Category Archives: Putin

15/1/20: Putin’s Latest Call Option Buy

"Poekhali!" sad Vlad, refraining Yuri Gagarin's famous phrase. And just like, with a sweep of his hand, Mr. Putin has

  1. Removed the entire Russian Cabinet, including his long-serving pal, now ex-Prime Minister Medvedev;
  2. Outlined a hefty set of forward-promised reforms; and
  3. Added billions of dollars to the Global GDP by creating a tsunami of Russia-related analysis, opinion pieces, reports and updates in the vast Kremlinology Sector bridging journalism, opinnionism, and think-tankerism.
WTF happened in Moscow today?

Putin has been under some sustained pressure in the last couple of years on the domestic economy front. Russian economic growth has been anaemic, to put it mildly. Let's take a brief walk through some headline figures (to-date):
  • Despite the 'recovery' from 2015 recession (GDP down 2.3%) and 2016 stagnation (GDP up 0.3%), Russian economic growth peaked at 2.3% in 2018 and slumped to 1.1% in 2019 (based on January-September stats).
  • Industrial production is up 2.4% y/y in 2019 (latest data is for January-November) which is worse than 2.9% in 2018, but still miraculous, given the state of Russian Manufacturing PMIs (see:
  • Fixed capital investment is in a dire state: in Q1-Q3 2019, investment is up only 0.7%, down from the rate of growth of 4.6% in 2017 and 4.3% in 2018. 
  • Retail sales are up 1.6% in 2019 (January-November data), but behind 2.8% growth in 2018. Retail sales rose 1.3% in 2017. None of this enough to recover the sector from a wave of massive contractions in 2015-2016, when retail sales fell 10% and 4.8%, respectively.
  • Exports have recovered, but are still running below 2011-2014 period averages.
  • Current account surplus is still positive, but way lower than in 2018. 
  • Unemployment is a bright side, at 4.6% in H1 2019, down from 4.8% in 2018, currently - the lowest on record.
  • After years of growth, population is set to slightly contract in 2019 compared to the post-Soviet peak of 2018. The change is estimated and is not statistically significant, but it indicates one breakaway from the prior trend: inward migration into Russia has slowed down substantially in 2018-2019, in part due to anaemic economy.
  • Fiscally, Russia is doing brutally well, however. Government surplus of 2018 - at 2.6% of GDP is likely to be exceeded in 2019: January-November data puts surplus at 3.1% of GDP.
  • Central Government Debt is at 13.7% of GDP as of October 2019, a slight uptick on 11.5% in 2018 and hitting the highest level since 2005, but more than benign, given it is entirely offset by the sovereign wealth funds and is being effectively shifted out of foreign currencies and into Rubles. As a reminder, in his first year in the Presidential office, Putin faced Government Debt of 79% of GDP, with External Debt being 67% of GDP. In 2019, external debt is at around 3.9% of GDP.
  • Oil reserve funds are up massively in 2019. In 2018, the funds amounted to USD 58.1 billion. At the end of September 2019, this stood at USD 124 billion. Including FOREX and Gold reserves, and other sovereign wealth funds, Russian Government had USD 530.9 billion worth of reserves as of September 2019, almost back to the peak of USD537 billion in 2012.
  • Inflation has ticked up in 2019. inflation hit an all time low of 2.9% in 2018 and over January-November 2019 this rose to 4.6%. Inflation has been a major historical point of pain in Russia, so return to above 3% price increases environment is a troubling matter, especially as the economy is barely ticking up any growth.
  • Average monthly wages in rubles are growing: up from RB 43,431.3 in 2018 to RB 46,549.0 in 2019 (October data). And wages are up in Euro terms (from EUR587.1 in 2018 to EUR654.1 in 2019). Average wages are also rising in USDollar terms. Which is a point of improvement for the Russians.
All of which brings us back to where Mr. Putin was standing at the end of 2019: he was presiding over an anaemic economy with some marginal signs of improvement and a growing dissatisfaction amongst his electorate with the Government management of the socio-economic conditions. Here is a snapshot of Vladimir Putin's and Dmitry Medvedev's approval ratings as collected by the independent Levada Center:

Notice much? Yep. Traditionally, Russian voters have placed increasing blame for deteriorating socio-economic conditions on the Government, as opposed to the President. Recent years are no exception. The last points on these charts is November-December 2019. Putin's approval ratings have basically stagnated from 3Q 2018 on, while Mr. Medvedev's ratings continued to slip.

Here is a nice kicker: majority of Russians are increasingly not seeing an alignment between their interests and the objectives of the Government. Again via Levada:

"Probably not" and "Definitely not": 2007 = 62%, 2009 = 65%, 2011 = 68%, 2013 = 67% and ... 2019 = 72%. Other signs of pressure? Position: "The government lives off the people and isn’t concerned about how normal people live" - support = 53% in October 2019 poll.

So Putin has been facing some major dilemmas in recent months. Chief ones are:
  1. How to shift economy toward a faster growth path?
  2. How to resolve the 2024 exit strategy without triggering an internal 'civil servants war' in the corridors of power? and
  3. How to secure an upside to his legacy (remember, recency bias means that people remember more recent actions / legacies of their leaders, as opposed to the more distant ones)?
Step one in dealing with the three dilemmas is: replace the unpopular Cabinet. Step 2 is: announce new reforms that - by historical experience - must include things that haven't failed before (e.g. focus on longer term political reforms as opposed to the shorter term market reforms). Step 3 is: quietly unleash a host of economic development policy changes (these are not reforms per se, but a rather policy tools that cannot be deployed by the current, status quo-anchored, Cabinet).

Unless you are a tin-hat-wearing member of the Putin World-Domination Conspiracy club, so far - rational, right? 

So Putin announced that he will 
  • gradually (a good thing, given weak institutional capital in Russia) 
  • rebalance the executive power away from the Presidential status quo 
  • toward a more co-shared power arrangement with the Duma (Russian Lower House of the Parliament). 
  • The only three details Putin mentioned today on the subject are: 
  1. Letting Duma elect the Prime Minister; 
  2. Giving Duma the power of appointing the entire Cabinet of Ministers and all Deputy Prime Ministers; and
  3. The President will have no veto power over the Duma on these appointments.
The whole idea is not new. 

Yeltsin dramatically reduced Parliamentary powers after the 1993 'Constitutional Crisis' - an event that saw the West applauding him for bombing the Parliament. Putin subsequently tightened the Presidential grip on power, motivated, at least at first, by the reality of the post-Yeltsin Russia spiralling into a series of smaller secessionist civil wars. Yeltsin made a deal with the devil in his last election: in exchange for the regions support for his hugely unpopular Presidency run, he gave regions more autonomy. On his timescale, Russian Federation would have been a wedge of Swiss cheese, riddled with newly independent ethnic and religious enclaves, by the mid-2000s. Under Putin, Moscow had consolidated its power, suppressing ethnic strife and nationalist extremism. By 2009, then-President Dmitry Medvedev started talking about the need for development of a functional opposition to the Kremlin-backing party, the United Russia. Chats about devolution of power back to the Parliament were mooted. In the end, Medvedev's reforms program included none of the political reforms to challenge the Kremlin. Worse, Medvedev's Police reform of 2011 was an exercise in federalization of the police force, effectively removing much of the local control over the cops. That said, the same reform significantly curtailed the imbalance between the rights and the duties of the police, giving more rights to the citizens.

Now, the idea of devolution of power is back. Why? Because today's Russia faces three important realities:
  1. Reality of a stagnant economy - traceable back to 2011 and post-2014 collapse of oil prices. This stagnation outlived the economic promises of the Medvedev's reforms and the endless statements from Putin about the need for diversification of the Russian economy;
  2. Reality of shifting voter preferences away from supporting geopolitical re-entry of Russia into the exclusive club of countries that 'matter' toward domestic agenda; and
  3. Reality of the Putin presidency facing the end game of transition of power - something that virtually never has been achieved in the past without a major mess.
One way or the other, the idea of giving Duma a meaningful say in the formation of the Government is a good idea for Russia. And one way or the other, it will provide new incentives for a gradual (over the longer period of time) evolution of the Russian body of politics away from the rubber-stamping 'opposition' to the ruling United Russia (the status quo) and toward genuine competition in policies and ideas. This, too, is a good thing for Russia. In fact, I can't really find anything bad in the Putin's latest idea, without forcing myself to think in conspiracy theory terms.

Therefore, to me, the main question that everyone should be asking is not whether or not Putin is proposing these reforms in order to remain in power post-2024, but whether such reforms are feasible today. My gut feeling is that they might be. If the Duma is given real powers, starting with the powers of selecting the Government Cabinet, skin-in-the-game incentives for political parties participation in legislative process beyond today's political posturing will rise. This can, over time, lead to the emergence of a genuine and more effective opposition - the one, driven by policy debates and competing world views. Will it happen? I don't know. Does Putin know? I doubt. 

Frighteningly, not a single journalist I've read on the topic today asked these questions of feasibility of the reforms. Instead, all focused on scaremongering their readers into believing that the announcement is yet another dastardly Putinesque plot to [insert the humanity destroying disaster of your choice here].

CNN produced this utter garbage for analysis:

The CNBC folks decided piped in with this one" 

Neither august outfit of 'world class journalism' has managed to notice the fallacy of their 'damned if he does anything, and damned if he does nothing at all' logic. But enough morons. The real test of Putin's 'reforms' will come post 2024. Until then, watch the proposals for the referendum take shape.

PS: Will we miss Medvedev? Well, he sure beats the tax collector who will replace him. At least in charisma, diplomacy and economic thinking. But not in accountancy. 

6/1/18: Spent ‘Putin’s Call’ Means Growing Pressure for Reforms

Some interesting new trends emerging in Russian public opinion as the next Presidential election approaches. State-linked Russian

Academy of Sciences publishes relatively regular polls of public opinion that look into voters' preferences, including preferences for either "significant changes" in policy course in Russia or "stability" of the present course.

Here is the latest data:

Some 'Russia analysts' in the Western media have been quick to interpret these numbers as a sign of rising anti-Putin sentiment. Things are more subtle than that.

There is, indeed, a rather remarkable shift in public preferences in favor of "significant changes". Which can be attributed to the younger demographic who are predominantly supportive of reforms over their preferences for "stability". This is good. However, we do not know which changes the voters would prefer. Another potential driver for this shift is the ongoing weak recovery in the Russian economy from the 2014-2016 crisis - a recovery that fades to the background voters' previous concerns with the Russian State's geopolitical standing in the international arena (key pillar of Putin's third presidency) and the movement to the forefront of economic concerns (key pillar of Medvedev's interim presidency and, so far, an apparent area of significant interest for Putin looking forward to his fourth term).

These gel well with other public opinion data.

Here is Pew data from earlier 2017 showing that Russian voters nascent sentiment in favor of reforms may not be incongruent with their simultaneously continued support for Putin's leadership:

When one looks at the same polls data on core areas of domestic policy that the Russians feel more concerned about, these are: corruption (#1 priority), economy (#2 priority) and civil society (#3 priority). In other words, more liberal issues are ranked toward lower priority than other reforms (economy and corruption, which are both seen by the majority of the Russians as the domain of State power, not liberal order reforms). Civil society is an outlier to this. And an interesting one. Perhaps, indicative of the aforementioned demographics shift. But, perhaps, also indicative of the dire lack of alternatives to Putin-centric political spectrum in Russia. Again, whether the voters actually see Putin as a barrier to achieving these reforms is the key unknown.

Worse, not a single one area of domestic policies has plurality disapproval rating.

Somewhat confusing, Putin's personal approval ratings - for specific areas of policy - have been deteriorating over time:

This is significant, because traditionally, Russians view Presidential office as distinct from the Government (the 'good Tzar, bad Boyars' heuristic) and the tendency to view domestic objectives as key priorities or targets for disapproval would normally be reflected in falling support for the Government, not the President. This time around, things appear to be different: Russian voters may not be blaming Putin's Presidency outright, but their confidence in the President's ability to manage the policy areas of their key concerns is deteriorating.

The 'Putin call' - past bet on forward growth to sustain power centralization - is now out of money:

Weakest points are: corruption and economy. And these are the toughest nuts to crack for Putin's regime because it rests strong Federalization drive of 1999-present on the foundations of balancing the interests of the rent-seekers surrounding it (aka, on corruption around it, a trade-off between loyalty to the Federal State and the President, in return for access to wealth and the ability to offshore this wealth to the likes of London, a world's capital for grey and black Russian money).  Ironically, Western sanctions and broader policies toward Russia are actively constraining the scope and the feasibility of all reforms - be it reforms of the economy or civil society, anti-corruption measures or political liberalization.

Note: an interesting read on the changes in the Kremlin-backing 'opposition' is also afoot, as exemplified by the new leadership emerging within the Russian Communist Party (read this well-researched and unbiased view, a rarity for WaPo, via David Filipov:

Taken together, the above suggests that Putin needs some quick wins on the hardest-to-tackle issues: corruption and economy, if he were to address the pivot in voters' preferences for change. The 'if' bit in this statement reflects severe uncertainty and some ambiguity. But assuming Putin does opt to react to changes in the public opinion, we can expect two policy-related moves in months ahead:

  1. Corruption: we are likely to see public acceleration in prosecution of smaller/lower-end bureaucrats, deflecting attention from the top brass surrounding the centre. Alongside promotion of some fresh names to regional leadership posts (governors etc), already ongoing, we are also likely to see some additional consolidation of the oligarchic power in the economy. There will be no cardinal wide-spread change in power ministries and within the Deep State institutions. But, even the beginnings of such acceleration in cleaning up mid-tier of the top echelons of power will prompt hysterical comparatives to Stalin's purges in the Western media.              
  2. Economy: we are also likely to see a new 'Program for 2030' aiming to 'modernize' the economy, deepen capital investment, on-shore funds stashed away in Cyprus, Austria, Germany, the Baltics, the UK and elsewhere. Note, the list of Russian-preferred offshore havens - it is littered with the countries currently beating the Russophobic drums, which will make such on-shoring double-palatable for Kremlin, and more acceptable to the Russian power circles. The process of on-shoring has already began, even if only in the more public and more benign context ( The Program is also likely to see some reforms of the tax code (potentially, raising 13% flat tax rate and tweaking capital gains tax regime). A deeper push can come on enforcement and compliance side, with Moscow finally attempting to shift tax enforcement away from its current, highly arbitrary and politicized, practices. Putin is acutely aware of the fact that Russian public investment sits too low, while ammortization and depreciation are accelerating. We can expect some announcements on this front before the election, and, assuming economic growth becomes a new priority of the fourth term, an acceleration in State funding for infrastructure projects. This time around, new funding will have to flow to key public services - health and education - and not into large-scale transport projects, .e.g Crimean and Vladivostok bridges. Russia is well-positioned to support these initiatives through some monetary policy accommodation, with current inflationary dynamics implying that the current 7.75% benchmark CBR rate can be lowered to around 6% mark (this process is also ongoing). beyond fiscal and monetary aspects of reforms, Russia can opt to move more aggressively with revamping its Byzantine system of standards and certification systems to align them more closely to the best practices (in particular, those prevalent in the EU). Such alignment can support, over time, diversification of Russian exports to Europe and to other regions, where european standards effectively goldplate local ones.
What we are not likely to see, in the short term, is unfortunately what is needed as much as the above reforms: changes in legal and enforcement regimes. Poor legal enforcement and outdated, politicized and often corrupt judicial system are stifling entrepreneurship, enterprise scaling, international and domestic investment and, equally importantly, development of the civil society. It also weakens the Federal State by presenting a bargain in which local loyalty to Moscow is secured by allocating local authorities power to shadow justice systems. This bargain undermines voters' trust and reduces efficiency of resources flowing across regions and from Moscow.

As a number of more astute observers, e.g. Leonid Bershidsky (@Bershidsky) and David Filipov (@davidfilipov) have implied/stated in the past, promising reforms after nearly two decades in power will be a hard sell proposition for Putin. Which means Programs alone won't cut it. Kremlin will need to deliver and deliver fast, in order to break away from the 'Putin 3' track:

27/3/15: That Russian Liberal Opposition: Facts Piling Up…

Recently, I wrote about the sorry state of the Russian liberal democratic opposition ( and Putin's strong showing in public ratings. Here is another data set, this time reflecting this week's data:

Q: Imagine that next Sunday there will be presidential election in Russia. Which politicians would you give your vote to? President Putin's share of the vote:


Here's the link to longer-dated series: and a snapshot from the same (I omit spoiled votes and those who are not planning to vote):

I have trouble spotting viable liberal opposition that can be supported by a democratic regime change. But may be I am just not seeing something... like it or not, but these are the numbers we have...

Putin prefers a bad peace

By Israel Shamir

In February, it is a long way to the spring, lamented Joseph Brodsky, the poet. Indeed, snow still falls heavily in Moscow and Kiev as well as in the rolling steppes that form Russian-Ukrainian borderlands, but there it is tinted with red. Soldiers are loth to fight in the winter, when life is difficult anyway in these latitudes, but fighting already flared up in war-torn Donbass, and the US prepares to escalate by supplying sophisticated weapons to Kiev. Tired by the siege and by intermittent shelling, the rebels disregarded snow and took the strategic Donetsk airport. This airport with its Stalin-built tunnels, a symbol of solid Soviet defence work, presented a huge challenge for underequipped militia. Its many-leveled underground facilities were built to sustain a nuclear attack; still, the rebels, after months of fighting, flushed the enemy out and took it.

In a bigger offensive, they trapped Kiev’s troops in Debaltsevo pocket, and Kiev already sued for a cease-fire. The rebels hope to dislodge the enemy from their lands altogether; as now they hold only about one third of Donbass; but Russia’s president still gropes for brakes. He prefers a bad peace to a good war. For him, the Ukraine is important, but not a sine qua non, the only problem in the world. This attitude he shares with the American leader. There is a big difference: Russia wants peaceful Ukraine, Americans prefer one at war.

Russia would prefer to see Ukraine united, federal, peaceful and prosperous. The alternative of splitting Donbass is not very tempting: Donbass is strongly connected to the rest of Ukraine, and it is not easy to sever its ties. The war already had sent millions of refugees from Donbass and from rump Ukraine to Russia and overloaded its systems. Putin can’t cut loose and forget about Donbass – his people would not allow him anyway. A cautious man, he does not want to go to an open-ended war. So he has to navigate towards some sort of peace.

I had a meeting with a well-informed and highly-placed Russian source who shared with me, for your benefit, some inner thoughts on condition of his anonymity. Though the West is certain that Putin wants to restore the Soviet Union, actually the Russian president did everything he could to save the Ukraine from disintegration, said the source. That’s what Russia did in order to bring peace to Ukraine:
  • Russia supported the West-brokered agreement of February 21, 2014, but the US still pushed for the next day (February 22) coup, or “had brokered a deal to transition power in Ukraine" , in Obama’s words.
  • After the coup, the South-East Ukraine did not submit to the new Kiev regime and seceded. Still, Moscow asked the Donbass rebels to refrain from carrying out their May referendum. (They disregarded Putin’s appeal).
  • Moscow recognised the results of sham May elections carried out by Kiev regime after the coup, and recognised Poroshenko as the president of the whole Ukraine – though there were no elections in the South East and opposition parties were banned from participating.
  • Moscow did not officially recognise the results of November elections in Donbass, to the chagrin of many Russian nationalists.
These steps were quite unpopular in Russian society, but Putin made them to promote a peaceful solution for Ukraine. Some warlike Donbass leaders were convinced to retire. In vain: Putin’s actions and intentions were disregarded by the US and EC. They encouraged the ‘war part‎y’ in Kiev. “They never found a fault with Kiev, whatever they do”, said the source.

Peace in Ukraine can be reached through federalisation, my source told me. That’s why two most important parameters of Minsk accords (between Kiev and Donetsk) were those we never hear about: constitutional and socio-economic reforms. Russia wants to secure territorial integrity of the Ukraine (minus Crimea) but it can be achieved only through federalisation of Ukraine with a degree of autonomy being given to its regions. Its west and east speak different languages, worship different heroes, have different aspirations. They could manage together, just, if the Ukraine were a federal state, like the US or Switzerland or India.

In Minsk, the sides agreed to establish a joint commission for constitutional reforms, but Kiev regime reneged on it. Instead, they created a small and secretive constitutional committee of the Rada (Parliament). This was condemned by the Venice Commission, a European advisory body on constitutional matters. Donetsk people wouldn’t accept it, either, and it is not what was agreed upon in Minsk.

As for integration, it was agreed in Minsk to reintegrate Donbass within Ukraine. This was disappointing for Donbass (they would prefer to join Russia), but they accepted it, - while Kiev laid siege to Donbass, cut off its banks, ceased buying Donbass coal, stopped to pay pensions. Kiev troops daily shell Donetsk, a city of a million inhabitants (in peaceful times!). Instead of amnesty for rebels, as agreed in Minsk, there are more government troops pouring eastwards.

The Russians did not give up on Minsk accords. The Minsk agreements could bring peace, but they have to be implemented. Perhaps president Poroshenko of Kiev would like to, but Kiev war party with its western support will unseat Poroshenko if he goes too far. Paradoxically, the only way to force him to peace is war, - though Russia would prefer the West to put pressure on its clients in Kiev. The rebels and their Russian supporters used warfare to force him to sign Minsk accords: their offensive on Mariupol on the Black Sea was hugely successful, and Poroshenko preferred to go to Minsk in order to keep Mariupol. Since then, Kiev and Donetsk had a few cease-fires, they exchanged POWs, but Kiev refuses to implement constitutional and socio-economic demands of Minsk accord.

It does not make sense to cease fire, if Kiev uses it to regroup and attack again. Cease fire should lead to a constitutional reform, said my source, a reform negotiated in an open and transparent dialogue of the regions and Kiev. Without a reform, Donbass (or Novorussia) will go to war. So the Debaltsevo operation can be considered as a way to force Poroshenko to sue for peace.

Russia does not intend to take part in the war, or in peace negotiations, said the source. The Russians are adamant to stay out, while the Americans are equally adamant to present Russia as a side to conflict.

Meanwhile, the Russian-American relations were moved forty years back to Jackson-Vanik amendment of 1974 by the Ukraine Freedom [Support Act of 2014]. The US Secretary of State John Kerry considered this act an unfortunate development, but a temporary one. The Russians are not that optimistic: for them, the Act codified anti-Russian sanctions. The US tries to turn other states against Russia, with some success. In one sweep the German Kanzlerin Angela Merkel eliminated all organisations, structures and ties built between Germany and Russia for many years. Every visit of Joe Biden causes a conflagration.

The Russians are upset with the story of the Malaysian Boeing. In every high-level encounter with the Americans, they remind of the hysterical accusations and claims that the liner was downed by the rebels using Russian missiles. Six months passed since the tragedy; still the Americans did not present a single proof of Russian and/or rebel involvement. They did not present photos of their satellites, nor records of their AWACS aircraft hovering over Eastern Europe. My source told me that the American high-ranking officials do not insist anymore that Russians/rebels are involved, but they stubbornly refuse to apologise for their previous baseless accusations. They never say they are sorry.

Still the Americans want to play the ball. They insist that they do not seek Russian ‘surrender’, that they find the confrontation costly and unwelcome, while the US needs Russian support for dealing with Iranian nuclear programme, with removal of Syrian chemical weapons, with Palestinian problem. The Russians retort they have heard it all during the Libyan affair and aren’t impressed.

Differences of opinion between Russia and the US are big in practically every area. There is one common feature: from Syria to Donbass, Russians endorse peace, Americans push for war. Now the Russians invited some opposition figures and the government representatives from Syria for talks in Moscow. They came, talked, went away and will come again. They could probably settle but the US representatives say that they will never reconcile to Bashar Assad presidency and will fight to the last Syrian for his dismissal. It is not that Americans are bloodthirsty; war makes sense for them: every war on the globe supports the US dollar and invigorates Dow Jones, as capital seeks safe haven and finds it in the US.

They do not think about fate of Syrians who flee to Jordan - or of Ukrainians who escape to Russia in ever increasing numbers. What a shame for two wonderful countries! Syria was peaceful and prosperous, the diamond of the Middle East until ruined by the US-supported islamists; the Ukraine was the wealthiest part of the USSR, until being ruined by the US-supported far-right and oligarchs. Joseph Brodsky bitterly predicted in 1994, as the Ukraine declared its independence from Russia, that the shifty Ukrainians will still evoke Russian poetry in their mortal hour. This prophesy is about to be fulfilled.

Israel Shamir can be reached at