THE NEW ST. PETERSBURG TEAM VERSUS THE OLD YELTSIN TEAM, IN AN OIL WINTER

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Russia’s period of relative economic prosperity is drawing to a close. This thought has been ubiquitous of late, directly stated or by implication, in all articles on domestic politics or foreign affairs.

“The ‘Oil Winter’, which had been predicted with great trepidation for 2003-04, actually arrived in November 2001,” says leading economist Mikhail Delyagin in the “Vremya MN” newspaper. The flow of petrodollars Russia has experienced throughout Vladimir Putin’s time in power will not be renewed.

The exchange rate has dropped to around 30 rubles to the dollar.

The Cabinet and the Duma are discussing budget sequestration.

However, by mutual agreement they are trying to avoid using that scary “sequestration” word. Before the third reading of the draft budget, Finance Minister Alexei Kudrin held lengthy talks with leaders of the four centrist Duma factions to work out some measures for protecting the budget. According to “Vedomosti”, these measures will involve classifying part of budget spending (around 68 billion rubles) as “secondary”. This means that these funds will only be released if budget revenues do not fall below expected levels: i.e. if the price of oil once again rises to around $23-24 a barrel. Clearly, there is no reason to expect such a stroke of luck at present: there is talk of prices falling to $14.50 a barrel.

However, Alexander Zhukov, head of the Duma Budget Committee, told “Vedomosti” that the 2002 budget – formerly the pride of the Cabinet – will not record a deficit. If revenues are less than expected, the Cabinet will “proportionally cut all spending items apart from the socially significant items”. Some of the items liable to be cut are road-building, industry, the electricity sector, construction, etc.

“Vedomosti” notes that cutting budget spending is actually called sequestration. However, as noted above, this word is taboo at present. A reliable source in the Finance Ministry told “Vedomosti”: “Sequestration would mean a Cabinet dismissal, but at present all social spending items are protected.” Thus, the budget has become an entirely virtual construct, with conditional revenue and spending figures, as well as “protected items” not specified by the Budget Code. Of course, the Cabinet’s image – and the image of Russia (the Cabinet and the Duma aren’t talking about reneging on foreign debt repayments) – are more important than the letter of the law.

Meanwhile, no one is venturing to predict how far oil prices may fall. “Vek” weekly says this is the unexpected result of the rapid success of the US anti-Taliban operation: instead of taking advantage of the situation to send oil prices spiralling upward, the OPEC nations have crashed the oil market.

According to “Vek”, the cartel decided to make use of its main competitive advantage – low production costs – against those who attempt to cut into OPEC’s markets in times of crisis. Oil producers who have high production costs will be forced to cut output, or at least reduce investment in development. Subsequently, oil prices will help lead consumer nations out of recession, and oil prices will return to their previous levels, and OPEC will remain in control of oil markets. In reality, only Russia stands to lose out here.

“Vek” says that “it doesn’t look good for the Arabs to quarrel openly with the United States, but punishing America’s new friend is quite feasible”. Russia has turned out to be the most convenient target, and now it will have to start dodging. In response to OPEC’s ultimatum – a demand for substantial cuts in oil production (first there was talk of 300 barrels a day, now it’s up to 200,000) – the Cabinet has consulted with the chief executives of Russia’s six largest oil companies and announced that oil production and exports will be cut by 50,000 barrels in the fourth quarter.

In reality, says the “Kommersant” newspaper, we are still only talking about the usual seasonal reduction in exports. Putin said as much in his US television interview just before his visit to Washington: “Russia’s domestic demand for oil and petroleum products rises in winter, so we don’t have to take any measures to restrict exports – they will fall of their own accord.”

But the OPEC nations have made it clear to Russia that oil prices still depend entirely on Russia, and they will only start to rise if Russia’s exports are substantially reduced. Then Norway and Mexico will follow suit, and so will OPEC. Thus, says “Kommersant”, Russia has been placed in a difficult position: on the one hand, it has an interest in seeing high energy prices; on the other hand, it also has an interest in maintaining and developing the new level of relations with the West achieved since September 11. The latter priority completely rules out the possibility of Russia moving into the vanguard of efforts to raise oil prices; the West doesn’t want that at all, and it could lead to some major complications in relations with Russia.

But all that is only one side of the coin. According to “Vek”, certain interested parties – not only abroad, but within Russia as well – are consciously pushing the situation toward another financial crash.

Firstly, a fair number of market players wouldn’t mind making use of the skills they learned in 1998 – how to handle a crisis and profit from it. “Vek” says that “half the managers in Russia are crisis managers”.

Secondly, some rather authoritative Russian economists (Andrei Illarionov, for example) don’t view low oil prices as a worst-case scenario. They say that it’s high oil prices which are destructive for the Russian economy; it should have cast aside its petro-crutches a long time ago.

Naturally, the government and the Central Bank understand perfectly well that the oil crisis will inevitably lead to new ruble devaluation, and they do not resist it very much, as this means that the industries will be pushed forward, while the oil industry on the contrary will have to reduce production, “producers of good automobiles and IT will finally take root in the country and the World Trade Organization will be looking for Russia’s favors.” On the other hand this also means that the people will again have “candy wrappers” instead of money, and the army that again will have only empty promises will offer to the society its own “crisis managers”.

It can be also said that the worsening economic issues are first of all turning into political issues. It was supposed that in the next two years Russia would “pump up” its economic ‘muscles’ and would cope with the peak of foreign debt repayments, as well as would carry out structural reforms and, according to “Vek” would prepare for the position of the country with developing economy, instead of being a “developing country”. Consequently, rejection of the social programs and reducing of the living standards will strike not only the wonderful “2002 social budget” but also the popularity of the president.

As “Vek” thoughtfully noted, “on the threshold of the coming election cycle of 2003 – 2004 such changes in the public opinion are highly likely to considerably increase the political uncertainty”.

The “Novaya Gazeta” paper is much more acid in its expressions, “The Kremlin’s political monopoly has been supported by overstated oil revenues and it will become the past together with them.”

According to the paper, Vladimir Putin has been lucky, as “His ‘political honeymoon’ lasted not a hundred days like with other presidents, but a year and a half.”

“Novaya Gazeta” writes that while there was an economic rise in the country, it was possible not to act at all and “to practise only palace intrigues and personnel changes, as well as to frighten the hesitating ones and to punish opponents and encourage old friends”. However, this time is over already.

At the same time, the West evaluated Vladimir Putin very high, of course first of all for supporting the anti-terrorist operation and also for succession in carrying out the liberal economy as well as for denying cooperation with oil-producers of the third world. “Novaya Gazeta” stresses that western leaders are ready to forget not only about the KGB past of the president but also about violation of human rights in Chechnya).

At the same in Russia the president’s prospects are much worse. As is known the most ardent supporters of the incumbent president hoped that the president -former KGB officer will be able to not only put the country in order but to also return the former independence of Russia by means of strengthening the military power and rejection the western course.

That is why currently “the people who believed in Putin’s myth feel deceived”. At the same time, it is extremely unfair to accuse Putin of anything, “he did not deceive anyone, as he promised nothing.” From the very beginning he has not had any determined program, only uncertain hints at a possibility of working out some position in the future.

That is why, “Novaya Gazeta” stresses, “those who tied their hopes for national or state revival to Putin have deceived themselves, as they wanted to be deceived.” They convinced themselves that the meaningless words of the president concealed some secret meaning and his uncertainty was his professional habit for conspiring. “The thought that emptiness could conceal nothing but the emptiness was very hard for people who are used to worship the power for its being the power,” concludes “Novaya Gazeta”.

The “Versty” paper published the results of the poll held by the All-Russia Center for Public Opinion Research (VTsIOM). According to the poll, at present a considerable part of Russians have a “national inferiority complex”: 56% of respondents believe that Russia is no longer a great power, and 39% of people are ready to put up with the idea that their country will never become a great power again.

The aforementioned complex is especially obvious in relations with the US. Despite the fact that both countries currently declare readiness for active cooperation, over a half of VTsIOM respondents are convinced that the two countries will never cooperate as equals.

As strange as it is, according to VTsIOM director Yury Levada, Putin’s popularity rating has growth again. In 2000 the number of the president’s supporters amounted to about 70%, and this year it equals to 72-73% – in October this year Putin’s popularity rating achieved its peak, 75%.

Yury Levada states that the presidential rating is still determined not by the achievements of the authorities, but mostly by the hopes for future achievements, “Putin is the president of hopes”. According to the results of VTsIOM researches, only 14% of respondents state that the trust the president because he is successfully resolving the Russian problems and issues. At the same time, 43% of respondents are convinced that he has enough time to resolve all of them; 34% of respondents trust the president because they have no one else to hope on.

The absence of any program is estimated not as a drawback only, but also as an advantage, “If there is no program, everyone can believe in his or her own program.”

Moreover, so far there are no reasons for mass dissatisfaction in the country. Levada thinks that even if there is dissatisfaction, the protest in the present situation cannot be effective and well-organized: only 23-25% of the population do not trust the president at all, mostly they are the communists and the ‘stubborn’ democrats. As they cannot seriously influence the situation, nothing can endanger the president at present.

According to the VTsIOM director, what can endanger the president is “those who brought him to power: there is still a rather complicated system of dependence and fluctuations.” However, according to Levada’s observations, the population does not notice this.

The fact that Putin’s position differs from the position of the elite and the media does not influence his popularity rating much either. In the opinion of the VTsIOM head, it is also important that so far there have been no serious turning points in Putin’s “western direction”, “WTO, national missile defense system are not today’s events.”

All this is at the time when the attitude towards the government is rather critical. It turns out that the population estimates the president very high, and his government very low, while the ability of the government to achieve any changes for better as null.

Basing of these paradoxical results, the head of VTsIOM supposes that the presidential popularity rating is likely to suffer only in case “something super-disastrous, more painful than 1998 default happens”, while so far his position is so that even if “ten Kursk submarines drown and ruble rate falls down to 60 rubles for a dollar, many will be to blame, except for one man.”

However, far from all are so convinced in the stableness of the Kremlin political stability.

In particular, the “Moskovsky Komsomolets” paper reminds that in March 2002 the first half of Putin’s presidency will be over. The political elite has already started preparing for the new presidential elections. Moreover, many various reforms are to be carried out in 2002: military, court, social, housing reforms, and so on. It is clear that in such a situation an oil crisis is a considerable destabilizing factor.

The forecasts for the near future, referring to the aforementioned Mikhail Delyagin, are rather distressing: from nulling the state financial reserves, if the oil costs 17-18 dollars for a barrel, to a total knockdown of the Russian economy and the deepest political crisis, if oil costs 9-10 dollars for a barrel. If these forecasts come at least partially true, the ceasing of the reforms will be a “political inevitability”.

Besides, the increasing under-the-cover fight in the presidential surrounding is likely to lead to a complete loss of controlling of the situation. Observant “Moskovsky Komsomolets” says that one of the signs of it is a sharp increase of General Prosecutor’s “Moscow-phobia”. The paper writes, that the General Prosecutor’s Office boss is ready to do anything not to stay in Moscow. Supposedly, Ustinov is unwilling to become a “victim to the interior fight inside Putin’s team.”

So if the General Prosecutor is afraid of something, it is a clear sign that in the next several months it will not be boring in this country, no matter what the circumstances are, promises “Moskovsky Komsomolets”.

“Vedomosti” observer Olga Romanova states, “There are obvious signs of a new war”. The media constantly discuss the theme of new “tycoons with shoulder-straps”, of Orthodox banker Pugachev and his control of the General Prosecutor’s Office. Besides, all the potential victims must meet one standard: they “must control something very attractive”, like oil, gas, or diamonds. Thus, Romanova writes, fighting for redistribution of the properties the country will return to the starting point again. It is possible to say that there is a new “collective Berezovsky” in the country that is actively takes all the “key positions in the economy, politics, and the main thing, in the presidential reception room”.

The Kremlin is full of rumor about a new 1937, writes Leonid Radzikhovsky in “Vremya MN”.

“St. Petersburg KGB officers” along with prosecutor’s office, the State Auditing Commission, and the presidential administration have started a decisive attack on “Yeltsin’s Family” and the tycoons connected with it, “from Aksenenko to Chubais, from Abramovich to Voloshin himself.”

The ideologist of the new campaign is the already mentioned Mezhprombank “orthodox banker” Sergei Pugachev. The goal of the campaign is relieve the Yeltsin’s structures of the control over financial currents.

However, according to the Yeltsin’s team, the present course of events means rejection of the liberal ideology, an anti-western course in the foreign politics, and a sovereign nationalism in the interior politics.

It is clear that the antagonism between the two teams has existed almost from the first days of changing the power, “Vremya MN” writes, however, the present worsening of the economic situation has considerably sharpened the political opposition. In short, “before there was enough power for all, and now there is not.” Thus, it is just a usual struggle for existence.

According to Radzikhovsky it is very hard to predict the outcome of the struggle, first of all because of the ambiguity of the president. On the one hand, Putin really has to put the tycoons in their place, as he needs to control financial current and he has no one to lean on but his “KGB associates” here.

On the other hand, the pro-American political course does not match the team of “orthodox bankers” and “KGB officers”. It demands pro-western liberals, the same Yeltsin’s team. So the “Vremya MN” observer writes, “Putin has to maneuver between the two groups that is absolutely normal for a politician.”

Konstantin Remchukov, a Duma deputy and the Chair of the presidential Superior scientific-consulting council Sibaluminiy, said in this interview with the “Vedomosti” paper that “the major achievement of the post-Soviet Russia democracy is undoubtedly a correct attitude of the authorities towards the predecessor’s team and its leader.”

The Russian society got used to life “after Gorbachev”, at present it is getting used to life “after Yeltsin” and Remchukov warns, “There will also be “after-Putin” time.” Thus, final settling of new Russian peaceful traditions is totally in the interests of Putin’s present associates.

The left wing is not aside the unfolding struggle. The radical “Zavtra” newspaper in turn reproaches Putin of “ambiguity and inconsistency”. On the one hand, the paper writes, President Putin is trying to avoid a new default, and consequently, is trying to gain control over various tycoon groupings. “Putin needs an economic stability in order to avoid social upheavals,” especially taking into account the closing presidential elections.

At the same time, continuation of the liberal reforms means from the standpoint of the left, “an intention to maximally relieve the state from the burden of social protection of its citizens.”

There is the same ambiguity in foreign policy: “Zavtra” says that Putin is maneuvering between two super-powers, the US and China. Apparently, such policies have a bad effect on the international prestige of Russia, “As such fluctuations are more characteristic of regional states that are seeking their place among the great powers.”

As “Zavtra” states, the general impression of Putin’s policies is that they are short-term policies. “As long as oil prices are high, there is economic growth. As soon as oil prices fall, the Russian economic miracle shrinks to another default.”

Of course, the Kremlin’s chief ideologue, Gleb Pavlovsky, also participated in the discussion. In his recent interview with “Expert” magazine, Pavlovsky warned the public that if President Putin misses the chance he has, it is not ruled out that another chance to “improve Russia” will be in the “next geological era”. “Probably, in a year or two the authorities will again forget about us. There is a war going on, and God knows what it will end in, and the bureaucracy will again have all the trump cards,” stated the head of the Effective Policy Foundation. According to him, this may mean that another “tough ruler” will appear in Russia, this has happened before.

These words of Pavslovsky’s, said at the opening of the Civil Forum, sound like a warning, a severe rebuke to all who are dissatisfied with President Putin and are trying to “rock the boat”. In short, “it is better to put up with a familiar evil that to rush into the unknown.”

In fact, it is rather hard to understand what is better and what is worse, especially in a situation when, in accordance with the old Russian tradition, real experts are ready to control the choice between the familiar and unknown.

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