The Group of 20 (G-20) summit in Seoul last week was outstanding in its
intensity of divergences that this crisis-born institution sought to harmonize.
The unfortunate United States unilateralism in money-making and China's
shameless currency manipulation, the prudence of budget austerity and the need
in stimulating stalled growth, irreducible trade deficits and unenforceable
regulation of global finances - all these issues were furiously debated by the
leaders of world's major economic powers without any satisfactory resolution.
Russian President Dmitry Medvedev, however, had very little to say on any point
of that overloaded agenda.
Nor did Medvedev underestimate Russia's exposure to and vulnerability from the
volatility of the global economy, but it is
objectively difficult to decide what position in the multiple economic divides
would serve best diverging Russian interests.
For instance, Moscow has good reasons to object to weakening the US dollar as
it reduces the value of Russia's reserves. At the same time, the oversupply of
this currency due to the quantitative easing experiment of the Federal Reserve
System might create a new bubble on the global oil market - and this is exactly
what the Russian leadership needs for the delicate election period in
2011-2012.
Russia is not altogether satisfied with the central role of the G-20 in
managing the global economy since its privileges in the old Group of Eight
format are diluted. It has always been, however, an awkward outsider in that
smaller club of rich democracies, but now Moscow finds itself as a sick economy
also in the newly born BRIC (Brazil, Russia, India, China) organization, which
has agreed to accept South Africa as its fifth member.
From Seoul, Medvedev traveled to Yokohama for the Asia-Pacific Economic
Cooperation summit, and at this forum he had to deal not only with the fact of
Russia's poor involvement in these fast-growing trade and investment flows but
also with the embarrassing consequences of the diplomatic row with Japan over
his recent trip to the disputed island of Kunashir.
Russia's isolation in international summits, which continue in the coming weeks
with the North Atlantic Treaty Organization summit at Lisbon and the
Organization for Security and Cooperation in Europe summit in Astana, is caused
not so much by its deliberate parochialism as by the muddle in its economic
policy.
Medvedev's big idea of "modernization" has lost momentum and is reduced to
virtual construction of one innovation "wonder-village" in Skolkovo, near
Moscow, and no one expects inspirational resonance from the address to the
parliament that Medvedev is due to deliver later this month in a short "window"
between foreign trips.
The investment climate in Russia remains severely affected by bureaucratic
predation, so the authoritative "Doing Business" index published by the World
Bank this month downgraded it to the 123rd place among 183. The continuing
outflow of investment capital condemns Russia to slow growth in years to come,
and this "new norm" contrasts sharply with the exuberant prosperity of the
mid-2000s, as well as necessitating significant adjustments in the government's
spending habits.
Perhaps the most basic contradiction in Russian economic policy is the
imperative to increase tax on the oil-and-gas sector in order to keep the
budget deficit in check, which clashed with the need to invest more in the
"upstream" in order to sustain falling production.
Russia is positioning itself as an industrial state rather than as a raw
materials exporter in the international arena, but the main content of its
foreign policy is based on its energy contracts. Medvedev will negotiate in
Lisbon on anti-missile defense, which quite probably will never come into being
in Europe. Of far greater practical importance was Prime Minister Vladimir
Putin's visit to Sofia, where a deal on the South Stream pipeline to Bulgaria
was moved forward. The choice on investing in this hugely expensive pipeline or
on modernizing the gas infrastructure in Ukraine will be the crucial foreign
policy decision in 2011.
A prospect that Putin stubbornly refuses to take into account in making this
choice is the falling gross demand for gas in the European Union, which is
outlined in many directives, but Russian gas monopoly Gazprom still counts on
extra-high profits in this market.
The reality of shrinking petro-revenues is inevitably translated into the
proposition to reduce the social obligations of the state, but neither Putin
nor Medvedev is prepared as yet to spell out this message, preferring to
demonstrate kind attention to the dispossessed.
Evgeny Gontmakher, the most outspoken expert on social-economic issues,
predicts that after the 2011-2012 electoral extravaganzas, a "cold shower" of
cuts in budget allocation is sure to come. Many European states are now facing
the unpleasant prospect that their working classes will have to labor longer
and harder for less income, but in Russia this imperative has to be formulated
by the elites who are seriously compromised by their shameless corruption and
"how-to-spend-it" lifestyle. Indeed, even the doctored official statistics show
that in Russia the richest 10% earn 17 times more than the poorest 10%, while
in Kazakhstan this key indicator of social inequality is only 5.3 times.
Discontent with this hyper-concentration of wealth in the hands of self-serving
elites is growing and takes different forms, for instance the mobilization of
media of all persuasions behind the demand to investigate the brutal beating of
Kommersant journalist Oleg Kashin, which leads to further demands for greater
freedom of the press.
Medvedev is trying to win public support by demonstrating personal attention to
this investigation, but the impression is spoiled by the presence of Vladislav
Surkov, deputy head of his administration, who is directing media censorship
and controlling the activities of "patriotic" youth movements, at every
occasion where the president is presenting a "liberal" face.
Medvedev's membership in the cabal of masters of state power is too transparent
to make his quasi-democratic populism any more credible than his pretence for a
major presence at tough-talking summits. The time for economic free-riding has
passed, but Putin's Russia is still stuck in it.
Dr Pavel K Baev is a senior researcher at the International Peace
Research Institute, Oslo (PRIO).
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