Putin's Back, But Not Forever

By Craig Mellow  SEP 26, 2011 2:15 PM

Vladamir Putin's regime may prove less stable than he promises.


Vladimir Putin announced his much-expected return to Russia’s presidency this weekend just as the world financial elite gathered at the IMF/World Bank annual meeting in Washington, in a near-panic about the metastasizing eurozone debt crisis and signs of a new global slowdown. The timing was probably coincidental -- Putin’s reascension was cued to a congress of his United Russia political party -- but it served the lord of the Kremlin well in several ways.

First, global opinion leaders had more serious business than banging out the usual columns condemning Russia’s “retreat to authoritarianism.” More substantively, Europe’s (and America’s) intractable crises pointed out how far Russia has come in 12 years under Putin’s control and why, in his mind anyway, it still needs his firm hand on the tiller going forward.

When Putin first took office as president on January 1, 2000, Russia was limping out of its own 1998 debt default, paying its bills at the sufferance of mostly West European creditors. Its economy had shrunk for 15 years straight. Now Russia and its fellow BRICs are the global rich men, at least in terms of available reserves, a dithering Europe all but pleading with them to shore up its parlous sovereign bond markets.

The gloomy rhetoric pervading the Washington conclave meanwhile signaled that a new round of global turbulence may be at hand, and Russians cannot afford to swap leadership horses in midstream. Current president Dmitry Medvedev certainly failed to display sufficient gravitas for the role of crisis leader, and gained little traction either within the corridors of power or with the Russian public.

But Putin’s indispensability is of course a self-fulfilling prophecy. No one, in theory, can replace him because he has spent 12 years concentrating power in the hands of a few friends and dependent satraps. He canceled elections for regional governors, then mayors, and tilted election rules to undermine competing parties.

The overworked phrase “authoritarian” says little about Putin. His style of governing might more aptly be described as baronial, as if a vast modern Russia could be run on the blueprint of medieval Gascony. Huge economic fiefdoms are literally divided among the boss’s old friends from St. Petersburg. Boon companion Gennady Timchenko is the country’s top oil trader, Putin’s old judo partner Arkady Rottenberg is the largest contractor for gas monopoly Gazprom, dacha neighbor Vladimir Yakunin runs the national railroad, and so on. Ministers and governors further down the chain follow the top man’s lead, as in any organization, solidifying their own little families of rent-seekers and using their “administrative resources” to crush any competitors. Putin and his people implicitly try to pass this system off as akin to the benign despotism practiced by Lee Kuan Yew in Singapore or China’s collective leadership over the past few decades, nannying bread-and-butter progress in a country not morally ready yet for democracy. But it isn’t. Putin’s Russia has revived no industries to speak of, enhanced no competitiveness, attracted precious little outside investment. It has restored basic order in a land of near-chaos and reaped the benefits of a long boom in oil and commodites prices. That is something, but not enough to justify 12 more prospective years in power -- the two new six-year presidential terms that Russia’s constitution now entitles Putin to.

Fortunately there is another Russia beyond the great pyramidal government racket. The country’s saving grace throughout the post-Soviet period has been a surge of entrepreneurial energy that no one expected. Smart and determined people across 10 time zones carry on the business innovation that has transformed Russians’ daily lives with most of the amenities and services you find anywhere else. Young people get their news from free Internet rather than stage-managed state television. They travel incessantly across Europe and elsewhere, absorbing a global progressive mindset. The big private commodities firms controlled by the billionaire oligarchs also act increasingly like normal businesses, though they are still not above using the abnormal state structures in attacks on their rivals.

Putin, led by his faithful deputy Medvedev, has tilted back a bit lately toward letting some oxygen in so this other Russia can breathe. His ministries keep expanding the size of a privatization plan that could hack off chunks of the state economy from banking to rail freight. He has publicly courted foreign investors from Exxon Mobil to Chinese Investment Corporation.

Yet the chances of a regime as entrenched as Putin’s reforming itself from within are in the end slight. Many places suffer from official corruption. Russia’s baronial system increasingly spreads discouragement as well -- a pernicious feeling throughout society that every game is rigged and the surest path to success is to sign on as some bureaucrat’s bag man. A private banker courting ultra-high net worth individuals (generally defined as $50 million and up) in Moscow reports that the growth market is among mid-level state officials. That’s a sign of rot that has gone deep.

The whole system can keep grinding along so long as oil prices stay close to $100 a barrel for Brent crude. But Putin has decreased his own room for maneuver in a downturn. The “break-even” point of Russia’s budget used to be $40 or $50 a barrel during the 2000s. Now the country is running a deficit even at current prices.

When oil plunged to $40 after September 2008, it posed existential questions for the Pax Putinica. Fortunately for him, it quickly bounced up again. If the next slump in the commodities cycle lasts longer, Russia’s ruler might not seem so invincible.
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