Davos Discussions Disprove Russia’s Resurgence

(Pavel K. Baev – Eurasia Daily Monitor: Volume 11, Issue 16 – Jamestown Foundation – jamestown.org – January 27, 2014)

So much self-congratulating has been emanating from the Kremlin following the spectacular triumphs of Russian foreign policy since September 2013, that the court of President Vladimir Putin prefers to ignore the fact that the annual meeting of the World Economic Forum, which took place in Davos last week, paid less than scant attention to Russia. The delegation from Moscow was led by the smooth-talking Deputy Prime Minister Arkady Dvorkovich. A number of the country’s billionaires also made the habitual pilgrimage to the Swiss Alps, only to discover that interest in Russian issues this time around registered an all-time low (RBC Daily, January 23). Meanwhile, Dvorkovich’s argument that the Russian government’s struggle against corruption continued non-stop was even less convincing than the reassurances that the Sochi Olympic games were perfectly safe (http://ria.ru/economy/20140122/990760248.html). Russia gained some profile by presiding over the G20 in 2013 and may expect to gain some more by hosting the G8 summit in June 2014, but that is apparently not enough to make the country noteworthy among the global business elite.

A much discussed issue at Davos was falling growth in the “emerging markets”-of which Russia has been exemplary-as well as the resulting shift among investors toward the United States and other developed economies (Nezavisimaya Gazeta, January 23). Even with very creative accounting, Russia’s GDP growth in 2013 amounted to just 1.3 percent (down from the initial plan for 3.6 percent), while the weeks leading up to the Davos event saw a sharp fall in the ruble’s value against the euro and the US dollar (Kommersant, January 25). The one-word diagnosis that mainstream economists have started to mutter is “stagflation,” a phenomenon well-known from the 1970s. And the inescapable conclusion is that attempts to stimulate growth by increasing government spending are futile and stimulating only for financial speculators (http://www.gazeta.ru/comments/column/shelin/5859805.shtml).

Investors have every reason to turn away from this stagnating and misguided economy. Therefore, the talks that Dvorkovich held with US Trade Representative Michael Froman in the cozy corridors of the Davos forum could hardly be expected to produce the desired effect of expanding the economic foundation of the unsteady and deteriorating Russian-US relationship (Kommersant, January 24). Putin tries to apply his trademark technique of “manual management” to improving the investment climate, but the money keeps ignoring his orders and escaping from the country (Kommersant-Dengi, January 20). Even the heavily prioritized re-armament program is stumbling over the incompatibility of Soviet-era industrial giants with modern technologies. Illustratively, the tests of the Bulava missile for the new generation of strategic submarines have been postponed until summer (http://newsru.com/russia/25jan2014/bulava.html). Flexing military muscles is a method of choice for drawing international attention, but the true debilitation of this “might” is revealed by barely noticed tragedies, like the drowning of ten border guards last Saturday when their rubber boat capsized near one of South Kuril islands and they had neither lifejackets nor back-up (http://lenta.ru/news/2014/01/25/drown/).

Military demonstrations, even when impeccable, rarely make a good impression on investors, but Moscow expects that they will solidify the Russian Federation’s newly-inflated role in the Middle East, which was indeed a key matter for deliberations at Davos. The success of the initiative for eliminating Syria’s chemical weapons has been the breakthrough that granted Russia the capacity to make a difference in the region; but with the opening of the long-delayed talks in Geneva, it has become clear that this influence is largely ephemeral (Nezavisimaya Gazeta, January 24). Seeking to add new instruments to Moscow’s “principled” but ineffectual foreign policy, Putin ordered Gazprom to engage in a dubious off-shore project near Gaza, for which the gas “champion” is rather poorly equipped (http://www.newsru.com/finance/24jan2014/gasabbas.html). Another bold move in energy diplomacy was the possible deal on buying oil (up to 500,000 barrels a day) from Iran in exchange for unnamed goods (http://ria.ru/world/20140116/989450373.html). Russia cannot be interested in the arrival of significant volumes of oil from Iran to the world market, which might push prices down, but the desire to break the sanctions imposed by the US and the European Union prevails over the pragmatic financial considerations.

This new readiness to experiment with energy diplomacy and to augment it with generous grants is shown most forcefully in Ukraine, where Putin has opted to show maximum “generosity” by granting President Viktor Yanukovych a huge loan amounting to $15 billion and a deep cut in natural gas prices (Novaya Gazeta, January 22). This “gift” encouraged Yanukovych to move more forcefully against the protesters in Kiev, so that the cheerful Euro-Maidan has turned into an angry and violent rebellion with a huge destructive potential and little tolerance for any attempts to control it (http://polit.ru/article/2014/01/26/ukraine/). Putin cannot figure out how his smart derailing of Ukraine’s intention to sign an association agreement with the EU has triggered an explosion of such magnitude, and he keeps recycling his propaganda message about extremists sponsored by the West (http://grani.ru/opinion/portnikov/m.223730.html). More surprising is how little was said at Davos about this swiftly escalating crisis, which indicates that the introverted EU has no clue about how to begin to manage it.

Paradoxically, the Ukrainian revolution has both too strong an impact on Putin’s elites, who fear an unpredictable explosion of accumulated discontent, and too little impact on Russian society, which remains largely indifferent to the emotions driving the rebels of various persuasions in the closest neighbor. There are no street rallies in support of the Maidan uprising, and barely a handful of Moscow liberals have traveled to Kiev to stand shoulder to shoulder with the Ukrainians, who insist on their European choice. This does not mean that Russia is firmly set to follow Putin’s “conservative” course, which propels the country toward unsustainable self-isolation. It means only that a different set of triggers is required to explode the system of power that is steadily losing both the capacity for distributing petro-rents and the legitimacy for monopolizing control over the political processes. Whatever diplomatic maneuvering Putin might perform on the international arena, the Ukrainian debacle proves the propensity to grave errors of judgment and inability to deal with the challenges of change.