Russia's Allies Should Not Help Vladimir Putin
Last June, when Russian Prime Minister Vladimir V. Putin was invited to open this year's World Economic Forum confab of business and political leaders in Davos, he surely expected to be speaking from a position of strength. Seven months later oil prices have plunged, the Russian stock market has collapsed, and the ruble is in free fall. Instead of reasoned discourse, what the audience got on Jan. 28 was bluster, blame, and a cry for help.
But the world should not help Vladimir Putin. For too long, too many myths have surrounded him and his dictatorial regime. "At least Russians are better off than during the days of the Soviet Union" was the frequent refrain of Western leaders afraid to confront Putin over his domestic crackdown. When he discarded the last pretense of Russian democracy during the 2008 presidential transition, the chorus shifted to: "Even though Russians aren't free, even though elections are rigged and the media controlled by the state, at least the economy is doing well and investors are happy."
Now the myth of the strong economy has crumbled. Make no mistake: This is not just a sudden reversal of fortune. The fall in energy prices and the global financial crisis have only revealed what was going on behind the scenes all along. Putin and his government have hollowed out the economy by failing to invest in sectors other than the energy export business. More than half of state investment goes to oil and gas production, says think tank Carnegie Moscow Center. Meanwhile, in the last six months, industrial production has plunged 20%. Steel output is down more than 45% since early 2008. Skyrocketing oil prices gave Putin enough cash to keep the macroeconomic scenario rosy. The charade is over.
In 2000, Putin inherited an economy ready to boom after years of painful liberalization. That year, with oil at $20 a barrel, gross domestic product grew 10%. The federal budget was out of the red for the first time since the dissolution of the Soviet Union. Nine years later, despite a stretch of phenomenal luck and oil prices that peaked close to $150, Russia is again in crisis. Oil has now fallen to $40. Even if it rises to around $50, Finance Minister Alexei L. Kudrin forecasts a budget deficit of 5% of GDP, or $60 billion in 2009—a number many experts call optimistic.
Where did the money go? Where is it still going? Cash reserves are no substitute for the economic pillars of industry, agriculture, infrastructure, and education. Those have been allowed to decay while the elite's pockets have swelled from sales of natural resources.
While Putin has failed to invest in the foundations of the economy, he has devoted considerable efforts to keeping his grip on power. And he has cultivated a long list of allies in the political and business worlds, including former German Chancellor Gerhard Schröder. Putin's speech in Davos was his signal that it was time for them to come to his rescue by backing his agenda for corporate debt write-offs around the globe. Russian companies are burdened with close to $500 billion in debt, with at least $100 billion due in 2009.
Putin was vague on how such a program would work. But any support for his regime must be denied. As long as he remains in charge, hardships for Russians will only worsen. The state-controlled media will continue to blame "irresponsible Americans" for everything from rising food prices to the ruble's collapse. With no political outlet, many more Russians may take to the streets—as they did while Putin was in Davos.
Many leaders at Davos spoke about improving the world's poisoned economic climate. A leap in this direction can be taken by letting the Putin regime fall. It knows that time is running out. Now that the Putin economy is being exposed as a fraud, the West must let market forces unleash the invisible hand of political change to push Putin from power. (President Dimitry Medvedev is in Putin's shadow even though Medvedev could fire Putin with the stroke of a pen.)
By rejecting Putin's agenda, the world can send a clear signal to Russia's elites not to bet on the old regime. That would improve the chances for a peaceful transition. "We must rely on the moral values that have ensured the progress of our civilization," Putin said in Davos. I could not agree more. The downfall of a regime that has trampled on those values for a decade is an excellent place to begin.