Fisher: No easy solution for Vladimir Putin and Russia

As economic gloom settles over Moscow, parts of the Russian capital have become Potemkin villages.

The most splendid of these still prosperous looking facades is Moscow City, a shiny $14 billion forest of glass and steel skyscrapers that includes four of Europe’s five tallest buildings with the tallest building of all still under construction.

The idea, which now seems like a bad joke, was that Russia was to join London, New York and Hong Kong as a global financial centre.

Long before Vladimir Putin seized Crimea, causing the West to impose economic sanctions, and long before the price of oil collapsed, accelerating the brutal slide of the ruble, Moscow City was a monument to folly and excess. Tens of thousands of square metres of fancy office space stacked on a bend in the Moscow River have never found tenants because the Kremlin’s economic reach never came close to matching its grandiose dreams.

Friends in the Russian capital who have become deeply apprehensive about Russia’s economic and political future say the Moscow City project has taken a turn for the worse this fall. The buildings are emhahptier than ever, with staggering amounts of new office space entering the bloated market again next year.

Moscow City’s uncertain future is illustrative of what has gone wrong during Putin’s tenure as president, prime minister and president again. Muscovites fell hard for neon, glitz and western luxury brands including top-of-the-line German and Italian cars. Its shady business elite wasted tens of billions of dollars buying foreign sports teams, super yachts and private jets, mansions in London, New York and second or third homes in the south of Spain and France.

But what they and the government neglected to do as they looted Russia — and cooked up ways to share in such plunder as the $50-billion bonanza that was last winter’s Sochi Olympics — was to set aside any money to deal with the country’s crumbling Soviet-era infrastructure or to invest in the creation of a modern, diversified economy. They foolishly believed that the price of hydrocarbons would remain high, ignoring the fact that this was precisely the strategy which doomed the Soviet Union.

Instead of fleeing from their dependence on oil money, Russian businesses borrowed crazily against future oil earnings. As a result it is estimated that they owe $135 billion to western banks that they have no way of repaying. Smaller companies are already closing across Russia. Much bigger enterprises will soon follow them to the grave.

Because of plummeting demand for Russian natural resources, the value of the Russian economy has been sliced in half over the past 12 months or so. Putin demands that Russia be respected as a great power, but his country has five times as many people as Canada but at current exchange rates only about half of Canada’s GDP. Even with problems looming in Canada’s energy sector, its GDP is expected to grow by more than two per cent next year. Russia’s may contract by nearly five per cent.

Putin sold Russians on the idea that he alone could provide economic and political stability. Those promises were golden for a long while. But if he could barely keep his country from slipping into recession when oil was trading at $115 a barrel, what does it say about his ability to manage the economy when oil sells for $60 or $70 a barrel?

Still, any suggestion that Putin may soon be forced to compromise over Crimea is wishful thinking, particularly with the Wall Street Journal reporting Monday that China may rescue the ruble, although how steep a price in unknown. Crimea remains Putin’s trump card because Russians still overwhelmingly regard his seizure of the defenceless peninsula as a great triumph.

Russian President Vladimir Putin toasts guests as Deputy Prime Minister Dmitry Kozak looks on in the presidential lounge after the opening ceremony of the Sochi 2014 Winter Olympics on February 7, 2014, in Sochi, Russia. David Goldman — Pool/Getty Images

If support for Putin, which is still in the stratosphere, does start to drop, his preferred option will not be to offer concessions in Ukraine. Far more likely are more Sovietesque policies to check dissent at home and another military adventure against NATO’s newish members, Estonia, Latvia and Lithuania, or at least threats to do so. As in Crimea and eastern Ukraine, the Kremlin’s ludicrous pretext will be that ethnic Russian minorities living in the tiny Baltic states must be rescued from oppression.

Rather than admitting the role that his government and the ruling elites have played in their country’s misfortunes, Putin raged last week that the West was trying to “chain the Russian bear” and “tear out its fangs and claws.”

Well, as they say, a year is a long time in politics. It was a much different Putin that I saw strutting through a media centre on the Sochi waterfront in February.

Surrounded by fawning Russian bureaucrats he stood for five minutes about five metres away from me, beaming confidently as if he was not only the master of the Winter Olympics but of global politics.

If Russia lashes out by opening a new front in the Balkans the situation across eastern Europe could quickly spin out of control. NATO might finally invoke Article V (mutual defence) and send the tanks in. At the very least the trans-Atlantic alliance would impose far more Draconian sanctions on the Kremlin. As much as he revels in stirring the pot, it is not yet clear whether Putin is prepared to turn his country into a pariah state by launching new military adventures.

There are no easy solutions for Putin or Russia. The prospect of more empty Potemkin villages around Moscow is real.

Source:: canada.com