How Putin shrugs off the slump

What a difference a year makes! Last year's address by President Vladimir Putin to the Federal Council, the joint session of both houses of Russian parliament, was a rather low-key affair by international standards and the world was not exactly losing sleep over it, apart from the usual talking heads on Russian television and newspaper commentators who were listing the main points of the speech without much excitement.

Ukraine was mentioned in last year's address in the sense that Russia was planning to continue working with it with the view of promoting Ukrainian membership of the Customs Union, as part of the bigger Euroasian project. There was no talk of the military build-up and on the economy nothing extraordinary was proposed. On the whole there was no sense of urgency present in the measures suggested.

But since then the situation has changed dramatically, with Russia finding itself in a bitter stand-off with the West over the crisis in Ukraine and the new status of Crimea that has become part of Russian territory.

So the annual address delivered by Putin this time round was completely different in its tone and rhetoric and it was no wonder that the media, both Russian and foreign, were watching it carefully for any signs that would give an idea of how the Kremlin intends to deal with the new realities.

Putin made it clear that Crimea was going to remain Russian and if anyone had other ideas, well, tough luck. He also made the point of insisting that had the crisis in Ukraine not happened at all, the West would have found some other pretext to try to undermine Russia's economic standing.

He even went as far as saying that this policy of containment of Russia by the West dates back years, decades and even centuries: obviously music to the ears of those people in Russia who always said trusting the West was a bad idea. The Russian president warned the West that Russia was prepared to defend itself militarily, should the need arise, and was not going to allow anyone to achieve military superiority over it -- unimaginable a year ago.

On the economy Putin refrained from coming up with any dramatic reforms, like for, example, having a closer look at some of the past privatizations schemes and the way they had been conducted and he did not propose any radical changes with the aim of diversifying the economy that is greatly dependent on the sale of oil and gas.

What was unusual, though, was his proposal of a one-off amnesty to Russians who are holding their money abroad, offering them to bring it back into the country without fear of having to explain its origins. It remains to be seen whether this offer will be taken by the Russian rich who keep their money abroad in off-shore accounts, considering that the ruble is currently in freefall.

Putin did send a signal to banks and investors who were, as he put it, "rattling the rouble." The message was primarily directed at state-owned companies and banks that have been lured by large returns from forex operations at a time of the ruble sliding and occasionally picking up strength. Will they listen to him, these barons who get paid more than most top execs in Western companies?

To sum it up, the Kremlin appears to have no taste for any drastic economic measures and will continue to pursue the line that Western sanctions hurt not just Russia but the West as well.

Putin has always been known for treading carefully and avoiding any sudden movements or changes in the economy, something that his critics say may have actually prevented Russia from having a more flexible and durable economy. As a result the speech disappointed both liberals and nationalists, as it failed to offer either a dramatic liberalization of the economy or any move to put it on the "mobilization rails," as if a war was imminent.

But on the whole the speech showed a confident president who still enjoys a very health popularity rating of over 80% and who can expect the country to stay united behind him, considering that the impact of sanctions and falling oil prices has yet to be felt by most of the population.

In fact, the fall of the oil prices is being offset by a weak ruble, as the government sells "black gold" in dollars and gets plenty of rubles to play with. But if the oil prices fall well below $60 per barrel, as some experts are predicting, that would be tough to stomach for Russia, even with its substantial hard currency reserves totaling around $450 billion.

In the meantime Putin can afford to remain defiant and challenge the West. But who knows how long this situation can last?

Alexander Nekrassov is a Russian commentator and former Kremlin adviser. The views expressed in this commentary are solely his.

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