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. Last Updated: 07/27/2016

Putin's Mission Impossible

Last week marked the halfway point in President Vladimir Putin's first term. Putin continues to enjoy high poll ratings, a submissive parliament and a reputation as the strong hand on the tiller of state. But will that be enough to earn him a second term?

Russia has seen dramatic changes during Putin's first two years, but no real reform.

You get the impression that the president set himself a very modest task: to finish building Boris Yeltsin's Russia just as it was in the blueprints. A Russia with the same old Gazprom -- though Gazprom executives now snap up everything in sight for the president's benefit, not for themselves. A Russia with the same old oligarchs -- though the oligarchs shouldn't think about themselves all the time and should respect authority, expressing this respect by donating huge sums of money.

One of the authorities' main problems is the shortage of good people. Honest bureaucrats are either indecisive or isolated. The authorities fear strong individuals. They require only loyalty, and loyalty is often a synonym for incompetence.

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The standoff between the Yeltsin-era "family" and the new blood from St. Petersburg has turned into a standoff between incompetent clerks and talented con artists. The oligarchs are the sort of people who will survive under any regime, unless they're taken out at short range. Most of the members of Putin's inner circle are not needed by anyone but the president and are ill-equipped for independent existence.

These people are appointed according to a simple principle. Like the Saracen soldiers assigned to guard Frederick Barbarossa, they are strangers in their own land and in this business environment. And for that reason they will fight all the harder to preserve the power of those who made them what they are today.

Two years without reform is a long time.

Eighteenth-century England could let two, 10 or 100 years slip by in internecine feudal strife. But feudal wars over industrial infrastructure are something else entirely. Russian oligarchs can't invest in upgrading their fixed assets because investments in bureaucrats deliver solid profits, while money sunk into fixed assets drains a company's resources and makes its enterprises attractive targets for acquisition. Natural monopolies are even less likely to invest in fixed assets; in theory they should furnish financial support for the Kremlin, but in fact they're more often stripped by their own managers.

Our industrial equipment has depreciated by an average of more than 80 percent -- soon pipelines will start to burst and factories grind to a halt.

Fifteen companies control 80 percent of Russian exports. As the crisis approaches, they will start to ask the government for help. Without it, they won't survive. In order to bail out the industrialists, the government will begin to borrow money in the West and sell off the Central Bank's gold and cash reserves. When those reserves are exhausted we will face an economic crisis that will make the August 1998 financial crisis seem like a walk in the park. The 1998 crisis was in essence a barbaric surgical operation to eliminate the pathological growths in our economy -- by this I mean the banking system, GKOs and the exchange-rate corridor. The new crisis will be the result of a general collapse in the country's industrial infrastructure.

By that point, the names of our industrial oligarchs will probably be long forgotten, just as today we have forgotten the names of the once-mighty bankers Alexander Smolensky and Vladimir Vinogradov.

And after that crisis the government will have no choice but to sell off our remaining industries to foreigners piecemeal and for a song.

Will the infuriated, impoverished people stand for the auctioning off of the motherland? Or will political outsiders, denied a place at the trough, finally stir the people to a new Pugachyov rebellion?

Putin is doing the predictable thing, but to save Russia will require him to do the impossible.

Yulia Latynina is a journalist with ORT.