Apr.
24
2014

Trapped

Putin makes Russia unable to develop, tells Sergei Guriev, the former Rector of the New Economic School in Moscow, to alapblog.hu. Due to the intolerable situation in Russia, he resigned and emigrated to Paris, where he is currently a Visiting Professor at the Sciences Po elite institution.  According to him, Russia can only be brought out of the deepening crisis, if extensive, substantial reforms are implemented.

He points out that the existential interest of Putin and the Russian ruling class contradicts the interests of Russia. The necessary reforms would ensure protection of property rights, elimination of the clientele system, free, transparent market, and independent media and judicial system. In other word, Putin would have a reason to fear the collapse of the system keeping him in power.
Thus, he has no alternative but sustaining strong nationalism, brainwashing millions of Russians, and labeling enemies. In the meantime, capital is increasingly fleeing the country.
Guriev reassures the Hungarians: whatever Putin promised in the deal of the Paks power plant extension, he will keep his word; Russia’s leaders keep themselves to the economic and trade agreements.

Zentai Péter: Did the economic decline of the past three years contribute to occupying Crimea, to starting imperialist policy?

Sergei Guriev: It certainly did. The stagnation of the economy, falling out of the BRIC (Brazil, Russia, India, China) group, the growing gap between Russia and other emerging countries – especially, the leading capitalist countries – have all influenced and still influence Putin’s actions. First, he hoped that the Sochi Olympics will pull the country out of the recession…

But that did not happen. There is no apparent economic recovery due to Sochi.

It is perfectly obvious. But Putin wants to retain and reinforce his power. Even if the economy is not in good shape, he has to maintain popular support. Sochi, hosting the Olympic Games, helped to achieve this. However, they felt that – “better be safe” – they should move on from the politics based on national pride, nationalism and started foreign expansion.

Do you mean to say that without the Sochi Olympics and occupying Crimea, Putin’s popularity, perhaps the Putin-regime itself, might have been put at risk?

The regime itself would not have failed as Putin and his men have developed a well-established system for brainwashing Russians: they fully control the media. The news, the papers, the commentaries are nothing but direct or indirect state-, party- , and Putin-propaganda. The main message is that Russia is fighting. Fighting against internal and external forces that want to sell Russia to foreigners or want to subdue it. Fighting against those who do not want to acknowledge that Russia is achieving success under Putin or envy this success. Meanwhile, Putin and his men also control the court system, the prosecution, and the police.
Nationalism and the communication related to it are integral parts of the economic policy.
Intimidating and blackmailing smaller economic, political and media actors are linked to this politics. Mysterious deaths, trumped-up charges, and phony arrests are all essential parts of the system of intimidation.
Still, there are many people, including businessmen and oligarchs, who praise Putin and his regime in public but think and talk differently at home, in private discussions.

Earlier, the Ukrainian and Russian wealthy people and influential business men were in close connections. Are these links now broken?

Supposedly but not demonstrably, these relationships are still alive. However, in public, the Ukrainian oligarchs disapprove the Russian aggression, while the Russian oligarchs defend the annexation of Crimea. Of course, these Russian billionaires are just conforming to the expectations of the nationalist propaganda.

Some of the Russian oligarchs were hit by the actions taken against the West: due to the frozen bank accounts, they cannot access their money on American and some other foreign accounts. How do these provisions affect Putin? He is one of the wealthiest man in Russia, for instance, he has significant stake in Gazprom and other conglomerates…

He denies that. By his own account, he has nothing more than a small house with a land and a car.

No one believes that. Not even in Russia. Do they?

In my experience, this is something that Russian people are afraid of speaking openly about. Most of them like Putin and want to believe that he is fighting corruption. He has been telling that for 14 years but corruption still remains a major cause of concern in Russia.
Corruption strangles the economy. It can be found even at the lowest levels: bribes to the doctors, to the police. However, millions of Russians are gloating over the fact that the oligarchs are not able to access their money from the West due to the sanctions.

Still, money is fleeing Russia like never before.

According to the latest official Russian data, 64 billion dollars of assets left the country in the first three months on the years – the same amount as throughout last year. According to the World Bank’s recent warning, an additional 150 million dollars might flow out of Russia if the crisis around Ukraine deepens.
Anyway, there is huge pressure on the Russian currency, the ruble. As it depreciates, inflation increases.
In effect, the capital outflow might soon become the biggest problem in the Russian economy.

On the other hand, the sanctions against Russia might become stricter: Brussel and Washington might force Cyprus and Switzerland – where most of the money is run to – to impose the same sanctions.

No doubt, things are getting tough for the Russian economy. Putin has just announced that he was ready use the “natural-gas weapon” against Europe by cutting off the essential gas supplies to Ukraine.
All in all, Russia can lose much more than Europe, if this new cold war deepens.
Again, I would refer to the recent prognosis of the World Bank: the deterioration of the political and economic situation does not enable any economic growth. Quite the reverse, it can cause a drop of 1.5 to 2 percent by the end of the year.

Did you hear about the Hungarian-Russian agreement about the Paks nuclear plant expansion?

Of course, I did. In my opinion, it is rather related to business than politics. I do not know any details but experience shows that Russia respects the technological and financial deals. Putin and his men are, above all, businessmen and act like businessmen when it comes to international affairs.

Why are these businessmen letting Russia merely be a supplier of raw materials to the world instead of making its economy more competitive?

Because they would need to undertake a range of reforms. These reforms would only be efficient, if they protected property rights, liberalized the economy, and privatized. Putin is aware of all this. But there is no reason to believe that these reforms will start because they threaten the ruling elite.

They rather let their country fall behind?

Yes, they do…