Putin bets Russian economy on Ukraine – POLITICO

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MOSCOW – War jitters are rocking the Russian economy. The stock market is in danger of collapsing, taking the ruble with it.

And this is in addition to soaring prices and wages that are not budging.

However, none of this has stopped Russian President Vladimir Putin. Moscow is preparing for it.

On the contrary, the Kremlin’s rhetoric suggests that it is ready to sacrifice the economy on the altar of Putin’s ambition to redesign the security infrastructure in place since the end of the Cold War, by massing troops at the Ukrainian border and risking war along the way.

There are reasons the math might hold – at least for now. Despite years of sanctions and a pandemic, the Russian economy is better equipped than many to survive a crisis, even if it is self-made. Meanwhile, there is little Putin has to fear at home. The political opposition has been cowered and forced into virtual silence, even as average Russians lament the disappearance of their paychecks.

“Foreign policy is more important to Putin than the economic consequences,” Sergei Guriev, former chief economist at the European Bank for Reconstruction and Development, now a professor at Sciences Po, told POLITICO.

“In democracies, such decisions have a political price,” he added. “In Russia, Putin is not afraid of public discontent. The opposition has been crushed and he believes propaganda and censorship will keep people from knowing how bad things are.

Russia has been here before.

After the country annexed Crimea to Ukraine in 2014, the West imposed sanctions on Russia, sending the ruble plummeting. Compounded by more sanctions over election interference, fluctuating oil prices and a pandemic, the ruble never recovered.

The fallout has challenged Putin’s longstanding rhetoric to Russians: better living conditions even as political freedoms are curtailed.

He offered them something else instead: the dream of a resurgent Russian empire.

“Putin has started to believe in his historic mission, that the Russians are beholden to him and should delegate all responsibility,” said Tatiana Stanovaya, founder of consultancy R.Politik. “In Putin’s mind, if he goes to war with Ukraine, it’s his personal business and a matter of Russian survival.”

Putin conveyed this belligerent narrative on Wednesday, Following a remarkable week-long silence on the Ukraine crisis during a videoconference with Russian athletes en route to the Beijing Winter Olympics.

“Russians are not afraid of difficulties,” he said. “They always make us stronger, more united and more confident.”

Putin has reason to be confident. Russia has become more financially prepared than it was in 2014 for external economic blows, perhaps bolstering leaders’ confidence in their ability to weather the next storm.

“Oil prices are high and the macroeconomic situation in Russia has no big problems; the budget is balanced,” said Guriev, the former economist.

Additionally, Russia has a sovereign wealth fund of nearly $200 billion, which it could tap into to help stabilize the economy.

“There is inflation, but it should be noted that Russia has a huge advantage over many other countries: if it raises interest rates, it will have no problems repaying its sovereign debt,” Guriev said.

The day-to-day reality for most Russian households, however, is less rosy.

For nearly a decade, real incomes have stagnated. Some of the pain has been numbed by the increased borrowing – but the cracks are showing.

“When will our salary be indexed? When can I buy a television, not with a loan, but in cash? “,” said a young woman on TikTok in an emotional and profanity message circulating on social media. “Soon I will have to take out a loan just to buy bread, because my salary evaporates the day it appears in my bank account.”

In an independent poll, more than 40% of respondents rated Russia’s economic situation as “bad” or “very bad”. Since the beginning of the year, the media and social networks have been inundated with price comparisons.

The general conclusion: for many Russians, personal inflation is well above the official rate of 8% announced by Finance Minister Anton Siluanov at the end of last year.

Always listening, even from his prison cell, the figurehead of the opposition Alexei Navalny contributed his two cents.

In the prison store where he is taken twice a month, “I look at the counter with the same desperate horror that any pensioner feels while shopping,” reads his Instagram account. “First, canned cooked meat became a luxury, its price having increased from 140 rubles to 250 (79%). I haven’t bought it for a long time, and I assure you that a pensioner will be able to eat potatoes and stew once a month at most.

Cheese, he added, is becoming “the food of the oligarchs”.

So even if the current standoff does not translate into a costly war with Ukraine, the volatility is already putting pressure on the Russian economy.

And tougher new sanctions, which could involve cutting Russia off from the SWIFT international financial payments system and targeting its banks, would present the country with an unprecedented challenge.

Even with the buffers in place, “it will still be very unpleasant and it will drive the rouble down,” said Guriev, a staunch Navalny supporter. “It’s something the Russian population will feel all too well.”

And why, many Russians will wonder?

Unlike the annexation of Crimea in 2014, supported by a majority of Russians, the polls do not show enthusiasm for an outright conflict with Ukraine. And yet, there is little or no public questioning of the Kremlin line.

After a particularly repressive 2021, the Russian opposition has been decimated. Other than the odd social media post, there’s not much Navalny can do from jail. His entire network has been labeled extremist, while other critics, including journalists, have been called “foreign agents”.

All civic activity is dangerous ground. Earlier this month, organizers of a protest against rising prices in Tuva, a region bordering Mongolia that regularly ranks among Russia’s poorest, received a warning for “extremism”.

As a result, even among those who distrust the state media narrative of Ukraine as a puppet state and NATO as an aggressor, political apathy reigns.

“There is little awareness of the situation,” said Greg Yudin, a sociologist. “People, in general, are trying to get away from this topic.”

This has left the impression that Russia’s military adventurism is gratuitous.

Viktoria, a 30-year-old hairdresser in Moscow, confessed that she had not heard of the threat of war.

“You have to give Putin credit for being able to protect his citizens from everything that’s happening on the world stage,” she said.

Like many Russians, she didn’t think she would go to war. But if so, she felt she had no right to criticize Moscow, “the hand that feeds me.”

For a long time, this seems to have guided the thinking of Russian elites as well, who amassed enormous wealth under Putin’s patronage.

Now their loyalty will be tested as they see their assets held hostage by the geopolitical ambition of their president.

“Technocrats and the business elite are shocked and desperate. But they have been denied the right to even raise geopolitical concerns, let alone have a dialogue, at the risk of being suspected of being disloyal or unpatriotic,” said Stanovaya, of R. Politik.

“The best strategy is to be silent, to be invisible and to adapt to whatever happens.”

Only one group has everything to gain from the current impasse: the warmongers siloviki, Putin’s allies in the military and security services. “If Russia sees a new wave of confrontation, its influence will increase,” Stanovaya said.

The information they will convey to the Russian President is simple: it is not a question of knowing if, but when, Russia will be hit with draconian sanctions for one reason or another.

“So it would be better if Russia did what it wants regarding its foreign policy without wasting time,” Stanovaya said. “And prepare for the tough times – whatever the cost.”

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