the war in Donbass, participation in the war in Syria, interference in the democratic processes of Western countries), Putin contributed to the unification of the Western world against Russia. What is worse, the entire western flank of Russia has come under the influence of the West, with the exception of Belarus. At the beginning of his term, Putin is in a worse position as regards Ukraine, Georgia and Moldova than in 2012. On the other hand, the power of China is growing — not just economically. Beijing has great political and military ambitions. Russia feels this firsthand, if only in Central Asia. In Asia there is also the issue of Kuril Islands, and the recent warming of relations between the Koreas is also bad news for the Kremlin, which played on Pyongyang’s militarism.

Another challenge is to regulate the Ukrainian problem — preferably through the UN peace plan and taking into account Russian dominance. Putin cannot admit to the error of aggression against Ukraine, because that would undermine the historical step that was the annexation of Crimea. This, however, means that the Ukrainian problem will not be solved in this term. And that means that there is no chance to fix relations with the West. And a long-lasting conflict with the West can only end for Russia as the Cold War did — with failure. Alongside Ukraine, the next problem carried over from the third term is that of Syria. The situation is not as rosy as Putin presented it at the end of 2017. The problem is the far-reaching divergence of interests of the participants in the conflict. Added to this is Assad, who does not intend to leave, while the opposition does not want to see him in power. Maintaining Assad’s regime does not mean achieving the goals of Russian policy. There are other powerful players there: Iran, Turkey, Israel, the monarchies of the Gulf and, last but not least, the USA.

The Cult of Putin

The far-reaching personalization of power (everything depends on Putin, the weakness of state institutions outside the presidency) on the one hand ensures current stability, on the other hand seriously hampers any change to improve government and find a solution to the problem of Putin’s departure. This will increase the internal, largely hidden competition in the ruling camp. The sacralization of Putin’s power, his withdrawal from “mundane matters” carries the danger that he will cease to be an effective arbiter in various conflicts within the elite.

In the new term, Putin will increasingly rely on a new generation of bureaucrats. A very important part of it will be children of “Putin’s friends”, people like Kirill Shamalov, Igor Rotenberg, Dmitry Patrushev or Sergei Ivanov Jr. They are taking over the management of the fortunes stolen in the first dozen or so years of Putin’s era by their fathers. This is how the new Russian aristocracy emerges, the young boyars (pre-revolutionary Russian nobles). But they also include the likes of Anton Vaino, Alexey Dyumin and Denis Manturov. Back-office battles with the use of the intelligence services may prove to be more dangerous for the regime than a transparent democratic competition for the legacy of Putin. All the more so because the radical anti-Western camp in Moscow is constantly growing, with more supporters of a hard course, “hawks”. If Putin decides to follow the path indicated by Kudrin, the party of war may react with provocation, even in Ukraine, to escalate tension on the Russia-West line. In the extreme scenario, you cannot even rule out a military coup. The gradual intensification of competition within the power elite will result from two main reasons. Firstly, the resources that can be used are shrinking, which provokes an increase in competition for state contracts, and at the same time the authorities cannot afford to compensate for losses resulting from sanctions to all aggrieved companies and oligarchs. Secondly, different clans and groups of influence will want to assume a good position or even influence the way of solving the so-called 2024 problem.

When President Putin’s term ends, the second in a row, in accordance with the constitution, this means that he cannot run for the seat of the head of state for a third time. There are four options for the development of the situation. Putin may want to maintain his position, but this will mean the need to change the constitution. Second, he may leave for six years, repeating the maneuver of 2008 — only that it is unlikely that he would like to become prime minister at the age of 72 and then seek a return to the Kremlin at the age of 78. Option number three is a change to another position, from which he will continue to rule the state — but this also requires a change to the constitution. Finally, the Yeltsin scenario remains — in case Putin wants to withdraw now. It’s about finding someone who will guarantee the safety of him and his Familia.

Unlike the people of Yeltsin, freshly enriched and easy to eliminate (see Berezovsky or Gusinsky), in six years time the “Familia Putin” will be incomparably stronger and will have grown into Russia’s economy and policy for good. Yeltsin and his entourage had less than nine years under their belts, which was too little to perpetuate their position. Putin and his court in 2024 will have had a quarter century of rule and legalized assets transferred to the next generation. In this respect, they can be less afraid than “Familia Yeltsin”. If the main goal in 1999 was to protect the oligarchs and relatives of the president, and to a lesser extent Yeltsin himself, in 2024 it will be the other way around: the most important factor will be peace and security for Putin, because his courtiers will manage just fine.

What Happens Now?

When will the matter of succession begin to be decided? Certainly not in the first part of the term — Putin will not want to give even the slightest signals in this matter. First, to avoid the role of a lame duck. Second, keeping the elite in uncertainty is beneficial to the ruler. If we can talk about succession at all, then it will not be about the transfer of power by President Putin to a new president, but the transfer of power from President Putin to Putin himself, in a new position. Putin has become the hostage of the system he built. He is already so strongly identified with it that leaving is impossible. And if he even tried, there are the siloviki. In 2008, Sechin and his ilk could not block the change in the Kremlin. Today, it is just the opposite. Putin is too dependent on them — a war-like foreign policy gave them full power. Also, there are fears of a revolution in the country and the resulting expansion of the internal apparatus of oppression. Even the replacement of the Kremlin’s landlord in 2024, similar to what took place in 2008 with Dmitry Medvedev, will have a completely different character. If Putin’s preyemnik (successor) is relatively young, he may become a long-lasting fixture in the Kremlin.

St. Petersburg, Russia, February 25, 2012. Demonstrators carry a poster depicting Prime Minister Vladimir Putin as the elderly Soviet Communists party leader Leonid Brezhnev, during a massive protest rally against Putin’s rule in. Several thousands people took part in a march demanding fair elections and protesting against Russian Prime Minister Vladimir Putin’s rule. Putin runs for a third presidential term at the upcoming president elections scheduled on 4 March 2012. © ANATOLY MALTSEV (PAP/EPA)

Without reforms aimed at the economic modernization of the country, it will be difficult to get out of stagnation. This would mean the development of modern education and health care, the development of the digital economy, removing the moratorium on unpopular measures such as raising the retirement age. But there will be no money for this if the state maintains its high priority on security; that is high spending on defense and the security apparatus. The ubiquitous corruption and huge influence of siloviki on the economy is the factor reducing the probability of reforms. The position of the majority of society unwilling to change also speaks against reforms. Since Putin did not carry out reforms in the fat years, either economically (oil prosperity of the previous decade) or politically (huge social enthusiasm after the annexation of Crimea), then he will not do it now. There will be no liberalization of the system, as the Kremlin perceives it as a threat to the stability of the regime. In other words, a perestroika complex, about the earlier attempts to modernize the USSR, which ended with its downfall. The awful weeks after the election victory had an impact on Putin’s popularity (on the national scene alone: a fire in a shopping center in Kemerovo and social protests in Volokolamsk and other cities of the Moscow region against storage of waste). The level of trust in Putin has decreased by seven percent in a month: from 55.3 to 48.3 percent. Six years earlier, for five weeks after the election, this indicator was rising. This shows how difficult this term may turn out to be.

All texts (except images) published by the Warsaw Institute Foundation may be disseminated on condition that their origin is stated.

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