RUSSIA....PUTIN....2016....The Economist magazine

THE WORLD IN 2016 - The Economist magazine

Arkady Ostrovsky:

Russia editor, The Economist, and author of "The Invention of Russia:

Putin's pressure

Arkady Ostrovsky MOSCOW

After adventures abroad, repression at home

Turn on Russian television and the country that emerges from the screen is a new (or rather, restored) superpower challenging America's foolhardy attempt to dominate the world. Having pushed America back from Russia's own backyard in Ukraine, the country is now projecting its power beyond the territories of the former Soviet Union. Its bombs and missiles in Syria have transformed it from a regional power into a global one. Far from being ostracized for the war in Ukraine, Mr Putin has become the world's greatest power-broker.

Russia is in for a prolonged period of stagnation

Turn off Russian television and Mr Putin's achievements start to fade. Unable to push deeper into Ukrainian territory, and to avoid attracting more sanctions, Russia had to freeze the conflict in Donbas and abandon its plan for "Novorossiya", its historic name for the southern part of Ukraine. And nearly two years after the annexation of Crimea caused a wave of patriotic euphoria, the consequences of Mr Putin's actions are becoming painfully clear.

Russia's economic problems were evident even before the aggression against Ukraine, but they have been aggravated by the double whammy of the sharp drop in the price of oil— the country's main export-—-and the sanctions which have cut Russia off from international capital markets. The economy is in recession, investment is falling at an alarming pace, and businessmen are taking both their money and their families out of the country. Inflation is running at 15%. The clash between the two realities (the one constructed by Russian television and the one experienced by ordinary Russians) will be a running theme of 2016.

In the absence of a sudden surge in the oil price, no let-up is in prospect. A v-shaped recovery, as happened after the 2009 economic crisis, is unlikely: Russia is in for a prolonged period of stagnation. However hard Mr Putin's propaganda machine tries to keep people focused on Russia's resurgence abroad, their attention is already shifting from their television screens to their refrigerators. Moscow, with its large proportion of bureaucrats and higher incomes, may prove to be more inert when it comes to protests, but tension will increase on the periphery. Parliamentary elections in 2016 may deliver nasty surprises for the ruling party, United Russia.

Russian officials are placing high hopes on import substitution as a way out of the crisis. The fall in the price of oil has caused a strong devaluation of the rouble, which in theory should make export-driven industries more competitive. That is indeed what happened after the rouble devaluation in 1998.

But this time the situation is different. The Kremlin has suffocated competition and undermined property rights to such an extent that the main effect of the devaluation so far is rising inflation, rather than the growth of domestic industries. Few businessmen, uncertain about the country's politics and its investment climate, are prepared to invest at home.

The autocrat's toolkit

Mr Putin will therefore find it impossible to conjure up economic dynamism. Instead, as living standards stagnate and euphoria over Crimea fades, he will fall back on three resources familiar to any autocratic leader: populism, war and repression.

So far, the Russian economy has been managed by liberal technocrats who have fought tooth-and-nail against printing money or imposing capital controls. But, as tension with the West mounts and Russia enters an election cycle, economic populism may prevail.

It may also be combined with a ratcheting-up of re-pression. Mr Putin is well aware that graft and injustice are big issues for most Russians. He has already thrown a bone to the public by arresting a couple of governors of remote regions for corruption. More purges will follow. Non-governmental institutions will be squeezed out, and Mr Putin's already embattled political opponents will come under ever greater pressure.

The rhetoric of the cold war will dominate Russian propaganda. Mr Putin will continue to flex his military muscle, fight proxy conflicts with America and occasionally even threaten the use of nuclear arms. The main purpose may be to produce good TV, but his actions carry enormous risks: Russia may get bogged down in Syria, its armed forces may "accidentally" clash with Nato's, its provocations may spark a conflict in the Baltics, and the biggest victim of Mr Putin's recklessness will be Russia itself.

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