Page 55 - bne_August 2023_20230802

bne August 2023
Opinion 55
Together with other initiatives – such as the introduction
of higher (or one-off) taxes – the government attempts to significantly improve its fiscal situation. That, in turn, should allow it to skip using its National Welfare Fund as the main source for funding the budget deficit.
... but also leads to an increase in inflationary pressures.
Such a policy does come with an important side-effect: it leads to a material rise in inflationary pressures. But that is a problem that the government and Kremlin have left for the Central Bank to resolve. In other words, the forthcoming July hike in the CBR’s official rate – if it materialises, as we expect – will also come as a logical result of the steps undertaken by the Cabinet and aimed at protecting the budget and state FX reserves.
How Prigozhin's rebellion impacts Putin’s grip on power
Michael McFaul in Stanford
Vladimir Putin has just endured one of his worst weeks in power. The massive demonstrations in 2011-2012 against his regime were challenging too. People seemed to have forgotten how unnerved Putin was by them. For that history, see From Cold War to Hot Peace: An American Ambassador in Putin’s Russia. But this week was even harder because those challenging his regime this time had experienced, heavily armed mercenaries on their side. The anger and anxiety
that Putin expressed in his two national addresses this week exposed just how rattled he was by the Prigozhin rebellion.
When faced with bad and worse choices, Putin managed to manoeuvre this crisis to a less bad outcome. Negotiating with a traitor – even if embarrassing and undermining to his image
as a strong man – is better than launching a civil war amid his barbaric full-scale invasion of Ukraine. But as this week ends, we still don’t know the full extent of the damage done to the strength and stability of Putin’s regime. General Surovikin, the number two commander of Russian forces occupying Ukraine, allegedly has been arrested for colluding with Prigozhin. Were other Russian conventional forces also cheering for Prigozhin’s mutiny to succeed? We don’t know. Surovikin is very popular among Russian soldiers. If he was in fact arrested, Gerasimov might be happy, but his soldiers would certainly not share the same sentiments. In his second national address to the nation, Putin pleaded to the Wagner mercenaries to distance themselves
Russia sees a growing deficit of fully convertible currencies. One other important factor that has added to the weakness in the ruble derives from the transformed structure of the Russian domestic FX market. The collapse in Russia’s energy and commodity trade with the West and the introduction of Western sanctions against Russia’s banking sector has effectively cut off Russia from a major part of financial flows in $ and EUR. Instead, Russia has switched to payments in alternative currencies, mostly the Chinese yuan and Indian rupee. However, as these currencies have limited convertibility, access to export earnings in these currencies is often limited. As a result, there has been a dramatic decline in volumes of FX traded on the domestic market – and this could not but increase negative pressures on the dynamic of the ruble’s exchange rate.
Yevgeny Prigozhin. A still from the video.
from Prigozhin and his allies, whom Putin once again lambasted as traitors, and instead join the ranks of the Russian military. In that speech, Putin offered Wagner fighters a major concession: to join other parts of the Russian government that employs armed soldiers, such as the National Guard under General Viktor Zolotov, so that they do not have to serve under the despised Gerasimov. Putin might have found a short-term solution but he has not solved his Wagner problem yet.
For now, Putin will hold on to power. Some even predict that the failed rebellion will be a blessing in disguise for Putin, allowing him to cleanse his government and armed forces of traitors. It also gives him an excuse to crack down on society even further. We should expect both of those actions in the coming weeks and months. Eventually, I wouldn't be surprised if Prigozhin either disappears from public life or suffers an even worse fate. Putin can't turn Prigozhin into a martyr while his Wagner fighters are still armed and independent. He needs to wait a while. In the short term, Putin will prevail. But the longer term does not look good for Putin. His image as an invincible leader has taken a hard hit. He will not recover. For the details, read my latest article in the Journal of Democracy.
Michael McFaul is a professor at Stamford, advisor to the Ukrainian government and the former US ambassador to Russia.
www.bne.eu