Assessing the Russian economyStanislav SECRIERU
28 mai 2009
The economic crisis has hit Russia hard. The most dramatic drop in industrial output since 1998, together with rising inflation and unemployment (6 million, according to the Russian president) inevitably led to changes in social attitudes towards the government and fueled the potential for social unrest. Many of Russia’s prestige projects, aimed at promoting the new image of a self-confident country on the international scene, are under strain.
Gazprom has reduced sponsorship of FC Zenit, the jewel in the Russian football league’s crown and last year’s UEFA cup winner. Two federal mega-construction sites, Sochi (venue of the 2014 Winter Olympic Games) and Vladivostok (to host 2012 APEC Summit), are experiencing financial shortages and looming budget cuts. The crisis forced the executive to reduce the defense budget by 8% and delay massive re-equipment of the armed forces for 2011. After months of denial, Russian top officials reluctantly recognized that the economic crisis is not just a temporary phenomena but an unpleasant reality the Russian polity is set to live in for awhile.
What kind of impact, if any, will the economic turbulence have on Russian foreign policy? There are expectations that, as the crisis strikes at full strength, Russian foreign policy will soften and Moscow will adopt a more conciliatory tone. It is considered that it would be wise for the US and EU to take several concrete steps to meet Russia’s regional and global concerns. Talks on the European Security Treaty and more sensitivity for Russia’s interest in post-Soviet space would be good starting points for recruiting the Kremlin’s support on Iran, Afghanistan and North Korea. If it is not careful, however, the West could find itself on the wrong path to engaging Russia.
The deterministic assumption that every actor will react alike to the pressure of diminishing resources overlooks the last decade’s mutations in Russia’s international self-perception. In contrast to the turbulent ‘90s, Russia has entered this crisis with the perception that it is prepared to withstand it and able to continue to promote its foreign policy projects vigorously. There are two fundamental factors that strengthen this stance. First, Russia is not the only power that has been affected, and second, Russia has a financial safety net (international reserves, Reserve Fund and the National Wealth Fund) which provides for enough resources, Moscow believes, to overcome the crisis and maintain its space to maneuver. Moscow also considers that Russia’s place in the global power structure depends on how it will emerge internally and externally from the crisis. Any reversal could be interpreted as a sign of weakness.
Nonetheless, Russia’s determination to resist the economic constraints of the crisis does not mean that Moscow is slow in adapting. Russia intends to minimize the effects of the economic turmoil with an ambitious anti-crisis package. To reverse the negative trend in the oil market, Russia intends to coordinate closer policy with OPEC. Moscow is convinced that the problem of corporate debts and investments has solutions not only in the West, but in the East as well. The 20-year credit of $25 billion secured by Rosneft and Transneft from the China Development Bank is a vivid example.
Faced with multiple internal problems, Russia perceives the crisis as a geopolitical opportunity to oust the EU and the US from the post-Soviet world and strengthen its own position in the region. Nor has the crisis reduced the appetite to reap some juicy assets in the West. Russian national champions already concluded several lucrative deals in the CIS (Vneshekombank’s deal for a 75% stake in Kiev’s Prominvestbankand) and Europe (for instance, the Surgutneftegas deal for a 21% stake in MOL). Russia’s “shopping season” was accompanied by summit diplomacy on “frozen conflicts” (Transnistria and Nagorno-Karabakh) and the massive infusion of credits or financial aid to post-Soviet states in exchange of political favors. The underlying logic is that if the West plans something in the post-Soviet world, Moscow expects to be consulted. Otherwise the West will have to face the consequences and prepare to “be evacuated”, just like in the case of the military base in Manas (Kyrgyzstan).
Although several Russian proposals formulated for the London G20 summit were refuted by economists as unrealistic, the 8-page document clearly demonstrates Moscow’s ambition to increase its clout in world economic structures. Moscow has not reduced its diplomatic investments in high-profile international meetings. The Kremlin hopes to keep Russia in the international diplomacy circuit by hosting the conference on peace in the Middle East, the summit of the biggest oil producers and the first BRIC summit.
The hopes that a self-assertive foreign policy will fade away immediately under the pressure of the crisis are short-sighted and ignore profound mutations in the Russian strategic identity which might prove to be extremely resilient. While the crisis might increase the tactical space for cooperation on the Russian side, the West should not harbor illusions about a submissive Russia.
Russia has been a divisive issue within the EU as well as in relations between European and American allies. Moscow quickly learned to play on these disagreements, strengthening very advantageous bilateral (state-to-state or corporation-to-corporation) partnerships in Europe. Such selective bilateral cooperation proved to be crisis-prone for overall European relations with Russia. In consequence, the West failed to build a durable relationship with Russia. Therefore, a new trans-Atlantic consensus on Russia is needed. A more harmonized US-EU policy on Russia could set bases for sustainable engagement with Moscow.
International Affairs Forum
The economic crisis has hit Russia hard. The most dramatic drop in industrial output since 1998, together with rising inflation and unemployment (6 million, according to the Russian president) inevitably led to changes in social attitudes towards the government and fueled the potential for social unrest. Many of Russia’s prestige projects, aimed at promoting the new image of a self-confident country on the international scene, are under strain.
Gazprom has reduced sponsorship of FC Zenit, the jewel in the Russian football league’s crown and last year’s UEFA cup winner. Two federal mega-construction sites, Sochi (venue of the 2014 Winter Olympic Games) and Vladivostok (to host 2012 APEC Summit), are experiencing financial shortages and looming budget cuts. The crisis forced the executive to reduce the defense budget by 8% and delay massive re-equipment of the armed forces for 2011. After months of denial, Russian top officials reluctantly recognized that the economic crisis is not just a temporary phenomena but an unpleasant reality the Russian polity is set to live in for awhile.
What kind of impact, if any, will the economic turbulence have on Russian foreign policy? There are expectations that, as the crisis strikes at full strength, Russian foreign policy will soften and Moscow will adopt a more conciliatory tone. It is considered that it would be wise for the US and EU to take several concrete steps to meet Russia’s regional and global concerns. Talks on the European Security Treaty and more sensitivity for Russia’s interest in post-Soviet space would be good starting points for recruiting the Kremlin’s support on Iran, Afghanistan and North Korea. If it is not careful, however, the West could find itself on the wrong path to engaging Russia.
The deterministic assumption that every actor will react alike to the pressure of diminishing resources overlooks the last decade’s mutations in Russia’s international self-perception. In contrast to the turbulent ‘90s, Russia has entered this crisis with the perception that it is prepared to withstand it and able to continue to promote its foreign policy projects vigorously. There are two fundamental factors that strengthen this stance. First, Russia is not the only power that has been affected, and second, Russia has a financial safety net (international reserves, Reserve Fund and the National Wealth Fund) which provides for enough resources, Moscow believes, to overcome the crisis and maintain its space to maneuver. Moscow also considers that Russia’s place in the global power structure depends on how it will emerge internally and externally from the crisis. Any reversal could be interpreted as a sign of weakness.
Nonetheless, Russia’s determination to resist the economic constraints of the crisis does not mean that Moscow is slow in adapting. Russia intends to minimize the effects of the economic turmoil with an ambitious anti-crisis package. To reverse the negative trend in the oil market, Russia intends to coordinate closer policy with OPEC. Moscow is convinced that the problem of corporate debts and investments has solutions not only in the West, but in the East as well. The 20-year credit of $25 billion secured by Rosneft and Transneft from the China Development Bank is a vivid example.
Faced with multiple internal problems, Russia perceives the crisis as a geopolitical opportunity to oust the EU and the US from the post-Soviet world and strengthen its own position in the region. Nor has the crisis reduced the appetite to reap some juicy assets in the West. Russian national champions already concluded several lucrative deals in the CIS (Vneshekombank’s deal for a 75% stake in Kiev’s Prominvestbankand) and Europe (for instance, the Surgutneftegas deal for a 21% stake in MOL). Russia’s “shopping season” was accompanied by summit diplomacy on “frozen conflicts” (Transnistria and Nagorno-Karabakh) and the massive infusion of credits or financial aid to post-Soviet states in exchange of political favors. The underlying logic is that if the West plans something in the post-Soviet world, Moscow expects to be consulted. Otherwise the West will have to face the consequences and prepare to “be evacuated”, just like in the case of the military base in Manas (Kyrgyzstan).
Although several Russian proposals formulated for the London G20 summit were refuted by economists as unrealistic, the 8-page document clearly demonstrates Moscow’s ambition to increase its clout in world economic structures. Moscow has not reduced its diplomatic investments in high-profile international meetings. The Kremlin hopes to keep Russia in the international diplomacy circuit by hosting the conference on peace in the Middle East, the summit of the biggest oil producers and the first BRIC summit.
The hopes that a self-assertive foreign policy will fade away immediately under the pressure of the crisis are short-sighted and ignore profound mutations in the Russian strategic identity which might prove to be extremely resilient. While the crisis might increase the tactical space for cooperation on the Russian side, the West should not harbor illusions about a submissive Russia.
Russia has been a divisive issue within the EU as well as in relations between European and American allies. Moscow quickly learned to play on these disagreements, strengthening very advantageous bilateral (state-to-state or corporation-to-corporation) partnerships in Europe. Such selective bilateral cooperation proved to be crisis-prone for overall European relations with Russia. In consequence, the West failed to build a durable relationship with Russia. Therefore, a new trans-Atlantic consensus on Russia is needed. A more harmonized US-EU policy on Russia could set bases for sustainable engagement with Moscow.
International Affairs Forum
http://www.ia-forum.org/Popup/ResponseReadMore.cfm?ResponseID=183
