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Commentary: The stunning audacity of Putin’s cash payment demands
October 17, 2016 / 7:11 AM / a year ago

Commentary: The stunning audacity of Putin’s cash payment demands

Russian President Vladimir Putin (C) chairs a meeting of the Council for Strategic Development and Priority Projects at the Novo-Ogaryovo state residence outside Moscow, Russia, September 21, 2016. Sputnik/Kremlin/Alexei Druzhinin via REUTERS

The standard policy prescription for Washington’s dealings with Russia is situational: Agree to disagree on certain issues, but try to find areas where cooperation is possible.

The areas where the two nations can cooperate, however, have drastically diminished over the past week.

The United States on October 7 demanded a war crimes investigation of Russia for its air strikes in Syria, particularly in Aleppo. Washington also formally accused Russian government-sponsored hackers of direct interference in the U.S. presidential election.

In response, Russian President Vladimir Putin not only withdrew from a 2000 plutonium-disposal treaty, he essentially presented Washington with a bill that must be paid before he would resume cooperation under its terms.

Putin delivered the demand in his proposed legislation to suspend the treaty, which included a detailed list of Washington’s unfriendly actions against Russia. He specifically called for the repeal of the Magnitsky list, which punishes specific Russian officials for the death of lawyer Sergei Magnitsky while in custody, and the entire U.S sanctions program.

Putin even went one step further: He demanded compensation for unquantified losses stemming from current U.S. sanctions, as well as from the food counter-sanctions that Russia imposed on itself.

One logical conclusion is that the two countries will not be engaging in meaningful dialogue anytime soon.

Putin has also now answered the perennial question of whether sanctions are working: They are. And Moscow is apparently keeping a running tab of all the damages.

Though the Kremlin shows no sign of backing down, it remains unclear whether Russia’s struggling economy can support its global aspirations. Moscow’s 2014 invasion of eastern Ukraine sparked a major recession. Economists have been looking in vain for signs of recovery ever since.

The low price of oil is often portrayed as the primary culprit for Russia’s economic decline. But the Russian Federal Anti-Monopoly Service recently released a stunning figure that highlights the country’s economic predicament. The state’s share of the economy – including state-owned companies – has reached a staggering 70 percent. It has essentially doubled over the past decade.

The anti-monopoly service characterized the Russian economy as “capitalism of state monopolies,” which means there is no genuine competition.

As if to confirm this diagnosis, the Russian state-owned oil giant Rosneft has now emerged as the winner in the less-than-transparent privatization of the Bashneft oil company, a recently re-privatized state company. Only in Russia could a transaction between two state-controlled entities be dubbed a privatization.

Russian President Vladimir Putin (C) watches celebrations for City Day in Moscow, Russia, September 10, 2016. REUTERS/Sergei Karpukhin/File Photo

The state needs the cash, however, even if it means moving money from one government pocket to another. The proposed 2017-2019 budget confirms that more cuts are in the offing to reduce the national deficit. Even Putin’s previously sacrosanct May 2012 social spending decrees face significant reductions. Only the military appears immune from draconian cuts so far.

To date, the Kremlin appears satisfied with its role of global disrupter. That alone will likely damage U.S.-Russian relations for years to come.

Paying for Russia’s military adventures, however, is not the same as creating a lasting or positive presence in those areas where Moscow operates. No one contemplates, for example, that the Russians will show up with money to rebuild a fiercely battered Aleppo, whenever the siege there ends.

Similarly, Russia has shown no inclination to address infrastructure and governance issues in eastern Ukraine. Instead, rebel leaders there have been engaged in internal purges (complete with assassinations) to gain control of various black-market and smuggling operations.

Russian President Vladimir Putin speaks at recent news conference in Goa, India, October 16, 2016. Sputnik/Kremlin/Alexei Druzhinin via REUTERS

Attempts to separate the two warring sides in the region continue. The Kremlin’s long-term objective, however, remains to keep control of Lugansk and Donetsk within a decentralized Ukraine. This would not only give Russia an indirect veto over domestic Ukrainian policy, it would also stick Ukraine with the bill for rebuilding the region.

Even finding the economic resources to support Crimea appears to be a bridge too far. Literally, the proposed bridge linking Crimea and mainland Russia has been delayed due to lack of payments. Crimea also witnessed Russian Prime Minister Dmitry Medvedev’s famous response to an elderly woman’s complaint about declining pensions: “There is no money. But you hang in there!”

The test for the next U.S. administration will be to hold Russia accountable for its economic choices.

Dialogue should continue. Washington must understand, however, that Putin is more interested in the process of negotiations – which gives him domestic credibility – than actually reaching a final result.

But if ignoring Russia is no solution, neither is a bailout that lifts sanctions and re-opens Moscow’s access to Western financial markets. Putin made the choice to pursue the path of state capitalism, thereby abandoning global integration, economic efficiency, innovation and competitiveness as realistic goals.

He may believe this strategy is necessary for his political survival, but it is not a plan for sustained economic growth. Indeed, the ranks of the Russian middle class have decreased by 14 million people during the recession.

Putin’s financial demands accompanying Russia’s withdrawal from the plutonium treaty were no aberration. Russia wants to be a great power. And the Kremlin wants someone else to pay for it.

Washington and its European allies should feel no compunction to pick up the check for Putin’s serious economic miscalculations.

About the Author

William E. Pomeranz is deputy director of the Kennan Institute at the Woodrow Wilson International Center for Scholars in Washington.

The views expressed in this article are not those of Reuters News.

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