bne
January 16, 2012


There are four burning questions to be answered in 2012. The first and most important is: will Prime Minister Vladimir Putin allow a second round in the March presidential election?

At this point it is clear that if Putin tries to force his way back into office and win in the first round – as was widely expected before the first demonstrators hit the streets in December – he will clearly alienate the electorate further.

This was Belarusian President Alexander Lukashenko's mistake in 2010: fixing the elections to win by a massive majority thanks to the mistaken belief he needed a "clear mandate" to continue as ruler, which ended with mass protests and destroyed what little credibility he had built up with his lukewarm opening up to the rest of the world.

To force the vote suggests that Putin believes he is running an autocracy, but as Charlie Roberson, chief strategist at Renaissance Capital, has argued: "Russia today is not an autocracy, but a weak democracy with authoritarian tendencies."

As bne pointed out in The power of ruling parties, Russia is drifting slowly towards a more representative government. December's parliamentary election results are in line with the results in the more democratic group of countries in the CIS, whereas the last presidential results in 2008 puts Russia amongst the more dictatorial group of countries. If the trend continues, then Putin will fail to get 50% in the first round but win handsomely in the second.

The Duma election result suggests that Putin is pragmatic enough to realise that he will have to allow more competition in the form of a free-ish vote so that he doesn't win in the first round. But as he is almost certainly face the unelectable Communist leader Gennady Zyuganov in the second round, this strategy doesn't look risky and would do a lot to diffuse the tension.

Putin's return to the presidency is the first and least difficult challenge he has to face, but in his "managed democracy" – which is now more equally divided between the "managed" and "democracy" parts – the question of who is prime minister will be just as important for Russia's development.

New model

Economists are saying with one voice that Russia needs a new economic model if it is going to continue to grow. Putin said twice before the holidays that, "4% growth is not good enough. We need 6% or 7%." The bne consensus forecast for this year is 3.8%, so clearly Putin needs to do something radical to get the economy back on the high growth road. And as he is not given to making glib political promises, we assume that he has a plan; after all, this is the man that launched the Gref plan in 2002 that led to a decade of prosperity and backed it in the face of almost universal opposition amongst the Kremlin elite at the time.

Keeping Dmitry Medvedev as prime minister is the default option, but given the current president's almost complete failure to actually do anything during his four-year term as president, this is not an encouraging alternative.

The second burning question is whether former finance minister Alexei Kudrin can credibly build a bridge between the establishment and the dissatisfied electorate, thus clearing the way to a return to politics as prime minister. This option could led to faster and more radical reform, as unlike Medvedev Kudrin is a man of action; most of the credit for Russia's fundamental strength today can be laid at Kudrin's feet. This option also has the advantage (for Putin) of keeping political power inside the Kremlin's ring fence around "democracy."

The third question is whether the opposition movement (such as it is) can find a leader, like independent blogger Alexei Navalny or opposition politician Vladimir Ryzhkov, to maintain itself as a political force. This would be a force outside of the Kremlin's political ring fence. A real opposition would be cheered in the West, but is clearly antithetical to Putin's ideas of how Russia should develop through to 2024, so he will resist it with all the considerable means at his disposal. If the opposition does coalesce around a real independent leader, the reform process – both economic and political – will be more chaotic but probably better for Russia in the long run.

No Russian spring

In the meantime, the risk-aversion that hit Russia in December after the reappearance of politics is already fading. Most of the doom and gloom scenarios that were promulgated in the run up to the holidays have failed to come to pass. A "Russian spring" is not in the offing and by January some commentators were already beginning to ask if the opposition movement was already losing momentum.

Despite Putin's image in the West as an out-and-out dictator in charge of a kleptoracy, in reality he is a pragmatist who has always been intensely interested in his popularity (currently at 58% according to VTsIOM). When pensioners took to the streets to protest the Kremlin's plans to make them pay for their bus passes in 2005, Putin quickly back-peddled. Likewise, when the residents of the mono-cities started to block highways to protest over unpaid wages in 2009, Putin was on a plane to berate the oligarchs responsible on live TV. This is not quite the opinion poll-driven democracy of the West, but Putin clearly is listening closely to the demands of the emerging middle class and will react in some form.

The last question is whether Putin will come up with the sort of radical reform plan that Russia needs if he is deliver on his promise for 6% to 7% growth.

Again, despite his image, Putin is a committed reformer, albeit not from the Milton Friedman mould of free marketeers. He has said repeatedly his goal is to battle poverty and improve the standard of living for the average Russian – and has delivered with spectacular success. In his annual December tele-convention, he was clearly appealing to his core blue-collar constituency who have enjoyed real benefits under his rule, but he needs now to also address the middle classes' demands. If he is going to deliver on his promise for better-than-consensus growth, he needs a Gref plan 2.0, but the shape of this plan (if it exists at all) will not be apparent until after the presidential elections have passed.



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