Vladimir Putin's Bodyguards Also Do Economic Stimulus

Key Speakers At The Gas ExportingCountries Forum (GECF) Summit In Iran
Photographer: Simon Dawson/Bloomberg
  • Kremlin security agency keeps tabs on discontent in heartland
  • Putin said confident growing poverty won't become threat

As Russians face one of the leanest holiday seasons in years, Vladimir Putin’s personal security agency is combing the country for hard-hit places to dole out a little Kremlin generosity.

Known for burly agents who protect the president, Russia’s secretive Federal Guards Service is also tasked with keeping tabs on public discontent in some of the country’s most economically depressed regions. Where its polls show unhappiness, a special government task force swoops in to dispense extra subsidies and help fired workers get new jobs.

“We’re ready for things to get worse in some sectors. We conduct constant monitoring, especially in the problem cities,” said Irina Makiyeva, the state-bank executive who heads the task force. “The FSO is an integral part of our working group,” she added, using the agency’s Russia abbreviation.

Backed by the FSO, her work has taken on new urgency amid the recession as part of the Kremlin’s strategy for making sure the worsening economic pain doesn’t turn into a political problem.

So far, public protests have been limited to local strikes easily resolved by the government. Last week, truckers blocked roads around Moscow to protest new tolls, forcing the government to reduce or delay some of the charges.

Early Warning

Makiyeva’s working group targets the most at-risk areas, one-company towns where the recession has hit hard and there are few alternatives for those who lose their jobs to the slowdown. The FSO handles polling and other monitoring to provide early warning. Her team categorizes its targets into green, yellow and red, depending on how much tension the FSO and other sources report. The FSO didn’t respond to a request for comment.

The task force’s latest target is Vershina Tyoyi, a town in Siberia where the local iron-ore mine in September fired 543 people -- out of a population of 3,800. Weeks later, Makiyeva’s task force moved the town into the red zone.

“We started getting extra attention,” said Sergei Degtaryov, the head of the local government. The town has gotten emergency funding to pay utility bills and has been promised grants to help locals start new businesses.

“We’re going to grow tea,” he said, noting that the shrub can withstand the Siberian climate. 

It could be a hard sell.

“Not everyone is taking this well,” he said. “It’s unfamiliar, especially for those who’ve worked their whole lives in the mine.” 

Putin Popularity

Putin’s approval ratings remain sky-high and the Kremlin’s tight control of the political system means there’s no chance of any critic getting real traction. But with a prolonged recession pushing consumer incomes down 3.5 percent in the first 10 months of this year, the most since Putin came to power, Kremlin officials say they understand the economic pain will begin to eat into Putin’s support as the patriotic euphoria from the annexation of Crimea and the Syrian operation wears off.

The president is concerned enough that he’s met with aides several times in recent months to discuss the drop in living standards, according to people familiar with the discussions. So far, he’s counting mainly on Russians’ legendary willingness to endure suffering to keep the public docile until the economy begins to rebound next year, these people said.

“The situation is in fact complicated, but it’s not, as I’ve said before and I repeat, critical,” Putin said in his annual state-of-the-nation speech Dec. 3. Kremlin spokesman Dmitry Peskov declined to comment on the meetings.

The breadth of the fall in incomes is likely to test Putin’s confidence, advisers say. More than 3 million Russians are expected to fall back into poverty by the end of this year and another 6 million to drop out of the ranks of the middle class, according to forecasts from the Higher School of Economics in Moscow. Those would be the biggest such increases since 1999, eroding the huge rise in prosperity that has been the foundation of Putin’s popularity.

Rising poverty combined with cuts in social spending “are sources of serious concern” for the government, said Yaroslav Kuzminov, dean of the Higher School of Economics and an adviser to the Kremlin. “The authorities’ room for political maneuver is limited by the fact that they don’t want to tell the people bad news.”

Plunging prices for oil, Russia’s main export, are forcing budget cuts after years of rising spending, leaving little money for the Kremlin to ease the pain of recession.

The number of red-zone towns is up 32 percent since March to 99, Makiyeva said.

Avtovaz Cuts

Togliatti, the Volga River home to struggling auto giant Avtovaz PAO, worked its way from green to yellow and was elevated to the red group earlier this year as layoffs mounted. Makiyeva’s task force tried to get the laid-off workers new jobs in a special tax-free zone and high-tech park the government set up there. 

Results so far are mixed.

“They have practically no jobs” because many of the companies supply Avtovaz, which is cutting production, said Sergei Zaitsev, head of the union at the carmaker. It’s “like a poultice for a dead person,” he said, using a Russian expression for too little, too late.

Makiyeva said the park is still getting going and authorities have more plans for job creation in the works. The task force’s work can take years to be effective, given the lead time needed to diversify towns that have depended on one industry for decades, she noted.

Still, she said her team is much better prepared for the recession this time than in 2009, when “we had to fight fires.”

But this slowdown will likely last longer, according to the central bank.

Pressure Rising

It’s also having a much broader impact on Russian society, battering living standards across the board. Moscow’s state-run Finance Institute says 54 percent of Russians now say they are struggling to pay for food and other basics.

Kuzminov of the Higher School of Economics -- a member of a pro-Putin political bloc who also holds a seat on Moscow’s City Council -- said he doesn’t expect popular discontent to become a broader political issue for at least another year or so. After that, the Kremlin will have to come up with some signs of economic progress. 

“The moment of truth will come in two to three years,” he said.

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