Political headlines are flowing thick and fast out of Moscow, all accompanied by speculation about the rising or declining prospects of this or that presumed presidential contender. This is unlikely to be very illuminating for investors with existing or planned exposure to Russian risks and an interest in the impact of the forthcoming elections on those risks.
We present a framework for drawing sound country risk conclusions from the way in which the presidential succession process plays out, regardless of who becomes the next president. We focus on the present risks to systemic stability – that is, institutional integrity and fundamental legitimacy – and on the environment for effective policymaking and countering corruption. The likelihood of improvement or deterioration on these fronts may be judged according to which of five broad scenarios – involving more or less party political competition – proves closest to reality. Most plausible for now is a controlled succession with, at best, modest touches of competition.
Russia’s big political season opened on 12 September with the dismissal of the government led by Mikhail Fradkov and his replacement as prime minister by Viktor Zubkov. This and all subsequent stages in the turning of the political cycle will keep commentators busy revising and refining their preferred scenarios for the succession to President Putin.
The next stage – imminent at the time of writing – is the appointment of ministers in the new government. The usual gallons of ink will be spilled on the two most obvious clues about Putin’s intentions. These are first the fate of the government’s so-called ‘economic bloc’ – the Finance and Economy portfolios held throughout Putin’s presidency to date by Alexey Kudrin and German Gref respectively; and, above all, the fate of the two first deputy prime ministers in the outgoing government, and apparent front-runners for the presidential succession, Dmitry Medvedev and Sergey Ivanov.
Those debates will not have died down before the arrival of the next data point, which is the unveiling of the final lists of candidates for the Duma election by the pro-Kremlin parties: A Fair Russia (the junior partner); and the one that really matters, United Russia, which will be holding its party congress for the purpose on 1-2 October. The circus will then roll on through the campaign for the 2 December parliamentary election leading up to the moment of truth in the closing weeks of the year, when the candidates for the presidential election must be formally registered and the country will await Putin’s indication of which of those candidates he prefers.
Our prediction – reinforced by Putin’s government reshuffle gambit – is that the guessing game will be prolonged until that last possible moment (see here for a full account of this timing forecast). So for those with a taste for Kremlinology, this will be a golden autumn. For others, blow-by-blow accounts of the rising and falling fortunes of various likely presidential succession contenders may be safely ignored.
This recommendation does not mean that we share the widespread view that the identity of the next president is of no importance. Even allowing for strong continuity of basic policies (exemplified by this year’s adoption of a federal budget through until 2010), and also for the continuing influence of Vladimir Putin himself, we would expect the individual qualities of the new Russian president to count for much, especially with the passing of time. At stake here are countless policy nuances and prioritisations, the quality of reaction to domestic events and international crises, and the whole tone set for national development. The contrasts of character and style between Medvedev and Ivanov emerging from our detailed studies ( Who is Dmitry Medvedev? and Who is Sergey Ivanov?) illustrate the point well enough. So we will be subjecting either of those front-runners, or whoever else may come from behind to prevail in the presidential succession struggle, to still closer analytical scrutiny when the time comes.
For now, a more useful exercise than speculation based on proper names is to construct a framework for judging whichever scenario finally unfolds in terms of underlying country risk.
Our premise here is that increased political competition is the key to country risk reduction. The full argument in support of this premise is set out in the Assumptions & Evidence section below. Two essential points emerge from that argument for the purpose of assessing the present political cycle.
The risks emerging from those two headings would be most effectively contained by integrating the presidency into a party political system. The ideal would be alternation between two main parties, both of which were committed not only to the country’s existing institutions, but also to the broad framework of responsible economic and foreign policy. In this standard two-party system, there would always be something to lose for certain groups which had been enjoying the fruits of power; but there would be no systemic threat to the wider and general interest of the elite.
It needs stressing at this point that much progress could be made along this path of country-risk reduction while still falling far short of a fully unbridled play of democratic competition. For example, an ‘establishment’ two-party system could accomplish much of the two-point agenda set out above – entrenching institutional stability and legitimacy, ensuring leadership rotation – while still limiting or blocking media access to opposition forces outside the establishment, notably those campaigning on the ever popular platform of extreme xenophobic nationalism.
More modest, but still useful, progress could be achieved even if a recognisable two-party system fails to emerge in the coming years, and with the Russian polity instead remaining more or less at its present stage of development where mainstream politics (and political competition) are kept under the roof of a single ‘big tent’. There is an important distinction to be made here. Country risk would be markedly lower if that ‘big tent’ were a dominant institutionalised political party, acting in its own predictable rules-based framework, as opposed to the mere entourage of the incumbent president operating as shady Kremlin factions. The better case of a single dominant party – i.e. United Russia – would have strong and reassuring similarities to Japan’s LDP.
To explain and justify this analogy with Japan, we would draw attention to the opinion poll evidence that a majority of the Russian public reckons the country has become more democratic under Putin than ever before. Many foreign observers of today’s Russia might be surprised by this finding, or jump to the (misguided) conclusion that it results from brainwashing by the state-controlled television. In reality, there is no mystery. Because living standards have recovered, the present government is perceived as caring more for ordinary people than its predecessors did – hence more ‘democratic’. In similar fashion, the de facto one-party state in Japan is democratic (that is, more accountable than authoritarian) in the sense that it is always reacting to the popular mood and concerns – and usually steals any good policy ideas thought up by its opponents in the minor parties. The LDP party machine ensures the rotation of the premiership and constant renewal of the government.
To sum up: while inferior to the open alternation of power between two or more political parties from the point of view of optimising policies and limiting corruption, the evolution of United Russia into anything resembling the Japanese LDP would still leave Russian country risk looking much improved in comparison with an essentially personal regime confined to the Kremlin corridors of power. Under a dominant party infused with a normal instinct of self-preservation, a fresh face would emerge organically to replace an unpopular president and his cronies and supply necessary correctives to existing policies.
So what are the prospects in practice for these principles and institutional scenarios in the real political environment existing at the end of Putin’s presidency?
Some momentum towards the range of desirable outcomes considered above has come from Putin’s steps to raise the status of political parties. The most obvious sign of this is that the new Duma will be elected entirely on the basis of party lists (until now, half of the Duma has consisted of deputies elected in single-member districts, typically machined in by local bureaucratic and business interests). Political parties have also been given a privileged position in the presidential election process. Any party represented in the Duma (that is, parties with a vote share of at least 7 per cent in the most recent Duma election) may put up a candidate in a presidential election by right – that is, without having to submit a financial deposit or go through the expensive and laborious process of collecting the millions of supporting signatures required for independent, non-party candidates.
On the other hand, there is a strong expectation that the next president of Russia will not be elected as the candidate of United Russia (let alone any other political party). An important aspect of the presidency as the source of legitimacy in present-day Russia lies precisely in this elected tsar being perceived as the unifying father of the people above the fray of bickering party politicians. To put this into perspective, a mere half century ago, Charles de Gaulle founded the Fifth Republic in France on identical principles. Putin himself has stated his view of this matter in public – most recently at his Kremlin press conference in February 2007, when he said that the presidency could become party political in the fullness of time, but that this would be premature at Russia’s present stage of political development.
Against this background, we conclude by setting out the full range of ways in which the presidential succession could play out from the point of view of assessing underlying country risk prospects. To help describe each category as clearly as possible, an illustrative scenario is used which mentions leading figures now on the political scene. But, to repeat, these are illustrations: the point of this analysis is not to predict the fortunes of this or the other contender for the presidential succession, but rather to draw sound conclusions about Russian country risk from the unfolding of the present political cycle. In this perspective, the following range of scenarios is ranked from worst to best.
The ranking of the “non-party competition” scenario above the “controlled party-political” scenario may seem at odds with the preceding discussion of the risk-reducing effect of integrating the presidency into the party system. The slight preference given here to a measure of open competition – even separate from political parties – assumes that this major breakthrough on the political competition front would be assimilated into party political practice over the next political cycle.
But such fine distinctions seem rather theoretical at present. Scenario 1 would point to deteriorating country risk over the coming political cycles. The heightened risk would be one of some loss of legitimacy in the event of a combination of external shock and erosion of popularity of the personal regime. Destabilisation would result. In our judgement, this scenario is unlikely; but even less likely is the best scenario from a country risk perspective – number 5.
For now the most plausible outcome would be based on Scenario 2, with a chance of some more positive elements from Scenarios 3 or 4 being added into the mixture. On its own, Scenario 2 signifies no change for the country risk as of now, but in practice a mild deterioration. For on the reasonable assumption that real income growth slows from the rate seen in the period of bounce-back from post-Soviet recession which has coincided with the Putin presidency, the popularity of the regime will decline. Failure at this stage to instil any habit or basis of competition and alternative outcomes would make the next political cycle – amid some popular disenchantment – considerably more fraught. This risk would be moderated to the extent that Putin refrains – as we think likely – from a crude announcement of his successor, and instead allows some degree or semblance of competition.
This background essay, which may be viewed in full on the home page of the Russia channel on our website, sets out the general thinking underlying the organisation of the scenario framework in the Core Case section above around the theme of political competition.
Almost always and everywhere, the cornerstone of stability is legitimacy. Legitimacy in today’s Russia is founded on Putin’s popularity and (a less remarked point) the constitutionality of his rule.
His popularity is based mainly on the strong improvement in living standards during his presidency. In monthly surveys by the leading independent polling organisation, Putin’s public approval rating has remained in the 66-82% range ever since he came to power. His popularity is such that the majority of voters will freely assent to his choice of successor in 2008.
This, in turn, highlights the constitutionality point. Putin became president in line with the Constitution, and appears firmly set on leaving office in the same way. By resisting the temptation to amend the Constitution and remain in office beyond 2008, Putin has entrenched stability.
Opinion polls suggest that the Russian public is indifferent to the lack of political competition. But the ‘unified elite’ model of governance that has now emerged in Russia creates vulnerabilities.
With no prospect of power alternating between competing groups, the natural result will be yet more corruption and a deterioration in the quality of policymaking as unaccountable and untransparent bureaucratic clans rule the roost. In these circumstances, economic performance might well falter. Even if living standards continued to rise at present rates, they might not keep pace with the public's still more rapidly rising expectations. One way or the other, the regime’s popularity would start to erode.
The loss of popularity could in turn remove the other plank of legitimacy – respect for the constitution. By the time of the next federal election cycle in 2011-12 or the one after that in 2015-16, a by now unpopular ruling group might resort to rigging elections or setting aside the constitution to hold on to power.
Alternatively, the regime might be ousted by radical protest groups, which in today’s Russia are more likely to be of the collectivist and nationalist ('red-brown') variety rather than European liberals.
This process could jeopardise macroeconomic as well as political stability. The fiscal discipline of the Putin administration could give way to populist and inflationary ‘pork barrel’ public spending binges by an insecure successor regime trying to buy votes from an increasingly disenchanted public.
Meanwhile, as an insurance policy against a final loss of power, the ruling group and its bureaucratic clienteles could be expected to line their pockets as much as they could while there was still time.
Even with the approach of the unthreatening political cycle of 2007-8, there are already signs of an increase in ‘rent-seeking behaviour’ by well connected bureaucrat-businessmen. This is the main stability issue in the period until the Duma and presidential elections due in December 2007 and March 2008.
For the longer term, the key to building on the already hugely beneficial gains in stability achieved under President Putin must be the emergence of genuine open competition between mainstream political forces in a secure systemic framework.
In short, the present stability could stagnate and undermine itself. The antidote is a dynamic stability of classic alternating governments. Paradoxically, more political competition would create greater short-term policy uncertainty, but much greater underlying stability.
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