Bloomberg News

Putin Rides Out Russia’s Protest Wave on Europe-Beating Record on Economy

March 02, 2012

A protester waves a poster, center, with an image of Vladimir Putin, Russia's president in Moscow, Russia. Photographer: Andrey Rudakov/Bloomberg

A protester waves a poster, center, with an image of Vladimir Putin, Russia's president in Moscow, Russia. Photographer: Andrey Rudakov/Bloomberg

Vladimir Putin may ride out a wave of protests and return to the presidency on the back of an economic track record that he says marks Russia out from the turmoil sweeping parts of Europe.

Polls show Putin, 59, may win about 60 percent of the vote in a March 4 election, enough to avoid a runoff. While that’s down from the 71 percent he captured in 2004’s election and the 70 percent garnered by Dmitry Medvedev four years later, it suggests that protests since a December parliamentary vote have failed to undermine his authority.

As debt woes topple governments from Portugal to Greece and Romania, Putin is telling voters that he will use the country’s oil revenue to increase spending, including on social programs and the military. That’s boosted his poll ratings, fueling a 19 percent rally in Russia’s benchmark Micex index since Dec. 12, when anti-Putin protests sent it to a two-month low.

“Unemployment and inflation are at outstanding levels right now, the best in a long time,” said Valery Fedorov, the head of the state-run pollster VTsIOM, in a telephone interview in Moscow. “That creates an entirely auspicious background for Putin’s re-election.”

Putin points to an economy that’s still growing just as the euro region’s sovereign debt crisis threatens to tip one of Russia’s biggest export markets into recession. Russia’s gross domestic product per capita soared to $12,000 last year from $2,400 in 2000 after Putin first became president, while the average annual consumption per person in dollar terms rose to $7,400 in 2011 from $2,000 eight years earlier, according to Citigroup Inc.

‘Fundamental Reasons’

The “fundamental reasons” behind Europe’s turmoil haven’t yet been overcome and policy makers should have acted more decisively in tackling the debt crisis, Putin told the chief editors of foreign newspapers late yesterday.

“It’s hard to cross the abyss in two jumps -- you have to jump once and then you may succeed,” Putin said. “Some decisions were tardy.”

Russia succeeded in combating its own property bubble and the slump in the construction industry by channeling state resources into infrastructure projects and housing for the military, Putin said.

Russia’s economy grew 1.5 percent in the fourth quarter from the previous three months and expanded 4.9 percent on an annual basis, the Economy Ministry estimates. The GDP of the 17- nation euro area contracted in the fourth quarter for the first time in 2 1/2 years, shrinking 0.3 percent from the previous three months.

Stability and Wellbeing

Putin has made safeguarding stability and the wellbeing of Russians the cornerstones of his campaign, regaining voter backing after the biggest protests in Moscow since the collapse of the Soviet Union 20 years ago roiled the country’s markets.

His campaign pledges will raise government spending by 4.8 trillion rubles ($164 billion), or 5 percent of GDP, through 2018, according to an estimate from Capital Economics, a London- based research company.

“Everything we are doing is devoted to one goal -- improving the quality of life of Russian citizens,” Putin told supporters and political analysts in Moscow on Feb. 29.

‘Sobering Up’

The euro region and the U.S. are now “sobering up” after relying on debt to fuel growth, Putin said at an investment conference in Moscow on Feb. 2. Russia’s government debt was at about 10 percent in 2011, the lowest debt-to-GDP ratio among all investment-grade sovereigns, Moody’s Investors Service said in a Feb. 29 report.

Putin built up his support from as low as 37 percent in a Jan. 20-23 poll that included undecided voters, to 66 percent among those who determined their choice for president, Lev Gudkov, director of the independent Levada Center, told a Moscow news conference Feb. 24.

“Russia is traditionally a social state, where people like to be supported,” Mikhail Shamolin, chief executive officer of AFK Sistema (AFKS), the holding company controlled by billionaire Vladimir Evtushenkov, said in an interview. “Stability is now better than change. That will allow the middle class to grow in size, creating people capable of taking responsibility.”

Russian markets have stabilized since the aftermath of the first protests, which were fueled by accusations of fraud in a December parliamentary election that left Putin’s party with a slim majority.

Fiscal Stimulus

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell four basis points yesterday to 182, down from last year’s peak of 338 on Oct. 4, according to data provider CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers in the privately negotiated market.

The CDS climbed 75 basis points in a month as anti-Putin elections gripped central Moscow, peaking at 290 basis points on Jan. 5. A basis point is 0.01 percentage point.

Putin’s government also deployed fiscal stimulus to sustain growth after higher commodity prices pushed Russia’s budget into surplus, while European counterparts sought to implement austerity measures. Urals crude, Russia’s main export oil blend, averaged $109 a barrel last year, 40 percent more than in 2010, and traded above $120 this week.

Putin’s critics say his spending plans may fall victim to swings in the cost of oil. Military spending plans risk the country’s economic stability, former Finance Minister Alexei Kudrin said before he was dismissed by Medvedev in September.

‘High and Unsustainable’

The cost of Urals crude has more than quadrupled since Putin first became president in 2000. Russia’s reliance on commodities exports to pay for “lavish spending” has led to an “excessively high and unsustainable” break-even oil price, the level needed to balance the budget, BNP Paribas SA (BNP) said in a Feb. 14 report.

The country may need oil prices to average as much as $200 a barrel by 2018, compared with $125 this year, BNP said.

“I think a whole series of promises recently made are irresponsible and openly populist,” said Sergei Guriev, rector at the New Economic School in Moscow.

Polls are nevertheless showing that Putin will win the presidential election in the first round, avoiding the first runoff since 1996. Two-thirds of likely voters plan to back him in the ballot, the independent pollster Levada Center said Feb. 24. The All-Russian Center for the Study of Public Opinion, known as VTsIOM, and the Public Opinion Foundation project that Putin would win 59.9 percent and 60.3 percent, respectively.

‘Wow, Economic Stability’

Putin became Russian president 12 years ago, the year after the country defaulted on $40 billion of domestic debt. Inflation peaked at 127 percent in July 1999 and ended the year at 37 percent as Putin took over from Boris Yeltsin on New Year’s Eve. In January, the inflation rate was at 4.2 percent, the slowest pace on record.

“Everyone’s attitude is, oh, wow, economic stability, who would have thought?” Stanislav Voskresensky, a deputy economy minister, said in an interview. “Take a look at the streets of Athens and you’ll remember immediately what it means to have economic stability.”

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

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


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