THE INSIDERS: Optimism in the time of stagnation

By bne IntelliNews February 23, 2012

bne -

"Putin may be gone in four years. First there will be new Duma elections, and then fresh presidential elections," predicts Sergei Guriev, rector of Moscow's New Economic School and Russia's best known liberal economist - the Niall Ferguson of Eastern Europe. "If there is no transition, then there will be stagnation."

These are striking words from a man who is at the heart of the Russian reform process and an intimate of Kremlin circles. The likes of presidential candidate and playboy billionaire Mikhail Prokhorov, and Alexander Voloshin, eminence grise of the Yeltsin government and now architect of Russia's capital market reforms, are said to regularly seek him out for advice.

Selected as a "Young Global Leader" by the World Economic Forum in 2006, Guriev has passed every expectation. A regular panelist at the most prestigious conferences, he also sits on a slew of the government committees currently thrashing out the details of reform. He also teamed up with investment bank Renaissance Capital to revive Russia Economic Trends, the economic touchstone in the 1990s, and wrote President Dmitry Medvedev's speech for the last St Petersburg Economic Forum. That address launched Russia's second privatisation wave.

All of which makes his confidence that Russia could go through enormous political changes, and that the process will be peaceful and beneficial, extremely surprising.

The "Big Mo"

Guriev believes that the protests that began in December have unleashed an unstoppable force. The only issue - and it's a big one - is just how this process will play out.

The first major test on the agenda is the March 4 presidential election. "[Vladimir] Putin is rumoured to be ready to make the mistake of pressing for a first-round victory," says Guriev, sitting in his modest office in the New Economic School in Moscow's southern district of Profsoyuznaya. He's voicing a widely held expectation that the current prime minister will use administrative resources to push the vote count over the 50% he needs to avoid a second round run-off. "However, he underestimates how well the fraud will be documented. Then there will be calls for new Duma elections that will let in the opposition, who will start investigations that will lead to fresh elections."

The issue at hand is how seriously the elite in the Kremlin, which is Putin's most important constituency, believe they can defuse the opposition. Many of them see the Moscow demos as politically irrelevant moaning by a spoilt middle class in the capital, and are convinced that the support of "real Russians" in the regions is enough to ensure a genuine victory in the first round (with a little help from the Kremlin's electoral machine). The liberals worry dissatisfaction runs deeper, and is spread wider, than the elite is willing to admit. "The protests are too big and it is too late to stop them - they are too well organised," says Guriev. "The police won't shoot at the protestors, if it came to that, as they know they will be prosecuted by the next regime."

Not that many think Russia's transformation will come down to street battles. Given the recent examples in North Africa, neither the Kremlin nor the opposition wants to see blood. "This election will be won by Putin, but the transition will happen in the next few years, and it will be more peaceful than would be expected," predicts Guriev. "The nationalist element is not playing the role we feared and [opposition leader and well known blogger Alexey] Navalny is better than we thought. He is young and inexperienced, but he has brought idealism back into politics."

Just how the opposition will assert itself following the March election is moot, although the large demonstration that its leaders have called for March 5, the day after the poll, should provide a good gauge of popular sentiment. Guriev suggests one option is to hold an alternative "shadow" election, complete with campaigns, candidates and voting organised online. "This would help the opposition. Then the people would know who the opposition is and what they stand for," he says. "Say Navalny won 10m votes in this alternative election, then he could go to the Kremlin and say he has won 10m votes against Putin's 50m, but that his were won honestly, whilst Putin's were falsified - it would give him real political power."

Out of touch

The alternative to change is stagnation. Guriev doesn't believe Putin will carry out extensive reforms post election, as it is no longer in his interest. Rather, attacking problems like corruption would undermine his political power.

Like many commentators, Guriev belies that Putin is increasingly out of touch with the population. "Putin's first term was very reformist, but then the oil prices started to rise," Guriev points out. "At first the government couldn't believe its luck, but after a few years, when it was clear the rise was here to stay, it stopped listening and started spending. Putin needs to fight corruption, but he does little, as to do so would undermine his own political base. If he really did carry out privatisation, then he would be removing one of his main levers of political power."

The current PM holds practically all the cards going forward, and is banking on being able to placate the opposition by mobilising Russia's vast resources to make people's lives better. But Guriev believes the corruption issue will dog him throughout his next term in office. "In general, the announced economic policy is right on target: deregulation, removing subsidies and privatisation are all great policies. But corruption is so high that its effect swamps all the others," says Guriev. "The issue will become very important in the coming years - it will determine if Russia is undermined or saved."

This is the conundrum facing Putin: he needs to fight corruption and get the state out of the economy, but doing so would undermine his power. Meanwhile, Guriev warns that he won't be able to spend his way out of trouble this time because the mood has genuinely changed. "Putin is facing difficult challenges," says Guriev. "He is dependent on the support of the people for his power, but they do not seem to be happy with him any more. He can spend more money in the regions, but in Moscow that no longer works. He thinks the people should be grateful as he made them prosperous, but the people don't see it that way. This is a new reality he has never seen before."

THE INSIDERS: Optimism in the time of stagnation

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