Opinion

The Great Debate

Russia: Where has all the money gone?

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.

from Ian Bremmer:

The Kremlin has castled and Putin is still king

By Ian Bremmer
The opinions expressed are his own.

Long live the king? You can't hold it against the Russian people for wondering just how long Vladimir Putin intends to remain in power with the recent announcement that he plans to return himself to the presidency and swap his partner Dmitri Medvedev into the prime minister slot. The electoral game Putin is playing is being compared to "castling" in chess-- a rook and a king swapping places, in order to shore up the defense.

There might be defense at the heart of the strategy, but Putin's ruling party, United Russia, despite some recent murmurings, is still the only game in Moscow. Which is to say that Vladimir Putin is by all reckoning the most powerful man in the world. What other leader, leaving aside third-world strongmen, has so completely consolidated his rule over a country, as Putin has? His success is all the more venerable when one considers that Putin is leader of a country of nearly 150 million people -- and at the helm of the one of the world's most important economies. Attention must be paid to him. Sure, other leaders around the world may have more people or even larger economies, but they don't have as full a grip on the reins of power as Putin. (And few have ever been reverently photographed riding horseback shirtless, petting a tiger, or playing piano in tux and tails.)

Even with this switcheroo, little will change about Russia's, which is to say Putin's, stance on foreign or domestic affairs. Despite years of inspired reformist speechifying from President Medvedev, little has changed in the ossified Russian bureaucracy. That speaks to his true, limited, authority. The civil service system he declaims remain inefficient and antiquated, and presents ample opportunity for the kind of low-level corruption that greases the wheels of local politics across the world. Medvedev has been a friendly face for the Western world, someone who says the right things on its grand stages; but he has had little influence, as president, over the country's true direction. As the prime minister in waiting, look for that trend to continue.

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