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Too soothing oil

5 December 2011 By Edward Hadas

Russia is just about at the bottom of its peer group of big emerging economies in four of six governance indicators drawn up by the International Monetary Fund. In the other two, political stability and “voice and accountability,” it rates no better than “poor”. Sunday’s election supports this grim analysis.

The results do reflect the decline in the popularity of Vladimir Putin, current prime minister and past and probable future president. Despite a near-monopoly on the popular media and suspicions of electoral fraud, his United Russia party was reported to have received less than half of the votes. That gives it just over half the seats in the Duma, down from two-thirds in the outgoing parliament.

In theory, and in the words of President Dmitry Medvedev, this is “democracy in action”. In practice, the new political constellation is not likely to improve Russia’s standing on the IMF’s other indicators – government effectiveness, regulatory quality, rule of law and control of corruption will remain parlous.

The electoral success comes to an opposition which has little in the way of political credibility. The Communist and national LDPR parties have no coherent economic policies. The Just Russia party was, in essence, created by the government to provide modest doses of loyal criticism.

The new Duma will be more populist, but that usually translates into self-destructive economics. For example, the use of energy export revenues to keep pensioners happy is good news for this particularly potent force in ageing Russia, but it is an invitation to disaster whenever oil and gas prices fall close to the cost of production.

Russia lacks a tradition of honest governance. Nor does it have the economic initiative needed to develop a modern industrial economy. Now, when the oil money is flowing freely, its politicians should have the nous to reform. But after 12 years in power, Putin seems to have been sucked into the insiders’ vortex. His weakened standing with the people could make him rely even more on the security forces and populist, short-termist economics. Investors’ optimism – the Russian stock market index rose slightly on the election results – looks like wishful thinking.


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