The printed version of the programme aired on December 5, 2008
TALKING TO AN EXPERT. PUTIN HAS A CASH MENTALITY
Below is an interview with the President of the Energy Policy Institute, Vladimir MILOV.
Q.: What do you think of the Prime Minister's promises?
A.: First of all, the tone of the televised Q&A session struck me as somewhat different from the previous ones. There was less self-confidence and more attempts to explain the situation. He seemed to be justifying what is happening. In my opinion, he did not do it very convincingly.
Putin has always been noted for his impressive command of numbers. The fact that he was not so sure of his numbers this time shows that he is not so sure of himself. He is used to the smooth flow of events. He has gotten used to the fact that the forecast of inflation and GDP growth has remained the same over a long period of time, and now dramatic changes are happening, and the growth of the GDP slowed down in October. State-owned corporations and state banks assume that the GDP will register negative 2-2.5% growth next year.
Putin clearly does not fit the role of a crisis manager. For instance, when commenting on the dynamics of the value of Russian shares, he said that it did not match the value of companies. Actually, share prices reflect their objective value. The market price is the main evaluation that takes everything into account, above all risks. What Putin was saying displays a cash mentality; for him, the main criterion is the amount of money in the company's current account.
When asked why only big banks were receiving help, he started to defend that system. He should have said: we are working in order to remove the clots in the financial system (as President Dmitry Medvedev said in his Address to parliament), but instead, he proceeded to explain that we trust only a few banks. Or take the price of petrol. He said: we are helping the oil companies because their export earnings have dropped. This seemed to say to Russian consumers that they would have to suffer in order to preserve the super-profits of the oil companies. In my opinion, he shouldn't have said such things.
Q.: Why are all countries cutting rates while the Central Bank's discount rate is growing?
A.: That's another strange story. First Deputy Prime Minister Shuvalov, when reporting to Medvedev on how government aid was reaching the financial system, said that the banks are keeping the money because the Central Bank has very high capital reserve requirements. They are simply unable to pass these funds on because the CB rules forbid it. In other words, there is an obvious conflict between different strands of the government's policy and there is no one to put them all together. Unemployment has struck and we allocate funds to increase unemployment benefits; something happens to the exchange rate of the rouble? Let us throw $5 billion into the economy every week; something is wrong with the stock exchange indexes? Let us give more money to the VEB to shore up the shares of Russian companies, which is a sheer waste of money.
Putin has announced a token 4% cut of the profit tax that will yield nothing, because the companies will see their profits plummet by 70% next year. The key taxes, the VAT or the single social tax, should be reduced dramatically, but that means cutting government spending. Meanwhile, Putin continues to increase spending to support state corporations. He speaks about issuing infrastructure bonds, citing Roosevelt and the building of roads that helped pull America out of the Great Depression. The problem is that this money is not building roads, but is instead being used to build the Eastern Pipeline, which nobody needs.
One of the problems, then, is measures to restore confidence all around: in the interbank market, the confidence of investors in the business climate, the confidence of citizens in banks, and of citizens in the Government. The main cause for the flight of capital and the run on the dollar is a lack of confidence that the authorities will pursue a meaningful policy in this situation. Yet nothing is being done to restore confidence.
Q.: What could the political consequences be?
A.: So far, it is hard to say. There are two opposing theories. The first says that society can adapt itself, people will accept a slight drop in living standards and say, like Putin, that we have lived through worse times over our thousand-year-old history.
The second theory is that growing economic problems affecting more and more people will prompt demands for a change in the political system. If a significant social protest arises, this administration will have to go, or else it will have to jail protesters and shoot down demonstrations.
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CONVERSATION WITH AN EXPERT. REVALUATION OF PROMISES
Our expert is political scientist Dmitry ORESHKIN
Q.: What do you think about the relations between the State and the Church over the last eighteen and a half years?
A.: The authorities consider the Church to be something like federal television channels - as a means of influencing society. They act accordingly - we give you a lot of money and you should generate loyalty among your flock. The Church has become richer, but it has paid for it with loyalty, though only up to a point: Alexy II had an ideal sense of balance. He did a great deal as the spiritual shepherd. True, I think the Patriarch departed with the main question still unanswered: is the Church for the State or for man? I think it will remain the servant of the State. Its commitment to political goals prevents the church institutions from finding its way into human hearts. At least into my heart.
Q.: How do you assess the political aspect of Vladimir Putin's relationship with the people? Do you believe him when he says that he is not going to call for an early election?
A.: I do believe him. But the situation may change and life may force him to do it. If the country faces a real threat of sinking into chaos because of the crisis, that may happen. Perhaps Medvedev himself will resign or fall ill. There are a number of scenarios. For example, six years lie ahead and over the next few months, if things go from bad to worse, a "castling" in the Medvedev-Putin tandem may again put Putin in the top job. As for his TV appearance, I would pay attention not to words, but to objective indicators. First, Prime Minister Putin's appearance lasted longer than any of his presidential appearances. Second, we saw on the screen not a Prime Minister or a President, but a national leader. He is not serving the third term de jure, but is doing so de facto.
Q.: Opening a meeting of the government presidium this week, Putin said that the shares of Russian companies are ugly and our trading floors cannot hold their own against leading world centres and depend too much on the mood in foreign markets.
A.: We are still seeing these ugly moments in the market because in former days, it was enough for President Putin to make a speech for the stock market to react enthusiastically and soar. Now the President has made his reassuring utterances and yet the market has been plummeting for two days straight; it doesn't believe him and money is being withdrawn. The problem is that Putin is still acting like his former self, like five years ago: he demonstrates confidence, competence, and determination, but the situation has changed radically. Demonstrating confidence, competence, and resolve is great when the market is growing and when money is plentiful, but in a shrinking market, with growing competition for dwindling resources, it is much more difficult to be confident and fulfill promises.
For example, Putin was asked, "What currency should we keep our money in?" If he were being honest, he would have said, go into hard currency. But the Prime Minister cannot afford saying that because he protects the rouble. So, he wriggled out confidently and competently by effectively dodging the question. He merely made it clear that the liberal procedure of exchanging roubles for other currencies would not be violated. By the way, if the situation really turns nasty, that process may be put on hold.
All in all, I think Vladimir Putin has taken upon himself too much. He said that servicemen will be taken care of, the pensioners will be protected, the unemployed will be supported, and houses will be built...
Q.: And the rouble won't be devalued.
A.: He said there would be no abrupt changes, but everyone was quick to understand that he is talking about gentle devaluation. Everything seems to be OK, but in a few months' time, people will become aware that something is wrong.
(You can listen to the Vlast programme live every Friday at 8 p.m. Moscow time on Ekho Moskvy radio station.)