Russian President Vladimir Putin has had a good run over the past few months.
Edward Snowden, the former NSA contractor, landed on his doorstep, a gift from the PR gods. Agreement on Syria went from no chance to golden opportunity in the course of one afternoon. Forbes dubbed Putin the most powerful man in the world. Yet all these successes obscure a basic fact: Russia is running out of money.
To be fair, Russia is far from broke. Revenues continue to stream in from oil and gas sales, and Moscow maintains healthy financial reserves for future rainy days. Russia also dislikes budget deficits and keeps its foreign debt down — a model of fiscal rectitude that most Western countries can only dream about.
Yet despite these accomplishments, the Russian government submitted an austere budget to the Duma in September that contemplated freezing government salaries and significant across-the-board cuts for most government agencies. Though the Duma restored some social spending in its budget amendments, Russia will be working under tight financial constraints for several years to come.
Where has all the money gone? Much of it left the country due to catastrophic rates of capital flight and corruption. So much money gets siphoned off the top that Russian economic growth has fallen to below 2 percent this year, with no prospects for any dramatic improvement in the immediate future.
Alternative sources of revenue have also dried up. Putin returned to office in 2012 with ambitious plans to privatize numerous state-owned enterprises, in the process raising billions of dollars for the Treasury. His subsequent demand, however, that all such privatizations take place on the Moscow Exchange (to encourage domestic investment and limit capital flight) means that these assets remain underpriced and subject to limited demand.