Putin's Unsteady Year

May 09, 2013
By
Russian President Vladimir Putin gestures as he arrives for a meeting with G20 summit participants in the Kremlin February 15, 2013.

It’s been one year since Vladimir Putin’s formal return to the Russian presidency in May 2012. What he originally envisioned as a time to cement his legacy has turned into a much messier period of seeking a new equilibrium. Most notably, thanks to an unprecedented series of public demonstrations that accompanied his return to power, Putin now confronts a less deferential—and more divided—society.

While Putin has managed to remain on top politically, he has sacrificed his broader economic and social agenda, as well as his long-touted ability to serve as a unifying force in Russian society. At the one-year mark, he faces several stark choices, most of his own making.

Consolidating Power

While Putin has talked about maintaining a dialogue with the “civilized” opposition in Russia, this term clearly does not embrace all the people who protested his reelection. As a result, Putin has been busy rewriting “the rules of the game” to prevent the opposition movement from growing and directly challenging his rule. The voting procedures for all the major elected offices—governor, senator, Duma representative—have been or are being changed, with seemingly sufficient internal safeguards to ensure the maintenance of the status quo. Putin also has signed a series of laws on NGOs, public meetings, and even treason designed to heighten both uncertainty and fear, limiting the opposition’s ability to present a united front against him.

Over the past year, Putin ensured that no one emerged as a genuine alternative to his personalized rule. This strategy extends not only to his political rivals, but also to Dmitri Medvedev, his remarkably loyal prime minister who has been subject to increasingly sharp attacks from inside the president’s camp. Recent opinion polls put Putin’s overall approval in the low sixties, a healthy number but clearly below the heights of his first two terms in office. More disconcerting for Putin is the decreasing amount of people who trust him (48 percent) and the significant number of individuals who do not believe that he will fulfill his election promises (34 percent).

Putin’s other important triumph over the past twelve months involves attracting new foreign investment to develop Russia’s vast energy reserves. One of Putin’s first tasks upon returning to power was to appoint his longtime ally Igor Sechin as head of the state-owned oil company Rosneft, thus reasserting his control over the energy sector. Rosneft, in turn, has entered into major exploratory contracts with ExxonMobil, Eni and Statoil in the Russian Artic. Throw in the fact that BP now owns almost 20 percent of Rosneft (thanks to Rosneft’s purchase of TNK-BP), and western oil companies now have massive stake in Russia’s political stability, an area where Putin has been the monopoly provider.

Falling Behind

Putin remains in charge, clearly less popular than in the past but nevertheless with sufficient reservoirs of domestic and international support to maintain his current position. By focusing so much attention on his exposed political flank, however, he has not been able to follow through on his social and economic agenda. His 2012 campaign contained numerous promises—on housing, health care, pensions, education, recreation—none of which Putin has actively taken the lead on during his first year in office. Instead, he has been reduced to blaming his cabinet for inaction, publicly wondering at times if anyone was even listening to what he said.

Putin’s economic agenda also remains largely stalled. The Skolkovo Innovation Center, Medvedev’s grandiose high-tech hub, apparently has fallen out of favor after Putin started his own innovation project (the Agency for Strategic Initiatives) and rejected Skolkovo as a possible site of the forthcoming 2014 G8 summit. Meanwhile, the most significant economic development over the past year has been state-owned Rosneft’s purchase of TNK-BP, thereby enhancing Putin’s reputation as a state capitalist rather than a free marketeer. Putin returned to office with an ambitious timetable for privatizing many state industries, but important deadlines for selling off these companies have already been missed. Indeed, the Russian government appears divided as to what to do with the proceeds of such sales, whether the money should be returned to state coffers or alternatively be reinvested in the company itself.

The Russian economy faces other headwinds as well. Russian small business suffered a crippling blow over the past year with the more than doubling of the social tax—the contributions that individual businesses pay for their employees to the pension and other social funds. From December 2012 to February 2013, the number of small businesses dropped by over three hundred thousand. Boris Titov, the Russian ombudsman for business, further lamented that many Russian entrepreneurs have picked up and moved to Kazakhstan, where the tax burdens are significantly lower. Putin belatedly has responded to this deteriorating situation; he has called for alternative approaches to setting the tax, but any fix most likely would not occur until 2014.

Russian also continues to hemorrhage money; an estimated $14 to $16 billion left the country during the first two months of 2013, exceeding the government’s estimated capital flight for the whole year. And as the money flees, the rest of the country suffers. Putin has made various promises—on roads, infrastructure, public-employee salaries—that the regions simply cannot afford. The Kremlin remains particularly concerned about the sparsely populated Far East region and recently released ambitious long-term plans to spend upwards of a trillion dollars developing its transportation system, schools and hospitals. Yet the finance minister, Anton Siliuanov, announced that the proposed investment was some fourteen times what the government could actually afford to spend, casting immediate doubts as to what ultimately will be accomplished.

Putin still has some strong economic cards in his favor. The Russian economy is growing at an estimated 2.4 percent, slower than originally forecast but still better than most of its European neighbors. Meanwhile, Russia’s hard currency and other financial reserves have been replenished after the 2008 economic crisis, and energy and raw material revenues continue to flow into the Russian treasury uninterrupted.

Nevertheless, Putin’s social contract with the Russian people needs to be re-negotiated, and it is no accident that Alexei Kudrin, Putin’s previous long-serving finance minister, now heads up a grassroots organization called the Committee of Citizen Initiatives. Putin also appears to be contemplating ditching United Russia, the country’s unpopular party of power, and rallying behind the more socially oriented All-Russia People’s Front. His instincts on social issues, however, remain highly conservative; he recently called for the reinstatement of the Hero of Labor Award and mandatory school uniforms, relics from the Soviet past that are unlikely to connect with Russia’s post-Soviet generation.

Putin and the State

Putin’s other broken relationship revolves around his attempt to link his fortunes with that of the Russian state, the essential national institution that ensures Russia’s unity and territorial integrity. During his first two terms, Putin successfully tapped into this historical tradition, thereby enabling him to serve as a unifying figure. This formula, however, has eluded Putin during his third term, despite his efforts to rally the people around a strong dose of Russian patriotism and anti-American rhetoric. “We will not allow anyone to interfere in our affairs, to force their will on us,” Putin famously stated at a 2012 election rally. Such statements invariably fall flat in the post–Cold War period, where U.S. goods and services are so readily available to Russians and “patriotic” Duma deputies turn out to secretly own major real-estate holdings in Florida.

So instead of seeing the state in idealistic, nationalistic terms, Russians increasingly see the state in its most public form as an inefficient, bloated and corrupt bureaucracy. Putin’s third term has seen several prominent officials cast aside for various public malfeasance, and he has even introduced a new position, the ombudsman for business, to fight for entrepreneurs who find themselves entrapped in a corrupt legal system. Yet it took almost a year for the Russian legislature to pass a law defining the ombudsman’s actual powers, and recent calls to create a financial police only raise the specter of an ever more aggressive, arbitrary state interfering in the day-to-day affairs of Russians.

Public-opinion polls suggest that Russians remain highly skeptical about the possible success of any anticorruption campaign. Since such an effort requires the broad engagement of Russian society—and a genuinely free press—Putin cannot instigate a widespread anticorruption program without risking a major political backlash. So Putin’s repeated calls to fight corruption ring hollow, especially because it is under his reign that corruption has grown to such epidemic proportions.

One year into his presidency, Putin has not reconnected with his previous lofty position within the Russian state hierarchy. On the contrary, instead of finding a comfortable perch above the fray, he has been dragged down into the morass of Russian politics, with no immediate relief in sight.

Moreover, a big test is fast approaching. For the 2014 Winter Olympics in Sochi, Putin has spent upwards of $50 billion to showcase Russia to the world. If the games are successful, Putin may yet reemerge as the restored leader of a unified and revived Russia. But Sochi could also turn into a PR disaster. One can only imagine the potential logistical nightmares—involving visas, transportation, empty grandstands and even the lack of snow—and how they might affect Putin’s image both at home and abroad.

The Unfinished Narrative

If Vladimir Putin decides to run for another six-year term and governs until 2024 (when he will only be seventy-two), this past year may represent just the middle of his tenure in office. He clearly has time to change course if he so desires, or if facts on the ground so dictate.

Nevertheless, his actions over the past twelve months seem to represent a turning point in his presidency. Putin essentially has moved from offense to defense, reacting to events instead of leading with his own agenda. Such a strategy allows him to maintain his political monopoly but at the cost of alienating the very people he needs to transform the country into a twenty-first-century power. His social and economic objectives are also running out of steam, overwhelmed by levels of cynicism and corruption that go to the heart of his administration.

Putin still retains sufficient resources to ward off his challengers, but he unexpectedly has lost control over the narrative of his presidency. What was initially seen as a time for consolidating his legacy has instead opened it up to new and as yet unwritten chapters.

This article originally appeared in The National Interest.

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