Russia's Putin Touts Economic Achievements, Outlines Presidential Priorities

PM Putin's Last Duma Speech

As a top state official in charge of the Russian economy, Prime Minister Vladimir Putin had reason to be proud as he addressed the lower house of the parliament, the Duma for the last time on 11 April as an outgoing prime minister. Putin reported to the newly elected Duma that Russia's GDP growth was higher than the pre-crisis figure, saying that "this means that our economy has fully overcome the downturn of 2008, 2009 and partially in 2010". He highlighted that despite the global economic crisis, the real income of Russian citizens has increased, although he conceded that some of the projects that the government had promised to finance had to be put on the back burner. To emphasise his achievement as a prime minister who took office in 2008 shortly before the global economic crisis started unfolding, Putin juxtaposed his government's achievement in overcoming the economic crisis with the problems in Eurozone counties. He said that the economic crisis has become chronic in the EU, turning into a "prolonged recession, stagnating and growing unemployment" while the budget deficit and bankruptcy of state coffers has caused some EU states to lose their sovereign decision-making powers.

The list of achievements also included the "stabilisation and growth in Russia's population". According to Putin, for the first time since the collapse of the Soviet Union more than two decades ago, demographic growth is moving upwards with Russia's population reaching more than 143 million in 2011. The PM reported that over 7 million children were born between 2008 and 2011, one of the highest indicators in the past few decades. The military industrial complex also grew under Putin's premiership, expanding 1.5 times. Putin highlighted that while more funds will be channelled into this important sector, there will be no tolerance for "any abuse of power" in this sector.

The automotive industry was also another source of pride for Putin, who said that Russia's automotive market is the second largest in Europe and the fourth largest in the world, adding that that the share of domestically produced vehicles has risen from 40% to 70% during his premiership. It is worth mentioning that the protectionist scheme by the Russian government towards the automotive industry was one of the obstacles to the country's long-running accession talks with the World Trade Organization (WTO), that were finalised in December 2011. The automotive sector grew largely thanks to the privileges drawn up by the Russian government to boost domestic production, but these arrangements will be gradually phased out in the near term as part of the WTO accession deal. Of course, a successful conclusion of WTO membership talks 18 years after their launch is another achievement for which Putin can take credit.

Road Map to Top Five Economies' Club

Putin's 90-minute appearance in the Duma was less about what he has achieved as prime minister, and more about his plans as incoming president. He summed up the goalposts of economic and social development already covered in detail during his pre-election campaign. The most important announcement was a change to the forecast of when Russia will become one of the top five best performing economies in the world. Unlike his earlier estimates that this objective will be achieved by the end of the decade, Putin suggested that this ambitious plan could become reality in two to three years. He highlighted the following steps in the road map to become one of the top five economies in the world.

Business Environment: Putin admitted once again that Russia's business environment is problematic, but promised a dramatic improvement. In reference to the World Bank's Ease of Doing Business ratings, in which Russia is ranked 120th out of 183 economies, the president-elect said that in coming years Russia will improve its rating by 100, moving up to 20th on the list. He unveiled his plan to appoint regional business ombudsmen tasked with monitoring the business environment, developing on suggestions to ease the burden for investors and producers. Yet again he pledged to fight corruption and hailed the bill sponsored by outgoing President Dmitry Medvedev, which will mandate disclosure of the income of state officials, managers of state-owned companies, and heads of state universities and state-owned medical centres. The bill will also require public control over any procurement deals worth 1 million roubles (USD33,941) or more.

Demography: Despite the positive figures touted by Putin, Russia's overall demographic situation remains precarious. He stated that more incentives will be introduced to encourage larger families, adding that every man counts in Russia. Special emphasis will be put on development projects in the Far East of the country, which particularly suffers from a scarce population.

Bridging Wealth Gap: Putin pledged that by 2020, average salaries should rise by 1.6 to 1.7 times while some professions, such as doctors, will get special attention. He assured that by 2018 the average salary of a qualified doctor should be twice the national average. Students who come from low income families will also see greater state support. All in all these measures are to combat poverty, minimise the difference between urban and rural areas, and help to boost the middle class.

WTO and Eurasian Economic Space: WTO membership was hailed by Putin as an "international stamp of quality" for the Russian economy which should benefit from increased competition. At the same time he called for a continued effort at economic integration within Eurasian Economic Space, an idea pursued together with Kazakh president Nursultan Nazarbayev.

"New Economy": In a fleeting manner, Putin also said that it is important to diversify the economy away from its dependence from energy sector. He warned the energy sector to be ready for potential changes in the world energy markets with the increased use of shale gas. This may be a shock for Russia's energy sector players if they do not prepare for it now.

Financial Prudence: Echoing his former finance minister Alexei Kudrin, who was unceremoniously dismissed after raising concerns over the expansion of public spending plans in September 2011, Putin said that when it comes to finances, Russia has to be cautious. He brought up the example of Greece, saying that when it ran out of money it could go to Brussels but if the Russian economy faces the same problem, it will be in a much more difficult position. Even applying to international lenders would bring terms much less favourable for Russia. In response to the wide criticism by the opposition that his election pledge of large–scale public spending is unsustainable, Putin tried to quell this criticism by saying that the current budget has been drawn up on the conservative estimates that crude oil price per barrel will be USD70, while it currently stands at USD100.

Outlook and Implications

Putin's objectives are ambitious and positive, but it is hard to see how he can gain enough momentum to fulfil this task, which interestingly appears to be designed to span more than the six years of his first term. Answering questions from deputies following his speech, Putin revealed that he is planning to remove the word "consecutive" from the law which means that future presidents can stay in power only for two terms. Had this proposal been suggested and enacted before the March election, Putin could not have been re-elected for the third time. Hence he said that he could well bid for a fourth term in power. He seemed also reluctant to embrace the idea of decentralisation of power and allow the regional election of governors. He said that there should still be a presidential "filter" on the candidates, who will be approved by the regional councils.

There was no mention of modernising the economy or anything concrete on the de-politicisation of the judicial system, which is at the heart of corruption. Equally any plans for political reform or the return of direct elections of regional governors was also absent from Putin's speech. While the talk of financial prudence or caution was important, Putin also appeared to dismiss the idea that his proposed spending plans do not match the trimmed economic growth prospects for Russia.

How and who will make Putin's vision of economically and militarily strong Russia come true remain key questions. In his speech he called on the opposition to leave the pre-election emotion behind and join the government in fulfilling these development projects. However, in less than two hours he triggered a walkout of 64 deputies from A Just Russia after his comments on the ongoing hunger strike by the defeated mayor candidate of Astrakhan Oleg Shein. Putin said that he had no power over the matter and that Shein should go to court before resorting to starving himself. The president-elect's comments appeared to be dismissive of the wider frustration over election fraud and lack of prospects for real change in the country. The walkout by the deputies—from a party widely deemed as a pro-Kremlin political force—was a symbolic reminder of the new political reality in Russia since December 2011 parliamentary election, which will require Putin to put more effort into convincing the voters that he can implement repeatedly outlined road maps of reforms.