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. Last Updated: 07/27/2016

Economy Rewards Putin for 100 Days




On the hundredth day, Prime Minister Vladimir Putin stopped to remember the economy.


Moscow's war against separatist Chechnya has practically consumed all Putin's time since parliament confirmed him as prime minister Aug. 16. Until Wednesday, that is, when he went before the State Duma to report on how the 1999 budget is being carried out.


And just as events on the battlefield have gone his way so far, luck is with Putin on the economic front.


Economic indicators point to modest growth and stability, he told the legislators. During his reign, pension and wage arrears have eased and some payouts have even increased. Tax collection has improved.


Even foreign investors say their confidence has recently been renewed by Putin's promises to personally address concerns such as shareholders' rights and high taxes.


Economic analysts, however, say that with the war raging in Russia's south, the economy is really on autopilot, and that the good things happening in Russia's economy are due less to policy than to forces the government cannot control - namely the sharp rise in oil prices from $12 to $26 a barrel and the aftereffects of last year's ruble devaluation.


"The Russian economy is like an ice skater. It's skating along, it's going pretty fast, it's got a lot of momentum and very little friction. ... You have to wonder what will happen when it hits thin ice or rough ice because no one is looking at what's ahead," said Ben Slay, an economist with PlanEcon emerging markets consultants in Washington.


And while economists like Slay say Putin's economic instincts may be good, his grip on the economy is weak. And analysts point to the forcible removal of Transneft chief Dmitry Savelyev in spite of Putin's wishes as proof that some sectors may be controlled by darker forces in the Cabinet.


His personal appearance in the State Duma, parliament's lower house, ran contrary to the recent government practice of sending ministers or deputy ministers as envoys to the Duma. And it was a fresh sign that, buoyed by his successful war, he may be trying to cut a more presidential figure.


Putin, whom President Boris Yeltsin anointed as his successor when he appointed him in August, said he would remain above politics.


But he said nonetheless that "as a citizen" he endorsed the Kremlin-backed Unity party, led by Emergency Situations Minister Sergei Shoigu, defending him against Duma critics who said - as Putin himself once did - that the minister should be punished for dabbling in politics.


"Shoigu is one of my closest friends, and I take a dim view of such provocations," Interfax quoted him as saying.


And the former spy-turned-provincial bureaucrat-turned-national political star tried to add one more role to his repertoire: master of national finances.


After bragging Tuesday to domestic manufacturers that "positive trends" in the Russian economy had now held for 14 months, a post-Soviet record, Putin arrived Wednesday at the Duma armed with statistics to show the economy was responding well to the touch of his government.


But even he conceded that much credit lay elsewhere - with previous governments, a relatively tight monetary policy followed by the Central Bank, oil prices, and a devalued ruble that favors domestic producers.


Gross national product was expected to rise as much as 2 percent for 1999 after last year's 4.6 percent drop, and inflation was holding at 31.5 percent, half of what was predicted.


He said industrial output had risen 7.5 percent in the first nine months of this year, and a foreign trade surplus of $21.2 billion had accumulated for the first time, Interfax reported.


None of these positive changes has appeared "just by itself," Interfax quoted Putin as saying. "This is the result of the sharp devaluation of the ruble and of import substitution - when people buy fewer imports, since imports are more expensive. This also resulted from oil prices that, thank God, have continued to rise."


Vladimir Mau, director of Yegor Gaidar's Working Center for Economic Reform, praised Putin's hands-off fiscal approach, saying the difference between neglect and judicious laissez-faire was a matter of definition.


"Since the economy is growing, especially industry, and the currency is stable, it means a government policy exists," Mau said.


Positive signs on the bleak landscape of foreign investment have appeared in recent days as well. The liquidation of Sidanko subsidiary Chernogorneft, loudly protested by 10 percent Sidanko owner BP Amoco, was held up Tuesday by a Siberian court.


And Putin, at a recent meeting with foreign investors, promised he would take their concerns - including customs, tax, and shareholder rights issues - under his personal control.


"If we saw a series of things like [the Chernogorneft decision] that look like a reversal of the decline in investor protection, then we could say something is being done," said Edwin Dolan, president of the American Institute of Business and Economics in Moscow.


But Mau and other analysts said the impending power transfers - both in parliament after Dec. 19 elections and in the Kremlin next summer - were preventing the structural reforms that foreign investors are crying for.


"If the government and the Central Bank had been using this opportunity wisely, they would have been restructuring the banking system and improving corporate governance," Slay of PlanEcon said. "But that's not the priority. The priority is keeping Yeltsin in power or getting Putin elected or something - I don't know. Just not economics."


"There is benign neglect on the fiscal side and malevolent political diversion on the real side," Slay added, referring to ongoing rumors that First Deputy Prime Minister Nikolai Aksyonenko, charged with overseeing industry and infrastructure, was gathering cash flows under his control to promote the political interests of Kremlin insiders.


And Peter Westin of the Russian European Center for Economic Policy warned that one positive trend - increased social sector payouts - could increase pressure on the ruble if federal authorities wished to curry favor with the electorate by boosting payouts.


Currency traders have already speculated that the Central Bank has been printing money to finance Putin's baby, the war in Chechnya. Another scenario, Westin added, is that the war will siphon off budget money if it drags out.


Ultimately, Slay said the economy was a "throwaway issue" for the prime minister.


"If Putin wants to be president, he believes he needs a successful war in Chechnya. That is going well politically," he said. "But I see so many worrying signs of overall economic policy and political trends that it's hard to make a really happy picture. How are we going to have rule of law in a country that is indiscriminately slaughtering its citizens?"


Once widely described as his chief competitor for power in the Cabinet, First Deputy Prime Minister Nikolai Aksyonenko, in charge of infrastructure and industry, praised Putin's record.


"Industry did not always register such growth in the past," Aksyonenko was quoted as saying by Itar-Tass. These are "very serious statistics."