Putin’s prom­ises weigh heav­ily

Econ­o­mists: He may not be able to de­liver bet­ter wages, ben­e­fits

The Washington Times Daily - - World - BY NATALIYA VASI­LYEVA

MOSCOW| Pres­i­dent-elect Vladimir Putin’s lav­ish prom­ises of higher wages and ben­e­fits for sol­diers, doc­tors and teach­ers were a key el­e­ment in win­ning a new term in the Krem­lin.

But the price tag, es­ti­mated at $160 bil­lion or more dur­ing his six-year term, wor­ries econ­o­mists.

They say Mr. Putin will have to make se­ri­ous ef­forts at re­form and tackle en­demic cor­rup­tion, or ful­fill­ing the prom­ises could un­der­mine the econ­omy.

On the other hand, if Mr. Putin fails to de­liver on his prom­ises, the po­lit­i­cal risks could be high.

“Peo­ple are not go­ing to be ready to wait,” said Sergei Guriev, rec­tor of the New Eco­nomic School in Moscow. “If the dis­con­tent of Putin’s tra­di­tional vot­ers com­bines with the will­ing­ness of the ur­ban mid­dle class to protest, then Putin’s pres­i­dency may be over well be­fore 2018.”

Moscow and St. Peters­burg saw the largest street protests in Rus­sia’s post-soviet his­tory last win­ter, when tens of thou­sands came out to de­mand fair elec­tions as well as a big­ger say in how their coun­try is gov­erned. This emer­gence of a vo­cal mid­dle class puts new pres­sure on Mr. Putin to fol­low through on promised po­lit­i­cal re­form.

But Mr. Putin faces even greater pres­sure from his tra­di­tional sup­port­ers, in­clud­ing all those de­pen­dent on the state, to ful­fill his prom­ises of higher salaries and ben­e­fits.

Prom­ises and more prom­ises

“He’s fairly well locked into hav­ing to de­liver on this,” said Chris Weafer, chief strate­gist at the Troika Dia­log in­vest­ment bank. “Putin is now com­ing back with a lot more at stake and a more dif­fi­cult sit­u­a­tion than he had in 2000. There’s no ques­tion about that. There’s now a much larger group of peo­ple that are wait­ing for this gov­ern­ment to fail.”

Mr. Putin’s most tan­gi­ble and costly prom­ises were made in a lengthy ar­ti­cle pub­lished about three weeks ahead of the March 4 elec­tion.

He vowed to in­crease teach­ers’ pay to the equiv­a­lent of the av­er­age salary for their re­spec­tive regions by the end of this year. Col­lege pro­fes­sors and doc­tors were told that their salaries would reach dou­ble the re­gional av­er­age by 2018, which alone would cost the bud­get an ex­tra $119 bil­lion over the next six years.

He also promised con­sid­er­able in­creases in monthly ben­e­fits to fam­i­lies with more than two chil­dren and in stipends for stu­dents at state uni­ver­si­ties.

These ex­tra pay­ments come on top of sig­nif­i­cant raises given to mil­i­tary and po­lice of­fi­cers in Jan­uary and steadily ris­ing pen­sions.

The Fitch Rat­ings agency es­ti­mated Mr. Putin’s pledges will cost about $160 bil­lion over six years, while sta­te­owned Sber­bank put the fig­ure even higher at $173 bil­lion.

Shortly af­ter his elec­tion, Mr. Putin in­sisted that he “had not promised any­thing that would be im­pos­si­ble to im­ple­ment.” He es­ti­mated that the ad­di­tional so­cial spend­ing would be about 1.5 per­cent of Rus­sia’s gross do­mes­tic prod­uct and gave as­sur­ances that the money could be found by cut­ting costs and in­ef­fi­cient spend­ing. Econ­o­mists dis­agree. “Rus­sia needs a dif­fer­ent eco­nomic model if it’s go­ing to achieve the level of growth that’s re­quired to sus­tain sta­bil­ity, both eco­nomic and po­lit­i­cal,” Mr. Weafer said.

Mr. Guriev, a prom­i­nent econ­o­mist, be­lieves the gov­ern­ment could run out of cash to cover these ex­penses un­less Rus­sia’s econ­omy de­liv­ers at least 6 per­cent growth, which he said is pos­si­ble only if Mr. Putin pur­sues eco­nomic re­forms and gets se­ri­ous about erad­i­cat­ing cor­rup­tion.

The econ­omy, highly de­pen­dent on ex­ports of oil and gas, is ex­pected to grow less than 4 per­cent in 2012, down from 4.3 per­cent in 2011.

“With the cur­rent struc­ture of the econ­omy, 6 per­cent is fea­si­ble only if oil prices grow 20 per­cent ev­ery year,” Mr. Guriev said.

Rus­sia’s econ­omy grew by leaps and bounds in the years af­ter Mr. Putin first came to power in 2000, mainly on the back of soar­ing oil prices.

Ob­sta­cles to growth

But back then, the gov­ern­ment was able to bal­ance its books with an oil price of only $60 per bar­rel. With the grow­ing spend­ing, Rus­sia these days can avoid a deficit only if oil stays above $117. Urals crude is now trad­ing at about $120.

Econ­o­mists say the gov­ern­ment may be able to af­ford the ex­tra spend­ing at this point, but it could ham­per growth and leave Rus­sia vul­ner­a­ble in case of greater global eco­nomic tur­moil or a drop in oil prices.

Rus­sia has $61 bil­lion in a re­serve fund, cre­ated from oil rev­enue that the gov­ern­ment tucked away when prices were high. But even more money was sent out of the coun­try last year, a whopping $84 bil­lion in cap­i­tal out­flow, in­di­cat­ing a lack of con­fi­dence in the Rus­sian econ­omy and il­lus­trat­ing the dif­fi­culty the gov­ern­ment faces in at­tract­ing needed in­vest­ment.

Po­ten­tial sources to cover the new ex­penses could in­clude higher taxes on met­als and min­ing in­dus­tries and the pri­va­ti­za­tion of some state-owned as­sets, as well as cut­ting costs and in­ef­fi­cien­cies, ac­cord­ing to Mr. Weafer.

Along with the cam­paign prom­ises of higher wages for teach­ers and doc­tors, Mr. Putin’s gov­ern­ment has com­mit­ted to spend­ing $61 bil­lion this year alone to re­vamp Rus­sia’s armed forces. And mil­i­tary spend­ing is set to grow by some 20 per­cent an­nu­ally in at least the next two years.

An­other touchy sub­ject for Mr. Putin is Rus­sia’s rel­a­tively low re­tire­ment age of 55 for women and 60 for men.

Econ­o­mists and even some Rus­sian of­fi­cials have in­sisted that the cur­rent pen­sion sys­tem is un­sus­tain­able and will drain twice as much money from the bud­get in the com­ing decades un­less the re­tire­ment age is raised. Mr. Putin, how­ever, vowed through­out his cam­paign that the re­tire­ment age would re­main un­changed.

AS­SO­CI­ATED PRESS PHO­TO­GRAPHS

Demon­stra­tors carry a poster Satur­day show­ing a car­i­ca­ture of Rus­sian Prime Min­is­ter and now Pres­i­den­t­elect Vladimir Putin dur­ing a protest in St. Peters­burg against Krem­lin poli­cies and sus­pected vote rig­ging. Mr. Putin made his most lav­ish elec­tion prom­ises about three weeks ahead of the March 4 elec­tion.

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