Russia’s president Vladimir Putin announced this week that a key constitutional referendum – originally scheduled for 22 April but postponed due to the coronavirus pandemic – will now go ahead on 1 July. The public will vote on a range of reforms that broadly strengthen the powers of the state, make it harder for Putin’s opponents to assume political power, and include a new presidential term limits clause that resets Putin’s own tally of terms to zero. If it passes, it means Putin – who has ruled Russia as president or PM since 1999 – could now remain in power until 2036. To encourage a “yes” vote, the Kremlin’s reforms must be voted on as a single package – one that handily includes some big financial incentives, such as improved minimum-wage guarantees and a constitutional right to pensions that are indexed to inflation.
Will it go through?
It’s very unlikely that the Kremlin would be going ahead with the vote if it weren’t sure it could still win it. The delicately balanced reforms reflect the tacit grand bargain that has characterised Putin’s long reign: relative economic prosperity in return for authoritarian rule and the veneer of “managed” democracy. Putin’s approval ratings have fallen significantly in recent years, from above 80% to just 59%. The approval of three-fifths of the population is something most Western leaders can only dream of, but Putin’s ratings have dropped sharply (by six points) in the pandemic. Many analysts believe the grand bargain is showing ominous signs of fraying.
The double whammy of this spring’s oil price war with Saudi Arabia followed by Covid-19 and its economic impact. Putin had been looking forward to a spring of triumphs: a win in the crucial plebiscite followed by a Victory Day parade (marking 75 years since Soviet Russia’s defeat of Nazi Germany) attended by world leaders. Instead, Putin’s strangely disengaged and rudderless handling of the coronavirus crisis – conspicuous by his absence for long periods and handing de-facto control to underlings and state governors – has dented his authority. Nor is the crisis abating. Russia now has more confirmed cases than anywhere in the world except the US and Brazil (more than 430,000 as of Wednesday), and its daily tally of new cases has remained stubbornly high (around or above the 9,000 mark) for the past month. In terms of deaths, Russia’s confirmed toll is only 5,215, but many analysts believe Russia is massively under-reporting deaths from Covid-19 – a strategy of secrecy and denial that merely stores up more trouble for its government.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
How’s the economy doing?
Putin’s decision to trigger an oil-price war in early March was “disastrously timed”, says the Financial Times. The price of Russia’s chief export and the mainstay of its economy and government finances collapsed just as Covid-19 forced the economy into shutdown, with the result that Russia now faces a worse crisis than the 2009 global recession. Initial estimates of the collapse in GDP this year range from 5% to 12%, pushing the spending deficit up beyond 6% of GDP. Russia has taken a rather different approach to the crisis than many other countries. Despite having reserves of around $143bn at the start of April (9.8% of GDP), the Kremlin has put only around 2.8% of GDP into fiscal stimulus measures aimed at keeping the economy afloat (that compares with 10% in the US, and more in many European countries). Moreover, the figure is only around 1% in terms of direct payments to firms and wage support for individuals; the rest is in the form of loan guarantees and tax deferrals.
Will it work?
Some analysts think its economy is better placed to withstand the twin impacts of epidemic and oil-price shocks than it was in 2008 or 2014 because it has little external debt and significant currency reserves. But that looks optimistic, reckons Owen Matthews in The Spectator. When the rouble lost half its value after the annexation of Crimea (and subsequent sanctions) in 2014, Moscow banned the import of EU foodstuffs to boost the economy and ensure “devalued roubles would hold their local purchasing power”. This time round, while the UK and other Western nations will print or borrow their way out of trouble, sanctions mean Russian private businesses remain cut off from money markets and “Russian sovereign debt is only attractive when underpinned by healthy oil revenues”. The lopsided Covid-19 financial assistance – benefiting big employers more than entrepreneurs – will only entrench the dominance of state-linked big businesses, says Clara Ferreira Marques on Bloomberg. “In the short term, this will strengthen the hand of a vulnerable president.” Longer term, “it spells stagnation”.
Will Putin survive?
Much ink has been spilt over the past two decades forecasting how the Putin endgame might unfold. Yet this time something really has shifted, argues Russian academic and analyst Tatiana Stanovaya in The Moscow Times. From a distance, Russia’s elite may seem consolidated under Putin, an impression reinforced by his bid to “reset the clock” on presidential term limits. In fact, the elite for whom Putin governs is “riven by conflict” between multiple factions fighting “not just over influence and property, but also over ideology”. In particular, there’s a fundamental breach over Russia’s future between nationalist securocrats and more economically oriented technocrats. This poses a problem for Putin, especially given that he’s “increasingly absent from everyday decision-making”. As a result, he “risks being more captive” to the different factions’ “initiatives, their shortcomings, and their constant disputes and squabbles. In many respects, the Putin system’s unity and cohesion have never been more important than now, when they are the least in evidence”.
Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published Customers.com, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.
Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.
Nvidia becomes the fourth biggest company in the world - should you invest?
Chipmaker Nvidia is riding the AI wave, and has overtaken Alphabet and Amazon in terms of market capitalisation. Have new investors missed the boat, or will the share price soar higher?
By Ruth Emery Published
Savings market heats up as providers boost rates - should you switch now for a better return?
In a surprising twist, more and more banks are now hiking their savings rates. Is it a good time to move your money and grab a better rate?
By Vaishali Varu Published
Halifax: House price slump continues as prices slide for the sixth consecutive month
UK house prices fell again in September as buyers returned, but the slowdown was not as fast as anticipated, latest Halifax data shows. Where are house prices falling the most?
By Kalpana Fitzpatrick Published
Rents hit a record high - but is the opportunity for buy-to-let investors still strong?
UK rent prices have hit a record high with the average hitting over £1,200 a month says Rightmove. Are there still opportunities in buy-to-let?
By Marc Shoffman Published
Pension savers turn to gold investments
Investors are racing to buy gold to protect their pensions from a stock market correction and high inflation, experts say
By Ruth Emery Published
Where to find the best returns from student accommodation
Student accommodation can be a lucrative investment if you know where to look.
By Marc Shoffman Published
Best investing apps
We round up the best investing apps. Looking for an easy-to-use app to help you start investing, keep track of your portfolio or make trades on the go?
By Ruth Emery Last updated
The top funds to invest in
Tips Tech-focused funds are continuing to attract private investors and Scottish Mortgage falls back into favour - we look at the top fund, trusts and stocks investors are pumping their money into in the last month
By Vaishali Varu Last updated
The world’s best bargain stocks
Searching for bargain stocks with Alec Cutler of the Orbis Global Balanced Fund, who tells Andrew Van Sickle which sectors are being overlooked.
By Andrew Van Sickle Published
Revealed: the cheapest cities to own a home in Britain
New research reveals the cheapest cities to own a home, taking account of mortgage payments, utility bills and council tax
By Ruth Emery Published