Putin’s Russia Is 20 Years Old and Stronger Than Ever. Or Is It?

By Henry Meyer | Bloomberg

(Bloomberg) — A few months after his astonishing rise to power, Vladimir Putin, then 47, was eager to please at his first Kremlin summit with an American counterpart: Bill Clinton. 

The retired KGB colonel’s charm offensive started with an elaborate dinner of wild boar and goose, followed by a tour of his private quarters and a jazz concert that entertained his saxophone-playing guest until midnight. At some point, Putin would later say, he dropped a bombshell by asking if Russia could someday join NATO, the Western military alliance created to counter Moscow’s global machinations after World War II.

“I have no objection,” Clinton replied, according to Putin. It was June 2000.

Two decades of animosity later, including almost six years of increasingly onerous sanctions that started over the war in Ukraine, Russia’s relations with the U.S. and its allies have rarely been more fraught. But Putin, who’d already outlasted 29 Group of Seven leaders by the time he won the final six-year term allowed by the constitution in 2018, appears to be turning the tables despite what he calls hysterical Russophobia in the West.

At a summit on Ukraine in Paris this month, Putin dominated a room that included Angela Merkel of Germany and France’s Emmanuel Macron. Merkel, Europe’s most powerful politician for most of the past 15 years, is on her way out. Macron, facing crippling strikes and protests at home, is urging NATO to stop viewing Russia as an enemy. (Another NATO founder, Britain, plans to finally quit the EU next month, creating new fissures on the continent.)

Then on Tuesday, Putin declared a victory of sorts in Russia’s unspoken arms race with the U.S. by announcing the world’s first deployment of hypersonic weapons, which he said can hit targets across continents.

“The Soviet Union played catch up,” Putin told top military brass at a meeting in Moscow. “Today, we have a situation that is unique in modern history: they’re trying to catch up to us.”

Under Putin, Russia has restored some of the geopolitical might wielded by the Soviet Union, irking most of NATO’s 29 nations in the process. He’s deepened ties with China, annexed Crimea from Ukraine, turned the tide of the war in Syria, sold advanced air-defense systems to NATO-member Turkey and reached major arms and oil deals with a key U.S. ally, Saudi Arabia, as well as Venezuela—all while allegedly meddling in votes in the U.S., the U.K. and elsewhere.

Russia is once again a major power in the Middle East and it’s expanding in Africa for the first time in a generation. The Kremlin has rekindled military ties to regional power Egypt and battle-ravaged Libya, where a strongman supported by Russian mercenaries is vying for power with a UN-backed government in Tripoli.

But for all his success abroad, Putin is facing growing economic and political risks from the rigid, top-down system of governance he’s installed in a country that sprawls through 11 time zones. The dilemma for the Kremlin now is how to perpetuate Putinism, or “managed democracy” in its own parlance, after Putin’s term ends in 2024.

“If you compare Russia today with 2000, when Putin came to power, it’s in a much better position,” said Thomas Graham, a senior Russia policy official in George W. Bush’s two administrations. “But if you look at it over the next 10 years, the question is how is it going to maintain this?”

Indeed, one of the most remarkable things about Putin’s ability to continue extending Russia’s global reach is that he’s doing it on a shoe-string budget. The anemic and extraction-reliant economy he’s built is less than 8% the size of the U.S., which spends more than double on defense alone than Russia spends on everything, including education, health care and policing.

At the same meeting Putin bragged about gaining the upper hand in new weaponry, his defense minister complained about falling behind in terms of military spending, which is projected to drop to ninth in the world next year from seventh last year. Putin’s fiscal prudence, particularly since the Ukraine conflict erupted, has made the government’s balance sheet one of the healthiest in the world, earning praise from rating agencies and the International Monetary Fund.

Russia is running a budget surplus, has relatively little debt and holds one of the largest reserves of foreign currency and gold. But Putin’s reluctance to try to jumpstart the economy through a major stimulus package reflects the constrictions and inefficiencies bred into his state-dominated economy. Russia even decided to raise the retirement age last year to save money on pensions, sparking major protests. 

Growth this year is expected to be just above 1%, and most economists see future expansion capped at about 2% for reasons that have to do with the structure of Putin’s system, which prizes stability above all. With the world as a whole growing at about 3.5%, the IMF expects Russia’s share of global output to almost halve to 1.7% in 2024 from 3% in 2013.

“Nobody would bet money on Russia growing faster than the global economy,” said Sergei Guriev, a former chief economist at the European Bank for Reconstruction and Development and Russian government adviser who’s criticized the Kremlin from France since 2013. “This is a direct result of the political leadership’s choice to continue along the path of stagnation.”

Putin has repeatedly vowed to achieve a “major economic breakthrough” for the population, but real incomes continue to fall, dropping 10% over the last five years. With career prospects shrinking, more than half of Russians aged 18 to 24 want to emigrate, according to a November poll by the independent Levada Center.

“If any Western country experienced this kind of reality, the government would probably be replaced in an election,” Guriev said by phone from Paris. “But in Russia, somehow they manage to get away with it.”

Against a backdrop of growing dissatisfaction, Putin’s approval rating, which hit almost 90% amid the patriotic fervor that erupted after the annexation of Crimea, has slid back to 68%, according to Levada. And that number is distorted by the lack of political competition and voter reluctance to voice criticism of Putin in a phone survey. (All mobile calls in Russia are now recorded and stored for a time in special collection centers under a new law designed to fight terrorism.)

Putin has been deft at using the repressive powers of the state, both subtly and demonstrably, to prevent the rise of a challenger or a mass-market opposition media outlet. The leading critic in his first two terms, former billionaire Mikhail Khodorkovsky, was imprisoned for what ended up to be a decade. His most outspoken opponent now, Alexei Navalny, has faced virtually non-stop jailings over unsanctioned rallies.

Still, most older Russians who lived through the lost decade that followed the collapse of the Soviet Union in 1991, triggering an economic slump deeper than America’s Great Depression, consider Putin a savior for reversing the collapse and restoring law and order.

On Dec. 30, 1999, Putin, then just the latest in a string of prime ministers, stated frankly that it would take the former superpower 15 years of 8% growth just to match the per capita GDP of then-present day Portugal, which isn’t even “among the world industrial leaders.”

A day later, on New Year’s Eve, an ailing President Boris Yeltsin stepped down, telling Putin to “take care of Russia.” With new leadership—and surging oil prices—Russia grew about 7 percent on average over the next eight years and in 2012 almost caught Portugal by that measure, before falling back again. Nominal GDP would peak at No. 8 in that year before dipping to 11th in 2018, roughly on par with South Korea, which has just 35% of Russia’s population.

Putin, with help from China and other countries, has been building barricades to guard Russia’s economy from the vagaries of the U.S. dollar-dominated financial system and the impact of any additional sanctions. This, coupled with Putin’s tactical abilities in global affairs, allows Russia to keep punching above its weight, according to Dmitri Trenin, head of the Moscow Carnegie Center.

“GDP is not the absolute measure of all things economic,” Trenin said. “Far more important are the basic resilience of the economy; its capacity to absorb powerful shocks; Moscow’s sound finances; its low foreign debt; the Kremlin’s capacity to mobilize in the face of external threats; and the relative abundance of resources Moscow needs to support its foreign policy.”

Meanwhile, Russia’s longest-serving leader since Soviet dictator Josef Stalin is starting to grapple with the question of 2024, people close to the Kremlin say. 

While Putin has repeatedly ruled out amending the constitution to allow another term, most recently during his annual press conference, no other option for staying in power, if that’s what he choose to do, looks like a safe bet. The stage is being set for what may turn out to be his riskiest gambit of all.

–With assistance from Samuel Dodge, Ilya Arkhipov and Anna Andrianova.

To contact the author of this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Gregory White at gwhite64@bloomberg.net, Brad Cook

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