Putin's Absolute Triumph

While his landslide victory means more economic reforms, critics fear that such power will make curtailing freedoms all too easy

Vladimir Putin trounced his opponents in Russia's presidential election on Mar. 14 to win a second four-year term in the Kremlin. After his landslide victory -- with more than 70% of the vote, according to the latest counts -- Putin will wield enormous power.

The President's supporters occupy more than two-thirds of seats in the parliament, the country's once rebellious regional governors have been tamed with tough new laws that limit their room for maneuver, and the oligarchs that control almost 50% of the Russian economy have been cowed by last summer's arrest of oil tycoon Mikhail Khodorkosky on charges of tax evasion. "Putin is now in total command of the country," says Vladimir Fedorin, political analyst for the Vedomosti daily newspaper. "He's free to push through whatever laws he wants."

Putin, a 51 year-old former KGB spy, says the priorities for his second term are to streamline the lumbering state bureaucracy, deregulate more of the economy, improve the efficiency of the legal system, and push through much-needed free-market reforms -- including a thorough overhaul of the chronically inefficient banking sector and further liberalization of the electricity industry. "The overall goal is to make the country more competitive," Putin told voters ahead of the election. "We must be competitive in everything -- as individuals, as companies, and as a country. That's how we can ensure sustainable economic growth and greater prosperity."


  Most Russian businesspeople are convinced Putin will be as good as his word. "He's already shown that he is committed to market economics and understands the need for further reform," says Galina Andropova, who runs a property company in Marino, a fashionable district in south Moscow. "I expect him to move quickly to restructure and strengthen the financial sector and do away with the red tape which currently chokes much economic activity."

Like other entrepreneurs, Andropova praises the reforms Putin pushed through during his first term -- in particular, the reform of government finances and the introduction of a flat tax on personal and corporate incomes. Putin also enjoys the support of most foreign investors, who have high hopes for his second term. "He's going to make Russia much more investor-friendly," says a Moscow-based German banker.

Just before the election, foreign investors were delighted when Putin appointed Viktor Khristenko, the widely respected former Energy Minister, to head a new super ministry that will woo foreign investment, coordinate government policies toward the energy sector, and oversee construction projects for nuclear energy as well as oil and gas. Khristenko is known as a free-market reformer whose policies have turned energy-rich Russia into the world's second-largest oil producer after Saudi Arabia. "His appointment is a very welcome development," says the German banker. "It shows Putin is serious about attracting foreign capital."


  Russia badly needs more direct investment from abroad to modernize the struggling industrial sector, which is mostly inefficient and unprofitable.

Putin's plans may be attractive to businesspeople. But some commentators fear the President will use his unprecedented power to limit basic democratic freedoms. "Putin could be tempted to restrict the media's freedom of expression and curb political debate," says Yevgeny Volk, a Kremlin-watcher at the Heritage Foundation think tank in Moscow. "He'll probably give the country stability and lay the foundations of prolonged economic growth, but the price could be high in terms of democratic rights." For now, that's a trade-off most Russians seem prepared to make (see BW Online, 4/15/04, "Democracy? Russians Will Drink to That").

By David Fairlamb in Moscow

Before it's here, it's on the Bloomberg Terminal.