Will the Russian Economic Crisis Create a Political One?

Moscow’s stock market soared almost 30 percent on Friday thanks to the Russian government announcement it would dump about $130 billion into the sagging market.  Today, it injected more credit into the market just to make sure.  About $24 billion worth at 8.75 percent interest.  The move was to disperse more capital among banks pushed out of the previous trough.   The flood from state coffers attempts to do another thing: isolate the Russian market from the American financial crisis.  A staggering 70 percent of the Russian market is made up of speculative foreign money which explains why Russian stocks did such a nosedive.  As Vladimir Forlov writes in the Moscow Times,

Medvedev and Prime Minister Vladimir Putin reacted in ways that signal a fundamental shift. The government is now seeking to reduce the stock market’s dependence on foreign portfolio investors and to attract more long-term investment from Russia’s institutional investors, including the National Welfare Fund.

Whether this is merely a band-aid or a suture remains to be seen.

The crisis however might have more political ramifications for Kremlin Inc.  As the Financial Times asserts the crisis shook oligarch political loyalty:

There may be another restraint: the oligarchs. Putinism was built on the understanding that if tycoons played by Kremlin rules they would prosper. Recent military adventurism undermined that grand bargain.Oligarchs have been hit hard by the market fall; the rescue package came only after a restive business elite complained to the Kremlin.Vladimir Putin’s entrenched power makes more vigorous opposition highly risky. But, after the recent jolt, oligarch loyalty is no longer a given.

The FT made a similar assertion in another article on Russia’s one day stock boom.

The war in Georgia and the ensuing collapse of Russia’s financial markets has put conservative anti-western forces on a collision course with a clique of western-oriented, relatively liberal opponents. President Dmitry Medvedev and Vladimir Putin, prime minister, both said Russia would not change its course towards integration with the world economy.

But a flurry of competing public denunciations and press leaks from opposite sides of the political spectrum indicate a behind-the-scenes struggle over Russia’s future course and its relationship with the west.

Unfortunately, the FT doesn’t cite any of these “public denunciations” or “press leaks” except for Just Russia calling for Finance Minister Alexei Kudrin’s resignation.  Is this wishful thinking on FT‘s part or a sign of something bigger?  I’m sorry but empty calls from Just Russia doesn’t cut it. Nor does Russian businessmen putting pressure of Medvedev to do something.  In most places this is simply called lobbying, not a political struggle.

Perhaps the FT‘s allusion to some “behind-the-scenes struggle” is based on recent speculation that Russia’s victory over the Georgians has emboldened the siloviki, or “hawks” as they are increasingly being called in the press. Or perhaps the Financial Times is making much of the supposed rift between Putin and Medvedev over the prosecution of the war.  Medvedev didn’t want to go further than South Ossetia, the theory goes, while Putin wanted to remove Saakashvili from power.  It’s difficult to say. Mostly because these allegations were made in Russia’s liberal press.  Everybody knows how much they are susceptible to wild speculation and wishful thinking.

But FT is not alone in thinking that something political is stirring in Russia. The Washington Post also thinks that Russia’s economic crisis might produce a proportional shock to its political system. But in contrast to the FT, the Post doesn’t think much will come of it simply because Putin has tamed the oligarchs with the tried and true method of force and intimidation.

The market turmoil has been felt primarily by Russia’s wealthy because most Russians keep their savings in cash. It is unclear whether the tycoons will present a serious political challenge for Putin, who has cowed most of them into silence.

“Do they have the guts to put pressure on him? I doubt it. They’re hurting, but they’re so scared they won’t open their mouths,” said Alexander Lebedev, a billionaire who owns 30 percent of Aeroflot and part of an independent newspaper. He likened the tycoons in Putin’s circle to members of a royal court too intent on seeking his help with business deals to risk upsetting him by complaining.

If tycoons are too afraid to complain, then where what is FT talking about?  Or the Post for that matter?