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Putin calls for G20 to take lead in global affairs, makes more concessions to protestors
- JRL 2012-112

Russian President Vladimir Putin has just finished speaking at the St Petersburg International Economic Forum. It was an aggressive speech on international issues, while offering concessions on the domestic front, and also repeated the call for transforming Russian economy and moving it up the World Bank's "Doing Business" ranking to become one of the "best" places to do business in the world.

G20 Mexico 2012 Logo
He kicked off by reiterating a dig at the traditional world leaders and called for the G20 to take the lead in global affairs.

Putin has made steady progress away from wanting to cooperate with the West: he was the first leader to reach out to then-president George W. Bush in 2003 after the 9/11 attack and was genuinely interested in becoming a
partner. However, he was rebuffed at every turn and relations got steadily worse. A speech in Munich in 2007, where he warned the West that Russia was losing its patience, could be taken as the start of a process that
culminated today with a speech openly calling for the G8 to step aside and for the G20, which includes the traditional leaders but also the rising ones in the BRICS and their peers, to become the top international body.

To highlight the point, he emphasised the chaos that reigns in Europe and also had a sideways swipe at the "country that issues the currency held as a world reserve currency."

It was this theme of stability and instability that peppered the section on international relations, with Putin drawing a clear line between the "stable" countries (ie. his BRIC peers) and the "unstable" ones (the West).

Specifically, he said the BRICS were going to contribute $75bn to the IMF (and Russia $10bn), but they should have more say in the organisation if they do.

Later in the speech, he said that Russia was willing to invite foreign investment, "even into our strategic sectors," but that for this investment to happen it must be a mutual deal. "Russian companies that wanted to invest in other countries have faced a wall and seen artificial pretexts that prevented this investment, " said Putin. "This is far from being a partnership."

All this marks Russia's steady decay in relations with the "international community" while it becomes increasingly aggressive in asserting its interests, leading some to start talking about the return of the Cold War ­ which only highlights the bad relations and the lack of understanding there is on both sides.

Putin also stressed the need for "accountability", which was an implicit dig at the poor governance in the US that brought the global economy to its knees. "We must end the petty populism of the politicians and the
unrestrained fiscal speculation, as it is dangerous," said Putin, laying the blame for the world's crisis and its inability to emerge from it on the US.

Putin then moved on to cover the domestic agenda and rattled off the economic achievements of the last years that included 20-year low inflation and unemployment rates.

However, he made the interesting point that one of the reasons unemployment is so low (5.4%) is because existing capacity in the economy has been exhausted. This means Russia needs heavy investment to create new jobs ­ and specifically Russia is targeting hi-tech sectors. Again he reeled off previous promises to boost the share of hi-tech industry in the economy from the current 20% of GDP to 27% by 2018, as well as move Russia up the World Bank's "Doing Business" index. It is becoming increasingly likely that effort will be made to achieve this last item, as he then rattled off a list of changes­ which also happen to be the individual factors that go into making up this index ­ that need to be made to lift Russia up from 120th spot in 2012 to 20th place.

There is a bit of game playing here, as even Belarus has moved up the ranking: you can target the factors that the list is calculated on and so dramatically improve your score without actually making a big difference to doing business on the ground, but at least if Russia does pull off a fast rise in the ranking, it will be pretty much the first time the Kremlin has attempted to some PR on the investment climate front, which in itself is progress. Former regional governor Boris Titov has also been appointed a ombudsman for business and will be tasked with making sure doing business in Russia gets easier.

More radically, Putin promised there will be a new budget rule "soon" that will prevent the budget from being set on the basis of the oil price forecast. Currently, if oil rises, the Duma has more money to spend. But Putin suggested that the price of oil will be capped and said any "windfall" revenues from higher oil will be channelled into the various reserve funds.

The key question here is what level the price will be capped at. Only last week, chief strategist at Citigroup Kingsmill Bond called for Russia to cap the oil price prediction in the budget at $80, which would ensure the budget was run on a more stable basis.

Finally, Putin made some concessions to the opposition movement, which has been holding demonstrations since December. He committed himself again to the need for developing civil society in Russia.

"We have seen a civil society start to emerge in Russia and this is due to a decade of growth. This is healthy and we understand that a mature economy can't become a developed country without a civil society. The state must
move towards this so that we have not only a legitimate government, but also one the people trust. Minority interests must be respected and accommodated where it is possible," said Putin.

At face value this is very liberal and flies in the face of the constant carping that Russia is repressive, but the issue is one of the pace of change and Putin has always said he will go slowly and wants to remain in charge of the process. He went on to warn that any change must be done "within the framework of the law," where the Kremlin holds all the cards.

However, in a surprise move he announced that any Russian citizen who collects over 100,000 "authorised" signatures can now propose a law that will have to be considered by the (Kremlin-controlled) Duma. Although this iniatiative will probably not lead to a lot of change, it does provide the nascent opposition with a real tool to propose policy and laws, and I guess the Kremlin's intention is not to allow citizens to make law, but to create a channel of input from the public and take elements of these suggestions on. It is more carrot to allay some of the people's anger, but is more than matched by the bigger stick the Kremlin has recently given itself in the form of a new law on holding demonstrations.

All in all, this was a confident speech and stands in dramatic contrast to the bumbling speech the president gave at the start of the year at the Troika Dialog/Sberbank conference, where many of these ideas were first sketched out. Putin looked confident and on top of his brief. As always the rhetoric is fine, but we end up waiting for the implementation to happen as advertised. On moving up the World Bank ranking, we are confident that this will happen. On the promise to get the state out of the economy through open and transparent privatisations, we are less confident. But as ever, Russia will continue to make its bumbling way forwards.

Keywords: Russia, Economy, G20 - Russia, Government, Politics - Russian News - Russia

Russian President Vladimir Putin has just finished speaking at the St Petersburg International Economic Forum. It was an aggressive speech on international issues, while offering concessions on the domestic front, and also repeated the call for transforming Russian economy and moving it up the World Bank's "Doing Business" ranking to become one of the "best" places to do business in the world.

G20 Mexico 2012 Logo
He kicked off by reiterating a dig at the traditional world leaders and called for the G20 to take the lead in global affairs.

Putin has made steady progress away from wanting to cooperate with the West: he was the first leader to reach out to then-president George W. Bush in 2003 after the 9/11 attack and was genuinely interested in becoming a
partner. However, he was rebuffed at every turn and relations got steadily worse. A speech in Munich in 2007, where he warned the West that Russia was losing its patience, could be taken as the start of a process that
culminated today with a speech openly calling for the G8 to step aside and for the G20, which includes the traditional leaders but also the rising ones in the BRICS and their peers, to become the top international body.

To highlight the point, he emphasised the chaos that reigns in Europe and also had a sideways swipe at the "country that issues the currency held as a world reserve currency."

It was this theme of stability and instability that peppered the section on international relations, with Putin drawing a clear line between the "stable" countries (ie. his BRIC peers) and the "unstable" ones (the West).

Specifically, he said the BRICS were going to contribute $75bn to the IMF (and Russia $10bn), but they should have more say in the organisation if they do.

Later in the speech, he said that Russia was willing to invite foreign investment, "even into our strategic sectors," but that for this investment to happen it must be a mutual deal. "Russian companies that wanted to invest in other countries have faced a wall and seen artificial pretexts that prevented this investment, " said Putin. "This is far from being a partnership."

All this marks Russia's steady decay in relations with the "international community" while it becomes increasingly aggressive in asserting its interests, leading some to start talking about the return of the Cold War ­ which only highlights the bad relations and the lack of understanding there is on both sides.

Putin also stressed the need for "accountability", which was an implicit dig at the poor governance in the US that brought the global economy to its knees. "We must end the petty populism of the politicians and the
unrestrained fiscal speculation, as it is dangerous," said Putin, laying the blame for the world's crisis and its inability to emerge from it on the US.

Putin then moved on to cover the domestic agenda and rattled off the economic achievements of the last years that included 20-year low inflation and unemployment rates.

However, he made the interesting point that one of the reasons unemployment is so low (5.4%) is because existing capacity in the economy has been exhausted. This means Russia needs heavy investment to create new jobs ­ and specifically Russia is targeting hi-tech sectors. Again he reeled off previous promises to boost the share of hi-tech industry in the economy from the current 20% of GDP to 27% by 2018, as well as move Russia up the World Bank's "Doing Business" index. It is becoming increasingly likely that effort will be made to achieve this last item, as he then rattled off a list of changes­ which also happen to be the individual factors that go into making up this index ­ that need to be made to lift Russia up from 120th spot in 2012 to 20th place.

There is a bit of game playing here, as even Belarus has moved up the ranking: you can target the factors that the list is calculated on and so dramatically improve your score without actually making a big difference to doing business on the ground, but at least if Russia does pull off a fast rise in the ranking, it will be pretty much the first time the Kremlin has attempted to some PR on the investment climate front, which in itself is progress. Former regional governor Boris Titov has also been appointed a ombudsman for business and will be tasked with making sure doing business in Russia gets easier.

More radically, Putin promised there will be a new budget rule "soon" that will prevent the budget from being set on the basis of the oil price forecast. Currently, if oil rises, the Duma has more money to spend. But Putin suggested that the price of oil will be capped and said any "windfall" revenues from higher oil will be channelled into the various reserve funds.

The key question here is what level the price will be capped at. Only last week, chief strategist at Citigroup Kingsmill Bond called for Russia to cap the oil price prediction in the budget at $80, which would ensure the budget was run on a more stable basis.

Finally, Putin made some concessions to the opposition movement, which has been holding demonstrations since December. He committed himself again to the need for developing civil society in Russia.

"We have seen a civil society start to emerge in Russia and this is due to a decade of growth. This is healthy and we understand that a mature economy can't become a developed country without a civil society. The state must
move towards this so that we have not only a legitimate government, but also one the people trust. Minority interests must be respected and accommodated where it is possible," said Putin.

At face value this is very liberal and flies in the face of the constant carping that Russia is repressive, but the issue is one of the pace of change and Putin has always said he will go slowly and wants to remain in charge of the process. He went on to warn that any change must be done "within the framework of the law," where the Kremlin holds all the cards.

However, in a surprise move he announced that any Russian citizen who collects over 100,000 "authorised" signatures can now propose a law that will have to be considered by the (Kremlin-controlled) Duma. Although this iniatiative will probably not lead to a lot of change, it does provide the nascent opposition with a real tool to propose policy and laws, and I guess the Kremlin's intention is not to allow citizens to make law, but to create a channel of input from the public and take elements of these suggestions on. It is more carrot to allay some of the people's anger, but is more than matched by the bigger stick the Kremlin has recently given itself in the form of a new law on holding demonstrations.

All in all, this was a confident speech and stands in dramatic contrast to the bumbling speech the president gave at the start of the year at the Troika Dialog/Sberbank conference, where many of these ideas were first sketched out. Putin looked confident and on top of his brief. As always the rhetoric is fine, but we end up waiting for the implementation to happen as advertised. On moving up the World Bank ranking, we are confident that this will happen. On the promise to get the state out of the economy through open and transparent privatisations, we are less confident. But as ever, Russia will continue to make its bumbling way forwards.


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