Shaking Their Fists At Putin

Cuts in social services are eroding the President's popularity. Will reform slow?

Semyon Glushenko is proud of the day in 1945 when, as an officer in Red Army intelligence, he was one of the first Russian soldiers to enter Hitler's bunker. Today, though, the frail, 88-year-old retired colonel is angry. A new law backed by President Vladimir V. Putin and set to be approved by the Russian Parliament in July will abolish numerous perks for groups including war veterans and pensioners -- and give them cash instead. "This money won't be enough to provide security for veterans," Glushenko rages.

The colonel isn't the only one who is livid. On June 10, several hundred thousand people took to the streets in 300 cities across the country. The action was organized by trade unions to protest low living standards. But the marchers' biggest gripe was the elimination of benefits such as free public transportation and discounts on services, medical treatment, and household bills. Abolishing these freebies is proving to be the most controversial step taken by Putin since his landslide election victory in March.

Although small by Western standards, the recent protests were almost unprecedented for Russia. They're a sign that, as Putin pushes ahead with these unnerving social reforms, his popularity is starting to suffer. Opinion polls show that public trust in Putin has fallen significantly since his reelection in March.

While Russians are angry about reform, economists say the idea is long overdue. "The existing system has huge indirect costs....This has a negative effect on the whole economy," says Igor Nikolaev, head of the strategic analysis department at FBK Co., an auditing and consulting firm in Moscow. While many non-cash benefits are inherited from Soviet times, others date to the 1990s, when the government lacked funds to pay cash.

Critics say the resulting system is bureaucratic, inefficient, and a fertile ground for corruption. More than 70% of the population qualifies for some sort of free ride, with beneficiaries including everyone from soldiers and policemen to sportsmen, flight attendants, and Heroes of the Soviet Union. In practice, only 15% of those eligible claim their full share of perks, not least because of the bureaucratic hassle involved in applying for them. That's just as well. According to FBK, a recently disabled person in Moscow in theory could claim annual perks worth $16,000 in their first year, a huge amount in a country where per capita annual income is less than $3,000.

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But such arguments don't cut much ice with aggrieved citizens like Colonel Glushenko. Their protests have put the government on the defensive. Ministers point out that Moscow is boosting the social security budget by $5.9 billion next year to compensate. Analysts agree this amount more or less corresponds to the value of the abolished perks. But many individuals will lose out. For example, the elderly and disabled have been able to use public transportation for free. Muscovites who use mass transit several times a day are not likely to get payments that compensate them fully for the 25 cents-a-ride cost. But those living in rural areas where mass transit is limited may well get more cash from the government than they spend on transportation.

Putin is paying attention to the protesters. On June 28 he called on his ministers to boost payments to veterans and the disabled. "All decisions on replacing exemptions with compensation should lead ultimately to a better life for recipients," he told his Cabinet. Despite this criticism, the President obviously had been anticipating public discontent. Shortly after his reelection, he tightened rules on referendums, making it much harder for opposition groups to initiate votes against unpopular measures. That suggests more controversial reforms are in the pipeline -- possibly including steps to make citizens pay for medical care and education, which have been provided free for decades.

Still, it's not clear how far Putin is willing to let his popularity slide. His government is dragging its feet on some potentially unpopular measures, such as liberalizing the gas and electricity utilities. That would mean the end of subsidized rates. But Putin had better not delay too long. In a June report, the International Monetary Fund warned that Russia's economic boom could fizzle without further reforms. Then Russians would really have something to protest about.

By Jason Bush in Moscow

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