Russia A History

by Gregory L. Freeze

  A fourth issue was NATO expansion: to Moscow’s consternation, NATO—under American leadership—actively recruited and incorporated former Warsaw bloc countries and even former Soviet republics. Russia grew increasingly alarmed as NATO expanded eastward, encompassing former Warsaw Pact countries and former Soviet republics in the Baltics, with the ex-communist lands coming to comprise 40 per cent of NATO membership. Nor did the campaign show any signs of stopping: the United States vigorously supported the inclusion of Ukraine and Georgia, especially after their ‘orange’ and ‘rose’ revolutions brought pro-Western regimes to power. Some European members of NATO opposed the American démarche, partly because of Russia’s opposition but also because neither Ukraine nor Georgia met the prerequisites for membership. Washington none the less extracted a NATO declaration of ‘intent’ to initiate the process of admission to NATO. Putin in turn protested that some in the West ‘have not been able to move on from the stereotypes of bloc thinking and prejudices, which are a carry-over from the epoch of global confrontation’. All this led to a famous Putin outburst about American hegemonism in a Munich conference in February 2007: ‘The United States has overstepped its borders in all spheres—economic, political, and humanitarian—and has imposed itself on other states.’

  The mounting tensions with Washington encouraged Moscow to strengthen its ties to Europe. Not only was the latter its main trade partner, but it was also a natural partner for Russia as a ‘European’ country. Closer relations, however, proved elusive, in large measure because of recurring reports about military abuses in Chechnya and other human rights violations—which Moscow dismissed as unacceptable interference in its internal affairs. Tensions were also inflamed by Russia’s conflict with Ukraine over natural gas exports: Moscow’s decision to shut down the gas pipelines in January 2006 and January 2009 caused considerable hardship in Europe, which relied on Russia for a quarter of its natural gas and suspected that Russia was not only putting pressure on Ukraine but also indulging in political pressure and blackmail.

  Amidst these complications, Putin—the ‘Europeanist’—gradually began to reorient strategy to the East, especially China. The latter was a major target of arms exports and shared many of Russia’s foreign policy aims—especially, its concern about the ‘unipolar hegemonism’ of the United States, the latter’s penchant for ‘humanitarian intervention’ and violation of state sovereignty, NATO enlargement, and the Islamist fundamentalism which threatened both Russia and China. In 2001, the ‘Shanghai Five’, established five years earlier by Russia, China, and three former Soviet republics (Kazakhstan, Kyrgyzstan, and Uzbekistan), was reconstituted as the Shanghai Cooperation Organization (SCO), tasked not only with promoting economic relations but also with coordinating policy and enhancing mutual ties. In 2004 SCO established an ‘anti-terrorist centre’ to combat the radical Islamist movements and the following year resolved to reduce American influence and military presence in the region. In August 2005 Russia and China held their first joint military exercises, underscoring that SCO and their bilateral ties had moved significantly beyond the economic sphere.

  The Putin government, with little success, sought to maintain its influence in the ‘near abroad’—the former Soviet republics—partly because these countries now held a sizeable Russian diaspora, partly for geopolitical reasons. It had no success whatsoever in the Baltic states, which hastened to join the European Union and NATO and flagrantly violated the rights of ethnic Russians on their territories. Relations with Moldova, Ukraine, and Georgia steadily deteriorated. In Moldova’s case, Russia continued to support Trans-Dniester, a pro-Russian secessionist territory; despite agreements to withdraw Russian forces, Russia continued to deploy a military contingent and support the region’s demands for autonomy. Relations with Ukraine sharply deteriorated after the ‘orange revolution’ in late 2004, both because Moscow had backed the losing candidate for president and because the new government in Kiev tilted strongly toward the West. Apart from historical enmity (including Ukrainian demands that golodomor, the famine which accompanied collectivization in the early 1930s, be recognized as genocide), there were other, more urgent contemporary issues. One was the status of the Crimea (which Khrushchev generously transferred to Ukraine in 1954, but which had a population composed primarily of ethnic Russians). The two sides had earlier agreed to ‘share’ the Black Sea fleet, but that too became a point of contention. Economics, above all the price of natural gas, also played a role. Given Ukraine’s Western tilt, Moscow saw no reason to continue Ukraine’s 60 per cent discount on natural gas prices (a subsidy amounting to three to five billion dollars a year); Kiev’s refusal to pay old debts and to negotiate new rates led Russia to shut off gas deliveries on two occasions, which ended in temporary agreements, but did not remove the question as a source of future conflict. Relations with Georgia, especially after the ‘rose revolution’ in 2003, also became increasingly acrimonious. As Georgia strengthened its ties to the West, Russia bolstered support for two secessionist areas of Georgia, Abkhazia and South Ossetia, populated by a non-Georgian majority; Russian peacekeepers had enabled both territories to remain virtually autonomous since the early 1990s. In August 2008, in a bid to reassert control (and with the promise of American support), Georgia launched an offensive in South Ossetia, but quickly suffered a devastating defeat at the hand of Russian forces. Russia’s action elicited much criticism, especially from the American administration, adding to the rancour in Russian-American relations. Russia (and only one other state, Nicaragua) formally recognized the independence of South Ossetia and Abkhazia, to the fury of officials in Washington and Tbilisi. Moscow’s action, however, should not have come as a surprise. Two years earlier, as the West prepared to recognize an independent Kosovo, Putin warned that such an action would provide a precedent: ‘If someone believes that Kosovo can be granted full state independence, then why should we refuse the same to Abkhazia or South Ossetia?’

  Some areas of the former Soviet Union, however, maintained close ties to Moscow. Belarus, indeed, even sought some kind of quasi-political union; while such proposals were current in the 1990s, Putin was less enamoured and the public likewise became increasingly sceptical, given the Belarusian economy and the ill repute of its mercurial president Aleksandr Lukashenko. Moscow attached far greater importance to its relations with the countries of Central Asia, partly because of the sympathies of Russian and Russified populations there, but also because they shared a common desire to contain Islamist fundamentalism and terrorism.

  As Putin’s tenure drew to a close in early 2008, it was clear that Moscow was seeking to reassert its stature as a major power. But in fact Putin’s regime had achieved little; his gratuitous attacks, however popular at home, aggravated tensions with the West. The United States, in particular, increasingly came to regard Russia as a threat to its power and to the process of democratization.

  2008: A New President

  As Putin’s second term drew to a close, with prosperity at home and Putin’s popularity at an all-time high, his supporters proposed to amend the constitutional limit of two consecutive terms in the presidency. However, Putin himself rejected that proposal and instead promoted the candidacy of his deputy prime minister, Dmitrii Medvedev. Like Putin, Medvedev came from St Petersburg, had a law degree (he even taught Roman civil law at St Petersburg University), and had worked for that city’s liberal mayor Sobchak in the early 1990s. In 1999 Putin appointed Medvedev deputy head of the governmental administration, next made him deputy head of the presidential administration, and then promoted him to be its director in 2003. At one point in 2000 Medvedev also served as chairman of the board of directors of Gazprom, the state’s natural gas monopoly. In 2005 Putin designated Medvedev first deputy prime minister, with responsibility for health care, demography, agriculture, and education, thereby giving him visibility in high-profile issues. Despite conjecture about Medvedev’s possible liberalism, during the election campaign he unequivocally embraced Puti
n’s ideal of a strong ‘vertical’ authority: ‘I am deeply convinced that, if Russia turns into a parliamentary republic, it will soon cease to exist. What it needs is a strong presidential authority. These lands were brought together over centuries, and it is simply impossible to govern them in any other way.’

  Medvedev held an insuperable advantage in the presidential campaign. He not only had Putin’s public support but quickly announced that he would appoint the popular Putin as prime minister, ensuring that Putin and his policies would remain in place. Indeed, the pair campaigned as a team under the slogan ‘Together we shall win.’ The opposition, divided and weak, deprived of the state-controlled mass media, had little prospect of victory. Western observers questioned the legitimacy of the election; the Organization for Security and Cooperation in Europe (which routinely monitors elections) declined to participate, citing ‘severe restrictions on its observers by the Russian government’. Those who did come to observe reported a ‘fair but unequal election’. One study found that Medvedev had six times more coverage than his rivals; some oppositionists claimed forged election protocols. Few, however, doubt that Medvedev won a landslide victory, with 71.3 per cent of the vote against 18.0 per cent and 9.5 per cent for the next two candidates.

  With Medvedev’s election and installation as president in May, Putin became prime minister. The new government enjoyed popularity and power: although the two were often described as a ‘tandem’, Putin unquestionably was a power unto himself. Some of his popularity even rubbed off on the ‘government’, which traditionally had extremely low approval ratings, but now saw its approval shoot up to 60 per cent, with still higher ratings for Medvedev and Putin.

  The post-Putin ‘tandem’ continued Putin’s foreign and domestic policies. In foreign policy Russia continued to oppose the placement of NMD facilities in Poland and the Czech Republic; failing to persuade the Bush administration to reconsider, Moscow remained hopeful that the new government of Barak Obama would be prepared to compromise. Moscow did succeed in persuading NATO to delay plans to admit Ukraine and Georgia, despite strong pressure from the American government. The military conflict with Georgia in August 2008 exacerbated tensions, but neither the United States nor its European allies pressed their demands that Russia withdraw its forces and recognize Georgia’s sovereignty over the breakaway regions. The Medvedev presidency also reaffirmed Putin’s domestic policies in a long-term plan called ‘Strategy for 2020’, which was drafted in June 2008 and outlined goals and policies for the next dozen years. The plan envisioned a fivefold increase in wages, threefold increase in housing construction, doubling in research and development, and a demographic transformation (with the population growing to 145 million and life expectancy rising from 65 to 70). Such optimistic projections derived largely from the high rate of economic growth in the first months of 2008; buoyed by an investment boom, in the first quarter of 2008 the GDP grew at an annual rate of 8.5 per cent, among the highest in all the Putin years. The future could hardly have looked brighter when the price of oil reached $147 a barrel in July 2008. At that point, Russia seemed clearly poised for years of continuous prosperity and power.

  From Global Boom to Global Recession

  The American banking and mortgage meltdown in the second half of 2008 triggered a global crisis, with severe repercussions for all the globalized states, Russia included. The Russian leadership had no doubts about where to place the blame. As the contagion spread, on 1 October 2008 Putin bluntly declared that ‘everything happening now in the economic and financial sphere began in the United States’, and a month later President Medvedev hammered home the same theme: ‘The US economy … pulled financial markets all around the globe down with it in its fall’, adding that Americans ‘did not listen to the numerous warnings from its partners (including from us)’.

  Moscow had good cause for anger and alarm: the crisis had an immediate, devastating impact on the Russian economy. Oil prices plunged: from 147 dollars a barrel in July to less than 40 dollars by the end of the year—a 73 per cent drop. To rescue a falling rouble and failing corporations, the government had to raid the foreign exchange reserves that it had carefully accumulated; the reserves—once the world’s third largest—shrank from 598 billion dollars to 426.5 billion by early January, and dropped to 388 billion a month later (a decrease of 35 per cent). These measures, however, failed to staunch the decline of the rouble, which lost a third of its value against the dollar and returned to its exchange value at the time of the 1998 crisis. The Russian stock exchange nosedived, dropping from a high of 2,488 points in May 2008 to 507 by February 2009 (an 80 per cent decline). The crisis in the financial, banking, and securities sector carried over to the ‘real economy’, bringing a sudden halt to the high growth rate of the GDP. Putin initially projected an overall growth rate of 6 per cent in 2008, but later calculations reduced that to 5.6 per cent—the lowest since 4.7 per cent in 2002 and saved only by the high growth rate in the first half of the year.

  The crisis did not spare the oligarchs. Although the magnitude of the crisis evoked images of 1998, this time roles were reversed: in 1998 the oligarchs had bailed out the government, but now the state had to rescue the oligarchs. Authoritative sources reported that the twenty-five richest oligarchs lost 240 billion dollars, that they and individual companies struggled to service the colossal corporate debt (478 billion dollars) amassed in recent years. The case of the aluminium magnate Oleg Deripaska was instructive. His original wealth of 30.5 billion dollars had shrunk to 9.6 billion, with an outstanding debt of 18.6 billion. Oligarchs appealed to the government for emergency loans (Deripaska receiving 4.6 billion dollars, for example) and sought to sell valuable assets to achieve greater liquidity (Roman Abramovich, for example, purportedly seeking a buyer for his English football club, Chelsea).

  The financial crisis also had a profound impact on state finances. Instead of the budget surpluses, the precipitous drop in global energy prices—source of more than half of the state revenues—meant a fall in revenues and a ballooning deficit. In early January 2009 the government projected a deficit equal to 3.2 per cent of the GDP, but a month later revised that estimate and projected a deficit of 6.1 to 7.6 per cent; outsiders forecast an even larger deficit (on the order of 8 to 8.5 per cent). Such projections depended, first and foremost, on the price of oil, and as the price of oil dropped below 40 dollars a barrel, Moscow was forced to revise its budget projections (which earlier assumed the price of oil would be twice as high), with the inevitable consequence of still greater deficits.

  Despite the global economic crisis (which reduced the demand for Russia’s energy exports) and internal financial problems, the government not only resisted budget cuts but even made plans to increase pensions and unemployment compensation. Those policies helped to sustain high popular approval ratings for both Putin (83 per cent) and Medvedev (78 per cent) in December 2008, four months into the crisis. There was, to be sure, growing concern; those who thought the country was moving in the right direction dropped from 61 to 43 per cent during the same four months. Although the approval ratings showed some slippage, even for Putin, faith in his leadership remained unwavering.

  Putin certainly did all in his power to buoy confidence. Apart from assistance for debt-ridden companies and banks (with a 200 billion dollar stimulus package), Putin staged his seventh ‘national town meeting’ on 4 December 2008—as before, a well-rehearsed and impressive conference with the public, not just journalists, which lasted over three hours and allowed the prime minister to respond to phone calls, emails, text messages, and live interaction with small groups around the country. He answered 76 questions and demonstrated his usual mastery of detail, grasp of broader issues, empathy for fellow citizens, and flashes of humour. The public voiced a broad range of concerns—demands for tougher sanctions against paedophiles, the dangers of inflation, the violence perpetrated by ‘skinheads’ against minorities, traffic congestion, and even the weather (‘When will it snow?’, to whi
ch Putin responded ‘That’s up to God’). Other than the weather, Putin made clear that everything else was up to him and his government. Putin also exuded sympathy for those in need, like that in a message from an elderly woman: ‘To Putin. From Nadezhda Mukhanova, a pensioner, 68 years old. My pension is 3,500 roubles [116 dollars]; fire wood costs 10,000 roubles [333 dollars]. How can I survive?’ In such cases Putin promised to have the relevant ministry investigate or to direct local authorities to take action. As for the general economic crisis, a confident Putin offered reassurance: ‘Russia has seen greater problems and coped with them. We shall cope with the present crisis too if we follow the right course and are purposeful about our complicated economic and social matters.’ He noted that the country’s large foreign exchange reserves would ‘allow us to plan for a soft landing’.

  By early 2009, however, the prospects for a soft landing appeared to be fading. Putin predicted that the GDP would grow by 2.5 per cent in 2009, but other estimates were far more pessimistic, with forecasts that the GDP would decline by 3.0 to 15.0 per cent, depending on the price of oil and metals on international markets. In June 2009 the World Bank offered a more disinterested forcast, predicting that the GDP would decline by 7.5 per cent in 2009, but actually show a growth of 2.5 per cent in 2010. The range in projections reflected not so much political prejudice or posturing as the uncertainties in the global economy; given Russia’s reliance on commodity exports, the health of the global economy—and the demand for Russian resources—would determine the magnitude and duration of the Russian recession. Putin had achieved much during his two terms, promoting prosperity at home, amassing huge foreign exchange reserves, creating a stabilization fund, and reestablishing a centralized government. He positioned Russia as well as possible, but a country that gained so much from global boom was fated to lose just as much from a global bust. His plans for a ‘soft landing’ would depend heavily on global market forces far beyond his control.