COMMENT: Putin delivers a homely state of the nation speech

COMMENT: Putin delivers a homely state of the nation speech
Putin delivers a homely state of the nation speech almost entirely focused on domestic issues
By Ben Aris in Berlin February 20, 2019

It took Russian President Vladimir Putin an hour to get to the international issues as his state of the nation speech focused on the political issues that are pressing on the Kremlin today – the miasma that has fallen over the Russian population as the gradual economic recovery of the last year fails to trickle down to the street and made people’s lives better.

Putin paraphrased JFK’s “ask not what the country can do for you,” with a Russian version: “ask what the country can do for you.” And he followed up with a long shopping list of measures and programmes that are supposed to lift the standard of living in Russia as it emerges from a decade-long depression of stagnant wages and low growth.

These speeches are an annual circus, but they say a lot about the mood of the country and the Kremlin’s state of mind. Last year’s “guns and butter” speech was cut into two parts: partly about the government’s programme to “transform” the economy for the benefit of the citizens and partly a weapons show, complete with dramatic computer simulations of a new generation of “hypersonic” missiles that can penetrate the US defence system.

This year was a lot more mundane and clearly aimed almost entirely at the domestic audience, attempting to address their palpably growing discontent.

The first oddity is that for the first time in the speeches I have watched over the years, he skipped entirely the usual macroeconomic rundown that he always gives at the start of every speech: a list of GDP growth, falling inflation, rising income, or whatever good news the statistics have produced in that quarter (and this year there really was a lot of good news as Russia is back to a triple surplus: trade, current account and federal budget).

Instead he dived straight in with social issues and kicked off with family support, childcare, falling demographics and increasing pensions.

This went on for almost an hour and Putin brought a Santa’s sack of goodies to try and make a material difference to the quality of life in Russia. The emphasis was clearly on families and boosting the population. Child benefits are going to be doubled to RUB11,000 per child and from January next year this will be increased again to two times the minimum salary.

The allowance for disabled children will be doubled to RUB10,000 per child and the tax on property and land (everyone in Russia has a dacha, or summer house, mostly provided by the government or their company) for families with children will be reduced and the allotment of tax-free space will be increased.

More nurseries and schools will be opened. (The free so-called “detski sad,” or “children's garden” — childcare for all — is one of the most successful features of Soviet life and is regarded as a right by most Russians).

Putin then followed up with promises for help to alleviate poverty and give more help to those that lose their jobs or are unemployed. There is also going to be more mortgage relief and payment holidays. Pensions will be increased to above the minimum wage and healthcare will be improved across the country. As part of this, doctors, and public servants in general, will all receive a pay increase after pay has been frozen for several years. As over half the population is either directly or indirectly on the state’s payroll, an across the board pay rise for public sector workers will put money in the pockets of the whole country.

Interestingly Putin didn't focus per se on the RUB25.7 trillion ($390bn) investments planned for the 12 national projects that are part of the May Decrees announced last year, but standing behind all the latest announcements are the programmes. The problem is that the earliest that these programmes are expected to have a visible effect on people’s lives (if at all) will be 2020. Putin did point out that GDP growth is expected to rise to 3% by 2020 following the controversial 2.3% growth in 2018 and the 1.3-1.8% that is forecast for this year.

The man with a plan

However, while Putin didn't highlight the programmes, partly as they remain theoretical at the moment, the themes of the programmes stood behind many of his comments such as regional rejuvenation from social and infrastructural spending.

Last year Putin’s speech unveiled a very ambitious reform plan. The president wants productivity growth to accelerate to 5% per year (since 2009, the average growth has been only 1%) during the next decade, the share of SMEs in GDP to go up to 40% (from the current level of 20%), the number of people employed in SMEs to go up from 19mn to 25mn people, and to halve the number of people living below the poverty line (currently 13.8% of the population or 20mn people).

Russia watchers remain sceptical that Putin can meet all of these goals, or indeed any of them. Even the 3% GDP growth by 2020 is seen as very ambitious.

But the whole theme of the speech represents a change in the Kremlin’s thinking. The annual Munich Security Conference was last week, a talk-fest that is wall-to-wall VIPs. Putin didn't go this year, but gave a famous speech in 2007 at the same event that kicked off the current showdown with the west. At Munich Putin warned the west that if it didn't meet Russia half way and respect its national interests then Russia would respond. In 2012 Russia started rearming and Putin sacrificed Russia’s prosperity as he invested every spare kopeck into the modernisation of the army. That led to the clash over Ukraine and the annexation of Crimea in 2014, followed by Russia’s intervention in Syria.

Clearly Putin feels that the modernisation of the army is largely completed and is in a state to face down (if not actually beat) Nato’s forces. So the time has come to switch back to the domestic agenda, which Putin did in the most comprehensive way in any of his speeches for many years.

And Putin has to. Trust in Putin has plunged to 39% from 59% in 2017, although his personal approval rating remains at 64%. The propensity to protest has risen dramatically in the last year, while the number of Russians that think the country is going in the wrong direction are currently in the majority for the first time in years. And the patriotic pride wave that followed the annexation of the Crimea has worn off. There is no danger of a so-called coloured revolution in Russia, but the Kremlin is keenly aware that it needs to head off unrest by addressing the population’s concerns, and Putin’s speech was an extensive peace offering on this score.

INF treaty woes

The speech was primarily aimed at the gallery, but as this is a closely watched event that carries gravitas as a constitutionally mandated speech, Putin did take some time to deal with international issues.

After almost an hour of the one and half hour speech, Putin finally got onto the international issues, led by the US’s proposed withdrawal from the Intermediate-Range Nuclear Forces Treaty (INF).

Putin called this a mistake and offered a threat. The flight time of these missiles from Western Europe to Moscow is only 12 minutes, too short for Russia to mount an effective response, and so if these missiles are deployed it will be seriously destabilising.

Indeed, the mere threat of these missiles being deployed is destabilising as Putin made it clear that not only will Russia respond to the deployment of these missiles, targeting the countries where they are stationed, Russia would also target the countries where “these decisions are made.” Putin was careful not to mention the US by name, but made it crystal clear that if the US purses the deployment of short- or intermediate-range missiles it would lead to a new arms race.

Russia has new missiles that can travel at Mach-9, the new “hypersonic” missile that Putin showcased in his state of the nation speech last year. These were billed as a new class of missile that can travel so fast they can penetrate the US missile defences and are a game changer.

Following last year’s speech the US pooh-poohed the technology, saying they were aware of the missiles and suggested they were not ready or a threat to the US. The main missile in the arsenal is the Zirkon missile that has a range of 1,000km that could target sea-based and land-based targets, and last year Putin claimed Russia has developed a whole family of these types of weapon.