Russia's crumbling economy provides stiffest test yet for autocratic leader
Subjected to more than a century of propaganda masquerading as news, Russians often seem to live in a different reality from the rest of us
By Adrian Blomfield in Moscow
Last Updated: 11:39PM GMT 16 Nov 2008
And sure enough, at a time when their country is locked in its worst financial crisis in a decade, they are more optimistic about the economy than they have ever been. According to opinion polls, 57 per cent reckon it is flourishing, up from 53 per cent in July.
The survey's findings are a triumph for the state, proving that the Kremlin has not lost its touch when it comes to manipulating fact. Obeying orders from the top, Russian television has banned the use of words such as "crisis", "decline" and "devaluation". Coverage of the mayhem in the country's stock market, where shares have fallen by 75 per cent since August,
Instead, just as in Soviet times, Russians are told how bad everything is in the West. The US, Russians are told, is in irreversible decline, while desperate Britons are throwing themselves into the Thames. The Queen, facing imminent penury, has been forced to pawn her diamonds and, according to one tabloid front page, we can no longer afford to bury our dead.
It has fallen to Russia, one television commentator gravely intoned, to come to the rescue of Europe. Russia, another newspaper declared, was set to become the continent's lender of last resort.
As Russians are frequently reminded, this supposed stability is almost entirely thanks to the wisdom and leadership of Vladimir Putin. Yet if the state has been successful in projecting an image of calm confidence, there is growing evidence of panic behind the scenes.
On November 4, Dmitry Medvedev, the protégé Mr Putin shoehorned into his old job as president in May, announced that he would seek a constitutional amendment extending the standard term of office from two consecutive terms of four years to two terms of six.
Kremlin aides quickly announced that the change would not affect Mr Medvedev's current term. Mr Putin, who is now prime minister, then appeared to hint that an election could be held sooner than 2012, when Mr Medvedev's first term is due to expire. "As for who will run for office and when, it's too early to talk about that now," he told reporters.
Events proceeded at record pace. The amendment was presented to parliament on Tuesday and passed overwhelmingly at a first reading on Friday. Final votes are expected early next week, with approval from the upper house due shortly thereafter.
Given that Russia has shied away from making any changes to its constitution since it was enacted in 1993, eyebrows were raised at the haste with which so momentous a reform was broached. Over the eight years that Mr Putin was president, he consolidated his grip on power by abolishing regional elections for governors and neutering pressure groups, the media and parliament itself. But each time, the Kremlin was careful to go through the motions of democracy, with long debates preceding each clampdown.
This time, there was none of that. Russia's leaders scarcely even bothered to justify the need to extend the presidential mandate, claiming that the measure was good for democracy without ever saying how.
Most analysts do not doubt that the amendment is tailored entirely for Mr Putin, allowing him to return to the presidency for 12 years rather than eight. Whether he will choose to do so is another matter, although every independent analyst says they will be more surprised if Mr Putin is not president within two years than if he is.
Only those close to the Kremlin claim Mr Putin has no designs on the presidency. "Medvedev will serve his term and may be re-elected for another," says Edward Lozansky, a former dissident. "It is none of the British press's business anyway. Go and teach your British wives to cook cabbage soup."
Before he stepped down as president, forced to do so by the constitution, many analysts predicted that Mr Putin would return as president in 2012. In the meantime, he would remain a powerful prime minister. So why the apparent change of heart?
In part, it is to do with the financial crisis, which is far worse in Russia than Mr Putin would care publicly to admit. The prime minister has gloated over the woes of the United States, proclaiming the death of Wall Street and pledging to buy up Western companies on the cheap.
Yet Russia's own stock markets have been the world's worst performers, with share prices falling by 75 per cent since the summer. The rouble is under heavy pressure, and the central bank has had to spend a fifth of its currency reserves to stop it going into freefall.
So far, the crisis has mainly affected Russia's super-rich. In May, the value of stock owned by Russia's wealthiest oligarchs stood at $300 billion. Today, it is worth just $70 billion. As a result, Russia's elite appears to be at war with itself.
The Kremlin has always been heavily factionalised, with rival groups competing for control of Russia's lucrative energy and metals companies. As Russia's economy boomed after 1999, Mr Putin was able to maintain a veneer of unity between these factions, many of which acquired their fortunes during the carve-up of state assets in the 1990s, and protected them ruthlessly. But with oil and commodity prices plunging, there are no longer enough spoils to go round.
Russia's biggest businessmen owe Western banks more than $500 billion, borrowed using stock as collateral. The fall in share prices has triggered a wave of margin calls, prompting many banks to call in their loans. The state has promised $50 billion to rescue the oligarchs as part of a $200 billion bail-out – but not all will be saved.
For Mr Putin, the crisis provides plenty of opportunities that he could take advantage of. Assets that were privatised in the 1990s will again come under the control of the Kremlin and can be palmed out to his closest allies. The oligarchs who are allowed to survive will be bound to him even more closely.
At the same time, the risk of internecine warfare among these powerful individuals is high and could destabilise Russia. There was a whiff of the potential danger last year, when contract killings rose dramatically amid uncertainty over Mr Putin's future.
Because of the instability inherent in Mr Putin's duumvirate with Mr Medvedev, the business community, and maybe even the West, would welcome his return. "From the perspective of foreign businesses and governments, there would be a rhetorical outcry if Putin comes back," says Alex Kliment, a Russia analyst with the Eurasia Group. "But quietly, people outside the country would get used to it pretty quickly."
Yet it is by no means certain that Mr Putin would enjoy the same sky-high popularity as during his first term. After the penurious chaos of the 1990s, he presided over an era in which the economy grew by an average of 7 per cent a year and salaries increased by 15 per cent annually. But those years also saw a 275 per cent rise in metal prices and a 210 per cent gain in oil, both major exports.
Last week, the price of Russian oil fell below $50 a barrel. At that price it would become impossible to balance next year's budget, which is predicated on oil prices of $95. Russian officials claim they can tap into a rainy-day fund and currency reserves that are still the third largest in the world. But Russia cannot do that indefinitely, and frittering reserves could frighten away foreign investors – who have already pulled out more than $150 billion.
There is compelling evidence that the crisis has started affecting ordinary people. The middle class has shrunk from 25 per cent of the population to 18 per cent in the past few months alone. Many companies are laying off jobs, and doing so in a manner likely to cause resentment.
Until last week, Svetlana, a young mother of two, held decidedly middle-class ambitions. An executive at a construction company, she was hoping to save enough to send her children to school in Britain and buy a new flat in an upmarket part of Moscow. But then, without warning, she was made redundant along with about 70 colleagues. She received no severance pay and was instead forced to sign a letter saying she had voluntarily resigned.
"They said that if I didn't sign then I could look forward to burying my own children," Svetlana says. "What kind of country do we live in? I thought we were close to becoming a civilised nation, but I've been forced to realise that that is an illusion."
Forecasts suggest that there is worse to come. Some banks are already predicting that growth could slow to between 2 and 3 per cent, a disastrous slowdown. The most pessimistic analysts say that if oil prices do not recover by about $10, Russia could even enter recession. That would present Mr Putin with his most challenging test yet.
"I always thought Putin cared about ordinary people," Svetlana says. "But instead we see them bailing out oligarchs, while we are left without anything."