• Former finance minister says economy may resume growth in 2017
  • Putin approval, gauge of `happiness' remain high during crisis

As the crash in oil prices rattles Russia, its leadership can count on a stable social order for two years while it navigates the economy through a recession, according to former Finance Minister Alexei Kudrin.

QuickTake Vladimir Putin

“We have two years in reserve when social sentiments will be stable,” Kudrin said in an interview at the World Economic Forum in Davos, Switzerland. “There are still social protests, they are growing, but they aren’t bursting into something out of control.”

Alexei Kudrin in Davos.
Alexei Kudrin in Davos.
Photographer: Matthew Lloyd/Bloomberg

Unlike other top oil exporters such as Saudi Arabia, which has used its currency peg to the dollar as a bulwark of economic and financial stability, Russia has let the economy adjust to declining oil prices via the ruble after the central bank shifted to a free-floating exchange rate in late 2014. While the Russian currency is down more than 42 percent against the dollar since then, that’s done little to dent President Vladimir Putin’s standing and stoke discontent.

Although facing one of the toughest challenges of his 16-year-rule, with incomes falling the most since he came to power, Putin’s public approval recently touched a record amid airstrikes in Syria against Islamic State and other militants. A gauge of “happiness,” calculated by state-run polling company VTsIOM, was at an all-time high in November, while fewer Russians say protests are likely over the decline in living standards, according to a Levada Center survey.

Two Elections

The two-year period encompasses a parliamentary election later this year and a presidential ballot early in 2018. In June, Kudrin said Russia should hold an early presidential vote to set the stage for new economic reforms. Russia, which relies on oil and natural gas for almost half its budget revenue, is entering the electoral cycle with its finances hobbled by the crash in oil prices to near the lowest in 12 years.

Putin earlier used the crisis in Ukraine to put behind him the biggest anti-government protests of his years in power that followed allegations of vote rigging in parliamentary elections in December 2011. He’s hardened his response to critics with a crackdown on opposition activists since winning a six-year presidential term in 2012. The president’s support was at 85 percent in December, according to a poll by the Levada research company.

Longer Recession

The economy, in recession for the first time since 2009, will contract as much as 3 percent this year under the central bank’s “risk scenario,” which sees crude at $35 a barrel. If oil prices stay near $25-$30, gross domestic product will shrink more than 2 percent and the budget deficit will exceed 6 percent of economic output, according to Kudrin, a longtime ally of the president who was finance minister in 2000-2011.

The ruble strengthened 2.7 percent to 80.2896 at 10:08 a.m in Moscow on Friday as oil rallied in its biggest two-day advance since August. The currency weakened as much as 5.3 percent to a record-low 85.999 against the dollar on Thursday before paring declines after Brent crude rose.

With social stability in place, Russia may be able resume economic growth in two years, said Kudrin, who as finance minister presided over budget surpluses between 2000 and 2008.

“Exiting the recession is possible in 2017, if certain geopolitical circumstances, oil prices, sanctions won’t change substantially,” Kudrin said. “During this period, the authorities will be able to control the situation.”

Kudrin, who left the government because of a public feud with then-President Dmitry Medvedev over military spending, said surviving the next few years isn’t Russia’s biggest challenge. The main risk is in the goals set by the government and whether it accepts that oil prices will stay “moderate,” he said.

“If we simply assume that oil prices will grow again, and revert to spending that’s not efficient, it will then be time lost,” Kudrin said. “If we set some goals, then every year we can move toward a new economic model.”