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Putin in His Bubble

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website
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Russian President Vladimir Putin's annual keynote speech at the St. Petersburg Economic Forum, which he delivered Friday, was highly anticipated as it may be his most important economic message of the year. Yet anyone who expected Putin to reveal some kind of plan for dealing with Russia's economic crisis must be sorely disappointed. Crisis? What crisis?

Given Russia's economic performance, much of Putin's speech was first-class, straight-faced stand-up comedy. 

"The consumer demand that used to push the economy forward, has fallen slightly, too," Putin said of the 7.7 percent drop in retail volume in January through May, which included the steepest fall for January in at least 10 years.  

"We have maintained control over inflation," Putin said. "Yes, it jumped due to the ruble devaluation, but now that tendency is dying down." Then he went on to give month-on-month figures for inflation, which fell from 3.9 percent in January to 0.4 percent in May. He neglected to mention that consumer prices are up 8.3 percent since the end of December, and that while price growth is slowing, that's probably the result of sinking demand, not any measures by the government, except perhaps the exchange rate stabilization.

Putin boasted about the size of his government's reserve funds, more than $150 billion, without mentioning that most of this money is already reserved for large state companies that have lost access to Western capital markets because of economic sanctions.

He bragged about the unemployment rate being lower than during the 2008-2009 financial crisis without saying that it was 5.6 percent in May, up from 4.9 percent a year earlier.

He skipped over the decline in industrial production, which has dropped every month since February, and neglected to mention that manufacturing is down 4.1 percent year-on-year in January through May. But he dwelled on the few areas in which production increased thanks to the ban on imports of many Western foods that has been in place since last year. Russia now makes much more cheese, meat, butter and fish -- because these products can no longer be imported. Even so, prices of these foods have increased in line with inflation.

"Yes, of course, we still have a lot to do in this area," Putin deadpanned. Indeed, on Thursday, a top Russian agriculture official said the government had plans to expand the embargo to foreign-made chocolate.

"I will repeat that we are not answering external restrictions by closing our economy," Putin said. "We answer by expanding freedom, by increasing Russia's openness."

In the world according to Putin, foreign investors accept this line and choose Russia as an investment destination. "In the last year alone," he said, "60 ventures with foreign participation started operating in Russia." According to the central bank, foreign direct investment in Russia dropped by a factor of 3.3 year-on-year in 2014, to just $20.9 billion, about as much as Angola or Pakistan.

Putin didn't even have to play this game. The data are available to all interested parties, and each potential investor can determine whether the glass is half-empty or half-full. Though the economy is performing better than anyone could expect at the end of last year, when the ruble was in free fall and Russia's international reserves were melting, Elvira Nabiullina, governor of the Russian Central Bank, said recently that the economic decline hasn't bottomed out yet. 

Yet the Russian leader chose to paint a rosier picture than any self-respecting analyst would buy. This attempt at warping reality is characteristic of Putin's recent public appearances: It's as if he's trying to conjure out of thin air the world he'd like to see. He certainly isn't trying to change the rather dire reality: He offered investors no new policies that might make Russia more attractive, only paying lip service to the importance of small and medium businesses and stressing the opportunities created by tax breaks in Russia's Far East.

Putin's distortions were equally obvious in the question-and-answer segment, with TV anchor Charlie Rose serving more as interviewer than moderator. Most of his questions were about geopolitics, and Putin repeated familiar answers: The West has infringed on Russia's interests since the end of the Cold War, the crisis in Ukraine was not his creation, Russians and Ukrainians are one nation, all he wants is for his country to be respected rather than humiliated. 

Perhaps Putin gets the same questions every time a non-Russian gets a chance to talk to him because the interviewers hope something is going to snap and the Russian president is going to reveal his true intentions. He's already done that -- over and over. He wants a world in which Russia rules its immediate neighborhood and is never snubbed in matters of international trade and security, and he will live in this world regardless of what others say or do.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Leonid Bershidsky at

To contact the editor on this story:
Max Berley at