“Why should I train opposition candidates to run against me? We could have better lives but take a look at the platforms of opposition leaders. They need real agendas. They can’t base their campaigns only on buzz. But I am sure we will have a real opposition leader sooner or later,” Putin answered simply before moving on. 

The election year will be crucial for Russia as once the elections are past Putin, who will almost certainly be re-elected for his fourth and — according to the terms of the Russian constitution — final term, the Kremlin has to make a choice about which economic model it wants to follow. 

The old petro-fuelled economic model was clearly exhausted in 2011 when growth began to falter despite oil prices that remained persistently over $100. GDP growth fell close to zero in 2013, well ahead of the current showdown with the West began or sanctions were imposed. 

Since then the Kremlin has been preoccupied with geopolitics and the prosperity that Russian citizens enjoyed in the boom years of the noughties was sacrificed as every spare kopek was poured into re-equipping the military from 2013 onwards.

However, with the campaign in Syria officially over and the one in Ukraine never having officially started, in the New Year the Kremlin has to turn back to the question of restoring the lost prosperity — or face social unrest. 

One telling flag to watch out for in 2018 is whether Russian Prime Minister Dmitry Medvedev is replaced. Medvedev has been a useful placeholder during Putin’s current term, but his total subservience to Putin has in effect moved political power out of the Duma and into the presidential apparatus. If deep structural reforms are to be effected then the full apparatus of government will be needed to debate and enforce the changes. And that means a new prime minister to lead the effort. 

While the polls show the propensity to protest remains very low, smaller interest groups, like those supporting anti-corruption blogger and opposition leader Alexei Navalny, are becoming increasingly vocal. 

Navalny has been touring the country all year and brought thousands onto the streets in each of the regional capitals he has visited. While Navalny will almost certainly be barred from running in the elections (thanks to a criminal conviction that is widely seen as politically motivated) and polls below 2%, the rallies are an education that show the people they can protest and can criticise the Kremlin. Democracy is still very new to the Russians and they are still not clear about the power of their vote and how they can wield that power. 

All this makes the introduction of a realistic and effective economic reform plan imperative. While a lot of preparatory work has been done, it is still not clear if a plan will be implemented or if the status quo will be maintained.

The people themselves are split over the need for radical reform. A recent survey by the Carnegie Endowment for International Peace found that in general the poor want radical change while the middle classes see the need for change but want it to be gradual. Surprisingly the least keen on radical change were the young (around 24 years old). The upshot is the new reform plan is very likely to be a fudge. 

Military investment 

In the last three years the top priority for the Kremlin became modernising the army to check the perceived external military threat. Oddly enough the need for this investment into the armed forces was vindicated to an extent. In a speech at the Munich Security Conference in 2007, Putin famously accused the west of breaking a promise to Mikhail Gorbachev not to expand Nato eastward — a claim Nato has strenuously denied and dismissed as a “myth”. Newly declassified documents published this week fully vindicate Putin’s claim and show that Gorbachev was promised many times by many leaders there would be no Nato expansion, but nothing was ever put on paper. 

Economic reform was put on hold during the army modernisation, but that process is coming to an end. Putin boasted “No one remembers that in the 90s we were in a civil war and young men were sent to the front line. But fast forward to today and we have a strong army.” 

Headline defence spending has been cut from over 4% of GDP in the 2018-2020 budget, although in terms of share of GDP it is still 2.8% of GDP, more than the 2% of GDP Nato members are supposed to spend. Putin also declared victory in Russia’s Syrian campaign against Islamic State (IS) last week and announced a Russian pull out. All this was possible thanks to the military reforms, Putin claimed. 

Rival reform plans 

Few details on what a potential reform plan would look like have been released, but Putin dropped a few hints. 

Currently there are two big plans on the table. Former finance minister and co-head of the presidential council Alexei Kudrin leads one camp and is calling for investments into economic multipliers such as infrastructure, social services, education, health and above all improving labour productivity. The other camp is championed by presidential Ombudsman for Business Boris Titov and the Stolypin Club that are calling for massive borrowing and massive spending in a New Deal style policy to kickstart economic growth. 

Putin’s comments supported both camps. He mentioned the need to improve labour productivity several times. “Productivity doesn’t grow as quickly as wages in the economy,” Putin said. “Even when real incomes went down a little, this year we still saw internal demand that grew 3%. And I think real incomes will improve this year as well.” 

However, in the same section he referred to his 2012 May decrees, where the government set goals to increase spending on many essential services, that have put an enormous strain on many regional budgets. 

“In 2012 we set benchmarks — wages of teachers, doctors, kindergartens — [without these] the situation would be worse. So my colleagues and I did the right thing. Most of those benchmarks were set several years ago, these goals have been achieved. In 2018 we will reach the final goals and all those benchmarks will be achieved,” Putin said. 

Putin also touched on another issue of key domestic interest: increasing retirement ages. A crucial reform, it is also typical of the whole programme: a plan has been drawn up but while it began to be implemented it too was suspended for the meantime due to the crisis and may be restarted only next year. 

“I can tell you a final decision has not been made,” said Putin. “There are those say we have to raise it. The age we have today was set back in the 1930s and the life expectancy then was the same as the age they set.

“Look at European countries, including Belarus and Kazakhstan, they have taken the decision to raise the retirement age. We are the outlier in Europe. If we don't do this there will be more and more people ready to retire and less able to work. But that won’t happen. We will be able make payments but the income and growth of income of pensions would be frozen so their income will go down… But we are talking about the technological modernisation of our economy. That means 100 people will be able to do the work of 1,000. If we increase the retirement age what will happen to all those people? Where will they go? We need to ask the experts. I am not trying to dodge this question. We just need to think about all the spillover effects.”

The answer clearly demonstrates the middle path the state is trying to find, and the central role the Kremlin sees itself playing to coddle the citizenship and keep them loyal. The same theme was evident in Putin’s comments on the ongoing Central Bank of Russia (CBR) campaign to clean up the banking sector. 

“We have too many banks. It’s not that we need to get rid of them, but we need to make sure our system is healthy for the sake of the clients. We want to make sure that the clients don't suffer in the case of instability,” Putin said. “I hear the CBR is actually increasing the government involvement in the sector. This is not true. We have 521 banks. And even if the CBR increases control over some banks the ultimate goal is to make those banks independent again,” Putin said. 

But things continue to change slowly as the Kremlin faces up to the new realities of the post-oil price collapse that has set a new normal for oil at $50-$60 for the foreseeable future. The first thing that Putin did on taking office in 2000 was slash taxes and introduce a flat tax regime — the bedrock of his popularity. After 2018, however, Putin says the government will probably hike taxes for the first time in nearly two decades.  

“We have agreed that taxes will not be increased until the end of 2018. And we have honoured this commitment. What happen after? We invest in healthcare, the military and education. But we need to get resources for all those projects. We need to study our system to make sure it works efficiently so can make investments so the system works faster. We need to talk to the experts and then you need to talk to business community.” And this approach will probably be the essence of Russia’s politics for most of next year.