Alaco

24.11.2016 | Could Trump help revive Russia’s economy?

The cornerstone of Vladimir Putin’s strategy for political longevity has been his projection of Russia as a besieged fortress fighting off the menacing encroachment of the US and other western powers. By presenting himself as the only leader capable of protecting Russia from those who seek to undermine her, the authoritarian president has skilfully managed to distract his people from the rapidly deteriorating economic conditions that would doubtless sink the leader of a more democratic country.

Click here to read Alaco's article on the FT's Beyondbrics.

The cornerstone of Vladimir Putin’s strategy for political longevity has been his projection of Russia as a besieged fortress fighting off the menacing encroachment of the US and other western powers. By presenting himself as the only leader capable of protecting Russia from those who seek to undermine her, the authoritarian president has skilfully managed to distract his people from the rapidly deteriorating economic conditions that would doubtless sink the leader of a more democratic country.

But the cost of maintaining a war footing is considerable, with massive spending on defence depriving the rest of the economy of much needed state support. Putin understands this well and Donald Trump’s election might provide him with an opportunity to rebalance public expenditure.

When Putin came to office, there was little sign of the anti-western rhetoric that now so dominates his leadership and public discourse in Russia. Indeed, in 2001, just a couple of years after becoming leader, Putin said that Russia should either be allowed to join Nato or the alliance should be replaced by a new organisation that includes all of Europe and Russia.

But his desire for integration did not last long. Relations with the west soured as the European Union sought to embrace former communist countries within Russia’s sphere of influence. They reached their nadir in April 2008, in the wake of the Nato summit in Bucharest.

The gathering declared that Ukraine and Georgia, viewed by Moscow as countries of strategic interest, would become alliance members. Putin was furious, reportedly warning the then US President George Bush that should Nato seek to absorb its former satellites, they would cease to exist within their recognised territorial borders.

The rest is history. In August 2008, Russian troops invaded Georgia and established puppet authorities in two provinces, Abkhazia and South Ossetia, effectively holding the country to ransom. In February 2014, Russia occupied Crimea and then went on to foment an insurrection in eastern Ukraine.Putin genuinely believes that the EU and Nato threaten to undermine Russia but he appears to have exaggerated the perceived danger as a means of maintaining power. Following the global financial crisis of 2008, his popularity was waning as oil revenues tumbled. He needed a rallying cry to boost his standing: cue ‘Fortress Russia’. While the freezing of the Ukraine conflict has denied his propaganda machine some fuel, he has been able to keep up the military drumbeat by playing up the threat of Nato’s deployment of troops in the Baltics and pummelling opponents of President Assad’s regime.

While effective, Putin’s strategy has come at a hefty price. The build-up of Russian military might has required him to spend billions of dollars on overhauling the country’s ageing armed forces. In 2010, while Russia was still reeling from the shock of the global economic crisis, Putin launched a $700bn military modernisation project, which aimed to replace 70 per cent of the Soviet-era equipment by 2020. By 2014, the defence ministry was shelling out an annual $60bn, or 4.5 per cent of GDP, implementing the president’s plan. Billions more are thought to have financed Russia’s proxy war in Ukraine and the bombing campaign in Syria.

The military spending spree has diverted funds from other areas of the sanctions-wracked economy. Many state corporations and industries are struggling to keep their heads above water, with GDP falling by nearly 4 per cent last year. Putin knows that he cannot continue to invest so heavily in the armed forces and there are credible reports that their share of the budget could be slashed by a third in next year’s budget. Although the parlous state of the country’s finances is unlikely to bring him down, the Russian president is concerned about its impact on his legacy. For him to be regarded as one of Russia’s great leaders, he must revive the economy. In order to do so, he needs to emerge from his struggle with the west as a victor.

Could a Trump presidency help him in this respect? The early signs suggest that it might. Kremlin officials were delighted with Trump’s victory – for good reason. In the run-up to the election, the Republican candidate railed against Nato and spoke glowingly of Putin, describing him as a stronger leader than Barack Obama. Trump also said he would “look into” recognising Crimea and removing sanctions against Russia. But campaign-trail rhetoric may not necessarily translate into policy, particularly if Republican hawks in Congress have any say in the matter.

Putin is unlikely to have been carried away by Trump’s overtures. Although he supported his election, the Russian president will probably remain distrustful until there is clear evidence of a softening of the US position on Russia. Having invested so heavily in casting the US as Russia’s foe, he cannot afford to misread the president-elect’s intentions. After all, Trump already appears to have rolled back on some of his campaign pledges. A Trump visit to Moscow or a statement to the effect that the US will treat Russia as an equal partner would probably be enough for Putin to begin portraying Russia as the victor. State television outlets might then start using more emollient language to describe the US and the west in general. Whether such a change in tone would pave the way for a resolution of the Ukraine conflict or an end to the bombing of Syria is unclear, but Putin’s need for lavish military spending will likely diminish.

(This is the text of an article that first appeared in the FT's Beyondbrics)