Economic problems cannot be solved without the President's active involvement
Having occupied key power posts, Vladimir Putin has stayed active in Russian politics. His strategy appeared to be sound, well thought-out and guaranteed to ward off any dissatisfaction or deviations from the "Putin course". It was assumed that the only threat to the said "course" could come from people who wanted to do things differently or in a new way.
Dmitry Medvedev appeared to be a bright pupil who was steadily following the learning curve on the subject of "presidency". He traveled about the country, continued to get to know more people, soldiers, and young people, handed out decorations, and sounded off on an innovative economy. He looked very much like a figurehead president, like in Germany or Italy, while the Prime Minister was responsible for all the real work.
Then the crisis broke out. Its scale and depth and implications for the country's future are unprecedented. The crisis revealed a number of systemic weaknesses in our economy.
First, the years of windfall profits have not been fully used to develop the country's production. The petrodollars were sterilised, taxes have not been cut, and no new incentives for business have been created.
Second, the cost of capital in Russia remained irrationally high all these years, stimulating borrowing from abroad. At present, our companies owe the West more than $550 billion. That money was less accessible to Russians than in the West, although the country was awash with money; this is an unpleasant paradox of the official financial policy.
Third, it turned out that Russian companies had almost no risk management and the Government failed to restrain borrowing sprees.
Fourth, a strategy envisaging an annual growth of federal budget spending by 37%-45% was extremely risky and burdensome for the state.
Fifth, the emphasis on the development of large state-owned holding companies and corporations made our economy less flexible and less perceptive of the market's alarm signals.
Sixth, the steady strengthening of the rouble in the 2000s from 31 to 23 roubles on the dollar does not coincide with the steady 11%-12% annual rate of inflation.
Some other factors, including tariffs on the natural monopolies and the housing and utilities sector, have spurred inflation. The strong rouble was the main factor that opened the floodgates to imports into the Russian market. The deficit of trade in goods other than raw materials became appalling.
Considering all of this, the world financial crisis has merely aggravated the domestic problems of our own making. If that simple fact had been admitted, actions could have been taken not just to stop gaps, but to radically improve the quality of the economic policy.
However, the authorities reacted to the crisis in a strange way. They preferred not to talk about it, allegedly to prevent a panic among the financially illiterate population and prevent a run on the rouble. In addition to this declared aim, "defending Putin" was probably another motive. The people around him were afraid that the crisis might come to be associated with his name. After all, the Prime Minister is always held responsible for economic woes.
It is in this context that the Duma's crazy decision to pass the second reading of the budget should be seen. In the context of a crisis, it would be logical to send it back for a first reading and adjust the basic spending and revenue parameters, but that has not been done. The spontaneous weakening of the rouble will make it possible to convert the shrunken currency proceeds into a larger number of roubles. However, they will be inflationary roubles, inflationary spending and inflationary incomes of public sector employees.
In this situation, Dmitry Medvedev may be expected to come up with his own anti-crisis programme. One thing is clear: nothing can be done in Russia without the President because such is not only our Constitution but our mentality. Medvedev and Putin must propose a clear-cut and coordinated system of steps to deal with the crisis, while simultaneously developing competition in the financial system, cutting government spending and budget financing of producers.
After all, the whole point of crises is to provide a legitimate pretext for erasing dire legacies, something that is very hard to do when things are going well.