INSIGHT-Putin's Russia: more fragile than it looks
* Exodus of talent and money from Russia
* Political thaw under Medvedev reversed
* Rosneft deal sign of the times
* Muscovites talk of ``zastoy'' (stagnation
* Pussy Riot punishment splits Kremlin and West
MOSCOW, Nov 1 (Reuters) - When Vladimir Putin celebrated his 60th birthday this month, a group of patriotic mountaineers unfurled a portrait of the Russian leader on a 4,150-metre mountain peak. Hailing him as a guarantor of happiness and stability, the climbers' leader explained: ``We have stuck Putin's portrait on a rock wall we see as unbreakable and eternal as Putin''.
But as Putin nears the end of his 13th year ruling this vast country, Russians feel increasingly unhappy and worries over long-term political and economic stability are growing.
Russia is exporting three things in great quantity, says a leading Moscow banker: natural resources, capital and people.
Only the first could be regarded as healthy and sustainable; the other two imply that oligarchs and ordinary citizens alike are turning their back on Putin's Russia.
Almost a third of city-dwellers would like to emigrate from Russia, according to a poll in September. Among young people the proportion rose to nearly half. The most favoured destinations were Europe, the United States, Australia and New Zealand.
The reasons for this exodus of talent and money? A growing sense among educated Russians that their country is heading in the wrong direction, and that no change is likely.
It all began very differently. Putin replaced Boris Yeltsin in the Kremlin on December 31, 1999. His early years generated hope as the chaos of the Yeltsin era was replaced by order, the economy grew strongly - Russia's GDP has grown nearly 10-fold under Putin - and a consumer boom created a new middle class.
A group of reform-minded ministers led by Alexei Kudrin at Finance and German Gref at Economy raised hopes of real change to increase private investment, modernise industry and infrastructure and reduce dependence on raw material exports.
Fast forward to 2012. Putin began a fresh six-year presidential term this March, with his supporters calling for him to stay in power until a constitutional term limit of 2024 - by which time the former KGB spy would have ruled longer than any Kremlin leader since Stalin.
Outwardly Putin's reform agenda continues. The president and his government repeat the mantra of modernisation - a concept beloved of tsars for centuries.
Putin told Russia's main economic forum this summer that his government would implement a programme of major transformation to build a new economy, create or modernise 25 million jobs and become an exporter of innovative goods and services.
But the facts on the ground point in a different direction.
POLITICAL THAW REVERSED
A brief and shallow political thaw under Dmitry Medvedev's 2008-12 presidency (in which Putin continued to wield ultimate power from the prime minister's office) is being reversed.
Opposition leaders have been arrested on charges which human rights organisations say are trumped-up, new controls have been clamped on the Internet and a Medvedev repeal of slander laws has been reversed.
Gref and Kudrin are both long gone from the government and unconfirmed rumours swirl in Moscow that Medvedev himself will be fired by Putin before the end of the year.
Growth presses on but at the same time Moscow has the world's biggest population of billionaires, corruption is rampant and the country's huge wealth is very unevenly spread.
Kudrin helped to fund a startling study from the Centre of Strategic Research think-tank, published last week. It concluded from interviews with focus groups in Moscow and regional cities that Russians saw little chance of changing their ``predatory'' ruling elite through the ballot box.
Most thought a revolution was possible and even desirable.
Medvedev cuts an increasingly lonely figure in Moscow, his credibility with voters gone after stepping aside without a murmur to make way for Putin's return to the Kremlin this year. His supporters privately despair of any chance for real change in an economy that looks increasingly Kremlin-controlled.
One recent mega-deal shows the trend. Last month, state-controlled oil giant Rosneft said it would take over the number three oil producer, TNK-BP. Rosneft will buy out the current owners - four Soviet-born oligarchs and Britain's BP - to create the world's biggest publicly listed oil company.
At a time when Russian oil production is falling and large-scale investment is badly needed to open up new fields, the Kremlin is instead spending $55 billion in cash and shares to acquire control of a major oil company from the private sector.
As the government splurges, Russia's oligarchs are shifting more money abroad because of the poor investment climate. Deputy Economy Minister Andrei Klepach estimates that $50-60 billion of private capital will flow out of Russia this year. Moscow bank Uralsib predicts the figure could hit $80 billion.
Putin told a group of visiting academics and journalists last week over dinner at his residence that he had ``mixed feelings'' about the Rosneft takeover of TNK-BP because it increased state participation in the economy.
Russia-watchers, however, had little doubt that the takeover was scripted inside the Kremlin. Rosneft is run by Igor Sechin, a long-time close Putin ally and Kremlin hard-liner who has always favoured extending state control over key assets.
The two-hour, seven-course dinner with the Valdai Group of Russia experts was held at Putin's Novo-Ogaryovo residence in an exclusive wooded suburb outside Moscow.
The occasion was billed as a chance to gain insight into the latest Kremlin thinking and learn Putin's ideas for his new term. But at dinner, the Kremlin chief surprised some attendees with an uncharacteristically flat performance, devoid of the quips and bravado for which he is renowned and lacking in new ideas.
Corruption is one of the biggest problems in Russia for ordinary citizens, businessmen and foreign investors. The country has slid to 143rd place out of 182 on Transparency International's Corruption Perceptions Index, tied with Nigeria.
Yet Putin shrugged off a question about corruption with a tired sigh, asking his audience what they expected him to say that was new about such a perennial topic.
Intimations of Putin's mortality have surfaced. The president's press secretary last week denied a Reuters report that the Kremlin leader needed surgery to correct a back injury, then days later squelched fresh rumours about Putin's health, saying he was working from home to avoid traffic congestion.
Such issues are no minor matter in a country where so much power is concentrated in the hands of one man, a man with no visible successor.
President Barack Obama memorably described Putin before their first meeting in 2009 as a leader with one foot stuck in the Soviet past, and signs of a drift backwards are visible in Moscow.
The Kremlin administration is now headed by 59-year-old former KGB spy Sergei Ivanov, who likes to describe himself as ``rather conservative on national security but quite liberal on economics''. Ivanov previously headed the Defence Ministry and the military-industrial complex.
ZASTOY AND PUTIN
On the lips of many educated Muscovites today is the word ``zastoy'' (stagnation) - an epithet which came to define the lacklustre latter years of Soviet leader Leonid Brezhnev in the 1970s and early 1980s, but is now increasingly used of Putin.
Despite years of government promises, Russia has yet to build a modern pensions saving system, improve regulation to create a viable financial market trading centre to compete with Dubai or invest in its crumbling infrastructure.
Already weighed down by the cost of hefty public sector pay rises ahead of this year's presidential election, the Russian government's latest budget envisages spending $620 billion by 2020 re-equipping the country's military, while cutting spending on infrastructure and education.
These priorities have upset business leaders, who are desperate for improvements to the creaking road network.
And despite repeated Putin's pledges to cut the economy's dependence on oil and gas exports, the oil price required by the Kremlin to make its budget sums add up has more than doubled over the pasts five years to $110.
In foreign policy, Medvedev's much-vaunted plan to reset relations with the United States on a more constructive track has stalled. Instead Moscow has confronted the West over Syria and given priority to pursuing a free trade area with former Soviet neighbours Belarus and Kazakhstan.
Alexei Pushkov, chairman of the Duma's Foreign Affairs Committee, says Russia wants to be an ``independent centre of attraction'' for nations in its neighbourhood and adds:
``The West made a major mistake wanting Russia to be like the West - Russia wants to be Russia''.
PUNISHING PUSSY RIOT
One of the clearest signs of divergence between Russia and the West is the treatment of Pussy Riot - a punk feminist band who staged a protest song in Moscow's main cathedral this year imploring the Virgin Mary to rid Russia of Putin.
Three of its members were jailed for two years - one later released on a suspended sentence - for ``hooliganism motivated by religious hatred''.
Putin said the women had ``got what they deserved'' because their performance amounted to a vulgar act of group sex and threatened the moral foundations of Russia. Western governments and human rights groups were outraged at what they saw as a grossly disproportionate punishment.
Yet the harsh treatment meted out to Pussy Riot may signify something deeper than moral indignation.
Many analysts see the jail terms as a sign of something deeper - Kremlin insecurity amid rising popular discontent.
While the street protests which swept Moscow last winter have now abated, political analysts say the urban, educated population is increasingly unhappy with Putin's leadership.
Far from the grandeur of Putin's Novo-Ogaryovo residence, its wrought-iron gates topped with the double-headed Russian eagle, to the north of Moscow lies the featureless dormitory town of Krasnogorsk.
Inside a small, noisy McDonald's restaurant there, a diminutive 30-year-old woman energetically explained her prediction for Russia's future under Putin, as a snowstorm swirled outside.
``The system itself is crumbling,'' said Yekaterina Samutsevich, the released Pussy Riot member. ``It's becoming more repressive ... those in power have very strong fears and their behaviour is more and more wild. We could end with a total collapse like the Soviet Union.''
Whether the vision of the strong, stable, great power projected by Putin or the apocalyptic prediction of the young punk rocker come to pass remains to be seen.
But in the meantime Russia's people and its business elite are voting with their feet and their wallets. And Putin is not winning.