Analysis - Economy votes for Putin

  • 2004-01-08
  • By Gary Peach
On the final analysis, the West should be hailing the result of Russia's parliamentary elections in December, if only for two reasons: 1) Now that the Kremlin's pocket party, United Russia, has 308 seats in the national Parliament (at last count), or enough to make constitutional changes, economic reforms will accelerate; 2) the Communist Party as we know it is dead. Contrary to pessimists' ranting, are these not a basis for celebration?

To be sure, how exactly President Vladimir Putin chooses to manipulate this unprecedented legislative control is the million-dollar question right now among Russia-watchers. But judging by past performance, it is fair to say that the Russian president will try to exploit the opportunity to speed up economic reforms in order to achieve his stated goal of doubling the economy by 2010.
The facts speak for themselves. Over the past four years the Kremlin has cut personal and corporate taxes, compiled budgets with surplus revenues, and made its foreign debt payments in full and on time. As a result, inflation is down, real incomes are up and nonpayments - the scourge of the economy under former President Boris Yeltsin - are rarely spoken about nowadays. The ruble is strong (it has been appreciating against the dollar) and the nation's financial reserves have surged from $10 billion four years ago to some $65 billion now. These in turn have brought more investments, real and portfolio, and a new confidence in the economy affirmed by the recent awarding of an investment-level grading by Moody's, a major rating agency. Compared with 1999, right before Putin took over the reigns of power, this is remarkable.
Oil prices, of course, have played the most significant role in transforming Russia's economic fortunes, but it was the country's sound fiscal policies that allowed it to extract the most from these higher prices. And the trickle-down effect has been impressive. Now, for the first time since the collapse of the Soviet Union, there is a class of die-hard consumers in Russia who are beginning to feel secure about their future. If the financial crisis of 1998 all but destroyed their confidence in Western-style reforms, the past four years of "managed democracy" have somewhat placated them. There are problems galore in Russia, but in a relative way things are more stable than they have ever been. This is what Putin and United Russia symbolize for many voters.
In June Putin stated that he wanted to double the economy by 2010. This presumes annual growth of 7.2 percent, a level as yet unattained, and few economists believe it possible for an economy too dependent on commodity prices. However, if this indeed is Putin's goal, and if the essence of the new Duma (the Russian parliament's lower house) will be "give the Kremlin what it wants," then perhaps we will soon see a rigorous season of legislative activity following the presidential election in March 2004.
Again, judging by past statements Putin's instincts on the economy appear to be good, so efforts to deregulate, debureaucratize and decriminalize the business environment - i.e., make life easier for small and medium businesses - are likely to be accelerated.
Which brings us to the communists. For years now the Gennady Zyuganov-led group, which still worships the mass-murderers Lenin and Stalin, has failed to come up with anything original, do anything remotely positive that would somehow make the party attractive to voters - even the disgruntled segment of the population. The lugubrious Zyuganov lacks any vision or message for the future other than tired Marxist-Leninist slogans. Worse for the communists (and good for all anticommunists), he is a control-freak intent on maintaining complete power in the party. At a time when many are calling for changes, new faces in the party hierarchy, this intransigence will only split the communists into more disparate groups. Though they managed 12 percent in 2003, they will be lucky to get that much in 2007.
True, Russia's Communist Party isn't dead-only the one we have seen in recent years is. There will always be about 10 million there who will support the Marxist left. The question is whether a personality will materialize to unite this segment of the populace into a viable political force or whether the red fringe will gradually fade away like lonely voices in the taiga.
Some commentators, particularly in the Baltic states, have warned of the rise of Russia's nationalists. While they had a strong showing in the inappropriately named Liberal Democratic Party of Russia, led by ultrajoker Vladimir Zhirinovsky, and in Motherland, a well-financed upstart, their influence on foreign affairs will be negligible. The Duma has never had much of a say in formulating foreign policy, and nothing is about to change (the only memorable occasion being Russian legislators' successful blocking of the ratification of START II, which Putin managed to have passed as soon as he became president in 2000). Foreign policy is exclusive Kremlin territory. There will be some grandstanding about human rights issues in the Baltics - hitting an apex just before EU accession - but no more than we have been forced to endure over the past few months.