October 7, 2016

Features of the Political and Economic Situation in Russia and Its Impact on the Possible Political Decisions of the V. Putin's Regime

Ivan Sichen, Military and Political Expert

By the results of the September parliamentary elections in Russia, a landslide victory, as expected, was celebrated by the “United Russia” — ruling pro-presidential party. Moreover, it has strengthened its positions, having received more than 76 % of the seats in the State Duma of the Russian Federation, which allows it to independently make any constitutional amendments.

Apart from the “United Russia”, three other parties from the so-called “Pocket” opposition made their way into the State Duma: in particular, the Communist Party — 13.34 % (lost about 6 %), the Liberal Democratic Party — 13.14 %, and “A Just Russia” — 6, 22 %. Not a single representative of the Russian real opposition forces has become a Parliament Member. Russian President V. Putin is sure that the victory of the “United Russia” shows “...a high level of the Russian population's confidence in the current government, which, despite Western sanctions, has ensured stability in the country”.

This “stability in Russia” can be illustrated by the following: the slowdown in the fall of GDP in the country in 2016 as compared with 2015; the decreased rate of inflation; stabilization of the Russian ruble. That is, as ironically pointed out by Russian experts, “...the merit of the Russian government was withholding the situation in the country in the condition, not so bad as it was expected”.

At the same time, the price of such “achievements” is really prohibitive for Russia and this has created preconditions for a disastrous situation in the nearest future. For example, some stability is achieved by the greatest expenditure of reserve funds to cover the Russian state's budget deficit (in 2016 it exceeded 3 trillion rubles), and to support the Russian economy, the financial system and to some extent the social sphere.

Deputy Finance Minister of the RF O. LavrovDue to this, the situation with Russia's financial reserves could be called catastrophic. Even the Russian government agrees with this. According to the Deputy Finance Minister of the RF O. Lavrov, the Reserve Fund is actually drained and will be able to meet the needs of the state only until 2017. Therefore, Russia has to use money from other funds, including the Pension Fund and the National Wealth Fund, intended for the implementation of programs for socio-economic development of the country. According to the forecasts by the Ministry of Finance, if the US and EU sanctions against Russia are extended, these funds will be empty within three years.

Besides, due to the acute shortage of foreign currency, Russia has actually lost sources of revenue for its financial reserves. According to the Central Bank of the Russian Federation, recently for the first time since 2014, the volume of such currency outflows have exceeded the volumes of its revenues. Mainly due to closing up of the foreign trade because of the West's sanctions and Moscow's counter-sanctions, as well as due to a fall in world prices for energy carriers, which are the basis of Russian exports. The outflow of foreign capital from the Russian Federation since the beginning of 2016 has made 10 billion US dollars.

After all, even the Russian government's having used actually the whole Reserve Fund has not stopped the stagnation of the Russian economy. For example, by the results of the 1st half of 2016, production in the mining industry has decreased by 0.9 %. Despite Russia's statements about a certain increase in the issuance of engineering products, the problems in this sphere are significant. For example, since the beginning of 2016, the “KAMAZ” (the largest manufacturer of commercial vehicles in the Russian Federation) Company's revenues have decreased 6 times as compared with the same period of 2015.

All this is forcing the Russian Federation's government to seek sources of additional funds including due to: reducing the financing of federal target programs of development of the country; austerity of budget expenditures (including social spending); raising taxes; increasing internal and external borrowing; implementation of a large-scale program of privatization of state property (especially of the most profitable enterprises of oil and gas industry).

However, this only temporarily reduces the severity of the financial situation and results in negative consequences for Russia, such as: the slowdown in economic development of the country; the growth of its foreign and domestic debt; the Government's losing the control over key sectors of the national economy; growing social problems.

The rate of decline in real incomes of the Russian populationThus, according to Rosstat's data, since the beginning of the summer of 2016 the rate of decline in real incomes of the Russian population has been accelerating.

In September 2016, this figure was 9.3 % in annual terms, against — 8.3 % in August 2016, 7.8 % — in July 2016, and 4.8 % — in June 2016. In total, in the period of January-August 2016, the incomes in real terms had decreased by 6.2 % as compared with the same period of 2015.

In other words, the poverty rate in Russia increases.

Since the beginning of this year, the number of Russian citizens living below the official poverty threshold has increased by about 1.5 million people — and is now more than 20 million people. More outspoken figures are provided by independent experts who claim that the total number of the impoverished in Russia amounts to 65-70 million people — that is to 45-50 % of the total population. If impoverishment of the citizens continues at this pace, then by the end of 2016, the above-mentioned index will reach 85 %.

All this greatly affects the moods in the Russian society. Due to sociological studies made by the Russian Fund “Public opinion”, to date, already 86 % of Russian citizens believe that the country will suffer a deep economic crisis. And over 35 % of the citizens believe that Western sanctions (last year — 26 %) have had a significant impact on their living standards.

The Russian citizens's attitude to the annexation of the Crimea also changes. While last year the annexation of the Crimea was approved of by more than 70 % of the Russian population, now — less than 60 % approve of it. Besides, political scientists have recorded that as economic situation in Russia is becoming more complicated, there is a trend to further fall of this indicator.

But the Russian Federation's leadership argues that such economic problems are temporary and soon the situation will improve. In particular, at the Investment Forum “Sochi-2016” in early October 2016, Russian Prime Minister D. Medvedev specifically pointed to “the prospect of restoration of the positive dynamics of development of the Russian economy in the current year”.

The prospects of the Russian economy are seen absolutely differently by representatives of foreign expert circles and, frankly speaking, by domestic experts close to the Russian government. Thus, according to the International Monetary Fund, the World Bank, the European Bank for Reconstruction and Development, the Standard & Poor's, Moody's and Fitch's rating agencies, as well as to Russia's Higher School of Economics, Analytical Credit Rating Agency of the Russian Federation (ACRA, created in Russia in contrast to Western rating agencies) and other organizations, Russia's economic problems will only grow.

In this regard, for the period up to 2020, in case of continuing western sanctions against the Russian Federation, and also depending on the level of world oil prices, they mention the following integrated indicators of the macroeconomic situation in Russia:

In case, if oil prices fluctuate near 35 US dollars per barrel

Index

2016

2017

2018

2019

2020

GDP growth, %

-1,6

-0,9

-1,2

-1,0

1,0

Investment growth, %

-6,7

-3,6

-3,3

-2,9

2,8

The growth of salaries, %

-5,2

-1,2

-0,3

0,0

1,2

The budget deficit, % of GDP

4,1

3,0

2,0

1

1

 And if oil prices are at the level of 50 US dollars per barrel

Index

2016

2017

2018

2019

2020

GDP growth, %

-0,8

-0,0

-0,8

-0,4

0,7

Investment growth, %

-3,1

3,1

-2,3

-1,8

2,3

The growth of salaries, %

-3,8

0,3

2,1

1,9

2,1

The budget deficit, % of GDP

2,7

2

1,5

-1,0

1

Actually, the Government of the Russian Federation finally admits the fact that the state of Russia's economy is catastrophic. Therefore, it is trying to establish its control over it. At this, while before the above-mentioned parliamentary elections in Russia, such measures only occasionally influenced the social sphere, now Putin's regime has to apply a full-crushing blow to it. In particular, in the nearest future, there will be another sequestration of the state budget of the Russian Federation, first of all at the expense of the social sphere. Besides, in 2017-2019, the excise taxes on petrol, tobacco and liquors products will gradually grow. Of course, the population will not be happy with such steps of the Russian leadership. One may expect growing protest moods which can end in a real social explosion. One example is the recent protest of farmers in the Krasnodar Territory. In September, a new public organization was created — “The Friendly Farmers” (by analogy with the nickname “polite people” for Russian militants in the Crimea and Donbas) in order to defend the farmers' interests. In particular, is being prepared an All-Russia tractor march if the leadership of the Russian Federation keeps ignoring the violation of the farmers' rights. Now “The Friendly Farmers” are establishing relations with farmers' organizations in other regions of Russia, with the Russian “truckers” unhappy with the increasing charges for the use of roads.

With this state of affairs, Putin's regime is trying to divert the attention of the Russian population from domestic problems, increasing the aggression of Russia's “hybrid” foreign policy and positioning the Russian Federation as a “besieged fortress” encircled by Western enemies of the “Russian-Slavic world”. That is why the Kremlin demonstrates its military power to the West (including the September, 2016's strategic command and staff exercises “Caucasus-2016”, in the course of which they had been mastering the Russian scenario of a large-scale war against Ukraine and NATO), and constantly provokes tensions in Ukraine (in the Crimea and Donbas) and in Syria. In particular, in violation of the truce in the conflict zone in the East of Ukraine and in the Syrian territory, ignoring the relevant peace agreements and arrangements made in September this year. However, this has only aggravated the relations between the Russian Federation and the USA/NATO and the EU.

Thus, the United States, France and the United Kingdom in a joint statement accused Russia of aiding B. Assad, calling its actions in Syria “...barbarism rather than the fight against terrorism”. A special statement was made also by each of the leading Western countries, including those which Moscow considers its potential allies. At the same time, Western countries and international organizations have expressed their willingness to impose new sanctions on Russia and now due to the “Syrian issue”, which, according to independent experts, will completely undermine the Russian economy.

Against this background, another critical issue for the Putin regime was the conclusions of the Special Commission of the Netherlands to investigate into the downing of the Boeing-777 Flight MH-17 of Malaysia Airlines in the skies over the Donbas July 17, 2014 by the “Buk-M2” anti-aircraft missiles complex, delivered from the territory of the Russian Federation. According to the investigators, the missile launch was carried out from the area of the village of Pervomayskoye, at that time controlled by terrorists of the “DPR”. Having launched the missile, the launcher returned to Russia. Official representatives of Malaysia have spread in the UN Security Council a draft resolution on the establishment of an international tribunal for prosecution of persons involved in the destruction of the Boeing-777 of Malaysia Airlines. In case of an official confirmation of Russia's responsibility for the death of Flight MH-17, the criminal case will be transferred to the International Court in The Hague. At this, Moscow's involvement in the organization of the armed conflict in the East of Ukraine will be also confirmed. All this will eventually serve as the basis for recognizing Putin and his environment war criminals. And then — tough new sanctions against Russia and its international isolation.

Would this do good to Putin's regime on the eve of the presidential elections of 2018? The answer is obvious. Thus, according to independent sociologists, due to the fact that the socio-economic situation in Russia has worsened, more than 15 % of Russian citizens are already against Putin. At the same time it was pointed out that the government has massively falsified the results of the parliamentary elections in Russia in September 2016 in favor of the ruling party “United Russia”, which received significantly fewer votes than announced by the Central Election Commission. As the socio-economic problems grow in Russia under the influence of Western sanctions, the falling of Putin's rating will inevitably accelerate. It is clear that even in such circumstances Putin will be elected President, as is it always happens in Russia. But it is possible that it may cause massive social unrest and even result in the West's recognition of the illegitimacy of the presidential elections in Russia, which will strengthen its international isolation and extend the US, the EU and their partners' sanctions. And the Russian economy and business of Russian oligarchs will hardly stand up after that.

Today, Putin's regime is trying to get rid of the responsibility for the armed conflict in the Donbas, for the tragedy with the destruction of the Malaysian aircraft (blames Ukraine of this), as well as to justify the annexation of the Crimea and the non-observance of the truce in Syria. Moscow is trying to increase pressure on both, Ukraine and the USA/NATO and the EU, including on the nuclear issue. Russia has suspended the agreement with the USA on plutonium disposition, which is important for both sides in terms of preventing the growth of the level of nuclear weapons.

Based on the actual situation, first of all because of the threats to Putin's regime, the circles close to the President of the Russian Federation are considering possible options of avoiding the West's “blow” (or, at least, of maximum mitigating it) while preserving the full power of the current ruling elite of the Russian Federation. In particular, the main attempts to solve this problem can be as follows:

  • transfer of presidential elections in Russia to an earlier date — from 2018 to 2017 — before the moment of critical aggravation of the state of the Russian economy and, accordingly, before V. Putin's rating falls below the “acceptable level”. At least in this way they will create the impression of legitimacy of his re-election for the next term in office;
  • turning Russia from a presidential into a parliamentary republic, followed by the election Putin the head of the Russian Parliament or his appointment as Prime Minister (head) of the country's government. In this way, V. Putin would actually preserve power in his hands, but will be formally in a “less resonance post” than the President of Russia, which would make him a less vulnerable target for the West's criticism. At this, the Russian President would be elected a quite safe and controlled by him person, who would take the full responsibility for the RF's further steps;
  • abolition of the post of the President and the establishment of the so-called State Council of Russia with granting him the functions of the supreme power in the country. To the post of the head of the new body would again be elected (or appointed) V. Putin, and that, as in the previous case, would allow him to maintain his power and at the same time in such a way to move “into the shadow”, which means to take off, in a certain sense the responsibility for past actions and to shift it onto members of the future State Council of Russia, who will be responsible for further internal and external policies of the country.

In order to implement these approaches, it is necessary to make serious amendments in the Constitution of the Russian Federation that can be done by the ruling pro-presidential party “United Russia”, which won a constitutional majority in the State Duma of the Russian Federation.

In the worst-case scenario, the Russian President's environment can resort to more drastic steps to protect their interests. For example, to remove Putin from the post through an internal coup in the Russian power elite. This does not exclude both physical liquidation of Putin under the guise of “natural death from the disease,” and his “voluntary” resignation because of the same disease. Of course, Putin himself is well aware of a possibility of such an option. Therefore, this can be considered one of the reasons for the changes of the staff in his environment (including in the force one), observed recently.

It should be noted that most of the leading independent experts tend to believe that without radical changes in Moscow's policy (first of all giving up the confrontation with the West, stopping the aggression in the Donbas and returning the Crimea to Ukraine) none of the above-mentioned options will rescue the Russian Federation and its ruling regime from global turmoil with unpredictable consequences for them.

 

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