Putinator power

Vladimir Putin is focusing on three key areas for Russia’s future: the economy, development of eastern Russia, and NATO.

Vladimir Putin
Vladimir Putin intends to harness the resource potential of Russia's far eastern territories [GALLO/GETTY]

Moscow, Russia
Vladimir Putin – the apex of a highly personalised system – is back as president of Russia.

Forget about a velvet revolution leading to regime change – but keep in mind the rumblings of the Russian middle class (25 per cent of the population, 40 per cent of the workforce). After first becoming consumers, they are now becoming citizens.

This means they will not abandon their demands for a genuinely independent judiciary; the protection of property rights; and a Russian bureaucracy that is not infinitely corrupt.

The Putinator is now committed to decentralising Russia. Both Moscow and the provinces fully approve it. It will be an uphill battle – led alongside the goal of improving annual growth by 3.5 per cent (many a EU member would die for such growth) and diminish the seemingly relentless capital flight.

Three themes will be key for Russia’s immediate future: the economy, the conquest of the eastern territories, and Russia’s rocky relations with NATO. Let’s see how the Putinator is game-planning them.

It’s the economy, comrade

Russia can’t afford low global oil prices. To balance the budget – and also the current account – Moscow needs at least $115 a barrel

Putin does not want to devalue the ruble, or see the country’s massive currency reserves shrink.

This implies that, ideally, Russia cannot continue to be dependent on exporting commodities. A hedge fund manager in New York or a financial analyst in London would tell us Russia needs to prove it is ruled by law – and not by the whims of the Kremlin.

Empire – Putin’s Russia

That’s an understated way of predicting Russia will collapse if it’s not privatised along Anglo-American lines. In reality, it’s much more complicated than that.

The Putinator certainly has got to do something radical to convince foreign investors to bring in their wealth, and local investors not to export their wealth offshore (despite a meagre 13 per cent flat-rate income tax). That’s where cutting off the bureaucracy, a key middle class demand, fits in. That would do wonders for Russia to grow at five per cent annually – Putin’s magic number, in his own expectations.

There will be privatisation, of course, but not at the level of the Far West Yeltsin years. Moreover, Russian businesses will have to become more competitive after Russia finally enters the World Trade Organisation (WTO), an agreement understood to be fully complete in August 2012.

Gazprom – which holds no less than 25 per cent of the world’s gas reserves – will continue to be run as an arm of Russian foreign policy (the “Gazprom nation” syndrome). But it will also be run as a very profitable global enterprise – worth in fact more than Exxon.

Putin knows Russia cannot compete with China (where labour costs a third of Russia’s). He also knows China is about to break through high-end technology. So expect him to coordinate policies to diversify Russia’s manufacturing base and go for high-end, high-value knowledge and selected service industries. 

A good starting point is the new Silicon Valley outside of Moscow. Plus already visible improvements in infrastructure, and transport and communications.

Go East, young Russian

In a speech to the Duma in early April, the Putinator defined the development of the Russian Far East as a key priority for the Russian economy.

In practice, a Russian state corporation will be in charge of the humongous task of developing Eastern Siberia and the Russian Far East, the land and natural resources spread out across 60 per cent of Russian territory.

The draft of a federal law – developed under Putin’s supervision – was submitted last week to the ministries of energy, natural resources and trade and industry.

With its HQ in Vladivostok, and enjoying a cool zero per cent profit tax, the corporation will have a $17bn stake in energy, resource and infrastructure companies such as RysHydro, Russian Railways and diamond company Alrosa, not to mention oversight in the decisions of energy giants Gazprom and Transneft.

Rostislav Turovsky, vice-president of the Centre for Political Technologies, a think tank, has defined the move as a parallel government controlled personally by Putin. And whoever is in charge is bound to eventually replace Dmitry Medvedev as prime minister.

Talk about an investment bonanza: gold in Irkutsk, iron and oil fields in Krasnoyarsk and coal in Tuva. Those resources will be important to the Russian road to speed up a mineral rush. Timing is also essential, as the next Asia-Pacific Economic Cooperation (APEC) summit will be in Vladivostok in September.

The “Pipelineistan” angle once again is key, in this case concerning two mega gas pipelines from Siberia.

Moscow and Beijing have been fiercely haggling on price. Gazprom told Beijing it could sell the same amount of gas to Europe for a much higher profit, while Beijing said it could not increase the price of gas at home without smashing its competitive advantage in manufacturing.

China is now proposing a “new model”, which implies that there will soon be an agreement.

The interests of BRICS members Russia and China overlap. The East Siberian-Pacific Ocean (ESPO) oil pipeline – pumping 300,000 barrels a day from Skovorodino, Russia, to Daqing, China – went online last year.

China is now Russia’s top trade partner, with bilateral trade reaching $79bn in 2011. China Investment Corp (CIC) – Beijing’s sovereign wealth fund (SWF) – will increasingly be investing more in Russia.

No Globocop

Fasten your seat belts. With NATO and Russia under Putin, it’s going to be a very bumpy ride.

While the Atlantic alliance is miserably losing a war in Afghanistan simply won’t concede anything to Russia on missile defence and NATO enlargement.

At the Lisbon Summit in late 2010, when NATO devised its road map of virtual global domination, the beleaguered NATO-Russia Council endorsed what was called a “Joint Review of 21st Century Common Security Challenges”, which included Afghanistan, terrorism, piracy, proliferation of weapons of mass destruction, and natural and man-made disasters.

They more or less agreed to keep discussing missile defence.

Then, two weeks ago, they kept discussing counter-terrorism, counter-piracy, the war on drugs (in Central Asia), the training of Afghan Air Force technicians, and transit arrangements for NATO in Afghanistan. Russia was invited to send a representative to the Afghanistan meeting at this month’s NATO summit in Chicago.

“The key issue is that NATO is once again – unofficially – inside Georgia, with US and Turkish troops, while Georgia keeps sending troops for NATO operations. For the Putinator, NATO active on Russia’s southern border is an absolute no-no.”

Putin has repeatedly denounced NATO as “a relic of the Cold War”. But he admits that sometimes NATO “plays a stabilising role” in places such as Afghanistan.

That’s the rationale behind the Kremlin floating the possibility of an underused airport in Ulyanovsk being used as a cargo hub to move non-lethal NATO supplies in and out of Afghanistan.

Russian communists freaked out and duly launched a “NATO Nyet!” campaign. What an outrage, NATO in the birthplace of Lenin!

But even Russia’s former ambassador to NATO, Dmitry Rogozin, defends the Ulyanovsk deal as good business that would stimulate the local economy. The cargo jets, he said, would carry nonlethal items, such as “NATO toilet paper”. The communists didn’t miss a beat – and delivered rolls of toilet paper to Russian government offices.

Yet the Putinator harbours no illusions with respect to NATO, stressing just two months ago that “the alliance is already providing us with ‘facts on the ground’ that are counterproductive to confidence building”.

The key issue is that NATO is once again – unofficially – inside Georgia, with US and Turkish troops, while Georgia keeps sending troops for NATO operations. For the Putinator, NATO active on Russia’s southern border is an absolute no-no.

NATO Secretary-General Anders Fogh Rasmussen always talks about “working cooperation” with Russia. Moscow sees it as empty rhetoric. Fact; when Georgia President Mikhail Saakashvili visited NATO HQ a month ago, Rasmussen said: “Georgia is a special partner for NATO. You are committed to our operations, to NATO accession, and committed to reforms … In all, Georgia is a model partner.”

Expect major fireworks ahead. Putin essentially sees NATO treating Russia in Cold War terms. The Obama administration “reset” is equally empty rhetoric. Right now, all eyes are on NATO’s Chicago summit. There will be no NATO-Russia meeting. The Cold War seems to be actually expanding – not shrinking. Watch out, because the Putinator really knows how to play this game.

Pepe Escobar is the roving correspondent for Asia Times. His latest book is named Obama Does Globalistan (Nimble Books, 2009).