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Russian bear back at the crossroads

Russian bear back at the crossroads
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First Published: Thu, Apr 26 2007. 12 37 AM IST
Updated: Thu, Apr 26 2007. 12 37 AM IST
Last week, Russia launched its first new nuclear submarine since the collapse of the Soviet Union. The new-generation Borei-class submarine, the Yuri Dolgoruky, is the first of eight planned vessels and mark Russia’s determination to retain its status as one of the leading powers of the world. But military power and new submarines are now ancillary to Russian plans to re-establish the nation as the kind of power it was in the heyday of the Cold War.
The new currency of power are the vast energy and natural resources of the country. Russia has the world’s second largest reserves of oil and the largest of natural gas. In addition, it has the largest resources of aluminium, titanium and timber as well as human resources in the form of a highly educated population. Russia’s challenge is to take all this and transform itself into one of the advanced economies of the world. Located where it is, at the heart of Eurasia, its pipelines can change the fortunes of East and South Asia, as well as Europe. Till now, we have only seen the hint of how Russia can act in the way it coerced Ukraine and Europe in the winter of 2005.
In some ways, Boris Yeltsin’s death earlier this week is an opportunity to assess whether or not Russia is capable of meeting this challenge. Looking back, we can say that Yeltsin’s historical role was that of a destroyer. In 1987, his public spat with the Communist party bosses weakened its hold across the country because he was himself a politburo member and top functionary. In 1991, atop a T-72 tank, he delivered a speech that tilted the balance against Communist die-hards who had launched a coup against Mikhail Gorbachev. Within months of this transforming event, Yeltsin banned the Communist Party, and the Soviet Union itself came apart.
More destruction was to come. His IMF-induced “shock therapy” wiped out the infrastructure of state-run enterprises and institutions and led to an economic and social collapse. Russian GDP contracted to 50% of what it was, the public health and education system crumbled, destroying the lives of millions of people. The Soviet Union’s mighty armies atrophied and its world-class navy rusted in their yards. True, Yeltsin did help create Russian democracy and bring the concept of free markets, but he also managed to sell Russia’s prized assets to a set of cronies, now called oligarchs.
Now after the years of chaos, the Russian Bear is thumping its chest again. Russia retains the world’s largest stockpile of nuclear weapons and always did have abundant natural resources. But what has made the difference are oil prices and the policies of the ‘Tsar’ who succeeded Yeltsin—Vladimir Putin. The surge in oil prices has helped the Russian economy to grow 6% per annum in the past eight years, triggering a consumer and real-estate boom. Putin, for his part, has worked to again centralize power in the hands of the Kremlin after years of political and economic chaos. Regional governors are now appointed by the Centre and Moscow has systematically increased its stake in the oil and gas sectors and in the process destroyed private companies like Yukos that stood in its way. The government has inserted itself back into the oil and gas business by pressuring foreign oil majors to renegotiate their contracts. Yet, Putin has also brought a great deal of fiscal prudence by controlling inflation, using oil revenues to retire debt. He has channelled surplus oil revenues into a special fund that stands at $80 billion today.
If Yeltsin was a figure of transition, our worry is that we are not sure where Russia is headed even now. There is no clarity in either its economic policy or its polity. Putin may have brought a great measure of stability to the country and its finances but the increasing intolerance of dissent and regional muscle flexing is cause for concern. Russia also faces a serious demographic crisis that could, if present trends continue, reduce its population from 143 million today to just 100 million in 2050. The destruction of Yukos has not sent a particularly optimistic message to private enterprise. The energy scenario ensures that global oil majors will simply lump Russian demands and rising prosperity makes the country a hugely attractive destination for investors and consumer goods manufacturers. Putin’s central role in the Russia of today raises question marks about the future. He is scheduled to step down after his second term, early next year. While some potential successors are being spoken of, Putin remains vastly popular and it is difficult to see him simply riding off into the sunset.
Manoj Joshi keeps a close eye on geopolitics from his perch as the strategic affairs editor of Hindustan Times. You can respond to the column by writing to thetopline@livemint.com
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First Published: Thu, Apr 26 2007. 12 37 AM IST