Part 2

People & Power's Martin Himel looks at whether the global financial crisis may put a stop to Vladimir Putin's plans of a twin-headed leadership and a resurgent Russia.

The town of Kolchugino is typical of many small industrial centres in Russia.

Statues of Lenin and other Soviet heroes dot the main square, overlooking the dominant building that houses the town’s metal works factory.

A factory that epitomised the socialist collective of the Communist era but now lays dormant - one of the latest victims of the global financial crisis.

The closure of the factory highlights the challenges facing the new capitalist Russia as the global economic downturn affects more and more citizens who barely have the means to put food on the table.

The majority of Kolchugino's residents have now lost their jobs. Many of the unemployed can be found at makeshift weekend markets in the town’s snowy streets selling meagre products such as potatoes or second-hand clothes.

"People are being fired in our town," says Vladimir, one resident. "Many took loans and bought appliances for their houses. Now you have to payback the loans and people have children."

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The scene in Kolchugino can be found across the country. After consumerism and capitalism replaced communism on the back of soaring oil and gas prices, the world financial crisis is now strangling Russia.

Stocks have nosedived nearly 80 per cent and the rouble has lost more than 35 per cent of its value pushing the price of most consumer items out of reach of normal people.

Blame, as always in such situations, is bound to be apportioned at some point but so far public anger from residents in Kolchugino has yet to be vented at Russia’s leaders Dmitri Medvedev, the president and his predecessor Vladimir Putin, the prime minister and, most say, the real power behind the throne.

'Serious problem'

"The crisis is putting a lot of pressure on the economy and the political structure," Andrei Kolesnikov of the Kommersant newspaper says. "A burst of social unrest in the country is inevitable. It will be a very serious problem for the regime."

The Russian national emblem is a two-headed eagle and it is an emblem that reflects perfectly the nation’s current leadership.

According to Russia's constitution Putin had to leave the presidency last year when his second term in office expired.

His hand-picked successor Dmitiri Medvedev changed that rule after his election victory, permitting Putin, the new prime minister, to eventually return as president.

But many analysts and critics are now sceptical that the perfect plan to rotate the leadership may not survive the perfect storm that is the financial crisis.

Putin's soaring popularity as president was partly based on the fact he distributed a share of Russia's oil wealth among his allies.

But with oil prices down more than 70 per cent that popularity may fall.

"As soon there is no huge flow of money into reserves it is absolutely clear that the so-called power of this authority will disappear," Mikhail Kasyanov, a former prime minister and staunch critic of Putin, says.

During his eight years as president Putin isolated any serious political competition including Kasyanov who was sacked in 2003 and barred from running in last year’s presidential election. He says it was all part of an unwritten power contract between Putin and the Russian people.

Kasyanov says the Russian people will soon be asking questions of the government

"In Spring the majority of Russians will understand what this government is about and will start asking questions like 'What shall we do?'"

Putin has pledged to the Russian people that he will stabilise the economy but if he fails observers believe that his strategy may to make a political fall guy of his successor as president.

'Clan' culture

When Putin took over power from Boris Yeltsin in 2000 he removed his perceived enemies, the Russian oligarchs, and cleverly placed powerful rivals, also known as "clans", in key positions in the state oil company, the banks, justice department and the FSB, the state security organisation.

Granting so-called clans power also ensured their loyalty to the government.

As long as Putin spread the oil wealth, raised pensions and instituted mortgages and loans then the public tolerated his benevolent authoritarian approach that many said brought order to a previously chaotic country.

"During the Putin administration lots of stuff got fixed," says Mark Groysman, a prominent Russian businessman. “There is a lot more order in the country today and I believe his [Putin] popularity came from that."

Groysman has prospered from Putin’s policies and is responsible for building Veskhy, a gated suburb of Moscow, an ambitious concept imported from Canada where homes were selling between 1.5 and three million dollars each.

But the onset of the crisis means sales have vanished and home equity is falling as in the rest of the world. Groysman has to finish 70 already paid for homes, if there is no upturn after that he will be forced to lay off workers.

He says Russia is now paying the price for a dependency on oil and a lack of diversity in the economy.

"Selling oil is a quick return," he says. "The outcome of this crisis is that whatever people could buy with ten roubles they cannot buy anymore.

"I am not sure the Russian economy is in such a condition where it can afford to pay unemployment benefits for a long time. Everybody in this country will feel this and suffer from it."

Towns such as Kolchugino are suffering from the economic downturn

Groysman experienced the banking crisis first hand after his corporate account, worth tens of millions of dollars, was frozen for several weeks.

"A lot of wealthy people lost their wealth in a couple of weeks. Some companies lost up to 90 per cent of their value on the stock market," he says.

"People who owned that stock, their dinner probably won't be affected by that loss. If you talk about poor people, the percentage of their loss could be much smaller but it might affect their dinner and the food they buy everyday."

Lower revenues

Residents of Kolchugino are encountering that reality but as two residents, Gala and Ludmilla, tell Al Jazeera they still trust their leaders and hope they can relieve their situation.

Those leaders have so far chosen regional adversaries as scapegoats, creating an impression that Russia’s neighbours are threatening her.

Last year's invasion of northern Georgia was followed by the shutting down of gas supplies to Europe, accusing Ukraine of diverting gas from pipelines.

Mikhail Kasyanov says the strategy is aimed at making Russians forgot their woes at home but the policy of "blaming the enemy" may backfire on Putin and Medvedev.

"It is clear that our clients in Europe will definitely diversify their sources of natural gas and it will not happen in ten or fifteen years but will happen in perhaps a year," he says.

Russia's leaders may have to adopt a "soft power" foreign policy approach [EPA]

Lower gas sales and declining oil revenues have also caused Putin to curb his popular goal of modernising the Russian military and restoring Russia to its super power status.

Nikolay Petrov of the Carnegie Endowment in Moscow says Russia may need to revise its foreign policy doctrine and start thinking of a “soft power” approach.

"It is no longer possible to invest in producing a lot of weapons so Russia will need to revise its foreign policy," he says. "Russia will need to think more of the need to have allies, and not just enemies."

The prime minister has indeed been using international forums to speak in softer tones, stressing the need for cooperation to deal with what he has described as "perfect economic storm".

This particular storm has already disrupted some of the plans of Russia's twin leadership and some analysts say it could even mean an earlier end than expected to president Medvedev’s term as Putin rushes for the safety of the Kremlin and his old job.