Putin's Speech: A Mix of Welcome Economic Ideas and Defiance of the West

Russian President Vladimir Putin delivers his annual state of the nation address to the National Assembly in Grand Kremlin Palace on Dec. 4 in Moscow Photographer: Sasha Mordovets/Getty Images

A strange mix of sophisticated economics and old-fashioned nationalism. That may be the best way to describe Russian President Vladimir Putin’s address to Russia’s parliament and government ministers on Dec. 4. He said the West was trying to prevent Russia from getting stronger and that the war in Ukraine was nothing but a pretext for curbing its progress. In his annual speech to both houses of the Russian parliament, Putin promised to respond to the sanctions by liberalizing the economy and coaxing offshore assets of Russian companies back home.

Late by six minutes, Putin entered the gilded St. George Hall of the Kremlin, where about a thousand parliamentarians and state officials were waiting to hear his main speech of the year. As he began delivering it, it became apparent that the Russian president was still dogged by a nasty cough and sore throat, something that was noticed when he traveled to the G-20 meeting in Brisbane last month.

Putin started by thanking all Russians for showing solidarity during a challenging year, which saw Russian troops invade Ukraine and the relations with the West fall to a historical low. Unlike in his previous landmark speeches, this time he completely avoided talking about domestic enemies, which he had lambasted as the “fifth column” at the time of the Crimean takeover last March.

Instead, he recalled the history of Russia’s conversion to Christianity, which began after a Kiev prince he shares a name with—Vladimir the Saint—conquered the Greek trade colony of Khersones in what is now the city of Sevastopol. Putin claimed that for Russians this historic site therefore had the same “sacral and civilizational importance as Temple Mount in Jerusalem for those who profess Islam and Judaism.”

Putin accused Western countries of fomenting the Ukrainian conflict after failing to hear Russia’s concerns about Ukraine’s rapprochement with the European Union. He specifically blamed the U.S. for “directly or discreetly influencing the relations with our neighbors”: “Sometimes we are left to wonder whether we should talk with the governments of certain countries or directly with their American sponsors.” In the Ukrainian case “we were essentially told to bug off,” Putin added.

As this segment of his speech reached a crescendo, Putin defended his Ukrainian policy as an issue that is central to Russia’s own sovereignty. “While for some European countries national dignity is a long-forgotten notion and sovereignty is an unaffordable luxury, for Russia sovereignty is a compulsory condition of its existence,” he said.

He went on by suggesting that Ukraine was nothing but a pretext for the U.S. and its allies to impose sanctions on Russia. “I am sure that without all these events, they would have come up with some other ways of curbing Russia’s progress.” He said it was habitual for the West to contain Russia when it “started growing stronger and more independent.”

He also accused Western countries of celebrating “terrorists” in the North Caucasus as “freedom fighters” back in the 1990s and encouraging separatism in Russia by “financial and political means, through the media and secret services.” But “they failed like Hitler,” Putin said.

He pledged to defend Russia’s freedom and said that the army had sufficient means to answer the challenges. Dubbing the U.S. antimissile system the greatest threat to international security, he said that Russia had “nonstandard” solutions that will help it counter this perceived threat.

Despite his seemingly bellicose tone, Putin barely mentioned the continuing war in the east of Ukraine and, unlike in previous speeches, never used the term Novorossiya, coined by Kremlin’s ideologues to describe southeastern regions that want to gain independence from Kiev. “He wants to keep the door to the West open and doesn’t want to take full responsibility of the future of the so-called people’s republics in Donetsk and Luhansk,” explained political analyst Stanislav Belkovsky, speaking on Dozhd TV after the speech.

In the second part of his speech, Putin announced plans for economic liberalization as the answer to challenges posed by sanctions and falling oil prices. “Freedom for economic development, social sphere, and civic initiatives is the best answer to both the external constraints and internal problems,” he said. He went on by quoting the early 20th century anti-Communist philosopher Ivan Ilyin on the importance of freedom for all aspects of life in Russia.

Putin pledged to relieve business from regulatory pressure and to ban government watchdogs from harassing businesses with never-ending inspections. Businesses that have a good track record will be protected from such checks for three years, Putin said. The inspections are a major source of corruption, but also a political tool. Earlier this year, the national sanitary watchdog closed several McDonald’s outlets in what was perceived as a response to U.S. sanctions. Putin also promised two-year tax breaks for startups and promised to create an “investment lift” for companies operating outside the raw material sector.

He continued by declaring amnesty for holders of Russian assets accumulated in offshore tax havens over the post-Soviet years, no matter how they have been earned. Dozens of major Russian companies are formally controlled by companies located in Cyprus and the British Virgin islands, used to cover their Russian beneficiaries. The Russian Ministry of Economy has raised its capital flight forecast in 2014 from $100 billion to $125 billion, which means it has doubled compared with 2013.

Putin’s press secretary Dmitry Peskov said later the same day that the amnesty was a one-off chance for Russian businessmen who keep their assets abroad to bring them home. It is unclear whether the promised amnesty will succeed in luring capital back into the country, which saw its currency slump almost 70 percent against the U.S. dollar this year due to falling oil prices and Western sanctions. Belkovsky, the political analyst, laughed away the suggestion Russian oligarchs might send their assets home, saying several high-profile court cases, such as Yukos, have taught them long ago to stay out of Russia’s jurisdiction.

Speaking about the national currency, Putin lashed out against “speculators” enriching themselves by playing on the weakening ruble. “The authorities know who these speculators are and we’ve got tools for influencing them. It is high time to use these tools,” he said. While he was delivering the address, the ruble fell from 52.64 to 53.6 against the dollar. It was 33 rubles for a dollar in December last year, when Putin chose to intervene in the Ukrainian political crisis. Economist Tatyana Stanovaya wrote on the Russian website slon.ru that Putin’s speech goes to show that he “is grossly underestimating the catastrophic devaluation of the ruble and has not proposed any measures to stabilize the currency.”

The economic part of Putin’s speech sounded ambitious and upbeat. He promised to turn Russia into a world technology leader, double the scope of road construction, and ensure that the economy grows at a rate higher than the world average despite the World Bank forecasting zero growth for Russia in 2015.

The day Putin delivered his speech was mired by fighting in the Chechen capital, Grozny. The authorities said 10 people were killed and at least 20 injured as security forces blockaded groups of militants in a building occupied by government media outlets and in a nearby school. The first building caught fire during the assault, evoking memories of the Chechen war Putin waged and won in his early years as the Russian leader.

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