New Russian Parliament faces tough economic times

A crushing victory for Russia`s ruling party at parliamentary polls has been hailed as a big win for President Vladimir Putin -- but for the deputies elected it might just prove a poisoned chalice.

AFP| Updated: Sep 21, 2016, 09:31 AM IST

Moscow: A crushing victory for Russia`s ruling party at parliamentary polls has been hailed as a big win for President Vladimir Putin -- but for the deputies elected it might just prove a poisoned chalice.

With Russia locked in a damaging economic crisis and its cash piles dwindling, the authorities are facing a balancing act -- juggling the need to slash spending against keeping Putin`s popularity high ahead of presidential elections set for 2018.

Eventually, analysts agree, the country will need to carry out tough reforms -- potentially increasing the age of retirement, cutting back on job security and raising taxes.

But for now there is little doubt which way the wind is blowing -- ensuring Putin gains a fourth term is the priority and any radical changes are on ice until then.

"Changes are definitely coming. They will be unpopular and controversial but they are now inevitable as the country can no longer afford not to make these changes," said economist Chris Weafer of Macro Advisory told AFP.

"But I don`t see any possibility of any of these measures being even publicly debated until after Putin is re-elected in March 2018."Analyst Alexei Makarkin wrote in Vedomosti business daily Tuesday that the new Duma -- which is entirely subservient to the Kremlin -- will be forced to adopt "unpopular but necessary" measures, but only following the 2018 elections.

Austerity measures already adopted in the past few years have included major job cuts in the public sector and caused the purchasing power of state employees and pensioners to fall.

Although the measures did not undermine Putin`s popularity, they resulted in a string of small-scale protests and strikes in different parts of the vast country -- a rarity as protest activity stands at an all-time low.

Russia`s economy contracted 3.7 percent in 2015, mostly due to a crash in global oil prices, and is expected to drop by at least 0.5 percent this year before a small bounce back in 2017.

The crisis has seen Russians` living conditions slip, with the population`s real earnings last month falling 8.3 percent year-on-year.

Putin has pledged to push forward with liberal reforms but has dismissed the possibility of "shock therapy" changes like those in the 1990s that swiftly transformed Russia into a market economy but wiped out savings and jobs.While major reforms are not on the cards for now, some in the Russian government appear to be pushing for spending cuts to go further faster.

The Russian press has reported that the country`s finance ministry could be lobbying for the next budget -- to be debated in the legislature next month -- to include spending cuts for the oil industry, state media, space programmes and the military.

Suggestions of slashing the military budget -- which already represents more than five percent of GDP and has considerably increased in the past decade -- seem to be have unleashed a power struggle between different factions of the Russian government and business community.

Russia`s Kommersant daily reported that Finance Minister Anton Siluanov and Defence Minister Sergei Shoigu had heated exchanges at a recent government meeting addressing the rearmament of the Russian military, which is conducting a bombing campaign in Syria in support of the regime.

These behind-the-scenes power struggles come as the finance ministry has warned the government against depleting its financial reserves built up from oil export revenue in previous years when crude prices were high.

"As always it will be Putin who will act as arbitrator in this battle," Weafer said.

Putin will be reluctant to cut spending on defence and social programmes -- precisely what the finance ministry has reportedly been calling for -- but would also dread weakening the country`s already fragile financial situation which could spur higher inflation that would quickly hit the pocketbooks of Russians.

"He will not want to risk Russia being placed in a vulnerable financial position," Weafer said.

"To be seen by the West to be in that position would undermine his geopolitical bargaining position as well as risk losing public support at home."