Russian president Vladimir Putin fired the first
salvo of his re-election campaign in his state of the nation
speech on May 16 and used it to report on his first three
years in office.
Only three years ago as he stepped up to the lectern to deliver
the most-watched speech of his young presidency, Putin was being
lambasted as a dictator in the making. He was also accused of
recreating Stalin's police state, after he ordered the second
invasion of Chechnya, stripped regional governors of powers and
drove leading oligarchs abroad into self-imposed exile. That day he
launched an ambitious and radical reform programme.
It was a big gamble. Following the 1998 crisis he needed to
noticeably improve Russians' lives if he was to be re-elected in
March 2004. "We have reached a line beyond which we cannot go.
Poverty has reached a mind-boggling scale in Russia," Putin said in
the May 2000 speech.
Rejecting the temptation to return to the Kremlin's
authoritarian ways was a gamble that has paid off handsomely:
Russia has now put in five years of 5%-plus GDP growth.
On a snowy day in the same month that Putin called for change,
thousands of Muscovites queued for hours to look around the newly
opened Ikea super store in Moscow.
At the outset the Ikea venture had not looked propitious. It was
August 17 1998, the day that the rouble devalued, when Lennart
Dahlgren, the general director of Ikea Russia, arrived charged with
opening the Moscow store. However, like Putin, Dahlgren found that
trying to build something out of the rubble of economic collapse
was easier than it seemed. "I was a bit shaken, but my friends from
other businesses said I was lucky as it would be much easier to
invest following the devaluation. And it was," he says.
The rouble's belly flop turned out to be a blessing in disguise.
Domestic business roared ahead once it realized that imported
competition had fled the market and costs had been cut to a quarter
of pre-crisis levels.
Swedish knick-knacks
Ikea now has four stores in Moscow and plans to spend $130
million opening its first regional store in Rostov. Today it seems
that every apartment in Moscow contains at least one piece of comfy
Swedish furniture as the emerging Russian middle class finally
begin to enjoy the knick-knacks of freedom.
A trebling of average incomes since 2000 and the advent of
consumer credit last year have fuelled consumption. Russians could
always spot foreigners by their good shoes in the early 1990s.
These days, foreigners in Moscow can look shabby compared with the
locals, who seem to have walked off the pages of Russian Vogue.
Empty shelves and drab communal shops have given way to
hypermarkets, cinemas and boutiques. Every corner in Moscow seems
to have a sushi bar. Foreign retailers are rushing to Moscow with
promises of nine-digit investment programmes.
In this year's speech, Putin pointed out that the economy has
grown 20% since 2000 and Russian companies now not only rank among
the biggest in the world, but are starting to offer serious
competition to international peers - an oblique reference to the
mega-merger that created oil giant YukosSibneft in April.
He now appears electorally unassailable, sporting a 70%-plus
approval rating. So he has called for more of the same, while
setting a new ambitious goal. In his first state of the nation
speech he said that Russia should catch up with Portugal by 2017.
This year he called for a doubling of GDP by 2010. Both goals
demand 7%-plus annual GDP growth.
Ever the pragmatist, Putin confessed that the Kremlin could not
take all the credit for recovery and admitted that much of the
recent strong growth was due to "external conditions" - sustained
high international oil prices.
"This is realistic, though very difficult," Putin said. "The
doubling of GDP is a large-scale task. It will require a deep
analysis, including of the existing approaches to economic
policy."
There is still much to do before Russia weans itself off
dependence on raw material exports. The government is now the
biggest obstacle to faster growth and under Putin it has become
bigger, not smaller.
Rising wages and job security are now feeding through into a
property boom. However, companies that offer to renovate apartments
all include "unforeseen expenses" in their estimates that can run
to several thousand dollars - to pay off bureaucrats with the power
to grant construction permissions.
Putin reiterated the need to push administrative reform. The
bureaucracy should be restricted and "there is a need for a radical
reduction of the functions of the state authorities", he said.
"Putin started his first term with a strong signal by bashing
the oligarchs and he needs to do the same in the second," says
Roland Nash, head of research at Renaissance Capital. "Fireworks
are possibly on the way."