reflections

Sep 10, 2015 | 23:33 GMT

4 mins read

Russia's Budget Debate Takes an Unexpected Turn

(Stratfor)
It can be difficult to separate the important from unimportant on any given day. Reflections mean to do exactly that — by thinking about what happened today, we can consider what might happen tomorrow.

The Russian State Duma approved a bill on Thursday to begin government budget and economic policy planning for next year, though the debate over how to respond to Russia's mounting economic challenges is already underway. This week, however, the economic conflict in the Kremlin seemed to focus less on budgetary planning and more on Russia's standoff with the West.

Russian Finance Minister Anton Siluanov is drawing up the country's economic strategy for 2016, including next year's government budget. On Russian President Vladimir Putin's order, Siluanov will present his proposals to the government toward the end of September. Considered a fairly liberal financial mind, Siluanov has struggled with the Kremlin's more conservative and nationalist factions over financial and economic matters during the past year. He has promoted foreign investment and ties and has decried the conservatives' and nationalists' suggestions to spend Russia's cash reserves to bail out large state enterprises.

But on Tuesday, Kommersant published a report that Russia's Security Council asked presidential aide Sergei Glazyev to come up with a separate economic strategy for 2016 to present to the council on Sept. 15. In the past, the Russian Security Council has convened small strategy groups for economic issues, because the council thinks of Russian stability and security on all levels. Still, the request of Glazyev struck many in Russia as odd.

First, Siluanov is already drawing up an economic strategy for 2016. However, former Federal Security Services chief Nikolai Patrushev, who is part of one of the factions Siluanov and the Finance Ministry have been battling all year, runs the Security Council. The council's request for Glazyev to come up with his own plan could be another episode in the struggle between the Kremlin clans.

Second, the council's choice of Glazyev as the author of alternative economic proposals is peculiar. Glazyev is a trained economist but has not been seen playing a notable role in economic policy development in years. Even by the conservative Federal Security Services' standards, Glazyev is considered a hyper-nationalist. He founded or is a member of numerous Russian nationalist political parties, Orthodox groups and patriotic social clubs. Last year, he was one of the loudest voices in Russia in favor of Russian intervention during the pro-West Ukrainian uprisings that led to government change in Kiev. Glazyev commonly refers to Ukrainian President Petro Poroshenko as "mentally ill" and a "Nazi." Glazyev was also one of the first Russians sanctioned personally by the United States after Russia annexed Crimea.

Kommersant recently leaked what it claims are Glazyev's economic proposals for the Security Council, and the plan clearly reflects his ideology. Glazyev proposes a radical overhaul of the economy next year, including several policies that would mostly cut Russia's financial and economic ties to the West. They would prohibit Russian entities from using foreign currency, tax the conversion of rubles to foreign currencies, ban foreign loans to Russian firms and require Russian firms that have loans from the West to default on their payments.

The leaked plans sparked a backlash among many of Russia's prominent pundits and economists, who called the proposals a return to the Soviet Union or an attempt to turn the Russian economy into a mixture of Argentina's and North Korea's. And the proposals, if adopted, likely would worsen the already struggling Russian economy. For example, the Russian energy sector would not be able to find much financing without connections to the West. Putin's spokesman responded to questions on Glazyev's proposals, saying that they did not reflect the president's official position but that they would be viewed as an expert's point of view.

Glazyev's strategy shows not only the growing division within the Kremlin over economic policy but also that the Kremlin is planning for the worst — the severing of ties with the West. In Russia, there is a growing sense that relations with the West will not improve. Russian Deputy Foreign Minister Sergei Ryabkov said Wednesday that despite positive developments in eastern Ukraine, Russia "should expect toughening of the sanctions pressure." Even if the Russian government does not adopt Glazyev's proposals, it makes sense to already have the worst-case scenario mapped out.

Also, the leak of Glazyev's proposals to Kommersant — a media outlet that Washington watches closely for clues about Kremlin activity — indicates that Moscow wanted to let the United States know it is preparing for more sanctions. It is a signal that Russia is willing to weather the hardships rather than bend to the United States.

Over the coming weeks, or even months, the debate among the various Kremlin factions over Russia's economic strategy and government budget will be crucial to watch. It will give signs of where the Russian economy is going next, show the political divisions in the Kremlin, reflect Putin's ability to manage these two issues and indicate what Moscow expects next from its standoff with the West. 

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