- Russia's economy has stagnated since 2009 due to lower oil prices and Western sanctions. However, conservative macroeconomic policies have maintained stability. - Putin has consolidated power through security services, state corporations, and cronies. His model relies on state capitalism and protectionism. - The future outlook predicts continued economic stagnation, a further falling standard of living, and no reforms on the horizon. Putin's legitimacy depends on nationalism rather than improving lives, which is not sustainable long-term.

1. Russia’s Crony
Capitalism:
Stagnant But Stable
Anders Åslund, Senior Fellow
Atlantic Council, Washington, D.C.
Stockholm June 13, 2017

2. Putin’s Model
1. Conservative macroeconomic
policy: Lesson from the crash
of 1998
2. State & crony capitalism
3. Protectionism: Eurasian
Economic Union
4. Efficient authoritarianism

3. Putin’s 4 Terms
1. 2000-2004: Market reform
2. 2004-2008: State capitalism
3. 2008-2012: Crony capitalism,
massive asset stripping from
Gazprom
4. 2012- Manual management with
state & crony capitalism,
increasing repression

4. -10
-8
-6
-4
-2
0
2
4
6
8
10
12
RealAnnualPercentChange
GDP Growth: 7%/Year 2000-2008,
Stagnation 2009-2016

5. Petrostate
1. Oil production increased 50%
between 1999 and 2004
thanks to new private owners
2. Oil prices surged from 2003-
2014
Conclusion: Good governance
was no longer needed

6. Gas Output Constant, Oil Output
Nearly Doubled, 1998-2015
200
250
300
350
400
450
500
550
600
MillionTonnesofOilEquivalent
Oil
Natural gas

7. Conservative Macro
1. Small budget deficit & public
debt
2. Maintaining large reserves
3. Large trade surplus
4. Low unemployment
5. Low inflation

8. 1. Big Budget Surpluses 2000-2008,
Moderate Deficits during Bad Years
-8
-6
-4
-2
0
2
4
6
8
10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%ofGDP

9. Extremely Low Public Debt:
13% of GDP
0
2
4
6
8
10
12
14
16
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%ofGDP

10. 2. Currency & Gold Reserves
ca $400 billion
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Reserves
Year

11. 3. Steady Large Trade Surplus
0
100
200
300
400
500
600
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
BillionUSDollars
Imports, USD billion
Exports, USD billion

12. 0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*
*As of Q2 2016.
Source: BOFIT.
& Sizable Current Account
Surplus

13. 4. Low & Falling Unemployment
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%ofActiveLaborForceUnemployed

14. 5. Inflation Long Too High
But Finally 5%
0
5
10
15
20
25
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Inflation,%(CPI)

15. Putin’s Last 8 Years
Three big problems:
1. State & crony capitalism:
State sector from 35%-70% of
GDP, 2005-2015
2. Lower oil price, since mid-2014
3. Financial sanctions, since July
2014

16. Response to Lower Oil Prices
Ruble exchange rate depreciates with
oil price
Strict monetary policy keeps inflation
low
State revenues fall little in ruble terms
Current account surplus maintained

17. Thanks to Floating Ruble Exchange
Rate Falls with Oil Price
0
10
20
30
40
50
60
70
80
900
20
40
60
80
100
120
jan-14
feb-14
mar-14
apr-14
maj-14
jun-14
jul-14
aug-14
sep-14
okt-14
nov-14
dec-14
jan-15
feb-15
mar-15
apr-15
maj-15
jun-15
jul-15
aug-15
sep-15
okt-15
nov-15
dec-15
jan-16
feb-16
mar-16
apr-16
maj-16
jun-16
jul-16
aug-16
sep-16
Ruble-USD
USD/bbl
Brent Crude Oil Price vs. Ruble/Dollar Exchange Rate
January 2014 – September 2016
Oil Price (USD) Exchange Rate (RUB/USD)

18. Financial Sanctions
Are Effective
Since July 16 and July 31, 2014,
US and EU financial sanctions
Nearly complete because of strict
US financial regulators
Russia is being forced to pay off
its foreign debt
Cost: 1-1 ½% of GDP/year

19. Something Has to Give
1. Living standard: Real wages -
10% ’15, -5% ’16
2. Investment -8.4% ’15, -2.3 ‘16
3. GDP -3.7% ‘15, -1% ‘16, +1%
’17?
GDP from $2.1tr 2014 to $1.2tr now
Antisocial policies

20. Retail Sales & Real Disposable
Incomes Fell By 15% 2014-2015
75
80
85
90
95
100
105
Retail Trade Real Disposable IncomeSource: Rosstat.

21. Fixed Investments from +11%
in 2011 to -8% in 2015
-15
-10
-5
0
5
10
15
2008 2009 2010 2011 2012 2013 2014 2015 2016
Fixed Investments (%-change y-o-y)
Source: BOFIT Russia Statistics

22. Putin Rules
Three Circles of Power:
Security Services FSB & FSO
State corporations (Gazprom,
Rosneft, Rostec, VTB)
Cronies (Timchenko, Rotenberg
& Kovalchuk)

23. Putin Consolidates Power
New appointees in 40s
Efficient technocrats, or
Hardcore nationalists
Kleptocracy is the basis of
the system

24. Future Outlook
Maintained stability
Economic stagnation:
GDP +1-2%/year
Standard of living fall more than
output
Reduced investment, also in state
corporations

25. Future Outlook (2)
No reforms in sight
Legitimacy based on circus (=small
victorious wars) rather than bread
Not sustainable but may linger on:
Lesson from the USSR
Yegor Gaidar, Collapse of an Empire
Russia today feels like 1984