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#6
Moskovsky Komsomolets
November 27, 2001
THE KREMLIN CRACKS
Seismic danger in Russia
Low oil prices in may plunge Russia into another economy-prompted political crisis, which will be to Putin's disadvantage
Author: Mikhail Rostovsky, Mikhail Delyagin
[from WPS Monitoring Agency, www.wps.ru/e_index.html]

IT DOES NOT TAKE A GENIUS TO PREDICT THAT PUTIN AND HIS REGIME WILL ENCOUNTER ALL SORTS OF RISKS NEXT YEAR.

RUSSIAN CORRIDORS OF POWER ARE JITTERY. CRASHING OIL MARKET AND OPEC THREATS TO UNDERCUT PRICES EVEN FURTHER CALL FOR ANSWERS TO SOME QUESTIONS THAT CANNOT BE CALLED PLEASANT BY ANY STRETCH OF IMAGINATION. WILL RELATIVE ECONOMIC AND POLITICAL STABILITY OF VLADIMIR PUTIN'S ERA WITHSTAND THE STRAIN? ARE WE HEADING BACK TO AUGUST'98?

THE CRISIS IS NOT UNAVOIDABLE, BUT PUTIN AND HIS REGIME WILL SURELY ENCOUNTER ALL SORTS OF RISKS IN 2002.

Playing the first violin in OPEC, Saudi Arabia can exist with oil prices as low as $9 per barrel. Fortunately for Russia, there is more to OPEC than Arab monarchies wallowing in gold and oil. There are also countries like Indonesia, Nigeria, and Venezuela. A price like this will be fatal for them.

Putin has been demanding from his ministers a liberation of Russia from dependence on oil ever since his first days in office. The dependence has not been weakened to any serious extent.

If oil prices stop at the level of $17-18 per barrel, losses of the Russian budget for 2002 will amount to $6-8 billion. The authorities will be forced to keep the economy afloat by using reserves accumulated in better days. As a result, the reserves may be depleted. There will be no open sequestering of the budget but wage arrears and delayed payments will become universal again.

With the price being $13-14 per barrel, the budget stands to lose $9-10 billion. Despite loud protests from the general public and the opposition, the regime will sequester the budget and appeal to the West for financial help. The ruble will crash in late 2002 - early 2003. The political situation will cease to favor Putin.

At $9-10 per barrel budget losses will amount to a colossal sum of $15-16 billion. This will be an economy knockdown. Unprecedented devaluation of the ruble in 2002 and a severe political crisis are inevitable.

Deterioration of the economic situation will also be dangerous since it will surely tempt the Kremlin with the idea of suspending radical reforms in the country.

Putin and Co plan a great deal of reforms for 2002 - communal, legal, military, social... All of them will require a great deal by way of finances. Low oil prices will mean that the federal treasury will lack money for all of that. The government will find trouble even finding money for the higher salaries promised to budget sphere employees, servicemen, and officials.

Implementation of many of the planned reforms would have been dangerous for Putin's regime even in a relatively advantageous economic situation.

The first half of Putin's presidency in the meantime will end in March 2002. The political elite will begin preparations to the next presidential race. All of that means a situation highly unfavorable for unpopular decisions.

An economic crisis will aggravate all these problems enormously. Postponement or abolition of the reforms may become a political inevitability. From the short-term perspective, it will abate tension in the country. In the long-term one, it does not promise anything good for the country.

Every leader rules with a system of check and balances. It follows that discord and clannish battles within the presidential team are both inevitable and even healthy for the president. Unless the battles deteriorate into a war to the death, that is, a war to mutual destruction. When the president's men accuse one another of embezzlements and other crimes, it cannot help denting the president's own image. If the ministers are thieves who is the president then? We are already witnessing the first symptoms that something like that is happening to the presidential team.

Prosecutor General Vladimir Ustinov's reluctance to be in Moscow is the talk of the day in the political establishment. Ustinov apparently is prepared to do everything - from visiting the Kursk, or what remained of it, to attending Salman Raduyev's trial in Makhachkala - but be in Moscow. There may be lots of explanations to this sort of behavior of course but most experts ascribe it to Ustinov's disinclination to finding himself as the first victim of internal strife in Putin's team.

"State security officials" of the second echelon (from St. Petersburg, needless to say) are active in the Kremlin nowadays. First-echelon ministers like Sergei Ivanov have their hands full. They are too busy to be involved in the intrigues. But secondary officials are not - they are Deputy Director of the Federal Security Service Yuri Zaostrovtsev rumored to be close to Putin and the Kremlin's staff manager number one Viktor Ivanov. Some sources say the group also includes Igor Sechin of the presidential secretariat, Sergei Stepashin of the Auditing Chamber, and head of the Mezhprombank Sergei Pugachev (he is known to command respect in the Kremlin these days).

This group would balk at nothing to topple its opponents. It would not back at pressing criminal charges, for example. So far, all its efforts did not bring about expected results. The targets are facing charges or are in the focus of political scandals, but the attackers themselves have not been immune to certain recoil.

There is another danger Putin's team may encounter. State officials who are all right in periods of relative stability may turn out to be inadequate in emergencies.

THE LIST OF RISKS IS ACTUALLY LONGER. THERE IS THE PROBLEM OF CHECHNYA, FOR EXAMPLE. THE THREAT OF TERRORISM AND ISLAMIC FUNDAMENTALISM HAS BECOME EVEN MORE SERIOUS. PUTIN HAS YET TO PROVE THE CORRECTNESS OF HIS POLICY OF RAPPROCHEMENT WITH THE WEST. A GREAT DEAL OF RUSSIANS ARE APPREHENSIVE THAT EVERYTHING WILL ONCE AGAIN BE RESTRICTED TO UNILATERAL CONCESSIONS ON RUSSIA'S PART, THE WAY IT WAS IN THE TIME OF GORBACHEV AND YELTSIN. NEITHER SHALL WE - OR PUTIN - FORGET THE IMPEDING PROBLEM OF 2003... IN SHORT, THE NEXT TWELVE MONTHS OR SO ARE NOT GOING TO BE BORING.

(Translated by A. Ignatkin)

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