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Putin's Economic Ambitions for New Term Held Hostage by Tensions

Evgenia Pismennaya, Ilya Arkhipov, Henry Meyer
Russian President Vladimir Putin enters a hall to chair a meeting of the State Council at the Kremlin in Moscow on April 5, 2018. / AFP PHOTO / POOL / Alexander Zemlianichenko (Photo credit should read ALEXANDER ZEMLIANICHENKO/AFP/Getty Images)

President Vladimir Putin is promising Russians a “decisive breakthrough” in living standards in the new six-year term he starts Monday and even is said to be considering naming a prominent economic reformer to a top job to help deliver it. But within the Kremlin, few see much hope for his push amid the deepest standoff with the West in decades.

Putin is hoping to dial back the tensions a bit after the latest and most painful salvo of U.S. sanctions battered the ruble and dealt a blow to the economy by cutting off one of Russia’s largest companies -- aluminum giant United Co. Rusal -- from the global financial system.

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To help rebuild economic links with the U.S. and Europe, Putin is considering appointing Alexei Kudrin, a former finance minister revered by investors for the pro-market overhauls he led in the Russian leader’s first two terms, to a new post to lead efforts to revive economic growth, according to officials familiar with the plans.

But there’s little appetite for real changes, these people said, as the deepening tension with the West has strengthened the hand of those arguing for self-reliance and an even greater role for state companies and financing. Those, like Kudrin, who argued for reducing the conflict in order to focus on economic development, are on the defensive after four years of steadily increasing sanctions from the U.S. and European Union have isolated Russia’s biggest banks and companies from vital financing and technology.

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Belousov Promotion

“The task now is to overcome the technological lag behind the West while surrounded by unfriendly forces abroad,” said Evgeny Minchenko, a Moscow political consultant who works with the Kremlin. Modernization will be “authoritarian,” he said.

In a move that would create a powerful potential counterweight to Kudrin, Putin is considering promoting his economic adviser, Andrey Belousov, a supporter of a strong state role in the economy, to the post of deputy prime minister, according to four government officials.

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Read more about tensions between Russia and the West: QuickTake

He could take over the role of economic chief from Igor Shuvalov, known for his pro-market views and ties to private-sector tycoons. Prime Minister Dmitry Medvedev is expected to keep his post, with formal confirmation possible as early as Tuesday. Many of the other top jobs could be filled by the end of this week, officials said.

“Even if Kudrin joins the government, he won’t be able to do much given the current political framework,” said Andrei Kolesnikov, an analyst at the Carnegie Moscow Center. “It will just be running in place.”

Despite the doubling of oil prices over the last two years, Russia has struggled to get its economy back into high gear. Slow growth threatens to reverse Russia’s rise in the ranks of global economies under Putin, undermining the Kremlin’s ability to pay for its military buildup.

Putin in March warned in his annual state-of-the-nation speech that Russia faced a “loss of its sovereignty” if it didn’t manage to revitalize the economy and overcome the technological lag with the rest of the world. Public support for Putin remains strong, according to polls, but opposition continues to simmer. Hundreds were detained by police in cities across Russia Saturday at protests against Putin’s rule.

The Russian leader is expected to formalize his economic goals in a decree to be signed soon after his inauguration Monday, including a big boost in spending on long-neglected areas like health care, education and infrastructure.

Kremlin spokesman Dmitry Peskov declined to comment Friday on possible plans for the new term.

Painful Moves

Painful steps, including tax hikes and an increase in the pension age, planned to help cover the cost of the new spending are likely to come later, people familiar with the plans said.

With the latest U.S. sanctions driving affected private companies to demand more state aid, the Kremlin’s economic role is growing.

“Nothing can or will change fundamentally in Putin’s new term because the political system remains the same,” said Kolesnikov. “The government will continue to be the main source of funds and driver of development.”

At present, while the Kremlin is eager to avoid further increase in geopolitical tensions, there’s no readiness to take a softer line, say Kremlin and government officials. An early test will come in mid-May when parliament takes up a plan for retaliatory measures against U.S. businesses in the wake of the last round of sanctions.

“Moscow doesn’t have any interest in further escalation with the West, which will have negative political and economic consequences for it,” said Andrei Kortunov, head of the Russian International Affairs Council, a research group set up by the Kremlin. “But it’s not prepared to do anything that looks like a one-sided concession.”

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