Medvedev Experiments With Liberalism as Economy Plunges

Finance Minister of Russia, Aleksei Kudrin

On April 15 President Dmitri Medvedev created a sensation by granting an exclusive interview to Novaya Gazeta, known, in his own words, for "not licking up" to anybody, and then held meetings with the Council for Civil Society Institutions and Human Rights and the Association of Russian Lawyers. He was careful not to say anything controversial, but his readiness to take sharp questions and listen to the frank views of human rights activists inevitably created an impression that the regime is softening (www.gazeta.ru, April 15; www.grani.ru, Ezhednevny Zhurnal, April 16). It was the start of Medvedev's "liberal week" which might explain this trend: he also paid a visit to the Institute of Contemporary Development and the experts, including Yevgeni Gontmakher, presented propaganda-free assessments of the evolving recession, focusing particularly on unemployment (Vedomosti, April 15).

There is no doubt that the economic situation is deteriorating but the recent statistics show that the decline goes far deeper than any official estimates, or even the median expert opinion. Industrial production in the first quarter contracted by 14.3 percent compared with the same period in 2008 (experts had expected 13.9 percent) and there are no signs of improvement (Kommersant, www.gazeta.ru, April 16). The GDP shrunk by 7 percent, and the annual estimates from the World Bank and the OECD of 4.5 to 5.5 percent decline now look conservative, while the government forecast of a 2.2 percent decline falls squarely into the category of wishful thinking (Nezavisimaya Gazeta, April 13). It is Finance Minister Aleksei Kudrin who has the unenviable role of explaining that the economy is not going to readily bounce back. Last week he argued against Arkady Dvorkovich and other officially-optimistic voices, stating that Russia might not have such favorable economic conditions as in the last few years within the next decade or perhaps as much as fifty years (www.gazeta.ru, April 14).

Kudrin's conclusion is that the 30 percent reduction in the state budget income in 2010 will necessitate deep cuts in spending, including subsidies to regional budgets, even if Russia again resorts to external borrowing (Nezavisimaya Gazeta, April 15). This pessimistic view might appear excessive, as three key economic parameters have stabilized: the stock exchange, oil prices, and the ruble against the dollar and euro. The problem is that only some companies and sectors may learn to accept this level of oil revenues, while many others are hopelessly inefficient. Manufacturing, for instance, registered a 20 percent decline in the first quarter of the year. Prime Minster Vladimir Putin tried to provide some reassurance for workers in the Tver railcar plant last week, but responding to a direct question about Kudrin's forecasts he said only that the Finance Minister was "under a lot of stress" and had to protect himself from pressure (Kommersant, April 16). The high point in that "anti-crisis psychotherapy session" was Putin saying he had personally prevented the purchase of railcars from China.

Such personally-delivered stimulus packages for particular enterprises destroys the coherence of Kudrin's fiscal course, which renders Russia's anti-crisis policy far less efficient compared with the main world economies (Nezavisimaya Gazeta, April 17). The Consumer Confidence Index dropped accordingly to minus 35 percent in the first quarter and 48 percent of respondents expected further negative economic developments (PRIME-TASS, April 8). It is not only the middle-class that is experiencing a massive migration from the "upper" to the "lower" categories; the super-rich are also suffering: according to the Russian Forbes on April 16, the "golden hundred" of the richest individuals is now worth only $124 billion, having lost $380 billion in one year.

The simmering discontent among the most politically active and influential social groups worries Medvedev far more than rising unemployment, which compels experimenting with new ways of management and governance. His aides whisper, for instance, that the giant state corporations created within the past few years are no longer viable in the recession and must be compelled to open up their accounts before undergoing radical "sanitation" (RBC Daily, April 17). Putin, on the contrary, has taken a defensive stance insisting that his economic model of ever-increasing state control is sound and provides the best protection against the current turbulence -which will soon blow over. His own cabinet is deeply split over the priorities in budget and extra-budget funding, so that ministers declare diverging courses and their aides resort to in-fighting (Nezavisimaya Gazeta, April 16). This uncharacteristic lack of discipline within Putin's team betrays more than his doubts about choosing a way out of the crisis; his very ability to control the forever feuding elite clans is also in doubt.

The natural response to any disturbance in the system of power created by Putin is to squash the opposition and squeeze the insufficiently loyal oligarchs; the enforcement mechanism, however, has become so corrupt that forceful responses cannot be mobilized. Complaining bitterly -and futilely- about corruption, Medvedev probably believes that the system he presides over has become incapable of acting on its own logic. Hence the hesitant steps towards a neo-perestroika policy aimed at ensuring that "the state and civil society can act in harmony and together," as he told NTV in an interview on April 12. It is a different type of "harmony"' than the effective exclusion of society from politics that flourished in the autumnal years of Putin's "era." It is not certain that Medvedev will succeed in engaging the more dynamic parts of the middle classes in a new anti-crisis social contract, and the readers of Novaya Gazeta have good reasons to doubt that he will keep his part of the bargain while Putin looms over his less-than-heroic figure. Smooth words come easy to the accidental leader who cannot hide behind the fiction of "independence of the court" from the simple but stark dilemma: if Mikhail Khodorkovsky and Platon Lebedev are acquitted, it is all over for "Putinism."