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Putin's Back, But Not Forever

By

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

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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.
No positions in stocks mentioned.

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