The wrangle between the United States and Russia over Putin's re-election - perhaps partly because its outcome is a foregone conclusion - is raging on the Internet and in the various media, and the focus is very much on economic issues. The CNN published a key article titled "Russia faces 6 more years of stagnation under Putin", referring to him as a former KGB agent and citing scores of economists who view with concern the Russian Federation's absence of economic dynamism, its failure to diversify, corruption, the dominance of state-owned firms, and lack of foreign direct investment. Russia Today was quick to respond, focusing not so much on the return to growth of Russia's GDP, at 1.5 percent in 2017, or on the fact that wage increases and fiscal policies in support of infrastructure are expected to take growth up to 2 percent in 2018. Instead, it reviews the progress made by the Russian economy right from Putin's first election. American propaganda is essentially focusing on the future long-term economic consequences of Putin's re-election, while Russia looks with a certain amount of rhetoric at past economic performance.
Russia Today points out that, since his first election in 2000, Putin can boast of numerous achievements, including the fact that Russia's per capita GDP by Purchasing Power Parity had almost tripled by 2017 and was higher than China's, wages and pensions and capitalization of the Russian stock market have more than doubled, inflation has fallen from 36.5 to 2.5 percent, public debt has shrunk from 92.1 to 17.4 percent, reserves have increased to USD 356 billion and, finally, the Russian share of the world wheat market has quadrupled from 4 to 16 percent. On a somewhat nostalgic note, the article mentions that, in 2017, the Russian Federation produced its largest ever crop, breaking the 40-year-old Soviet record. As a matter of fact, some of the data could now be slightly improving, including inflation, which notably spiked to 15 percent in 2015, while a number of essential goods are still expensive.
The consequences of sanctions
The fact remains, however, that sanctions have failed to bring the Russian economy to its knees as Washington had expected. On the contrary, the Russian bridge link to Crimea is actually one of the infrastructure projects that will secure the growth forecast by Russia Today for 2018.
In short, the Russian Federation is not on the cusp of economic implosion like President Gorbachev's Soviet Union. But neither will it go back to the 7 percent plus growth rates achieved during President Putin's first term in office. A few pension reforms and infrastructure investment policies might be more than enough. Not least because the economic future of Putin's Russia will be determined not so much by reforms but by the price of oil, which saved the day over the long term. The Russian central bank started buying foreign currency again as soon as oil prices began to recover from the 2014 oil crash, a more damaging event for the Russian Federation than sanctions. Ultimately, what Putin's fortunes depend on - today, just as they did in the past and will do the future - is the price of oil and gas, since they account for 60 percent of Russian exports and for 50 percent of federal tax revenues. Significantly, Fitch actually revised its outlook for Russia's public debt from stable to positive back in September 2017.
What Russia's fortunes depend on
In conclusion, Putin's power politics and foreign policy successes counterbalance the obvious challenges facing Russian families, which have clearly increased over the last three years. Russia's consumption growth is nevertheless a sign of improvement. And rather than being determined by the reforms demanded by the West - whose effects might not be felt for years and would involve risks such as those experienced during the Yeltsin era - the fortunes of Russia's economy depend on oil prices. Solving structural problems like corruption, the failure to diversify its GDP, the other negative consequences of an illiberal regime and lack of foreign investment may be the best solution. But Putin manipulates economic choices by telling Russians that they should be satisfied with the few improvements that can be secured through oil and gas prices.