Russia: Change of Power in the Kremlin Part II

Russia: Change of Power in the Kremlin Part II

3: The financial crisis hits Russia

The dismantling of Russian democracy under Putin, or rather the transformation into a model of democracy (in the Kremlin’s parlance referred to as “sovereign democracy”) which, according to Russian authorities, is better suited to Russian conditions than the one Yeltsin sought to introduce in the 1990s, has not met with significant protests. among most Russians.

This is partly due to the fact that the real political opposition is on the sidelines. More importantly, the Putin regime has delivered on the economic front and thus created far greater predictability, stability and increased prosperity for large sections of the population.

In the autumn of 1998, Russia faced an acute economic crisis. The economy had long since gone bankrupt. Since the dissolution of the Soviet Union in 1991, gross domestic product ( GDP) had fallen by almost 40%. But in August 1998, the government had to discard the cards. The state was in practice bankrupt : the Kremlin declared itself temporarily insolvent and gave up defending the ruble exchange rate. The economic reform program and the attempts to introduce a Western-inspired market economy had obviously failed.

Many therefore feared that the crisis heralded the beginning of the end for Russia as a state. A stagnant and inefficient economy was once an important reason for the dissolution of the Soviet Union. Was it now Russia’s turn?

However, such gloomy predictions quickly proved to be exaggerated. On the contrary, the crisis helped prepare the ground for a sharp economic recovery : From the turn of the millennium until today, economic growth has averaged 7% per year. The main reason for this successful economic turnaround operation is first and foremost the high energy prices (although growth in the economy in recent years has primarily been consumption-driven, the high oil price has laid the foundation for this development).

Russia is the world’s second largest oil exporter and largest gas exporter . With an oil price that went from 12 dollars per barrel in 1998 to almost 150 dollars in the summer of 2008 (see hhd 1 ), the Russian state budget has shown significant surpluses in recent years . The foreign debt has in practice been repaid , and since 2004 significant funds have been allocated to a stabilization fund, not unlike the Norwegian Petroleum Fund. Russia thus sits on the world’s third largest gold and foreign exchange reserves .

The country is referred to as a so-called ” emerging market “, together with Brazil, India and China (also known as the BRIC countries), although the oil and gas-powered growth in Russia means that the Russian economy has a different structure than the other new economic giants.

In other words, Medvedev took over Russia in a completely different state than the one Putin inherited from Yeltsin. And initially, Medvedev apparently had ambitions to take development one step further. During the election campaign in the spring of 2008, he emphasized the so-called four in one: institutions, infrastructure, investment and innovation .

The main message was that Russia had to reduce its vulnerability to fluctuations in the international commodity market by developing an innovation-based economy. To achieve this goal, the bureaucracy had to be trimmed, the infrastructure improved and the investment climate adapted for increased foreign participation. At the same time, both Medvedev and Putin signaled that state capitalism – the state’s increasingly active role as a business player – only represented a temporary phase of consolidation.

However, Medvedev barely managed to make his mark on economic policy before Russia was overtaken by the international financial crisis . For a long time, however, the Russian authorities claimed that the country’s economy would not be affected. Over the autumn, however, the Kremlin has had to come up with crisis packages for banks and business actors. The Russian RTS stock index has fallen by 75% from its peak in May 2008 until the end of November.

The so-called oligarchs have lost enormous values, but as the crisis spreads from the financial sector to the real economy, it is increasingly felt in the broad sections of the population as well. The fall in oil prices after the summer of 2008 also creates major problems elsewhere: The state budget for 2009 has been settled with an oil price of 70 dollars a barrel, and at the same time the energy sector is affected at a time when large new investments must be made to keep production up. the development of the Jamal and Sjtokman gas fields).

4: Expectations of growth

During the transition from a planned to a market economy in the 1990s, large parts of the state social security network disintegrated . This was partly due to the ideology of privatization, but first and foremost the economic problems: the state was no longer able to live up to its obligations to the population. Pensions and salaries were not paid on time, the health sector suffered from chronic underinvestment and one in three lived on incomes below the official poverty line.

The reform process therefore had some dramatic consequences : Privatization made a small elite, the oligarchs, a tyrant; the nascent middle class was largely eradicated during the crisis in 1998. A telling expression of the conditions for the regular Ivan and Olga was that life expectancy for men fell to just over 57 years – lower than in a number of developing countries.

In contrast to the 1990s, large parts of the population have experienced growth since the turn of the millennium. Admittedly, there are large – and growing – regional differences. Overall, however, the proportion living below the poverty line has more than halved in the last eight years (today about 15% of the population belongs to this category). The Putin era thus brought not only political stability, but also a noticeable boost to living standards.

The increased income in the 2000s has given the authorities greater opportunities to spend money in the social sector. In 2005, Putin decided that parts of the budget surplus should be allocated to four so-called ” priority national projects “: health, education, housing and agriculture. The investment has given an important boost to sectors that have long been neglected.

There is no doubt that efforts are needed in these areas. The low life expectancy for men has already been mentioned (today: 61.5 years for men, 73.9 years for women). Another example is population development. When Russia became an independent state in 1991, the population was over 149 million people. Despite significant immigration from other former Soviet republics in the years that followed, the population has fallen by more than 7 million since 1991 (the current population is close to 141 million).

Some have warned of a demographic crisis : at the turn of the millennium, the UN estimated that the population of Russia would decline by another 35 million by the middle of the century. The proportion of the working-age population is already declining, and Russia today depends on importing labor, primarily from the former Soviet republics of Central Asia, to keep the wheels turning. Much has been invested in increasing the number of births in recent years, including through better arrangements for maternity leave and higher child benefits – and birth rates for 2008 were the highest since the dissolution of the Soviet Union. Yet far fewer are born than die.

According to Listofusnewspapers, the positive development in the social sector since the turn of the millennium is now also being put under pressure – it will be difficult for Medvedev to live up to the expectations of continued increase in prosperity that have been created in recent years. The financial crisis and declining government revenues mean that the Kremlin cannot, to the same extent as before, buy support in exchange for stability, predictability and growth. The hunt for scapegoats is already underway, and Medvedev has initially chosen to lay the main blame for the problems on the United States.

Putin and Medvedev 1