Russia’s Choice, Between Market Reforms and State Controls, May Open or Shut Doors to Détente Over Ukraine
The Russian ruble’s stunning collapse this week may lead President Vladimir Putin to order changes at the country’s central bank and in his cabinet. As he does, will he tilt his government toward Russia’s market-oriented economic reformers or toward its proponents of tighter state controls? And, does the West dare to hope that Russia’s economic crisis might edge Putin toward some discreet reduction of his war against the independence of Ukraine and other former Soviet states?
Putin may offer clues to the answers tomorrow when he is to hold his annual press conference. On the question of Ukraine, any steps to dial down the war will be cloaked in the rhetoric of Russian nationalist defiance that has become Putin’s central theme. The main state-controlled TV channel, Rossiya 1, today issued a trailer for the “Great Press Conference of the President of Russia” that looks and sounds like a movie trailer for a Hollywood movie—one in which the presidential hero never retreats or compromises.
A Hollywood-style promo video by Rossiya 1 television casts President Putin as Russia’s heroic defender.
Toward Reform? Or Toward Control?
Russia’s accelerating flight of capital—and this week’s collapse of the ruble, which hit a historic low of eighty to the US dollar—underscores that “Russia is in a recession and may face a deep recession,” said Andrea Montanino, director of global business and economics at the Atlantic Council. He cited the fall of crude oil prices, from more about $100 per barrel last summer to about $60 now, as the main cause of Russia’s crisis, with Western sanctions contributing.
Prime Minister Dmitri Medvedev may become a sacrificial lamb say several analysts who have wondered for years whether Putin has kept him around for just such a role.
If Putin decides to side with pro-market reformers, his likely choice to manage that change would be former Finance Minister Alexei Kudrin. But Kudrin would insist on reentering government as prime minister, because only then might he have the authority needed to enforce the “far-reaching structural reform which is so urgently required but which would step on various vested [interests] that have been propping up the Putin regime,” according to Standard Bank economist Tim Ash.
And appointing Kudrin would mean Putin would have to contend with an independent critic at the core of his team. Kudrin “has been very critical of policy, and resigned in opposition to plans for increased defense spending a few years back,” Ash wrote in an e-mailed analysis. Kudrin is respected internationally as an economic policymaker.
An alternative to Kudrin and reforms might be Putin’s adviser Sergei Glazyev as representative of a constituency of Russian officials—notably in state-owned corporations and the government’s security services—who favor tighter state control over the economy. Glazyev’s name has surfaced in Ash’s reports and in an essay by Alexey Eremenko in the Moscow Times. On economics, Glazyev has argued for stricter measures such as a government-fixed exchange rate for the ruble. Politically, he has been a hardliner in Russia’s war to prevent Ukraine from joining the European Union. His ascendance would certainly augur against any détente with the West over the Ukraine crisis.
On Ukraine, Any Off-Ramp Possible?
The United States and its allies should remain alert to any chance to nudge Putin toward some conciliation over Ukraine, said former US ambassador to Ukraine Carlos Pascual, who served until this year as presidential envoy for international energy affairs. “I think this is an opportunity … because the way out of the crisis for Russia is to get access to international capital markets,” Pascual told CNBC in an interview. “You can’t fix it any other way. Russia needs access to capital, to investment, to technology, if it’s going to sustain the growth of its energy sector. So the challenge today is for both Russia and the West—in particular, Germany—to create a framework” for a discreet Putin retreat in Ukraine, said Pascual, who serves on the Atlantic Council’s board of directors.
James Rupert is an editor at the Atlantic Council.
Image: Sergei Glazyev, an adviser to President Vladimir Putin, speaks to a business conference in May 2014. Glazyev is a leading advocate of greater state controls over the economy. Analysts are watching to see whether Putin might elevate Glazyev, even to the prime minister’s office, as part of changes in response to the collapse in value of the Russian ruble. (Reuters/Sergei Karpukhin)