Medvedev Or Putin?

Russia will vote for a 'new' President in March and it is highly likely that the outcome will either be a second term for current incumbent Medvedev or a return to office for former President Putin. In 2008, it appeared that Putin was simply handing over the presidential reins to Medvedev with a view to returning to office in 2012 and likely remaining until 2024. It is a widely held view that the outcome of the election has already been decided between the two men -- raising additional questions about the legitimacy of the 'democratic' process involved.

Battle lines of support are being drawn between two distinct elements of Russian society. Medvedev increasingly draws his support from the upwardly mobile middle class and left- of-center intelligentsia while Putin relies upon the 'hard' right -- the military, security service and right-of-center 'siloviki.' In terms of sheer numbers, Putin has the advantage. Although it is possible that a third viable candidate may yet emerge, this appears unlikely to impact the Medvedev-Putin tag team.

Investment Climate

Both Medvedev and Putin have been strengthened by the robust price of oil, which has become the foundation of the health of the Russian economy and has permitted both men to achieve economic stability during their first term as president. But neither can achieve their goals of robust economic growth, reducing the unemployment rate and becoming more competitive without attracting more foreign direct investment (FDI). Given Russia's abundance of natural resources, the task of attracting greater FDI should have been easier than it has been, but Russia has gained a reputation for taking discriminatory action against foreign investors, lacking transparency, and being a difficult place in which to operate. The recent furor surrounding the TNK-BP joint venture has only reinvigorated such concerns.

Influential and wealthy Russians have begun to side with Putin. Among them, billionaire media tycoon Alexander Lebedev, who went from being staunchly anti-Putin to becoming allied with Putin's All-Russia People's Front ahead of last December Duma elections. Given Lebedev's role as a pro-business lobbyist who owns foreign media assets, his support is designed to assure foreign companies of their value under a Putin presidency. German Gref, head of Sberbank (Russia's largest bank), recently reiterated that Russia needs to wean itself of dependence on oil and gas exports and diversify its economy. His comments have been carefully choreographed, further reflecting the investment aims of a Putin government.

Medvedev has struck a similar tune in relation to FDI. In April 2010 he announced that a $10 billion fund would be set-up in summer 2011 to aid foreign investors, echoing Gref's desire to move away from a commodity-driven economy. Medvedev has consistently commented on Russia's aim of curbing corruption and reducing bureaucracy -- two serious barriers to foreign investment in Russia since 1991. Putin has discussed this to a much lesser extent than Medvedev in recent months. Certainly Medvedev has made a more concerted effort to lure FDI, and has proven to be more popular among western investors.

Foreign Policy

Putin's presidency contained many mixed signals with regard to foreign policy, ranging from his pro-American support of the war on terrorism to an anti-U.S. tirade in his infamous 2007 Munich security speech. Should he regain the presidency, more staunchly pro-Russian sentiment should be expected, as should enhanced relations with China. With Russia having made good progress on a variety of bilateral issues recently, and undoubtedly seeing the future in starkly pro U.S. or pro-China terms, Putin will seek to play the two off against one another. It is also likely that 'pipeline politics' will remain a key instrument in Russia's relationship with the EU, as has been the case for many years now. Having orchestrated the first BRIC meeting in 2006, Putin is also keen for Russia to become a driving force behind the continuing rise of the other BRIC countries.

Ongoing Russian support for Iran's nuclear program, its impartiality more generally toward nuclear proliferation, its anti-western stance with respect to its bilateral relationship with Georgia, the Ukraine and the Central Asian republics, and its active attempt to interfere with America's ability to supply its troops in Afghanistan through Turkmenistan, have raised serious questions in the U.S. government about whether Russia should be viewed as a trustworthy future ally.

Medvedev has failed to differentiate himself much from Putin in the foreign policy arena. The 2008 Russia/Georgia war and interference in Ukrainian politics occurred under Medvedev's watch, reflecting the hard power approach of the Kremlin. To help differentiate himself from Putin, Medvedev has established five key tenets of his future foreign policy:

1. Fundamental principles of international law will be supreme;
2. The world should be multi-polar;
3. Russia will not seek confrontation with other nations;
4. Russia will protect its citizens wherever they may be; and
5. Russia will develop ties with friendly regions.

Most of this does not sound like the Russia many countries, businesses and individuals have known since 1989 and Putin's influence can be seen throughout. Russian foreign policy is likely to continue to be aggressive and assertive, using all tools at its disposal to raise the country's profile and capacity to act forcefully in global politics.

Conclusion

With Putin having spent his presidency consolidating his power base, it is unlikely that he will concede the opportunity to be President once again. Given that influential backers have emerged in the Putin camp, the outcome of the election already appears to have been decided. In the end, Medvedev's declared interest in remaining president may be little more than an attempt to draw-out the election process and add a sense of legitimacy to the electoral process in Russia, as he has failed to leave an indelible mark on the presidency to date. From an investment point of view, whoever the President will be, it seems unlikely that anyone will be able to dispel the view that Russia is a difficult and at times dangerous place to do business.

At a time of increasing uncertainty regionally and globally, Putin has the edge. The average Russian citizen would undoubtedly rather vote for the security and predictability that they know Putin can deliver, rather than a comparatively tepid and untested Medvedev. In other words, Putin represents a safer future for Russia, but a more menacing future for its neighbors and investors

Taking the Lead

The foreign intervention in Libya, which began last week, has drawn much comment.  Questions regarding legitimacy, cost (financial and human) and impact, amongst others, have arisen.  More recently, observers have been focusing on who is actually in charge of the air strikes and wider operations.  There has been involvement from Nation States including France, the US and Spain, with more recent contributions coming from Arab States such as Kuwait and Qatar.  Institutions have also entered into the conflict, most notably NATO and the UN.

Significantly, disputes have surfaced this week between the belligerents as to who is exactly leading the operation.  Obama has publicly stated his desire to see the US relinquish control over the combat in the coming days, but who is willing to take the lead?  Gaddafi has long sought to raise the profile of the African Union (AU) to the status of being a heavyweight institution; an entity to rival the EU, but the AU has done little so far during the Libyan crisis.  Turkey, which purports to be the big regional player in the Middle East and seeks to influence Muslim states with its soft power has had a minor impact, compounded, and to some extent, hampered, by its insistence on a non-military stance when the unrest began in Libya.  Other larger military powers like China and Russia have been almost completely absent.

So who, or what, is to take up the reins?  Perhaps this is the ideal moment for the EU to finally agree, corroborate and cooperate as one, in a genuine foreign policy action.  All of the ‘ingredients’ are present: Libya is on the EU’s periphery; there is potentially a large humanitarian crisis brewing; no one wants to see a repeat of the inaction, which was seen in Bosnia in the 1990s etc.  Taking control of military (and possibly post-military) operations would really announce to other great Powers i.e. China, the US, and to a lesser extent, Russia, that the EU is willing and capable of carrying out its own foreign policy (military) actions in a coherent and united fashion.  After the economic crisis, and with certain EU economies lagging behind developing nations, the Libyan intervention should be seen by the EU as an opportunity to work together to achieve something tangible and lasting.  Needless to say, predicting the outcome of warfare, especially when it is civil in nature, is a difficult task, and many questions remain.  But, this is a great possibility for the EU, albeit extremely challenging, for it to announce itself as a united collective rather than its usual personification as a disorganised, quarrelling entity.

Conflict by Proxy

Perhaps the most important or significant Middle-East uprising occurring currently is in Bahrain where protests are largely based upon Shiite discontent within a Sunni-governed State.    Importance cannot be withdrawn from Libya, which is one of the world’s ten richest oil-producing countries, in the throws of civil strife, nor Egypt, which is home to the Suez Canal and is of huge geo-political importance, and neither Tunisia where it all began back in December 2010.  Protest in Yemen and stirrings in Algeria, Jordan, Oman and Syria are all substantial developments additionally.  However, the tiny island-State of Bahrain is fast becoming a proxy conflict between a Shia Iran and a predominantly Sunni Saudi Arabia. 

The recent deployment of Saudi military hardware and personnel onto Bahraini sovereign territory goes some way in accounting for this.  Iranian designs to dominate the gulf area are long-standing, dating back to the pre-1979 era.  With the US Navy’s 5^th Fleet stationed in Bahrain, it is seen in Tehran to be of interest to back the protestors in order to gain a more advanced political stronghold and a possible removal of American military presence.

What are the advantages of a Bahraini proxy conflict and why is it being generated?  For Iran, it could allow for a spread of influence in the region, with aims to establish and cement hegemonic status in the Gulf.  For the US, it may allow Iran to become bogged-down in a long, drawn-out, albeit, cold conflict, which could take away focus and resources from Afghanistan and Iraq.  It would also increase US military spending and maintain a steady flow of oil from the Arabian Peninsula.  For Saudi Arabia, it may be possible to maintain the current Bahraini leadership (though this appears less likely as time passes and violence increases) and consolidate US-Saudi interests.  For the Bahraini Shias (as well as non-Shias), there seems to be little or no advantage for a proxy conflict.

History relates that proxy conflict has the potential to be extremely prolonged and/or detrimental to the local population (examples include the Korean War: 1950-1953 and the US economic embargo against Cuba: 1962-present).  It will be of interest to monitor and investigate further developments and see whether or not some form of proxy conflict does arise.

Breaking the Rules

Those leaders who do not tow the line in an international sense, appear to be those who suffer the most; that is to say, they are removed, put on trial or even killed.  This was that case with Slobodan Milošević in the 1990s and Saddam Hussein in 2003 (one could even say it was first attempted to oust Saddam in 1991).  Both of these men were squeezed by the region around them as well as by major powers i.e. the US.  They were sold to the exterior public as evil and racist, amongst other charges, in order to garner support for their pending removal.  Other examples include Noriega in Panama (1989) and Allende in Chile (1974).

However, it is only when certain rules are broken that leaders are wanted out.  Why has Mugabe not been 'removed'?  And what about the elite in Myanmar?  Or even, the leaders who have overseen the horrors in the Congolese jungles?  The answer is that they do not break the rules.  They engage in trade on an international basis amongst other things.  Zimbabwe has remained a serious trading partner of South Africa, the UK, and Germany amongst others; Myanmar is effectively a region within the Chinese empire, due to its abundance of natural resources and direct access to the Indian Ocean, and so will not be touched; the East of Congo provides gold, copper, cobalt, coltan, zinc, tin and diamonds to foreign countries, most notably, China.  Therefore, it is in the interest of certain powers to maintain the status quo.

It will be of interest to see what will happen to Muammar Gaddafi.  Whilst Mubarak and Ben Ali have gone, Gaddafi claims he will die a martyr in his own country.  With his loyal forces and the rebels exchanging territory gains on a daily basis currently, the outcome is still far from clear.  Certainly he was once a pariah, then become a key partner to Western governments following thaws in diplomatic relations; in a sense 'un-breaking' the rules.  But how will he be treated now?  Could he be extradited, put on trial, or even killed?  With Western powers and institutions dithering as to whether to employ a no-fly zone or even military action in Libya, it remains to be seen if Gaddafi has broken the rules.

Revolutions as Dominoes

The events in North Africa over the last two months have been a surprise to most.  Just as in 1989, when nobody could have predicted the imminent fall of the Berlin Wall and the ensuing collapse of European communism and its ramifications for Central and Eastern Europe, eventually the Soviet Union and more globally, the Cold War itself.  So, as in 1989, will the tremors reverberate further than the immediate region? 

One thing that all these popular uprisings have in common is that they are fundamentally opposed to long-standing leaders and their regimes.  They are not necessarily fighting against an (common) ideology, as was the case in the 1980s.  For this reason it is of interest to look at another region, which houses long-term leaders: Central Asia.

Kazakhstan, Tajikistan and Uzbekistan have leaders who have reigned since the end of the Soviet Union.  Turkmenistan would have been in the same position had former leader Saparmurat Niyazov not died in 2006, allowing the current incumbent to take office.

Given the region’s huge geo-political importance, buffered as it is between Russia to the North, China to the East, Iran to the South-West and Afghanistan and Pakistan to the South-East, with India, Saudi Arabia and Turkey on the periphery coupled with the enormous amount of natural resources, which are located there, perhaps more attention should be afforded to the possible relationship between what’s happening in North Africa and the political situation in Central Asia.  Political upheaval in the region has the potential to bring all of the aforesaid powers into play.

Bailouts and Nationalist Responses

It has been written that nationalistic sentiment is found when an austerity programme is introduced into a state, which intends to repay a proportion of its external debt [Rogers, 2010].  Payments are usually channelled to large (financial) institutions such as the EU, IMF or World Bank, or in some cases, foreign countries.  This was the case with regards to two particular states: Hungary and South Korea (ROK) [ibid].

However, perhaps these reactions have become a trend recently.  It has been seen of late (February 2011) how there have been large protests in Iceland, which has resulted in a rise in nationalist feeling, against repaying foreign governments, who initiated a bailout to cover losses incurred by a domestic bank.  In fact, a referendum is planned to see if, and how repayment will commence.

In 2010 it was documented how nationalist responses resulted from IMF-led bailouts in both Greece and the Ukraine.  These are interesting results.  Nationalist reactions may now be considered a sociological reality.  Perhaps the most significant signs to look for in the future would be to see if these tendencies continued within other states who have received a bailout from an external source.  Furthermore, it would be of interest to analyse the activities of nationalist parties within the aforementioned states, to guage the extent to which the bailout is used for campaigning/garnering support and funding etc.


Appendix 25/02/2011


Today sees a General Election in Ireland.  As a direct result of the IMF-led bailout of 2010, the ruling party Fianna Fáil is expected to lose power to the centre-right Fine Gael.  More significantly, Sinn Féin, a nationalist party is expected to double its amount of seats in the parliament.  Other independents are also predicted to do well, feeding on widespread anger towards all mainstream parties.