Putin at the Duma

Kindly translated by Anne-Marie de Grazia, with some additions of my own and the introduction of Putin’s quotations.

The President of the Russian Federation, Vladimir Putin, held his address before the Parliament of Russia (The State Duma and the federation Council) on this Thursday, December 4th. It’s a compulsory exercise of sorts, akin to the « State of the Union Address » of the President of the United States. If this speech brought no “revelations,” we should nevertheless keep in mind the following points.

1. An aggressive tone towards the Western countries.

One was expecting a speech largely centred on the economy. The troubles in the exchange rate of the Rouble were stoking these expectations. However, the greatest part of the speech was dedicated to international politics. President Putin expressed himself firmly on the subject of American policy towards Russia, which is nothing new in itself, but also on the policies of European countries, which is something considerably newer. This position is to be precisely replaced in its context. Here, President Putin made a clear Statement: “The policy of containment was not invented yesterday. It has been carried out against our country for many years, always, for decades, if not centuries. In short, whenever someone thinks that Russia has become too strong or independent, these tools are quickly put into use. However, talking to Russia from a position of force is an exercise in futility, even when it was faced with domestic hardships, as in the 1990ies and early 2000ies. [1]»

It places itself within the frame of a long-haul confrontation with the United States, which will only reinforce the tendencies towards closing-up with Beijing.It must be noted that the next summit of the OSC, which will be held at Ufa, in Bachkortostan, Russia, next Spring, India and Pakistan will reach in their candidacy and will be received in this organization. This will only increase Russia’s international weight. In essence what Russia seeks is more cooperation and not isolation. This was clearly put forward by President Putin : « We will never enter the path of self-isolation, xenophobia, suspicion and the search for enemies. All this is evidence of weakness, while we are strong and confident. Our goal is to have as many equal partners as possible, both in the West and in the East. We will expand our presence in those regions where integration is on the rise, where politics is not mixed with economy, and where obstacles to trade, to exchange of technology and investment and to the free movement of people are lifted. [2]» This is an important point. Russia is not on a Cold War path. And, by the way, a new Cold Wa ris just not possible, because the world where we are living is hugely different of what it was in the 1970’s and the 1980’s. The main problem is that these sweeping changes seem not to have been noticed by Western politicians who are living into the delusion of a possible return to the past. Putin made it very clear that Russia want to develop and improve its relations with all countries and not just European ones : « Under no conditions will we curtail our relations with Europe or America. At the same time, we will restore and expand our traditional ties with South America. We will continue our cooperation with Africa and the Middle East. We see how quickly Asia Pacific has been developing over the past few decades. As a Pacific power, Russia will use this huge potential comprehensively. Everyone knows the leaders and the drivers of global economic development. Many of them are our sincere friends and strategic partners. [3]»

In the end Putin has been talking tough to the West but didn’t close doors. in the same time he quite obviously opened his arms to the East and the South.

2. What economic policy?

About the economic policy, three announcements deserve to hold our attention. The first is of a proclamatory nature. Vladimir Putin has reiterated his confidence in an economy that one may call “decentralized.” He pointed out that “mobilizing the economy” was not in the cards. The second point moves in appearance in the same direction. He indicated several measures in favour of small and middle-sized businesses:

  • (a)  A project of freezing taxes on companies for the four years to come.
  • (b)  A project of freezing the « supervision » of small and middle-sized businesses by public authorities for a period of 3 years. Here again it is important to quote Vladimir Putin’s speech: “.The presumption of guilt is still very much alive. Instead of curbing individual violations, they close the path and create problems for thousands of law-abiding, self-motivated people. It is essential to lift restrictions on business as much as possible, free it from intrusive supervision and control. I said intrusive supervision and control. I will consider this in more detail later. I propose the following measures in this regard. Every inspection should become public. Next year, a special register will be launched, with information on what agency has initiated an inspection, for what purpose, and what results it has produced. This will make it possible to stop unwarranted and, worse still, ‘paid to order’ visits from oversight agencies. This problem is extremely relevant not only for business, but also for the public sector, municipal institutions and social NGOs” But this applies only to those businesses which will not have had a run in with fiscal authorities during the preceding period. If this may constitute a good signal for the creation of new businesses, it is clear that the number of beneficiaries among existing ones will be reduced.
  • (c)   Then, he offered an amnesty to all those who would repatriate their capitals to Russia.

These measures are certainly well-inclined, and going to the right direction, but distinctly less so than may seem at first sight. They favour new small and medium-sized businesses rather more than existing ones. This is however a good starting point. As for the effects of the amnesty, they will be sizable only if a true policy penalizing tax evasion is implemented.

In the same time, he indicated that public administrations would be propping up activity, particularly at the local level. This implies that the links with the State will remain strong. This is not bad news, far from it. It implies that administrations and public companies will give support to the local economies, which is a good thing. But it also raises the question of the channels which such actions will be taking. One may conjecture that the government will implement a system of bonified loans in order to fight against the rise in rates following the action taken by the Central Bank.

3. The action of the Central Bank and the question of the Rouble.

On this point, the discourse of Vladimir Putin has been clear. He has reiterated his confidence in the Central Bank and has not been alarmist on the question of the Rouble. Indeed, the short-term commitments of Russian banks and companies as regards foreign countries are known. These commitments, taking into account the United States sanctions which are paralyzing Western banks, explain in part the fall of the Rouble.

Chart 1

Evolution of Rouble vs USD change rate in percentage of the level of September 1st 2009

A-Rouble 

These commitments show that there is a peak in payments in December, but that the size of payments should rapidly decrease during 2015. This implies that the demand in dollars will weaken at the beginning of the year.

Chart 2

Amount of payments to be made to Foreign agents by Russian banks and enterprises (principal and interest alike)

A - Paiements à Venir

The weakening of the demand in dollars will cumulate with a probable rise in the price of oil come May-June 2015. Indeed, if the price should descend below 60 USD the barrel, part of the American oil industry would find itself in difficulty (particularly in the sector of shale oil and gas). However, American banks have consented large credits to this sector. It is probable therefore that after a downward movement which has not ended yet, the price of the barrel will come to stabilize around 75-80 USD. If this is the case, the Russian economy should undergo a growth of between 0,5% to 1% in 2015. We can already see the industry profiting from the depreciation of the Rouble.

Chart 3

Industrial production, growth rate on a year-to-year basis.

A - ProIndus

But in the same time, Vladimir Putin has explicitly stated that the government knew the names of the speculators who have taken short-selling positions on the Rouble and that he has asked the Central Bank of Russia to « punish » them. It is possible that the Bank will intervene behind the scenes to make the Rouble rise again, catching speculators on the wrong foot. But one can also interpret this part of the speech of Vladimir Putin as a warning of sanctions other than economic. We are reminded here that there is an expert system in function at the Central Bank which allows to identify shady operations.

For all purposes, this speech has secured the high-ground on which the Russian government has been moving: no re-centralisations nor spectacular nationalizations, but a reinforcement of rules and of the means of fighting against speculation. However, one must take note of the fact that the time of contracting debts in foreign countries, particularly with American pension funds, seems to be past and gone. This will probably imply, whether Putin admits it or not, a reinforcement in the role of the State. Many things will then be turning on Vladimir Putin’s capacity to significantly improve the efficiency of public administration in Russia.


[1] President V. Putin official transcript.

[2] President V. Putin official transcript.

[3] President V. Putin official transcript.


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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