As Putin Takes the Helm, All Is Not Well in Russia

I've never before heard an economist applauding the flight of $100 billion in capital from his own country.

Vladamir Putin
Bulent Kilic | AFP | Getty Images
Vladamir Putin

But then again, this is only my second time in Russia. And last time I remarked I'd never before visited a vodka and steak bar that didn't have a vodka license.

I have much to learn about how things work here.

And so to our interview, in Red Square on election results day, with Evgeny Gavrilenkov, chief economist and managing director at Troika Dialog.

He's pretty happy about the aforementioned capital outflows. Apparently it keeps inflation down and Russia's doing very well anyway and managing just fine on domestic demand, is insulated from external factors like never before and doesn't need the money anyway.

Quite possibly Gavrilenkov can't concentrate because, in fear of the Russian winter, I'm literally wearing the entire contents of my suitcase including three pairs of trousers, five tops, a Downton Abbey-style felt hat and a pair of walking boots I got for my 14th birthday (honestly).

I try again.

"Are capital outflows an indication of investor concern about the political climate in Russia?" I ask.

"No," he says.

"What impact will the election have on the economic outlook?"

"None. It was as expected," Gavrilenkov answers.

And Russia can easily afford Putin's last-minute election promises, plus most of it was already budgeted anyway, Gavrilenkov added. And it doesn't matter if oil pricesdrop a bit, because the rouble adjusts.

Well, I'm glad we cleared that up.

Troika Dialog, of which Gavrilenkov is managing director, was recently taken over by state-controlled Sberbank.

Then we spoke to Gary White, Moscow bureau chief of the Wall Street Journal.

White reckons investors are yanking out cash because of political uncertainty, Moscow has a serious public spending headache and if the oil price drops... The music stops very abruptly.

Two very different views then.

What's not disputed is that Vladimir Putin is back as president-elect.

He was first elected in 2000. Since his election the term has been lengthened to 6 years, so he's definitely in the top job through 2018. And possibly through 2024 (at which stage he'll be 72 and in charge of Russia for half his adult life), if he manages another term as is constitutionally permitted.

Since 2000 Russia has changed a very great deal. Putin enjoys, and deserves, credit for bringing order after the chaotic years of transition from Soviet years under Boris Yeltsin. His strongman style served this purpose well and continues to appeal to the paternalistic psyche of much of Russia.

GDP has grown strongly, up 4.3 percent last year, and continues to put many Western economies in the shade. Russia even became the R in BRIC. And the country is set to join the World Trade Organisation this year.

But all is not well.

On the economic front, public spending stands at 40 percent of GDP and is still growing. Despite attempts to diversify, oil and gas still account for two thirds of exports. And those capital outflows don't smack of the kind of stellar growth opportunity that the BRIC badge may imply.

Many Russians are tired of day-to-day bureaucracy, bribery and corruption that slows everything down here. They note the increasing centralization of power and tight Kremlin control over who can challenge Putin.

This all began to spill over into protests on the streets of Moscow after the disputed parliamentary elections in December.

Although President-Elect Putin dismissed the protests as the meddling of outside forces, they have continued over the past three months and the fledgling opposition movement now has the ear of the international community.

The problem for Putin is that the expanded middle class he has created, who shop in Louis Vuitton and vacation in the South of France, are starting to lash out against him.

The government can control traditional media pretty well, but here's another middle class dilemma. At least half the population of Russia, whether or not they own fancy handbags, have access to the internet, which is a great deal more difficult to control.

Now Putin has his next presidential term assured, what will he do with it?

In the meantime, I'm off to look for some new walking boots. This pair is locked in a head-to-head battle for long service with Putin and I'm not convinced they'll make it.