Carnegie Moscow Center
The Panama Papers cannot do much damage to the reputation of Putin and his friends, and they have not exposed criminal activity by prominent Russians. But they shed light on a fundamental problem: not even elites trust Russia’s economic, legal, or political system.
As Russia enters its second year of economic malaise, elite interest groups that rely on revenue streams from the federal government continue to oppose state budget cuts. But they have successfully managed to escape responsibility for the economic crisis.
The Russian budget won’t be saved by the new round of privatizations announced by the Russian government. What’s more important is how they set out the rules of behavior in the Russian elite.
External factors are having little impact on the health of the Russian economy. Sanctions and counter-sanctions are not a big factor either. An effort to make Russia self-sufficient and rely on import substitution poses a much bigger danger.
Whether Russia’s foreign policy achieves its objectives depends primarily on the success or failure of the country’s economic relaunch.
Lack of investment, a deficit of trust of the private sector in the government, and a drain of migrant workers and professionals make it much harder for Russia to recover from its current economic malaise.
Over the last decade and a half, the Russian economy has undergone a classical resource cycle, and now it lacks both the capacity and the momentum for new growth. But the wealth accumulated in the boom years will insulate the country against a crash for at least three years.
Thus far, the Russian government has been able to quell popular discontent over the ongoing economic crisis. But time is running short: in a year and a half to two years, the Kremlin will have a real crisis on its hands.
Serious economic reforms cannot be implemented unless Russia’s political atmosphere and institutions grow more supportive of individual freedom.
On January 14, Carnegie Moscow Center’s Russia in the Asia Pacific Program hosted a meeting between the Russian China experts and Michael Pettis.