The Hindu Business Line : Power shift in Russia’s democracy

Mr Putin had worked hard to consolidate growth, with even his critics admiring the way he simplified and cut taxes and brought clarity to budget reform. The new President, Mr Medvedev, has assumed the Presidency with inflation in double digits and falling oil production. It seems Russia’s democracy is entering a new phase of even stricter management, says T.C.A. RAMANUJAM.

For forms of Government, let fools contend,

Whatever is best administered is best

Alexander Pope

A significant change has taken place in Moscow. Mr Dmitry Medvedev took over as President from Mr Vladimir Putin. Simultaneously, in an unusual twist of constitutional history, the erstwhile President Putin became the new Prime Minister of Russia. An observer of the Russian scene points out that when Mr Boris Yeltsin left the Kremlin eight years ago, he gave Mr Vladmir Putin the pen he had used to sign important documents and decrees, a gesture symbolising the transfer of power to Russia’s new President.

When Mr Putin left the Kremlin, he took the pen with him. Does this symbolic act signify that Mr Putin will remain the principal leader of Russia with all the trappings of his presidency and many of the powers as well? A cynic comments: “Medvedev will have about as much authority as Princess Anna had in (the film) Roman Holiday”. Mr Putin himself told Parliament that Russia has not changed, but has become a different country.

He is now the Chairman of the dominant political party controlling 70 per cent of the votes in Parliament. He has the power to change the Constitution, block legislation and even impeach the President. He will control the Budget, oversee gigantic state corporations, including Gazprom, the world’s largest natural gas producer. He has staffed these corporations with his own loyalists in the hope that they will help him re-assert Russia’s global might.

Loose framework

The Russian Constitution is an extremely loose framework. It does not contemplate a dual power arrangement. It allows, on the other hand, extreme variants, either a Super-Presidential or Semi-Presidential Republic. It can turn out to be Presidential-Prime Ministerial Republic. It will not be a Presidential Parliamentary Republic. The Prime Minster will have a major political role.

The Communist Party in the Opposition is weak. The system has been described as a one-and-half Parliamentary Government, meaning that the Communist Party will represent only half the strength of a normal opposition. But this is the first time that the Russian President will not be from the Kremlin or Soviet Secret Service background. Mr Medvedev is a 42-yearold lawyer chosen by Mr Putin to be his successor. Mr Putin, 55, is a former KGB Officer.

Mr Putin’s predecessor, Mr Boris Yeltsin, left the Russian economy in chaos. He helped in the destruction of Soviet Communism, but did little to build a modern Russian democracy and showed little faith in political institutions. The economy almost collapsed. Mr Putin took over in 1999 and the Russian economy had resurgence. In the past eight years, Russia’s GDP has gone up by 70 per cent and industrial growth has registered a 75 per cent growth.

Russia is now ranked among the top 10 economies. It has overcome the devastations of the 1990s and become an energy super-power, thanks to a policy under which the Government controls a substantial part of the oil and gas sector and its revenues. State control of the oil sector in Russia has made the fuel and energy companies completely open and transparent to investors. The government has liberalised the share market.

Thousands of Russian and foreign investors have contributed to make the state-controlled oil company a big success. The Government has decided to partially privatise energy sales and generating companies. Oil export revenues are efficiently managed.

The Stabilisation Fund established in 2004 has accumulated enough revenues ($18 billion) to repay all of the erstwhile Soviet Union’s debts. Deductions to the fund helped reduce the inflationary pressure on the economy. Accumulations from the fund helped promote developmental institutions. In the last eight years, the real income in Russia more than doubled, while poverty levels halved.

The proportion of population living below the poverty line decreased from 30 per cent in 2000 to 14 per cent now. The average wage has rises from 2,200 rubles ($90) to 12,500 rubles ($500). Wages and benefits grew faster than inflation by 20-25 per cent in 2007.

Clamour of critics

Critics are there to point out that the Russian economy under Mr Putin remains commodities-driven despite its growth. Half of the federal budget revenues are accounted for by Customs duties and taxes from the fuel and energy sector. Raw materials and fertilisers account for major Russian exports. Machinery and equipment export are not much to speak of.

There is high dependence on food imports. There is growing gap between the rich and the poor. In 2000, the incomes of the rich were about 14 times larger than those of the poor. In 2007, the figure was 17 times. Poverty remains a chronic disease and affects even pensioners and unskilled workers.

Stanford University political scientist Michael McFaul points to setbacks in the Russian healthcare system, public safety and increase in corruption. There has been a massive expansion of the State with the number of State employees doubling to 1.5 million.

Alcoholism and mortality rates remained high. State bureaucrats, said Professor McFaul in an article in Foreign Affairs, shamelessly indulge in what they call “velvet re-privatisation”, a euphemism for arbitrarily bankrupting companies and buying them at bargain prices for themselves.

Stable ruble

Despite these criticisms, the fact remains that the rouble is stable and is even being touted as a potential reserve currency. The economy grew 8.1 per cent last year and the middle class has grown dramatically. Skyrocketing oil prices helped boost the Russian economy. The tax system has been reformed from “what was a real upturned plate of spaghetti in terms of all the various options and routes and exceptions that were in the system” (according to Mr Chris Weafer, a Research Head of Russian University).

Mr Putin had worked hard to consolidate growth. Even such an arch critic as The Economist admires the way he simplified and cut taxes and brought clarity to budget reform. The oil windfall was prudently utilised for repaying debt and building up reserves.

Emerging scenario

The present Russian leadership is depicted as a double-headed eagle with joint rule by the President and the Prime Minister. The new President is considered a liberal with faith in the rule of law. He has assumed the Presidency with inflation in double digits and falling oil production. The Russian political system is based on the personification of absolute power and does not tolerate a division of formal and real power. It is possible that if there is a crisis, Mr Putin may still come back in 2012.

Russia’s managed democracy, as an observer notes, is entering a new phase of even stricter management and even less democracy.

(The author is a former Chief Commissioner of Income Tax.)