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Is Medvedev or Putin Better for Russia?

Posted: 05/31/11 10:40 AM ET

Russia will vote for a 'new' President in March and it is highly likely that the outcome will either be a second term for current incumbent Medvedev or a return to office for former President Putin. In 2008, it appeared that Putin was simply handing over the presidential reins to Medvedev with a view to returning to office in 2012 and likely remaining until 2024. It is a widely held view that the outcome of the election has already been decided between the two men -- raising additional questions about the legitimacy of the 'democratic' process involved.

Battle lines of support are being drawn between two distinct elements of Russian society. Medvedev increasingly draws his support from the upwardly mobile middle class and left- of-center intelligentsia while Putin relies upon the 'hard' right -- the military, security service and right-of-center 'siloviki.' In terms of sheer numbers, Putin has the advantage. Although it is possible that a third viable candidate may yet emerge, this appears unlikely to impact the Medvedev-Putin tag team.

Investment Climate

Both Medvedev and Putin have been strengthened by the robust price of oil, which has become the foundation of the health of the Russian economy and has permitted both men to achieve economic stability during their first term as president. But neither can achieve their goals of robust economic growth, reducing the unemployment rate and becoming more competitive without attracting more foreign direct investment (FDI). Given Russia's abundance of natural resources, the task of attracting greater FDI should have been easier than it has been, but Russia has gained a reputation for taking discriminatory action against foreign investors, lacking transparency, and being a difficult place in which to operate. The recent furor surrounding the TNK-BP joint venture has only reinvigorated such concerns.

Influential and wealthy Russians have begun to side with Putin. Among them, billionaire media tycoon Alexander Lebedev, who went from being staunchly anti-Putin to becoming allied with Putin's All-Russia People's Front ahead of last December Duma elections. Given Lebedev's role as a pro-business lobbyist who owns foreign media assets, his support is designed to assure foreign companies of their value under a Putin presidency. German Gref, head of Sberbank (Russia's largest bank), recently reiterated that Russia needs to wean itself of dependence on oil and gas exports and diversify its economy. His comments have been carefully choreographed, further reflecting the investment aims of a Putin government.

Medvedev has struck a similar tune in relation to FDI. In April 2010 he announced that a $10 billion fund would be set-up in summer 2011 to aid foreign investors, echoing Gref's desire to move away from a commodity-driven economy. Medvedev has consistently commented on Russia's aim of curbing corruption and reducing bureaucracy -- two serious barriers to foreign investment in Russia since 1991. Putin has discussed this to a much lesser extent than Medvedev in recent months. Certainly Medvedev has made a more concerted effort to lure FDI, and has proven to be more popular among western investors.

Foreign Policy

Putin's presidency contained many mixed signals with regard to foreign policy, ranging from his pro-American support of the war on terrorism to an anti-U.S. tirade in his infamous 2007 Munich security speech. Should he regain the presidency, more staunchly pro-Russian sentiment should be expected, as should enhanced relations with China. With Russia having made good progress on a variety of bilateral issues recently, and undoubtedly seeing the future in starkly pro U.S. or pro-China terms, Putin will seek to play the two off against one another. It is also likely that 'pipeline politics' will remain a key instrument in Russia's relationship with the EU, as has been the case for many years now. Having orchestrated the first BRIC meeting in 2006, Putin is also keen for Russia to become a driving force behind the continuing rise of the other BRIC countries.

Ongoing Russian support for Iran's nuclear program, its impartiality more generally toward nuclear proliferation, its anti-western stance with respect to its bilateral relationship with Georgia, the Ukraine and the Central Asian republics, and its active attempt to interfere with America's ability to supply its troops in Afghanistan through Turkmenistan, have raised serious questions in the U.S. government about whether Russia should be viewed as a trustworthy future ally.

Medvedev has failed to differentiate himself much from Putin in the foreign policy arena. The 2008 Russia/Georgia war and interference in Ukrainian politics occurred under Medvedev's watch, reflecting the hard power approach of the Kremlin. To help differentiate himself from Putin, Medvedev has established five key tenets of his future foreign policy:

  1. Fundamental principles of international law will be supreme;
  2. The world should be multi-polar;
  3. Russia will not seek confrontation with other nations;
  4. Russia will protect its citizens wherever they may be; and
  5. Russia will develop ties with friendly regions.

Most of this does not sound like the Russia many countries, businesses and individuals have known since 1989 and Putin's influence can be seen throughout. Russian foreign policy is likely to continue to be aggressive and assertive, using all tools at its disposal to raise the country's profile and capacity to act forcefully in global politics.

Conclusion

With Putin having spent his presidency consolidating his power base, it is unlikely that he will concede the opportunity to be President once again. Given that influential backers have emerged in the Putin camp, the outcome of the election already appears to have been decided. In the end, Medvedev's declared interest in remaining president may be little more than an attempt to draw-out the election process and add a sense of legitimacy to the electoral process in Russia, as he has failed to leave an indelible mark on the presidency to date. From an investment point of view, whoever the President will be, it seems unlikely that anyone will be able to dispel the view that Russia is a difficult and at times dangerous place to do business.

At a time of increasing uncertainty regionally and globally, Putin has the edge. The average Russian citizen would undoubtedly rather vote for the security and predictability that they know Putin can deliver, rather than a comparatively tepid and untested Medvedev. In other words, Putin represents a safer future for Russia, but a more menacing future for its neighbors and investors.

Daniel Wagner is CEO of Country Risk Solutions, a political risk consulting firm based in Connecticut, and senior advisor to the PRS Group. Samuel Rogers is a research analyst with CRS, based in Barcelona.

 

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