Recession is looming in front of Russia, but Vladimir Putin did not begin his annual address to the parliament on 4 December by talking about economic affairs. Instead, the first third of the speech was given over to the president’s reiteration of Russia’s supreme right to Crimea and his now-familiar antagonism towards the West. Putin added a new reason for the annexation, saying that Crimea has a “civilisational and even sacral importance for Russia like the Temple Mount in Jerusalem for the followers of Islam and Judaism” – a somewhat bizarre justification, given that, until the annexation and, in fact, until Putin’s pronouncement, the sacral status of Crimea had never been part of the Russian mindset or parlance.
Putin added a new reason for the annexation, saying that Crimea has a “civilisational and even sacral importance for Russia”.
Speaking about Russia and the world, Putin said that “for some European countries national pride is a long-forgotten concept”; to them, he asserted, “sovereignty is too much of a luxury”, while for Russia “true sovereignty is absolutely necessary for survival”. He said the West’s sanctions are not really about Russia’s Ukraine policy, but are yet another manifestation of the strategy of containment that the West has pursued toward Russia for “many years, always, for decades, if not centuries”.
Putin’s stance towards the West has become habitually resentful and bellicose in recent months – but if there had been nervous impatience in Russia before Putin’s address, it was related to the speech’s potential economic content, not to his relatively predictable pronouncements on foreign policy. A Bloomberg story in late November registered this nervousness. The story said that, with Russia facing a rapid economic decline, Putin was allegedly weighing up two options. The first was to throw the country’s financial reserves into government mega-projects in a radical Soviet-style economic move; the second, to grant more freedom to the Russian entrepreneurial class, to curb corruption, and thus to reverse the negative economic trend. The Cabinet’s economic ministers, the story said, were under the impression that they had persuaded Putin to favour the latter choice. They were keeping their fingers crossed that he would not change his mind before his address on 4 December .
Putin’s stance towards the West has become habitually resentful and bellicose in recent months.
Putin did not speak about mega-projects, thus refraining – at least for now – from a move that the economists believe would be deadly to the Russian economy. But his pledge to “give the people an opportunity for self-fulfilment” and his talk about “freedom for development in the economic and social spheres, for public initiatives” is hardly credible.
Putin made a few specific promises, such as easing the tax burden and the administrative pressure on small and medium business. However, a number of factors – some general, some concrete – conflict with the liberalisation measures announced by the president.
First of all, Putin has advocated freedom of entrepreneurship in a tightly controlled political environment, where there is no rule of law or independent judiciary, and with a legislature that has been entirely stripped of its representative function.
The past couple of years have been marked by a dramatic shift of the power balance in Russia. Putin’s law enforcement and security elites, who have always favoured a more repressive order and an isolationist course, have gained more clout. Those concerned about economic rationality have become much less influential.
[Putin's] talk about “freedom for development in the economic and social spheres, for public initiatives” is hardly credible.
Some concrete steps taken fairly recently are also in conflict with Putin’s promises. For instance, Putin pledged that business companies would no longer be the target of incessant “inspections”. But as recently as October, he signed a new law that re-authorises law enforcement agents to instigate their own proceedings on tax-related offences, without prior reports of wrongdoing from tax inspectors. This ability was cancelled several years ago, because the law enforcement “inspections” had been commonly used by inspectors as a means of extortion, or even as a method for well-connected competitors to engage in predatory grabbing. The business community was strongly opposed to the return of this norm, but Putin signed it into law even so.
Putin’s pledge of no new taxes on business is arguably in conflict with another recent initiative: just one month ago, the Russian municipalities were authorised to levy new “fees” on small businesses.
Russia is desperate for investment, but, for obvious reasons, Putin never mentioned “foreign investment” in his speech. Instead, he cited plans and future achievements that would draw on self-reliance, administrative innovations, and more efficient work for the sake of the motherland. Some observers have already compared Putin’s address to the rhetoric of the communist party congresses of the Brezhnev years.
Some observers have already compared Putin’s address to the rhetoric of the communist party congresses of the Brezhnev years.
In his speech, Putin did not mention that the rouble has lost nearly half of its value in recent months, or that the price of oil has dropped from over $100 to under $70 per barrel, or that in Russia’s declining economy, inflation this year is expected to be about 10 percent. All these vital factors for the Russian economy remain outside Putin’s control. And his upbeat speech failed to reverse the fall of the rouble.
Putin has reconsolidated his legitimacy to an impressive degree. His approval rating hovers at a sky-high level of over 80 percent. His elites have firmly rallied behind him. But he is powerless to inspire trust in the Russian economy and the Russian rouble. Capital flight is expected to reach $130 billion in 2014, and for all the anti-American hysteria, rank-and-file Russians trust the dollar more than they trust the rouble. In November alone, they withdrew 54 billion roubles (about $1 billion) from their deposits in Russia’s largest savings bank, Sberbank. People are looking for other ways to keep their savings, such as buying dollars or other reliable assets. Putin’s limited “liberalisation” cannot rebuild the trust needed for the Russian entrepreneurial class to give a new boost to the Russian economy. He does not have any good economic choices – which means he may next choose to pursue a more repressive and isolationist course.
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