Russia's Response to Crisis: The Paradox of Success

Abstract

Russia's recovery from the deep economic crisis it experienced in 2008–2009 did not deliver clear political dividends for the Russian leadership. This is because of the context in which the crisis occurred and the way that the leadership, particularly President Medvedev, and many of its critics described the crisis. The oil-fuelled boom that preceded the crisis had the effect of deepening it. Economic recovery based on rising energy prices looks like a failure, rather than a success, and highlights the underlying structural problems of the Russian economy. Arguments about the need for modernisation from within government exacerbated this perception. This seems to have weakened the connection between approval for the leadership and economic growth, a staple of pre-crisis politics.

Notes

¹ For longer discussion of the boom and its bases see Ahrend (2006), Hanson (2007), Robinson (2007) and Rutland (2008). On oil and growth see also Gurvich et al. (2009) and IEPP (2010, pp. 170–74).

² For a fuller review see Gaddy and Ickes (2010).

 ³ External debt fell from the equivalent of 90% of GDP in 1999 to about 12% at the end of 2005. In June 2006, Russia announced that it would clear its remaining $22 billion debt to the Paris Club and pay an early repayment fee of $1 billion (Robinson 2009, p. 444).

 ⁴ On these funds see Kudrin (2006), Gurvich (2006) and Dmitrieva (2006).

 ⁵ Gurvich et al.'s (2009) calculations point to pro-cyclical budgets even before the immediate run-up to the crisis because of the strength of the relationship between the budget deficit/surplus, GDP growth and oil revenues. The effect of Stabilization Fund savings and the efforts made at limiting the amount of oil revenues spent were therefore imperfect as means for controlling the commodity boom.

 ⁶ On this see Connolly (2009, p. 4); see also Kudrin (2009, p. 16).

 ⁷ As Gaddy and Ickes (2010, p. 300) point out, the limited opportunity for foreigners to invest in energy sectors meant that the inflow of foreign capital could not help to revitalise the very sector that Russia derived rent from—an unintended irony of Putin's hydrocarbon economic nationalism.

 ⁸ Oil, electricity and metal producers accounted for 74% of market capitalisation, most of this concentrated in large firms, on both Russia's exchanges, MMVB and RTS. See Malle (2009, p. 31).

 ⁹ Figures calculated from surveys according to International Labour Organization guidelines. Russian employment survey figures are a little different but show the same trends. Unemployment rose from 5.8% to 6.1% of the working-age population between 2007 and 2008, but then went up to 7.8% in 2009 before falling to 7% in 2010 (Rosstat 2011a).

¹⁰ There are cases where self-interest is more important than sociotropic voting, but in Russia the two seem to track one another closely and sociotropic voting has been a stronger predictor than narrow self-interest.

¹¹ See, for example, IEPP (2010), GU-VES (2009) and Akindova et al. (2011), for Russian literature on the subject. For Western analyses see Desai (2010), Hanson (2011) and Robinson (2011).

¹² See also Nemtsov and Milov (2009) and Robinson (2011).

¹³ Of course, there were platitudes about defending the financial system and the currency.

¹⁴ Author interview with a mid-ranking Ministry of Finance official, Moscow, 7 April 2011.

¹⁵ There is an academic literature that does the same thing; see Babkin (2009) and Diskin (2009), for example.

¹⁶ For some of the counterarguments to the Medvedev/INSOR line see Feklyunina and White (2011, pp. 398–401). Many of these counterarguments shared the initial assumption of Medvedev that there needed to be change in the political system to deal with both the immediate and the deeper crisis.

¹⁷ See Aris (2011) for an example of media commentary about a coming new crisis. For official doubts about the future see, inter alia, the IMF's (2011) warnings about spending plans.