As Putin’s tenure drew to a close in early 2008, it was clear that Moscow was seeking to reassert its stature as a major power. But in fact Putin’s regime had achieved little; his gratuitous attacks, however popular at home, aggravated tensions with the West. The United States, in particular, increasingly came to regard Russia as a threat to its power and to the process of democratization.
2008: A New President
As Putin’s second term drew to a close, with prosperity at home and Putin’s popularity at an all-time high, his supporters proposed to amend the constitutional limit of two consecutive terms in the presidency. However, Putin himself rejected that proposal and instead promoted the candidacy of his deputy prime minister, Dmitrii Medvedev. Like Putin, Medvedev came from St Petersburg, had a law degree (he even taught Roman civil law at St Petersburg University), and had worked for that city’s liberal mayor Sobchak in the early 1990s. In 1999 Putin appointed Medvedev deputy head of the governmental administration, next made him deputy head of the presidential administration, and then promoted him to be its director in 2003. At one point in 2000 Medvedev also served as chairman of the board of directors of Gazprom, the state’s natural gas monopoly. In 2005 Putin designated Medvedev first deputy prime minister, with responsibility for health care, demography, agriculture, and education, thereby giving him visibility in high-profile issues. Despite conjecture about Medvedev’s possible liberalism, during the election campaign he unequivocally embraced Putin’s ideal of a strong ‘vertical’ authority: ‘I am deeply convinced that, if Russia turns into a parliamentary republic, it will soon cease to exist. What it needs is a strong presidential authority. These lands were brought together over centuries, and it is simply impossible to govern them in any other way.’
Medvedev held an insuperable advantage in the presidential campaign. He not only had Putin’s public support but quickly announced that he would appoint the popular Putin as prime minister, ensuring that Putin and his policies would remain in place. Indeed, the pair campaigned as a team under the slogan ‘Together we shall win.’ The opposition, divided and weak, deprived of the state-controlled mass media, had little prospect of victory. Western observers questioned the legitimacy of the election; the Organization for Security and Cooperation in Europe (which routinely monitors elections) declined to participate, citing ‘severe restrictions on its observers by the Russian government’. Those who did come to observe reported a ‘fair but unequal election’. One study found that Medvedev had six times more coverage than his rivals; some oppositionists claimed forged election protocols. Few, however, doubt that Medvedev won a landslide victory, with 71.3 per cent of the vote against 18.0 per cent and 9.5 per cent for the next two candidates.
With Medvedev’s election and installation as president in May, Putin became prime minister. The new government enjoyed popularity and power: although the two were often described as a ‘tandem’, Putin unquestionably was a power unto himself. Some of his popularity even rubbed off on the ‘government’, which traditionally had extremely low approval ratings, but now saw its approval shoot up to 60 per cent, with still higher ratings for Medvedev and Putin.
The post-Putin ‘tandem’ continued Putin’s foreign and domestic policies. In foreign policy Russia continued to oppose the placement of NMD facilities in Poland and the Czech Republic; failing to persuade the Bush administration to reconsider, Moscow remained hopeful that the new government of Barak Obama would be prepared to compromise. Moscow did succeed in persuading NATO to delay plans to admit Ukraine and Georgia, despite strong pressure from the American government. The military conflict with Georgia in August 2008 exacerbated tensions, but neither the United States nor its European allies pressed their demands that Russia withdraw its forces and recognize Georgia’s sovereignty over the breakaway regions. The Medvedev presidency also reaffirmed Putin’s domestic policies in a long-term plan called ‘Strategy for 2020’, which was drafted in June 2008 and outlined goals and policies for the next dozen years. The plan envisioned a fivefold increase in wages, threefold increase in housing construction, doubling in research and development, and a demographic transformation (with the population growing to 145 million and life expectancy rising from 65 to 70). Such optimistic projections derived largely from the high rate of economic growth in the first months of 2008; buoyed by an investment boom, in the first quarter of 2008 the GDP grew at an annual rate of 8.5 per cent, among the highest in all the Putin years. The future could hardly have looked brighter when the price of oil reached $147 a barrel in July 2008. At that point, Russia seemed clearly poised for years of continuous prosperity and power.
From Global Boom to Global Recession
The American banking and mortgage meltdown in the second half of 2008 triggered a global crisis, with severe repercussions for all the globalized states, Russia included. The Russian leadership had no doubts about where to place the blame. As the contagion spread, on 1 October 2008 Putin bluntly declared that ‘everything happening now in the economic and financial sphere began in the United States’, and a month later President Medvedev hammered home the same theme: ‘The US economy … pulled financial markets all around the globe down with it in its fall’, adding that Americans ‘did not listen to the numerous warnings from its partners (including from us)’.
Moscow had good cause for anger and alarm: the crisis had an immediate, devastating impact on the Russian economy. Oil prices plunged: from 147 dollars a barrel in July to less than 40 dollars by the end of the year—a 73 per cent drop. To rescue a falling rouble and failing corporations, the government had to raid the foreign exchange reserves that it had carefully accumulated; the reserves—once the world’s third largest—shrank from 598 billion dollars to 426.5 billion by early January, and dropped to 388 billion a month later (a decrease of 35 per cent). These measures, however, failed to staunch the decline of the rouble, which lost a third of its value against the dollar and returned to its exchange value at the time of the 1998 crisis. The Russian stock exchange nosedived, dropping from a high of 2,488 points in May 2008 to 507 by February 2009 (an 80 per cent decline). The crisis in the financial, banking, and securities sector carried over to the ‘real economy’, bringing a sudden halt to the high growth rate of the GDP. Putin initially projected an overall growth rate of 6 per cent in 2008, but later calculations reduced that to 5.6 per cent—the lowest since 4.7 per cent in 2002 and saved only by the high growth rate in the first half of the year.
The crisis did not spare the oligarchs. Although the magnitude of the crisis evoked images of 1998, this time roles were reversed: in 1998 the oligarchs had bailed out the government, but now the state had to rescue the oligarchs. Authoritative sources reported that the twenty-five richest oligarchs lost 240 billion dollars, that they and individual companies struggled to service the colossal corporate debt (478 billion dollars) amassed in recent years. The case of the aluminium magnate Oleg Deripaska was instructive. His original wealth of 30.5 billion dollars had shrunk to 9.6 billion, with an outstanding debt of 18.6 billion. Oligarchs appealed to the government for emergency loans (Deripaska receiving 4.6 billion dollars, for example) and sought to sell valuable assets to achieve greater liquidity (Roman Abramovich, for example, purportedly seeking a buyer for his English football club, Chelsea).