In the run-up to the legislative elections in twelve Russian regions on 13 March – which confirmed the dominance of United Russia (UR), albeit with some mild erosion of support – both President Dmitry Medvedev and Prime Minister Vladimir Putin stepped up their own electioneering. In consecutive days in early March, national TV networks showed Medvedev casting himself in the mantle of a great 19-century liberal Tsar and Putin – more down to earth – giving a campaigning address to a regional UR conference. The increasingly open jockeying between the two leaders has somewhat altered my view of this political cycle, which will be the most important domestic driver for Russian asset prices in the coming year.
To put this change into perspective, three basic elements in my view remain fixed:
So what has changed? Two things stand out.
1) Surprisingly open competition between the two leaders
It is not only the leaders themselves who have been setting out their stalls. Officials and politicians in Putin and Medvedev’s immediate circles are clearly under instructions to campaign for their respective candidate. This contrasts with the equivalent stage in 2007 when the official word from Putin was that everyone should stick to their day jobs and not think about elections or political ambitions.
Medvedev in particular has taken to pointing up the contrasts between himself and Putin, presenting himself as the leader of the next (“modernization”) stage of the country’s development. The freedom agenda proclaimed in his 3 March speech marking the 150th anniversary of the abolition of serfdom by Tsar Alexander II was only the latest (albeit most eye-catching) in a series of such gambits. His concluding rallying cry – “freedom is better than unfreedom” – repeated his most memorable statement ahead of being elected president in 2008. There can be no doubting Medvedev’s ambition for a second term.
To repeat, no conclusion can be drawn from any of this about the outcome. The race itself may be a charade, with the decision already taken about who will be president in 2012 and the two leaders’ electioneering designed simply to prevent either of them from becoming a lame duck in the meantime. Alternatively (and more likely), Putin has not made a final decision, so both men are keeping their presidential options open and live.
The main interest of this competition lies elsewhere – namely, in the simple fact that it is taking place. The practice of political competition, however controlled, has intrinsic value in easing the transition to the real thing – that is, political races with outcomes which not even the most powerful contestant can be sure of determining. This transition will be important not only for Russia’s overall development and risk reduction but also for major specific challenges like the fight against corruption. The last open presidential competition in Russia was between Boris Yeltsin and the Communist leader Gennady Zyuganov in 1996; back then the stakes were too high for alternation within a stable institutional framework (and that year’s presidential election was duly rigged in Yeltsin’s favour).
The positive baby steps in Russia’s political development represented by the Medvedev-Putin jockeying would become a crash course if the competition became uncontrolled. Although the risk-reward balance of a Western-style race between the two would be attractive in my view, this scenario is unimaginable in today’s conditions. Even in a more mature political environment, the two leaders’ rivalry would be limited to a primary contest within the dominant political party. Here again, a US-style primary election remains inconceivable at this stage. A more useful analogy might be post-war Japan. Even though UR is at best an embryonic version of Japan’s LDP, today’s political situation in Russia bears some resemblance to the way that successive Japanese leaders emerged from the “big tent” of the ruling establishment.
2) The competition is focused on reformist credentials
The implication of this second new element is more immediate. The two leaders are asserting their reformist credentials. In Medvedev’s case, this is obvious. The more interesting point is that Putin is doing the same. His implicit message is: “If I become president again, reforms will be just as ambitious as those being championed by Medvedev”. To take one example from his electioneering speech at that UR conference on 4 March, he called for the party’s candidates to declare their spending – going one step further than Medvedev’s key initiative obliging officials to declare their income. Even if this is reckoned to be only for show (since the accuracy of such spending declarations could not be verified), the political positioning remains highly significant.
Meanwhile, and on more substantial policy fronts, Putin is leading the charge for the liberalization of the domestic gas market, which is particularly important in our view. He is also encouraging large-scale new FDI in the natural resource sectors (the CEOs of BP and Total were received in his dacha in a mark of his support for their recently announced investments in and with Rosneft and Novatek).
In other words, if I am wrong about my prediction that Medvedev remains president, Putin would clearly be returning to the Kremlin as a re-branded reformist. Assuming a negative initial market reaction to an announcement that Putin was going to be president again, and even if, in my view, a second Medvedev term would be the better long-run outcome for Russian risks and investment returns, the “Putin returns” scenario could present a strong politically driven buying opportunity.
With best regards,
Christopher Granville
Director of Russia & FSU Research, Trusted Sources
