Pomeranz: Putin’s weakness at home could affect his ambitions abroad

With President Vladimir Putin increasing his country’s involvement in the Syrian conflict, one of America’s leading experts on the former Soviet state is arguing that Russia’s festering problems at home could affect the Russian President’s grand ambitions abroad.  

The expert is William Pomeranz, who serves as the Deputy Director of the Kennan Institute for Advanced Russian Studies of the Woodrow Wilson Center in Washington, D.C. Writing in the latest edition of the centrist policy journal, The Ripon Forum, Pomeranz argues that Putin faces a range of domestic challenges that are becoming impossible to ignore. Perhaps the most pressing of these challenges is an ailing economy.

“What ails the Russian economy?” Pomeranz asks in his essay, which was published last month. “Take your pick. Up until now, Putin has always made sure that pensions keep pace with inflation and are paid in full.   Now, because of the collapse in the price of oil and deep recession, that type of money is simply not available. Putin risks alienating Russian pensioners – perhaps his most loyal group of supporters – by no longer providing pensions that are linked to the rate of inflation … The list of problems goes on.   The car market was down 30 percent in June, while mortgage lending was down 40 percent during the first five months of 2015. Both reflect a dramatic decline in domestic investment, manufacturing, and consumer demand.   Most analysts anticipate at least a 3 percent decrease in GDP in 2015, and the final number may be worse.”

 “Indeed, one has to look hard to find bright spots in the Russian economy. At the St. Petersburg Economic Forum, Putin touted the rise in domestic cheese, butter, and other dairy production, but this increase only occurred because of the food counter-sanctions imposed by Putin in 2014 against western agricultural products. Indeed, Putin has introduced a program of import substitution that sacrifices the principle of comparative advantage – the bulwark of the post-WWII system of international trade – and instead relies on Soviet-style notions of self-sufficiency. Individually, the above economic problems are not necessarily fatal to the regime, especially since Putin faces no serious political challengers. Nevertheless, a toxic mixture of factors – inflation, declining pensions, a weakening currency, failing regional governments – is currently brewing that could boil over at any time.”

Despite these many economic problems, Pomeranz – who also teaches Russian law at Georgetown and practiced international law in Moscow before joining the Kennan Institute – writes that Putin remains unbowed.

“Is this hubris, or does he truly believe that time is on his side?” Pomeranz asks. “He still is sitting on approximately $350 billion in hard currency reserves to throw at these problems. Those reserves, however, are down significantly from the start of the crisis and will be tapped again to cover the anticipated 2015 budget deficit.   He also is a firm believer that what goes down must go up. So there is always the possibility that the price of oil will recover, thereby creating a significantly sunnier economic outlook.”

“The Ukraine crisis presents other opportunities for Putin as well. The extension of EU sanctions requires unanimity, and he will no doubt continue to sow divisions within Europe to possibly overturn the present sanctions regime when it is next considered in January 2016. Putin would love nothing more than to break the united front between the EU and the United States, and this remains a real possibility the longer the crisis drags on.

“Yet to achieve this goal, Russia essentially has been put on a wartime footing. The anti-U.S. rhetoric in the Russian media is pervasive and unrelenting. Military spending remains one of the few areas not subject to budget cuts. The new law on ‘undesirable’ foreign organizations makes it significantly easier to go after the domestic opposition (what little is left of it). Even the import substitution policy is driven by national security concerns and the need for Russia to be free of any dependency on foreign technology and products. Putin can’t back down from any of these policies without losing face and considerable political leverage, so in the short-term, Putin appears unlikely to change course…

“The problem is that as Putin plays for time, time is also working against him, especially on the economic front. And therein lies his dilemma.”