Vladimir Putin’s Return as Russian President
May 4, 2012
On May 7, Vladimir Putin will be inaugurated for his third term as president of Russia; this time for six years to 2018. On May 18, he is scheduled to meet with President Obama in the White House prior to the G-8 meeting at Camp David. This Critical Questions addresses key challenges for Putin and what we should expect in U.S.-Russia relations.
Q1: What will be Vladimir Putin’s biggest domestic policy challenges as he takes over the Russian presidency for a third term on May 7?
A1: Putin’s first challenges will be economic in nature, and of course, they are closely linked to his capacity to manage politically. The popularity of the Russian president over the past 20 years has been closely correlated with Russian citizens’ perception of economic performance. In this regard, Russia is similar to most other polities. The macroeconomic situation now is fairly positive as growth is expected to be about 4 percent this year and next. The budget is very close to balance, and Russia has a large cushion of more than $500 billion in foreign exchange reserves, as well as about $175 billion in sovereign funds. Unemployment and inflation are also at near record lows of around 5 to 6 percent. Americans and Europeans have much to envy in these numbers.
The concern, however, is that when the price of oil is over $100 per barrel, and every plus/minus $10 in oil price equates roughly to plus/minus 1 percent in GDP, the risk of macroeconomic destabilization is always close at hand. Secondly, five years ago when the oil price was about $60 per barrel, the Russian economy grew by more than 8 percent. There is a broad consensus in the Russian political elite that the economy needs new drivers of growth beyond those that fueled the golden decade from 1999 to 2008 when growth averaged 7 percent a year. Then the key drivers were the impact of structural reforms in the 1990s, a 50 percent increase in oil production, a five-fold increase in the oil price, and easy global monetary conditions. The latter three factors cannot be counted on now, so Putin and his team need to return to structural reforms to increase efficiency and reduce corruption. This requires a more transparent, open, decentralized economic and political system—quite different from what Putin created in his first decade or so of leadership.
This brings us to his political challenges. We should first keep in mind that in 2011, despite GDP growth, disposable personal income dropped, and this was a contributing factor to rising popular discontent expressed in the disappointing performance of the ruling United Russia party in the December parliamentary elections and the emergence of a visible and active opposition for the first time since Putin came on the national political scene in 1999. In keeping with modernization theory, as Russians are getting wealthier, they are beginning to demand better and more pluralistic governance and more effective delivery of social and public goods. Ironically it is the prosperity of the Putin era that has driven the growth of this emerging middle class, and now the president will need to make adjustments to account for the demands of this dynamic social class. In short, Putin needs continued economic growth to maintain his political power. Achieving that growth will require major reforms, and the result of that growth will be even further public demand for political and social reform.
Q2: What can we expect in U.S.-Russia relations?
A2: Certainly the tidal wave of anti-U.S. rhetoric and the abominable treatment of new the U.S. ambassador to Russia, Michael McFaul, during the Russian campaign season raised concern that Putin’s return to the Russian presidency spelled trouble for U.S.-Russia relations. However, Putin is a pragmatic politician, and as prime minister he supported the Medvedev-Obama “reset” in U.S.-Russia relations. The challenge now is that the reset’s momentum peaked more than a year ago, and the agenda in U.S.-Russia relations is far more contentious as it has been dominated for months over our differences on Syria, missile defense, and to a lesser extent Iran. We should consider the reset over but recognize that it was a major success in delivering a number of important agreements and cooperation with Russia that advanced U.S. national interests, as well as those of Russia.
Putin wants a constructive relationship with the United States, and his meeting later this month with Obama will be the first opportunity to establish that tone and develop a personal relationship, which got off to a rocky start in Moscow three years ago. It is likely that, either in Washington or at the NATO summit in Chicago, we will formally conclude the agreement with Moscow to establish a new transit base in Ulyanovsk for movement of war material from Afghanistan. Hopefully, Putin will use the opportunity here to strengthen the Obama administration’s case to Congress to grant Russia permanent normal trade relations (PNTR) status. But this will not be a moment for major deliverables as such, but rather an opportunity for the new leaders to demonstrate their good will and intentions about future cooperation. Just as it was several years ago in Moscow, a constructive relationship with Washington helps provide greater geopolitical balance for Russia as it manages relations with a rapidly growing China. And similar to three years ago for Obama, the United States needs Russian cooperation to pursue core security challenges on nuclear nonproliferation and security, Iran, Afghanistan, and elsewhere. Finally, both Putin and Obama have expressed their support for developing stronger economic trade and investment ties.
Q3: What is the state of play with the pending congressional vote on Russia’s PNTR status?
A3: Russia will officially join the World Trade Organization (WTO) early this summer when the Duma ratifies the decision to accede that was made by WTO in December 2011. In order for the United States to be party to Russia’s accession and benefit from it, it must grant PNTR status, which effectively lifts the Jackson-Vanik amendment. So, getting Congress to grant Russia PNTR status remains a major challenge. U.S. companies have held hundreds of meetings with members of Congress and staff that, as yet, have yielded little forward movement on the legislative front. It is too bad this vote did not come up 12 to 18 months ago when the momentum in U.S.-Russia relations was much more positive and we were not in a campaign season here. Putin has only himself to blame for that, as it was his shocking about-face in June 2009 to prioritize the Customs Union with Belarus and Kazakhstan that delayed Russia’s accession to WTO by at least a year. U.S. and international trade officials and lawyers worked incredibly hard to get the accession back on track. It would be a tremendous irony if, after so much effort on part of U.S. officials, a failure to grant Russia PNTR status would punish U.S. companies from competing in the Russian market.
The U.S. economic/business and national interest argument for granting Russia PNTR status is obvious: if we do not, we will not benefit from negotiated lower tariffs nor have recourse in trade disputes with Russia to WTO adjudication institutions. As Senate Finance Committee chairman Max Baucus said at a recent hearing, “It’s a slam dunk” in that regard. However, a positive vote on PNTR is far from a slam dunk since for many representatives and senators this vote will be a broader referendum on Russia in which concerns about Russian foreign policy, human rights, democracy, and other issues will come into play. And even though the economic argument is positive, the trade and economic relationship is quite modest—this is not like China’s PNTR 10 years ago, for example, when a huge economic relationship weighed more positively when balanced against concerns about human rights abuses and other issues. Even the economic argument is muddied by Russia’s less than stellar performance as a trade partner with its neighbors, violations of intellectual property rights, abuse of phytosanitary standards, etc. Regardless of those concerns, however, Russia will be a WTO member this summer, so it is certainly in our interests that the United States is party to Russia’s accession.
The Obama administration will need to work hard and lay out considerable political capital to make PNTR happen. The administration does not really want to have a public debate over its Russia policy during a campaign year. But it will have to, and the administration should not fear it, because there is a very strong case to be made. Members of Congress will also be reluctant to make what will appear to be a gift or concession to Moscow during a campaign year, when Russia’s stock in Washington is down. At the end of the day, we will grant Russia PNTR status because it would basically be idiotic not to. But exactly when the “end of that day” will be is a mystery.
Andrew C. Kuchins is senior fellow and director of the Russia and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.
Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
© 2012 by the Center for Strategic and International Studies. All rights reserved.