Putin 4.0 Offers More of the Same

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(Bloomberg) -- Russian President Vladimir Putin has often surprised observers in the West in the last few years, but when it comes to running Russia, he doesn’t like surprises. As he begins his fourth term, his decision to reappoint Prime Minister Dmitry Medvedev should end all chances of a meaningful economic policy change, even if former Finance Minister Alexei Kudrin — the biggest hope of Russia’s “system liberals” — gets a Kremlin job.

Putin’s third presidential term was tumultuous: The European Union forced the state-controlled natural gas giant Gazprom to redraw its critical European contracts and lower prices. Meanwhile, Russia’s aggression in Ukraine brought Western sanctions. But Medvedev spent a rather quiet six years leading from behind and avoiding any decisions that required courage or vision (unless you count the ill-conceived countersanctions on European food). Elvira Nabiullina, the central bank governor, was responsible for the important economic moves between 2012 and 2018, including the switch to a free-floating ruble, the suppression of inflation, and the banking system cleanup that resulted in its de facto nationalization.

QuicktakeVladimir Putin

If anyone in the government helped Nabiullina with her tough job, it was Finance Minister Anton Siluanov, Kudrin’s former deputy in the ministry. His tight-fisted budgeting and his efforts to shift government borrowing to the domestic market helped Russia demonstrate its resilience under adverse circumstances.

Still, Nabiullina and Siluanov — who are likely to continue in their roles — were largely doing damage control. Russia’s ossified system, dominated by a handful of state companies and dependent on state procurement, needs more visionary and resolute action to go beyond today’s miserable growth rate, forecast by Bloomberg at 1.8 percent this year, slightly less than half of the estimated global rate.

Kudrin is the only figure in the Putin camp who has demonstrated that vision. Late last month, his Center for Strategic Development created a website devoted to proposed policies for Putin’s fourth term, which ends in 2024. The main idea is to invest more in Russia’s human capital through an emphasis on education, health care, support for entrepreneurship and research grants. A proposal based on creating a unified digital platform for government would cut the number of bureaucrats by a third; Russia would quickly reduce its commodity dependence, relying instead on innovative businesses and the export of services.

The problem with Kudrin’s program is that it appears to ignore the autocratic, deeply corrupt, inefficient system that Putin has built over the last 18 years. It’s as if it’ll disappear by magic, replaced by artificial intelligence. The plan has the same starry-eyed quality as the Saudi Vision 2030, Crown Prince Mohammed bin Salman’s hyper-ambitious transformation program for the oil kingdom.

Kudrin is widely expected to be rewarded for his dreaming with some sort of high-profile job, most likely as deputy head of Putin’s staff. Since Medvedev’s reappointment was rather uncontroversial, hardly anyone has predicted that Kudrin would join the cabinet. His relationship with Medvedev has been strained since 2011, when the current prime minister, then a placeholder president, publicly demanded Kudrin’s resignation following a disagreement over proposed military spending. (Kudrin thought it too high; it’s clear now why Putin took Medvedev’s side in the dispute.)

As a high-ranking member of Putin’s staff, Kudrin would get autonomy from Medvedev’s cabinet and access to the president. “System liberals” saw Putin’s inauguration speech as a glimmer of hope that the president might listen, even occasionally. Putin said, echoing the language in Kudrin’s plan:

We need breakthroughs in every area. I am deeply convinced that such a spurt can only be effected by a free society that accepts everything that’s new and advanced and rejects injustice, backwardness, ignorant traditionalism and deadening bureaucracy –everything that holds people back from opening up fully.

This is not a promise of liberalization, but a hint that liberal rhetoric will be adopted to some degree now that Russia’s anti-Western foreign policy stance and security priorities have been asserted. Kudrin, who hasn’t run anything but a think tank throughout Putin’s last term, could be co-opted to project this new rhetoric both domestically and internationally.

The problem, however, is that in the Russian system, only Putin has the ability to run the Russian economy from the Kremlin. The cabinet, the central bank and the top managers of state companies hold the levers. And if Kudrin is installed as a kind of shadow prime minister without real-world powers, Medvedev will inevitably see him as a rival and a nuisance to be neutralized. The sleepy prime minister may not be a visionary, but he’s great at working the system to his advantage.

That means more of the same can be expected from Russia’s economic policy at the outset of Putin’s fourth term.

Putin does want a breakthrough: That’s clear from the first decree he signed on inauguration day. It calls for Russia to cut its poverty level by half by 2024, raise the average life expectancy from 72.5 to 78 years and become one of the world’s five biggest economies (it’s No. 11 today, according to the International Monetary Fund). But he wants a breakthrough that won’t require real change. If the dreams don’t come true, that’s fine because change that could undermine his power would be vastly more dangerous than another uninspiring iteration of the status quo.

©2018 Bloomberg L.P.

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