Putin's Russia: resurgent nation

SCMP June 17


Even by its own unsurpassed standards of 20th century misery - war, revolution and Stalinist purges - the last decade of the 20th century was a dismal one for Russians. While the US was riding high on military supremacy and technological euphoria, its former rival collapsed, its empire gone, its social structure in tatters, its people impoverished.

But as the first decade of the 21st century gets into its stride, we may be witnessing a reversal of roles. No, the US is not going to collapse like the Soviet system, the Russian empire is not about to be restored and Russians will not be as rich as Germans by 2010. However, the tide may have turned for Russia as well as the US.

The US looks likely to have several years of adjusting to the consumer and corporate excesses of the past decade. Its budget and its alliances could also be stretched to breaking point by the imperialist and unilateralist attitudes of the Bush Jr administration. Russia meanwhile is beginning to show a coherence in both economic and foreign policy not see since the days of Mr Kruschev.

Short visits can be misleading, but having just been back to Russia for the first time since 1996, I was struck not just by the improved appearance of the place but by the return of a degree of optimism. The post-Soviet system is no longer just a collection of robber baron fiefdoms but is beginning to work for Russians as a whole.

For sure, huge problems remain. Corrupt oligopolies still dominate large tracts of the economy. Provincial bosses still thwart Moscow. Law is often a marketable commodity and order is still tenuous in some places. Chechnya is an unresolved tragedy and relations with other ethnic minorities, Muslim ones especially, fragile. Bureaucratic ways inherited from the Communist era are still entrenched. Exasperated foreigners get a resigned "this is Russia" shrug when they complain about procedures which make India seem efficient. Investors face a host of obstacles and special interests, not to mention some lingering Marxist views of private capital which have been re-enforced by the behaviour of the robber barons.

But generally things are getting better. The economy has grown an average 6% a year since its nadir in 1998, the flight of capital has slowed dramatically, the rouble has become quite stable, government finances are much improved and more locally made consumer goods are available. Even Aeroflot has acquire a reputation for punctuality which puts many foreign carriers to shame.

Some of this may be attributable transient factors -- better oil prices, the beneficial impact of the 1998 devaluation, and a natural bounce from the late 90s nadir. The World Bank warns that unless market-oriented and institutional reforms continue growth could slip back to 2%. On the other hand, reforms could boost it to a sustainable 6% as Russia catches up with Europe in the same way as poor southern Europe caught up with rich northern Europe under the stimulus of EU trade and investment.

Indeed President Putin appears to be giving priority to long term economic goals. He has accepted with barely a murmur the US military presence in the former Soviet central Asian nations, which Moscow would still like to think of as client states. He has made only mild verbal protests against US abrogation of the Anti-Ballistic Missile Treaty. He has had to suffer Washington's Israeli inspired attempts to dictate Russia's policies towards its major Muslim neigbour, Iran. He has accepted the westward expansion of NATO and the EU to those now thriving little bits of the Soviet empire, the Baltic states.

These are widely regarded as humiliations by Russians - and not just the surviving Communists and the military. However, Putin has for now accomplished enough on the home front, reviving the economy, paying pensions, improving law and order situation, that he can withstand critics of foreign policy. Even though Russians feel he has given away too much to the West, they take comfort in the fact that Russia has a younger leader than China, and a patently more coherent and intelligent one than America.

Putin appears a realist as well as a strategic thinker. He knows that Russia can merely obstruct, not prevent, the developments in central Asia and eastern Europe. He may even be happy that the US has taken on itself part of the thankless the task of dealing with Muslim fundamentalism in central Asia. At the same time Putin hopes that cooperation will deliver benefits which help the Russian economy sustain its modernisation, and so ensure his own political survival.

There is a long way to go. Investment inflow is still weak. Russians still prefer the safety of Swiss banks and Cyprus companies to domestic ones. However, at home the government has shown intelligence in moving to a new now, flat tax system aimed at encouraging investment and stabilising revenue.

Overseas his policies have been rewarded by recent acknowledgement by the EU and US that Russia is now a market economy. That may not sound much but it is a major step forward towards joining the World Trade Organisation and meanwhile will provide Russian exporters with a little more protection against anti-dumping measures in those markets.

There will be much resistance in Russia, as in China, to trade liberalisation particularly as it effects such middle technology industries as autos. Meanwhile, access problems will make it difficult for Russia, even assuming it makes the necessary new investments, to regain its pre-revolution position as a food exporter. Foreign investment in Russia remains minute compared with China.

Nonetheless, there has been a surge of western interest and with its huge supply of skilled people. Russia is an attractive market particularly for service industries which were neglected under the Soviets but now face fewer obstacles from entrenched interests. Foreign investment in natural resources has been slow to take off due to the difficulties of dealing either with the Russian oil and metal giants, or local interests more interested in quick rewards for themselves than in establishing viable enterprises.

But again, things are changing. Some of the oil companies have acquired new, modern management. Some local bosses have realised that attracting investment and jobs has political rewards. Whether Russia can finally make the transition to a market economy integrated with the west and the world, as former satellites such as Poland have almost done, remains to be seen. It lacks any equivalent of the overseas Chinese whose capital and trade links began China's post-Mao surge.

On the other hand, Europe is not so far away and memories of past western inspired modernisations - such as those of Peter the Great - are deeply embedded. Whether or not this transition happens, it is no longer a pipe-dream. It is a real possibility.

Events will certainly be watched closely by China, which cannot be entirely pleased by the extent of the Russian rapprochement with NATO. The recent summit in St Petersburg of the Shanghai Cooperation Organisation, the group linking China to Russia and the central Asian states, was clearly hard pressed to find new common ground.

Russia and China are united in worrying about Muslim fundamentalism in central Asia. They are united in resenting what they see as US hegemonism. They have some mutual interests in developing trade, especially in natural resources. And for now at least Russia is happy to make money selling advanced planes and submarines which increase Beijing's military threat to Taiwan. But an economically revived Russia with closer ties to Europe, if not to the US, close links with India and more able to secure its Far East territories may not be seen as in China's best long term interest.

China offers a big potential market for central Asian states, but a revived Russia will through its minorities and the Soviet era rail and pipeline systems easily outweigh Chinese influence in central Asia. China benefited immensely from the period when Russia was enemy of the west, then from the period of Soviet collapse. So it has reason to be concerned with the reversal of these factors. It would be more so were the Japanese and Russians able to put the past behind them and look to their future mutual interests.

In short, Russia is no longer an ogre, no longer a joke. It is a middle power just beginning to reclaim some of the influence that an educated, industrialised, nuclear-armed country stretching from the Bering to the Baltic and Black seas would normally expect. Ends

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