Federico Bordonaro

Political instability may soon surface in Russia, according to Anatoly Chubais, “one of the savviest Russian politicians”, a Washington Post’s analysis reports today. Having based his political strategy on energy exports and centralization, Vladimir Putin has been able to boost the Kremlin’s economic and political power both domestically and internationally in the last years. However, with oil and gas prices dropping dramatically since last Summer, Moscow may now face unexpected problems.

The price of oil is now about a quarter of what it was only a few months ago, and economic problems are building within Russia. Investors are gone; the stock market barely exists. After nine years of surpluses, Russia will have a budget deficit in 2009, and the solid economic growth of recent years may give way to a contraction. An increasing number of enterprises are shifting to two- or three-day workweeks, sending their employees on unpaid vacations or laying them off. Unemployment, which had been very low in recent years, is rising, and the country lacks an adequate social infrastructure to help those who are losing their jobs. The situation is especially grave in the numerous company towns where new jobs are almost impossible to find. Meanwhile, geographic mobility is strongly limited by Russia’s underdeveloped housing market.
It is commonly believed that we haven’t yet seen the worst. Economists expect Russia to be hit much harder in February and March.

[…] The looming economic troubles pose a dilemma for Russian leaders. Putin believes in “vertical” governance built on secretiveness, subordination and control. This system keeps decision making confined to the innermost circle and is deeply resistant to sharing authority. Such a rigid system of governance is inherently inefficient. But to Putin, a firm grip on power has always been a priority, and oil prices surpassing $140 a barrel made up for the poor quality of governance. Today, though, such inefficiency is unaffordable. The logic of Putin’s governance pushes for tighter controls while the logic of the crisis demands flexibility, effective feedback with business and others in the elite, and broad dialogue with the nation.

As Yegor Gaidar, Russia’s first post-communist prime minister, and a brilliant economist, has noted, a crackdown may be successful in the short run, but “in the long run this policy can only pave the way to new turmoil.”