Politics & Markets

Western media and Russia -- Forgetting some points! (Issue: 11)

Last Friday (November 30th) late in the night I was watching CNN: Special Investigations Unit. Christiane Amanpour, for whom this columnist has the highest possible respect, was hosting the programme. The episode was an attempt to provide an insight into Russia under Putin. The mood was hardly omnipresent. Participants, mostly dissidents now living in the west, were less than complimentary about Putin and painted a gloomy picture about Russia in general. Fittingly, Amanpour had named the episode ?Czar Putin?.

Ire of the Western Press has been on Putin for some time due to varying reasons. Even this columnist has been critical of recent incidents such as Gazprom?s penchant for squeezing out foreign companies from energy parties and Kremlin?s less than benevolent attitude towards neighbouring states such as Ukraine. However, one has to take a step back and look at Russia?s progress under Putin before throwing seeds of dissention and ridicule!

Putin inherited a bankrupt Russia from Yeltsin with the economy in shambles, poverty widespread and millions of unpaid workers for months. The rouble was a mockery of a currency. From once a super power, Russia then had reduced itself to a third world country seeking handouts from institutions such as the Paris Club. Industries including petroleum riches were sold at knockdown prices reminiscent of a Sunday yard sale by bankrupt furniture traders.

Such dark days are now a distant memory. From economic doldrums in the late 1990s Russia has staged a remarkable recovery.  Eight years of budget surpluses, falling inflation and unemployment rate, an average annual GDP growth of nearly 7% since 2000, record foreign reserves and a buoyant stock market offer convincing evidence of a strong economy. What makes it more impressive is this was after a devastating financial crisis in 1998! Ask average Russians on the street, not dissidents, and they credit Russia?s new found vigour to Vladimir Putin.

Sceptics may credit the economic growth to the oil windfall and indeed the Russian economy benefited from high oil prices. What they forget however is the impact of prudent policies adopted by Aleksei Kudrin led Finance Ministry officials in the face of the oil windfall. While taking measures to avoid haphazard public spending, the Ministry established a Stabilisation Fund mostly using oil revenues. It was the Stabilisation Fund that helped pay off sovereign debt ahead of schedule including those to the Paris Club. Russia?s external debt has been falling and is now below 5% of GDP. Incidentally, sceptics scoffed at the Stabilisation Fund at its launch too!

 
Oil revenue is not the only driver that underpins the Russian economy. Rising domestic consumption on the back of improved personal income and government expenditure has also contributed to the economic growth considerably. In the recent years, Russian oil and gas output has been stagnant if not falling. However, high oil prices have compensated for the falling output, and boosted corporate earnings. The state meanwhile has redirected increased company profits to the populace using mechanisms such as the Stabilisation Fund.

Sceptics lament such measures as remnants of the Socialist doctrine. These measures have however avoided Russia becoming one of those rich gets richer states. The population living below the poverty line has actually fallen together with unemployment rate. Pensioners and war veterans are a happy bunch these days as they receive increased stipends from the state. Compare that with dark days of 1997-1998 when new economic statistics such as unpaid wages as a percentage of GDP characterised Russia?s economy. Putin?s popularity was not imported but is home grown and stems from the growing sense of prosperity and national pride.

Those who have read this column may recall my own scathing criticisms over state interventions in Russia and Gazprom?s questionable practices. However, I have always highlighted Russia?s stability under Putin, which is a matter of importance particularly for regional politics and energy economics. Putin may be regularly referring to the Soviet doctrine for governance tips, but he has done a damned good job so far with the economy and has ensured less people go hungry!

Despite relentless campaigns by many and its own blunders such as Sakhalin II and BNP-TNK (Kovykta acquisition), Russia has been able to attract foreign investments. Both portfolio investments and Foreign Direct Investments (FDI) have flourished with Russian IPOs becoming flavour of the month in many foreign stock exchanges. The London Stock Exchange is the home for many Russian energy companies.

Interestingly, Russia?s prosperity does not appear to be a flash in the pan either. Reduced debt and current account surplus makes Russia?s economic resurgence sustainable and less vulnerable to external economic woes such as what is looming in America. Despite apparent press gags and similar less than democratic measures, the Russian economy has done well under Putin and his style of governance. In addition, Putin has also restored stability, both political and otherwise, in Russia.

Improved living standards felt by average Russians make rumblings by dissidents, even high profile ones such as the former world chess champion Gary Kasparov, less effective. Of course the western press likes such characters and has generally boosted their image as champions of free world, whatever it means. But for the Russians, majority of whom were in the throes of poverty prior to Putin?s surprising emergence, it is Putin not Kasparov who is the true champion.

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