Many of Putin’s most recent moves, such as setting up a fuel and energy commission and the economic council, openly demonstrates his lack of confidence in the government. It goes without saying that any decision Putin makes after consulting his expert council will have to be carried out by the government.
interview with Evgeny Gontmakher, Deputy Director of the Institute of World Economy and International Relations (IMEMO) of the Russian Academy of Sciences; Member of the Board - Director, Department of the Social and Economic Development, Institute of Contemporary Development.
What was the purpose of setting up a purely consultative body – a presidential economic council in Russia? Why wasn’t it enough to have the Presidential Commission for Monitoring Progress towards the Socioeconomic Development Targets set by the president of Russia and the expert council established as part of the Open Government project?
The president of Russia, who initiated the new economic council and took up its leadership, had two reasons. One of them is expertise. The first meeting of the council focused on the global economic situation. There are many questions on how it is faring, and Putin understands how strongly Russia’s economy is dependent on it. He needs to have some permanent expert group he could – if not actually consult – then at least listen to. This Council is made up of leading experts, so listening to them will do him good. In my opinion, the first meeting did give him some curious insights as experts voiced quite a few meaningful ideas.
The other reason was political of course. This expert group in fact parallels the government. Many of Putin’s most recent moves, such as setting up a fuel and energy commission and the economic council, openly demonstrates his lack of confidence in the government. It would be more logical to set up this council under Prime Minister Dmitry Medvedev. Although the president of Russia is responsible for the country’s domestic and foreign policy, economic issues are traditionally the prerogative of the government. At the very least Medvedev could have been appointed Putin’s deputy as chairman of the new council; but Elvira Nabiullina was appointed to the post instead. This is an explicit show of lack of confidence, not only in the new government’s policies, but in the Open Government as well, because the Open Government was initially intended to provide consultancy to the prime minister. Now it is being pushed aside by a higher-level body. It goes without saying that any decision Putin makes after consulting his expert council will have to be carried out by the government.
Another reason for creating this council is Putin’s need to demonstrate his willingness to engage in dialogue. Putin has been widely criticized in the media for having detached himself from the people and lost credibility. This move suggests he is not as closed off as people have been saying. It gives the impression that, while he is known to crack down on his opponents and crush those who join in the rallies, he is also willing to meet with certain civil society representatives, such as experts, and carry on a dialog.
Would you agree with the claims of some analysts that Vladimir Putin’s new economic council is an official way of “binding” liberal economists to the president?
This is actually the last reason I mentioned. Putin is trying to show that he is capable of dialogue. This is, in a sense, a replay of the Strategy-2020 situation. Economists, most of whom hold liberal views, spent a whole year writing clever things in it and finally submitted it to the government. Where do you think all the clever papers ended up? In a desk drawer…
The Economic Council will include working groups involving dozens of people, possibly from the same cohort that helped write Strategy-2020. Having these people around will help legitimize the regime that has emerged in Russia and the decision-making mechanisms it uses. I am referring to their habit of listening to experts – as was the case with Strategy-2020 – pretending to take counsel and then making an arbitrary decision. Look at the 2012-2014 federal budget, for example.
The first meeting of the Presidential Economic Council focused on Russia’s development priorities. The president emphasized that we need to react promptly to any potential signs of economic crisis, as well as focus on a technological upgrading of the economy. Do you think Russia is in for an economic crisis?
The global economic crisis has evolved into a new, more acute, phase. The problems are clearly getting worse, and many experts told Putin this would happen. Russia will have to take the blow along with the rest of the world. The government is getting ready for a second wave of crisis. I believe there is an 80% probability that a crisis will hit Russia. The question is what to do about it.
Will any of the mechanisms that cushioned Russia against far worse repercussions in 2008 be of any help this time?
To a far lesser extent. The first wave of the crisis was of a different nature: it was triggered by the bubbles bursting on the U.S. mortgage market and several financial corporations going bankrupt. Today things are different. The problem is related to the huge debt that has accumulated in Europe, threatening the banking and the foreign exchange systems and their global stability.
How much is Russia dependent on the eurozone?
There is no dependence on the eurozone, but there is one on the European economy, since Europe is Russia’s main trade partner. A sharp decline in production there would be very damaging for Russia, or, worse still, if there is a sharp decline in European demand for one or more of Russia’s exports, such as oil and gas.
Do you agree with those analysts who believe that Greece’s withdrawal from the eurozone would cut global demand for energy resources, causing an economic downturn in Russia? They say that if the situation becomes unmanageable, oil will plummet to $60 per barrel, leading to a recession, unemployment, and the devaluation of the ruble by 15%-17%, and Russia’s Reserve Fund will be drained in less than a year.
This is partly true. It is difficult to guess the potential scale of this crisis, to say how deep the downturn will be. But the trends are quite obvious, so I have to agree with this. Whether Greece will leave the eurozone is also unclear at this point.
Russia has put aside $40 billion for 2012-2013 to protect its economy in the event that the eurozone crisis gets worse. Will this be enough? In 2009, Russia had to spend $200 billion to save its own currency.
Probably, no. Things may get more complicated this time around.
In 2011, Russia’s economic growth stabilized at 4%, half its growth in 2007. Last year, Standard&Poor’s credit rating estimated that Putin’s return to the Kremlin may inhibit long-term economic growth in Russia. Do you think these fears are justified?
I think so. It is in fact already happening, if we look at the investment climate rankings. Putin quoted the World Bank ranking, which placed Russia at 120 in terms of being an attractive investment destination. This should be “credited” to the corrupt and monopolistic government system that Putin heads. The fact that he has been elected president of Russia for another six years is certainly not a factor conducive to improving the investment climate.
What do you think of Vladimir Putin’s call to the world’s leading economies ahead of the G20 summit to reach an agreement on an acceptable level of protectionism?
We have just joined the WTO. I think this is enough for now, since the WTO is actually a collective tool for keeping protectionism in check. Therefore, Putin’s statement to me sounds like a call to establish a certain degree of separatism within the WTO, because all the G20 countries are also members of the WTO.