Bloomberg News

Putin Faces Setback in Russian Vote as Wage Growth Shrivels

December 13, 2011

(Updates with VTB, Morgan Stanley comments starting in eighth paragraph.)

Dec. 2 (Bloomberg) -- Russian voters may inflict the first major electoral setback on Prime Minister Vladimir Putin in a parliamentary vote this weekend, which may prompt the premier to fortify his hold on power and boost public spending.

Putin’s United Russia party may get about 53 percent in Dec. 4 elections to the State Duma, from 64 percent in 2007, according to reports released Nov. 25 by the state-run All- Russian Center for the Study of Public Opinion, or VTsIOM, and the independent Levada center. That would be the first time it fared worse at nationwide polls compared with a previous ballot since its creation by then-President Putin 10 years ago.

The party is hemorrhaging support as voters recoil at stalling wage growth and the government’s failure to curb corruption. Putin, 59, who is seeking to return to the Kremlin in March elections, warned last week against “smashing” the parliament’s unity and the danger of duplicating the political paralysis afflicting Europe and the U.S.

“Putin may seek to conduct an even firmer political rule than he does now,” said Kirill Rogov, an economist on one of the panels reviewing the government’s Strategy 2020 for the premier. “The low support is a fact and it is shrinking.”

‘Swindlers and Thieves’

United Russia, which holds a two-thirds majority in the outgoing chamber that allows it to change the constitution unilaterally, was identified as “the party of swindlers and thieves” by 36 percent of respondents, while 45 percent disagree with that view, according to a separate Levada poll. United Russia, may lose almost 65 seats to just over 250 in the 450-member Duma, the lower house of parliament, according to a Nov. 25 Levada poll.

Three other parties of the seven registered for the election are forecast to overcome the 7 percent threshold for proportional representation for a five-year term in the legislative body.

The Communists may win 16.7 percent, followed by the nationalist Liberal Democratic Party with 11.6 percent and 10 percent backing Just Russia, which campaigns for more social spending, according to the VTsIOM survey.

‘Wildcard’

The pro-democracy Yabloko party is a “wildcard” in the ballot because a “swing in undecided voters who want an alternative to the parties already represented” may allow it to “squeeze through the 7 percent barrier,” with its representation diluting the others, Alexey Zabotkin, an analyst at VTB Capital in Moscow, said by e-mail today.

The share of undecided voters in the electorate suggests that parties including Patriots of Russia, Pravoye Delo or Yabloko may secure one or two mandates, Morgan Stanley said in a research note today.

Putin would get 31 percent if a presidential election were held today, compared with 8 percent for Communist leader Gennady Zyuganov and 7 percent for President Dmitry Medvedev, according to Levada. One-third said they were undecided.

Medvedev, who succeeded Putin in 2008 and plans to swap jobs with his predecessor next May, today warned voters against electing a parliament “torn by irreconcilable contradictions.”

Speaking in a televised address to the nation before the vote, the president urged selecting a “competent legislative body dominated by responsible politicians who can improve our people’s living standards in practice.”

‘Very Bad or Bad’

One-fifth of Russians say the current political situation is “very bad or bad,” while 58 percent believe it’s “average” and 16 percent think it’s “very good or good,” according to a VTsIOM poll published today.

A poor showing by United Russia, whose party list is headed by Medvedev, will undercut the ruling party’s standing, “increasing further the powers of the executive,” Lilit Gevorgyan, a London-based analyst at IHS Global Insight, said by e-mail yesterday.

During Putin’s first two terms as president, he worked to centralize power and increase state ownership of the country’s biggest companies. Buffeted by a booming global economy, Russia’s economic growth averaged 7 percent a year during his 2000-2008 tenure.

Gross domestic product of the world’s biggest energy exporter will increase 4.1 percent this year after 4 percent last year, the government estimates. The economy expanded 4 percent in 2010 after a record 7.8 percent contraction the previous year.

World’s Five Largest

Putin is seeking annual growth of between 6 percent and 7 percent to turn the economy into one of the world’s five largest. The goal is also to lift per capita GDP to $35,000 from about $19,000 and create 25 million “quality” jobs within 15 years, Putin said in May.

Russia’s GDP per capita soared to $12,000 this year from $2,400 in 2000, while the average annual consumption per person in dollar terms rose to $7,400 in 2011 from $2,000 eight years ago, Citigroup Inc. said in a Nov. 21 report.

Real wages increased an average of 15 percent a year between 2000 and 2008, according to data compiled by Bloomberg. Including declines for much of 2009, growth has averaged 1.5 percent since.

The lack of satisfaction with wages and the standard of living are “a cause of the most discontent” and protest feelings among Russians, followed by inflation, according to a poll published yesterday by the Public Opinion Foundation in Moscow.

‘Cohesive’ Leadership

“Putin has already indicated that a cohesive political leadership is needed in Russia,” Gevorgyan said. “One of the reasons behind the reiteration of his intention to have cohesive political leadership is the current financial turmoil in the euro zone and apparent weakness of the governments to implement necessary reforms.”

The inability of European leaders to defeat a crisis now in its third year is threatening global growth and driving up borrowing costs. The debt turmoil has cost five euro-area leaders their jobs, including Italian Prime Minister Silvio Berlusconi.

The influence of Russian lawmakers on economic policy is waning as the government has built up about $120 billion in reserves, resulting in “direct access to financial resources” that “reduces the Cabinet’s interest in dialogue with the legislative branch,” Alfa Bank, Russia’s biggest private lender, said yesterday.

‘Artificial Growth’

Putin may move to shore up voter support before the presidential vote with “artificial growth by inflating the economy with state investment and social outlays,” Rogov said.

The government may revise next year’s budget after the first quarter, Putin said at a meeting with supporters yesterday. About 200 billion rubles ($6.5 billion) may be redistributed to fund additional social spending, according to a draft 2012 budget submitted for approval to the Duma last month.

About 60 million people, or more than 40 percent of the population, are directly dependent on state support, Alfa Bank said in a report Nov. 30, adding that “budget policy is likely to maintain the present social focus,” leading to the “risks of increased taxation going forward.”

“First his supporters believed Putin is lucky, now they see their model of the world is falling to pieces,” Igor Bunin, the president of the Center for Political Technologies, said by phone. “There is a systemic crisis.”

Capital Flight

Russia expects capital flight to reach $80 billion this year, Deputy Economy Minister Andrei Klepach said Nov. 30 in London. That would be the second-biggest volume of outflows since central bank records began in 1994.

The government needs the price of oil to average almost $120 a barrel to balance this year’s budget, compared with a breakeven price of less than $20 in 2003, Citigroup estimates.

Urals crude, the country’s chief export blend, has declined for two consecutive quarters, averaging about $109 so far this year. It traded at $109.99 today.

Only a sharp drop in oil prices and growing public discontent may “trigger more radical and constructive reforms,” said Peter Westin, chief strategist at Aton Capital in Moscow. The economy may enter a recession if crude averages less than $70 next year, according to Aton.

“I would hope this weekend’s Duma election and the outcome hold the key to a shift in policy,” Westin said by e-mail. “However, I am a big skeptic.”

--Editors: Paul Abelsky, Balazs Penz, Alan Crosby.

To contact the reporter on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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