Early Election Would Benefit Putin, Not Russia

(Bloomberg – bloomberg.com – Leonid Bershidsky – June 18, 2015)

Russia’s former finance minister, Alexei Kudrin, came up with an interesting idea for turning Russia’s recent economic woes to the country’s advantage: moving up the scheduled 2017 presidential election. The problem with this suggestion — which may have been floated as a trial balloon with the Kremlin’s approval — is that President Vladimir Putin could use it to take Russia further into the past.

Kudrin, who built up the international reserves that are now helping Russia ride out a second economic crisis, lost the finance minister’s job in 2011 and has since made liberal statements that went against Putin’s line. The president, however, still counts him among his loyalists. During a carefully choreographed call-in session with voters in April, Kudrin asked the president about creating a new growth model for Russia. In response, Putin called their relationship “very good, practically a friendship,” and said he would stick to the policies Kudrin helped formulate during his tenure: “If you and I failed to envision something, that is probably our fault, and yours, too.”

Kudrin clearly wasn’t satisfied with this answer: Since he left the finance post, the price of oil has dropped more than 50 percent, Russia invaded Crimea and become involved in the conflict in Ukraine, creating severe tensions with the West. Surely, those developments must call for changes to the old plan. So today, speaking at the St. Petersburg Economic Forum, Putin’s version of Davos, Kudrin dropped his bombshell:

Structural reforms are not just about writing a nice document. They take political will, they take a team, they take a president who shares all these points. Why don’t we, if we’re bringing forward the parliamentary election, why don’t we also bring forward the presidential election and announce a new reform program that would be easier to implement with a mandate of trust?

It seems strange to suggest that Putin might need a stronger mandate, given that he has an approval rating above 80 percent. In April, a poll found that 62 percent of Russians were ready to vote for Putin; no one else received more than 6 percent support. There is, however, some uncertainty about the future: What if the economy performs so poorly that by 2017, when the next election is scheduled to take place, Putin could no longer be confident of a more or less honest victory?

His party, United Russia, appears to be unsure it can hold on to its majority in parliament without the kind of shenanigans that set off mass protests in Moscow after the last election, in 2011. That’s why its lawmakers pushed through a measure to move the 2016 parliamentary elections from December to September, when statistics show there’s usually a lower turnout. United Russia has always been less popular than Putin himself because it is known as the party of corrupt local bosses, and the string of repressive laws it has been passing hasn’t endeared it even to generally pro-Putin voters. That doesn’t mean, however, that another two years of negative and almost-zero growth — the Bloomberg consensus forecast is for -3.7 percent of gross domestic product this year and 0.5 percent in 2016 — won’t scrape off some of Putin’s teflon.

Russia has avoided an economic collapse this year by devaluing the ruble and shoring up banks and major companies. These steps have affected ordinary Russians, however. Today, Rosstat, the official Russian statistics agency, reported than for January through May, retail turnover declined 7.7 percent, compared with a year earlier. Russians have less money to spend: Their real incomes dropped 3 percent in the first five months of the year. Unemployment increased almost 6 percent, to 4.3 million people.

For now, Putin is doing his best to distract from the bad news with surging patriotism, indignation against the treacherous West and hatred for perfidious Ukrainians. This week, he even opened a kind of military-themed Disneyland called Patriot Park. And Russians do say that the TV set will beat the fridge every time. Yet when an autocrat wants to be certain of re-election — and Putin has never settled for less — it’s best to ride the wave when it’s still high.

Kudrin’s idea is that winning now and locking in another five years in office will give Putin more leeway to try and restart growth. Some of the measures may be unpopular, such as the health care reform that is quietly underway and is aimed at dismantling the remnants of the Soviet system. Tax cuts may be needed, resulting in social spending reductions that would hurt public sector workers who are among Putin’s loyal electorate. An increase in the retirement age would hurt another loyal group. Other needed reforms would just need time and determination to push through, such as the deregulation required to reduce corruption and create incentives for private business to innovate and make Russia less dependent on imports. Devaluation by itself hasn’t yet resulted in increased local production because private investors would rather send capital out of the country than expand or start Russian projects.

In other words, Kudrin’s idea is that, with more time before the next election, Putin would be less constrained and better able to point Russia in a healthier direction. The problem is that may not be what Putin wants to do.

Putin will appear Friday at the St. Petersburg Economic Forum and his speech will probably be a lot like his state-of the-nation address in December: He’ll seek to reassure his audience of Russian and Western business leaders that Russia isn’t collapsing and that it still represents an opportunity rather than a threat. He won’t, however, announce any kind of economic liberalization or present any growth-boosting plan: He is too focused on ideology to concentrate on the economy. And he certainly has no stomach for cutting social spending now.

Influential Putin allies in parliament rejected Kudrin’s idea. Sergei Neverov, the deputy speaker, called it “an attempt to introduce a certain instability to society.” Franz Klintsevich, deputy head of the United Russia faction, added that Putin’s mandate was already strong enough to push through reasonable reforms. The president doesn’t have to agree with them, but even if he decides to go for the certain win now, he won’t do what Kudrin would like him to do. Rather, the dictatorial system he’s built in Russia will only become more ossified and the anti-Western ideas that fuel it will grow more outlandish.

Article ©2015 Bloomberg L.P. All Rights Reserved. Article also appeared at bloombergview.com/articles/2015-06-18/early-election-would-benefit-putin-not-russia