Putin marks 15 years in power with harangue against West

Vladimir Putin file photo with VOA logo; screen shot from video still

(Business New Europe – bne.eu – MOSCOW BLOG: Ben Aris in Moscow – March 27, 2015)

Russian President Vladimir Putin on March 26 marked 15 years since he was elected as Boris Yeltsin’s successor by summoning the heads of the Federal Security Service (FSB) and warning them sternly that there was a western conspiracy to undermine and contain Russia.

Putin struck a dark tone in his address to the chiefs of the FSB, the main successor organization to the Soviet KGB, repeating allegations that Russia’s “political opposition is controlled and financed from aboard”. He reiterated that dialogue with the West is “pointless” in this case. The president went on to say that western secret services had infiltrated Russia’s NGOs and would use them to destabilise future Russian elections, specifically the parliamentary elections due in 2016 and presidential elections in 2018.

The speech came as a new poll from the Levada Center shows Russian support for a liberal democratic system has reached a 20-year low. One in two Russians now believe it is better to concentrate power in “one pair of hands”, while anti-American sentiment is running at an all-time high.

Putin has bolstered his standing in the polls by deftly redirecting anger that should be aimed at him over the faltering economy and falling standard of living squarely onto western governments. Despite his lack of democratic credentials, Putin has played the populist harp with such aplomb that he now enjoys a unprecedented popularity level of some 80% – even better than when he was first elected.

Discovering Putin

If one were to look for symbolism in the historic anniversary of Putin’s accession to power, then the conclusion is a chilling one. For the first six months after his election in 2000, the western press wrote endless articles asking “Who is Putin?”

At first it was assumed that he was simply a puppet of the oligarchs then ruling the roost. However, Putin rapidly took control by first attacking two of Russia’s most prominent oligarchs – Boris Berezovsky, who was driven into political exile, and Vladimir Gusinsky, who was arrested, Both controlled Russia’s leading media outlets. Putin followed up by dismissing the entire Federation Council, which was believed to be populated with proxies for the oligarchs, and replacing them with governors appointed by the Kremlin. Putin finished his coup by calling the now infamous “oligarch meeting” in July 2000, where he told the leading industrialists they could keep what they had stolen but they could steal no more – and stay out of politics.

These actions formed the political reputation of an autocratic tough guy with little respect for democratic institutions that Putin still carries today.

Less well remembered are the concurrent economic reforms that he put in place. The first thing the new president did was to completely overhaul the tax system, slashing income taxes to a low 13% for individuals and 24% for corporations – among the lowest rates in Europe. At the same time, he overhauled the labour code and launched what became known as the Gref plan, named after the serving minister of economics, German Gref.

This change paved the way for an economic boom and the Russian economy expanded by 10% in 2000, a record yet to be bested. Of course, Putin was aided by the rapid recovery of oil prices, which rose from a low of $10 to over $25 by 2001. Al Breach, chief economist at Goldman Sachs and a long-time Russia watcher, famously marked every single Russian stock up to “buy” in 2000. It was a spectacular call that would have made investors rich if they had followed his advice (most didn’t) as Russia set off on a multi-year boom, until it finally hit the brick wall of the Lehman Brothers collapse in September 2008.

Rejecting the reset

For all the good luck Putin enjoyed at the start of his first term, he had an equal amount of bad luck at the end of his second, and ever since, which many would argue has only been made worse by his aggression in Ukraine and rejection of liberal western mores.

Rising tension with the West over the inability of Russia to form a true partnership with Europe escalated in the second half of the noughties, eventually culminating in the open military clash in eastern Ukraine.

Putin has clearly felt frustrated with his attempts to engage Europe, albeit in his ham-fisted way. In his famous Munich Security Summit speech of 2007, he told the European delegates that “Europe is our natural partner”, but added the caveat that Russia’s interests must be respected. But an effort to buy German-based carmaker Opel by a consortium of Russian banks, which Russia intended to use to rescue its failing automotive industry, was thwarted by executive interference. Likewise, the Russian purchase of a large minority stake in the European aviation giant EADS, which was intended to help rescue Russia’s ailing aviation sector, was also blocked.

On the security front, Washington’s decision to unilaterally withdraw from the Anti-Ballistic Missile Treaty (ABM) in 2002, a pillar of European security infrastructure as far as Russian was concerned, followed by the US bid to build a “missile shield” in Central Europe, only undermined relations further. Subsequent attempts to sign a missile reduction treaty and the US “reset” pursued after Dmitry Medvedev’s 2008 ‘interim’ election as Russian president came to nothing.

Meet the new old president

Putin returned to the Kremlin helm in 2012 after side-stepping presidential tenure rules by serving as prime minister for four years. And things were going to be different. According to bne IntelliNews sources that worked with Putin for the last decade, he eventually gave up trying to be friendly and turned his attention to tightening relations with Asia. Relations with Europe from this point on are going to be pragmatic and commercial, but not friendly.

Putin is bound to be re-elected in the 2018 presidential election if he chooses to run. That would mean he will remain in office for another 10 years until 2024 when the constitution requires him to stand down. He took office when he was 47 but will probably retire when he is 72.

What the next 10 years hold remains totally up in the air. Russia is at a crossroads (yet again) and the government needs to launch radical reforms if the country is not to slide into stagnation. At the same time, the financial sanctions imposed by the US are likely to remain in place for all of Putin’s remaining time in office and will act as a millstone around Russia’s economic development.

Even if European sanctions expire at the end of this year, as most commentators are expecting, the viral nature of the US financial sanctions mean Russia’s major banks and companies are likely to be cut off from the international capital markets from this point onwards, or at the very best will have to pay a lot more for their money.

That said, the Russian economy remains entirely self-sufficient, not to mention its treasure trove of natural resources. And it has not been isolated by the showdown with the West, as the process of integration with other emerging markets, particularly the BRIC countries, is on-going. In 2014, China became the largest economy in the world and continues to be one of the fastest growing. Whether this relationship will be enough to offset the lack of business integration with the West remains to be seen.

[featured image is file photo]