Political questions Putin will face in coming days

 

Follow the money. In politics that’s where the power lies, regardless of whether its

Moscow or Washington.

Russia’s Vladimir Putin seems to have overlooked it when he decided to invade Crimea,

a part of Ukraine that is irrelevant to Russia’s modern financial model; Ukraine, and certainly

Crimea, have few financial or natural resources. If anything they are romantic and nationalistic

sources of nostalgia for the old order, but are a financial drag.

And their strategic military value is not worth the cost to Russia – particularly to Putin – of this crisis if it turns out to be so high as to drag him into oblivion.

More than anyone Putin – his doctoral thesis in law school was on market economies –

should know that in an interdependent global economy he can’t afford to become an outcast.

Yet, with country after country leaving him alone, he is quickly becoming one.

He has presided over one of the greatest economic turnarounds in history, taking the

dysfunctional post-Soviet economy he inherited in 2000 to one that the World Bank calls a

model of good management. More than increasing the standard of living of Russians, affluence

has replaced socialist penury. In South Florida ask real estate agents in Aventura, Sunny Isles,

Golden Beach and Hallandale who are their favorite clients. Russian oligarchs and their relatives

and cronies are snapping water front condos and mansions, often buying property here sight

unseen, long distance from Russia. Thus his popularity, which peaked at 68 per cent in the polls

during the Sochi Olympics.

His weakness lies in the very economic success he has achieved.

Because unless he does a very quick turnabout in Crimea his political capital may run out

quicker than you can pronounce do svidaniya rebenok, or in Schwarzenegger slang, “ hasta la

vista, baby.”

Here are six political life-or-death questions that Putin will be faced with in the coming

days and weeks:

• What will the managers of the international investments that have poured billions in

ongoing and future projects do if Russia becomes a much riskier and unstable financial

environment?

In the short term international investors such as Exxon or Pepsi and many others such as Siemens

and auto manufacturers can do little beyond hope that their investments are not confiscated

by Russia in retaliation for western sanctions, but after the dust settles Russia may not appear

as safe a business environment. The equation of risk to reward may reverse. They may not be

willing to invest their billions – or the common investor with an eye for foreign stocks or mutual

funds even $10,000 – in an unsafe business environment. It does not help that last week a Putin

aide threatened to confiscate those companies’ investments in Russia if the U.S. and European

Union governments impose sanctions and visa blacklisting of Russian officials and the hierarchy.

A number of other economies are rising rapidly in the world today – India, Brazil, China, the

U.S. – and are a growing, safe and attractive investment option. Why risk an unpredictable

Russia even with its huge potential?

What would happen if the ruble tanks?

As the exchanges open for business in Russia Monday morning the ruble stood at 36.4 to one

dollar, the lowest the ruble has been historically in post-Soviet Russia. What would be the social

cost among a population that is no longer used to privations, but is instead accustomed to ready

access to western goods and travel to the west if the exchange rate goes to 40, 50, even 70 to the

dollar? Can Putin retain his 60 plus per cent popularity? The huge financial resources of modern

Russia depend on its sale of oil and natural gas abroad for nearly 80 per cent of its exports, about

40 per cent of it to European Union countries. Think of it, besides vodka – and most of it is not

Russian anymore – what else do you consume that is Russian? On first impulse – his huge

power and macho mindset taking change – Putin may have thought, ‘I can turn off their gas and

they’ll freeze’. Not a good chess player. They soon will have access to other sources of gas that

they may find more reliable, yet he depends on the European sales to keep his huge state budget

funded and he cannot replace that market. What then?

•  On the face of such uncertainty and risk what happens if the international investors and many

of the oligarchs decide to pull their money and take it elsewhere? What will massive flight of

capital do to state banks and the economy?

World Bank experts and western European bankers believe that despite Russia’s huge cash

reserves the damage may be so severe that it could generate the sort of crisis that Russia faced at

the peak of the 2008 world financial meltdown. But this time it could not depend on international

support to stabilize the internal economy.

•  The oligarchs who form his power and financial base inevitably will start to question, is

Crimea worth the price they may be paying financially and in international isolation?

Putin is at the center of a highly centralized group of oligarchs, men who inherited the huge

Soviet state enterprises that have grown immensely in a free economy. If their wealth or

privileges are affected by the freeze of their foreign assets or lack of access to the west where

they keep their bank accounts and condos and villas, his influence with them may wane or worse.

The U.S. embassy cables published by WikiLeaks in late 2010, quoted American diplomats

as saying that said Putin's Russia had become “a corrupt, autocratic kleptocracy centered on

the leadership of Vladimir Putin, in which officials, oligarchs and organized crime are bound

together to create a virtual mafia state.” The oligarchs are a de facto council of state or council

of families, and wield great power. A Tony Soprano kind of power that may cost him dearly.

In the past he has jailed some who gave him trouble and given their assets to other cronies.

But the problem becomes more difficult if most in that cadre on which he depends for his own

wealth rebel if the Ukraine crisis becomes unwieldy. Forbes puts his fortune at between $40 and

$70 billion. He has after all grown accustomed to the lifestyle of a czar. Workers are giving the

finishing touches to a palace – would be his 12th home – built on public land on the shores of

the Black Sea which according to western intelligence estimates cost $1 billion. Will Crimea be

worth giving up this palace?

• Can he afford to behave like a Khrushchev or Brezhnev or even Stalin and run a modern

superpower with global economic ties with the same kind of disregard for the acceptance of the

world community of the czars or the Soviet leaders?

Common sense says no. If the sanctions and isolation fracture his political base a high financial

cost may well make his obstinate pursue of expansionist foreign venture unwise if not dangerous

to his political health. He must know that despite his huge power – again Forbes considers him

the most powerful man in the world – he does not have the control of Ivan the Terrible or Ivan

the Great, or of Stalin or the later Soviet leaders. He will be reminded of what happened to

Khrushchev after he took his missiles out of Cuba and to Gorbachev after the dismantling of the

Soviet Union.

Ultimately, with all of those questions facing him in the middle of the night, Putin will have to

decide in the near future, is Crimea worth it?

And only he can answer that question. He might call former President George H.W. Bush for

advise. Within weeks of the first invasion of Iraq the polls gave him a 90% approval rating. The

phrase the Clinton campaign used to defeat him could be a lesson for Putin: “It’s the economy,

stupid.”

Roberto Fabricio is a former foreign correspondent who covered the fall of communism in

eastern Europe and has lived in Europe and the Middle East.

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