BEGINNING OF THE END FOR PUTIN?
With rouble in meltdown and panic buying gripping Moscow, is this the ...
THE streets of Moscow yesterday rang with the sound of panic.
It came in the form of anxious gossip in queues at banks and bureaux de changes as Russians lined up to exchange their roubles for hard currency.
It came in the form of whirring cash registers as Moscovites rushed to buy imported groceries and furniture before prices soared, emptying the shelves at the megamalls that have sprung up around the capital.
And it came in the form of a babble of lies from state television as it tried to reassure Russians that the government is fully in control. Except it clearly was not.
‘The rouble has passed a tipping point,’ says one senior Western banker with nearly 20 years’ expe- rience in Moscow. This week may well be remembered as the moment the wheels f ell off Vladimir Putin’s economy and the collapse of his regime really began. His government has tried increasingly desperate measures to prop up confidence in the rouble, and yet its slide has only accelerated – and the sheen of invincibility that the Russian people once accorded their leader has begun to wear off. ‘We’ve lost the feeling that Putin is some kind of wizard who controls everything,’ wrote the usually rabidly pro-Kremlin tabloid Moskovsky Komsomolets.
In fairness, the rouble’s slide has been slowed a little by massive spending of Russia’s hard currency reserves, even though just days earlier the Moscow Central Bank had promised to stop wasting precious dollars on such apparently futile actions.
The reason for this change of heart is simple – today Vladimir Putin is due to give his annual marathon press conference, televised live, and he does not want to appear before the nation as the rouble tanks.
‘But after the conference,’ one Moscow banker joked grimly, ‘we can expect the deluge.’
Putin faces a perfect storm of economic problems. The principal one – the collapse in world oil prices that has hit all energy-producing countries – is beyond his control. But much of this crisis is of Putin’s own making, and unique to Russia.
For one thing, despite countless promises to do so, he has failed dismally to diversify the grotesquely corrupt Russian economy away from oil and gas. While oil prices were high, it didn’t seem to matter – indeed, Russia’s energy exports fuelled a boom
Will he try to distract the population with another military adventure?
with average wages rising 15-fold since Putin came to power. But now they’ve gone through the floor it is a very different matter. Furthermore, Putin’s belligerence has turn a crisis into a catastrophe.
In the wake of the shooting down of Malaysian Airlines Flight MH-17 in July by Moscow-backed Ukrainian rebels, the US and EU imposed simple but devastating economic sanctions on Russian companies. By banning a swathe of state-controlled companies f rom borrowing on i nternational money markets, the West poisoned the heart of Russia’s economy.
Russian companies owe Western creditors nearly $700billion – and between now and the end of 2015
will have to pay back some $150billion of that money.
With access to Western banks cut off, the only place they can turn to for the hard currency needed to pay back those debts is the state – and this week, by some estimates, Russia’s hard currency reserves fell below the level required to service these companies’ loans. Already it’s clear that Putin’s priority is to protect his cronies first and foremost.
On Tuesday he ordered the Central Bank to issue $10billion in bonds to bail out the state-owned Rosneft oil company, run by Putin’s long-time KGB colleague, Igor Sechin. Though the company denied it, Moscow financiers suspect Rosneft immediately used the money to buy hard currency. Other members of Russia’s super rich are trying to convert their roubles into London property. Gary Hersham, of estate agents Beauchamp Estates, said: ‘I have half a dozen Russian clients urgently looking to spend over £20million each on buying a new home in prime Central London.’
In Moscow their less wealthy countrymen were flocking to stores to snap up home appliances, cars and electrical goods. Customers stormed Ikea while Apple suspended online sales.
The fact that economic collapse now threatens the Putin regimemeans the situation is terrifyingly volatile. Given his past form, it’s more than likely that Putin’s KGB-trained instinct will be to try to repress all opposition to his rule – even though it is growing by the day.
Worse, there’s a strong possibility that he will attempt to distract the population with a military adventure. The annexation of Crimea in February brought a giant, if relatively shortlived, spike in popularity.
Already in recent weeks Russian troops, ships and planes have been playing cat-and-mouse with Nato. Sweden has reported at least one near miss in its airspace between an airliner and a Russian military plane.
RAF jets have been scrambled to see off incursions into British air space 100 times this year alone. And Russian bombers armed with nuclear missiles have resumed long-range flights over the coasts of the US.
This may be nothing but posturing by a president whose only language is that of macho, Cold-War era military display. But for Russia’s nervous Nato-member neighbours – especially the Baltic states such as Latvia, Estonia and Lithuania – there is a real belief that he could lash out.
Putin has ratcheted up his rhetoric against the West since the beginning of the Ukrainian crisis in February: ‘Nato remains a military alliance, and we are against having a military alliance making itself at home right in our own backyard,’ he warned.
Meanwhile, even though US President Barack Obama always held off from directly supporting Ukraine’s army in its struggle against Russianbacked militias in Eastern Ukraine, the newly-elected Republican-dominated US Congress recently authorized the provision of $350million of weaponry for the Ukrainians.
This could be just the kind of excuse Putin has been waiting for to escalate the conflict in Ukraine. He knows that Russian aggression increases global tension - and that this has always led to increases in oil prices.
The fact is that Russia’s failed economy and increasingly restive population mean Putin is cornered, like a wounded animal, with very f ew options left. That is why, right now, he is more dangerous than ever.