Russia is both an appetizing, fast-growing market and one of the riskiest places to do business in the world at the moment.
Rampant consumer spending, record oil prices and rock solid public finances have triggered an economic boom. This contrasts with creeping authoritarianism, state seizures of private property, widespread corruption, and weak rule of law. The departure in 2008 of Vladimir Putin as president with no clearly defined successor in view adds to the uncertainty and confusion.
Putin is very popular, but he left the outcome of the March 2008 presidential elections uncertain, because he refused to back a candidate until campaigning has begun. There is no clear frontrunner and the strongest candidates’ likely policies are unclear. Although the leading contenders are all closely connected to Putin, there is no telling what they would do if elected.
Experts gathered yesterday at a conference sponsored by the American Enterprise Institute tried to shed a little light on a likely path ahead. The most pressing question Kremlinologists are asking – and that business wants answered – is whether Putin’s power structure will remain in place and if not, what will replace it?
Georgy Bovt, a Russian columnist and pundit, said, “Putin’s challenge is to find a successor who is both electable and can be relied on to continue his policies.” Nationalism is one possible tool candidates may use to in the campaign. Bovt says although the appeals of nationalism seem obvious, “Strong anti-western nationalism is not very popular inside Putin’s inner circle. They want to control everything, but once nationalism is unleashed, this will be difficult.”
The top candidates include Deputy Prime Ministers Sergei Ivanov and Dmitry Medvedev, and – possibly – recently-appointed Prime Minister Viktor Zubkov. They all belong to Putin’s St. Petersburg group of former KGB apparatchiks who began seizing the levers of power in St. Petersburg, where Putin started his ascent through the political and state intelligence system.
Commentators said that while Putin wants to keep this group in power, there is no precedent for this in Russia. Even close allies cannot be relied on to keep their promises, creating a risk of policy discontinuity.
A changing political scene makes it even harder to make sense of the campaign as it unfolds and, superficially, begins to resemble a western democracy. Andrei Kortunov of Mosco-based New Eurasia Foundation, says, “The electoral battle will be more local than before and based less on the big ideological issues.” Domestic policy issues such as education, health, and housing will predominate while voter turnout drops from 65% to 45%-50%. However, Putin has used access to media, new electoral rules, and patronage to reshape the political system. For instance, new electoral rules will favor large parties and exclude small parties from the legislature. The pro-Putin Unified Russia Party should take about 47%-48% of votes.
The economic outlook is as confusing and uncertain as the political scene. Anders Aslund, a seasoned Russian expert at the Washington-based Peterson Institute for International Economics, said long-term growth prospects are positive. The country is well on track to meet Wall Street forecasts for a 131% increase in GDP in the 16 years through 2016, a greater proportion of Russians go to college than in Europe, while the number of registered companies rises by 7% a year – an encouraging indictor of growing entrepreneurship.
Yet Aslund warned that Russia’s growing state-dominated economic structure is leading Russia “in the wrong direction.” He said, “Property risk leads to less domestic and foreign investment. State-controlled energy companies are borrowing to buy assets, and concentrate control over unrelated strategic industries, instead of investing to increase output.”
Aslund still thinks Putin will remain at the center of Russian politics in one form or another. In a recent Washington Post Op-Ed article on Putin, Aslund wrote that “He and his cronies have really just wanted to enrich themselves. Now [they] must cling to power somehow—or risk losing it all if they cannot stage-manage a transition to the proper person.”
If it seems that the St. Petersburg Group will likely remain in power, it’s anybody’s guess how the next president will behave once he is in office, whether he will keep taking orders from Putin, and if he will try putting Russia back on the right track.