Who Cares if Putin Torpedoes the Russian Economy?

Oligarchs, maybe. Average Russians, definitely. Putin himself, not at all.

Once upon a time, the world's great monarchs would invade neighboring countries for reasons of honor, family, religion, or madness. Sometimes they also fought for money, but often they faced up to the costs of conflict only after the fact. Today, Vladimir Putin's territorial ambitions are starting to hurt the Russian economy -- but does anyone really care?

It depends who "anyone" is. Russia was not in great shape before Putin snaffled Crimea earlier this year, but things have only gotten worse since then. According to a report published last month by the International Monetary Fund (IMF), Russia will see almost zero growth in GDP this year, "with considerable downside risks." And the top IMF official in Moscow said the country was already in recession.

With slackening growth, rising uncertainty, and sanctions on some financial institutions, billions of dollars have been leaking out of the Russian economy. The usual effects of this kind of capital flight are an increase in interest rates, a depreciation of the local currency, and a drop in the stock market. And indeed, Russian bond yields have spiked; the ruble has recouped less than half of its 10 percent depreciation since protests began in Ukraine in November; and the MICEX index has only recently begun to recover from losses that reached 17 percent in March.

For the average Russian, none of this is good news. Falling exchange rates take a long time to translate into higher export volumes, but the tightening of credit markets will be felt right away by anyone looking for a loan. Less economic growth will mean fewer jobs and stingier raises, yet inflation shows no sign of abating. Prices have jumped by more than 7 percent in the past 12 months, well above the central bank's target for this year of 5 percent.

This isn't great news for many of Russia's oligarchs, either. The ones closest to Putin have managed to maintain their holdings in the country's industrial giants, particularly in oil and gas. Higher interest rates will likely make their companies less profitable, and lower stock prices may put a dent in their wallets. For instance, Gennady Timchenko, a close associate of Putin who owns 23.5 percent of the natural gas giant Novatek, may have lost about 1.3 billion rubles ($37 million at current exchange rates) on that investment alone since November. Moreover, he and several other oligarchs already have to contend with personally targeted sanctions imposed by the European Union and the United States.

It's not as though rich Russians are the only ones suffering, either. In 2012, foreign investors had almost $200 billion worth of Russian securities in their portfolios. The IMF's experts believe that as much as half that amount may be sold before the Ukraine crisis is over; much of the rest will surely lose value as part of the broader decline in the prices of Russian assets.

And yet there are a few people for whom Russia's current economic situation is just peachy. If you happen to be a wealthy Russian whose riches are stored away in accounts abroad, or at least invested in foreign securities, then things could not be better. The lower ruble means that your wealth is worth more in terms of local currency; you can live like a king or queen on your foreign dividends and interest payments. As the Russian stock market falls, you can snap up valuable assets for a snip. Even higher interest rates aren't a problem, since you're probably the one doing the lending.

Who might fall into this fortunate last category? Well, direct ownership of important companies is a no-no for Russia's top politicians, but hush-hush offshore investments may be a yes-yes, according to various news reports. Even if Putin doesn't have a boatload of overseas riches, he has a great deal of job security and the lavish lifestyle that goes with it. For him at least, the crisis he helped to create may have little tangible cost.

This may be why Western officials have said that the sanctions against Russia are intended to prick Putin indirectly. But short of a coup or a popular revolution, it's hard to see what would cause Putin to react. As I've written here before, his goal appears to be the restoration of a greater Russia, with all the territory and power that implies. The destruction of wealth among some rich investors, both inside and outside Russia, is unlikely to be a major obstacle to his ambition.



Downbeat in Doha

In Qatar's gilded schmoozefest forum, some weird ideas about America were getting tossed around this year.

Earlier this week I fell into conversation with a local journalist outside the main conference room of the Doha Forum, held in the Ritz Carlton Hotel. "This place is dead," he said, gesturing poignantly at the acreage of empty carpet around us. "Five or six years ago, you could hardly find a place to stand." In those palmy days, foreign ministers mingled with world-class journalists. Today, Doha attracts European Union parliamentarians. And me. It was like getting to Goa after all the hippies had packed up their hash and left for Kathmandu.

Doha is, of course, the capital of Qatar, the Beverly Hills of the Gulf, a micro-nation of 200,000 citizens nourished by bottomless pools of natural gas. For the last decade, the al-Thanis, Qatar's ruling clan, have used their wealth to position the state as the regional capital of diplomacy, journalism, and palaver. Al Jazeera is there, and Brookings Doha, the Doha Debates, and, of course, the Forum, which aspires to serve as the Davos of the Gulf. Compared to, say, Dubai, which appears to model itself on Las Vegas, it's a pretty serious profile.  

Still, one look at the layout of the main hall and you could see why, even on a good day, Doha may fall as far short of Davos as Dubai does of Vegas. On the raised dais, invited speakers were lodged in modular units which faced directly outwards, precluding any exchange among them. Thirty feet of empty carpet separated the stage from two rows of throne-like VIP seats, behind which lay general seating. A "panel" typically consisted of four or five experts delivering orations, followed by recitations from audience members which tended to begin with disheartening expressions like, "I wish to make four points." The Qataris do not seem to have internalized the norms of Western discourse, which may help explain the Forum's diminishing status.

The implicit subject of the two-day event was, "Where is the region heading in the aftermath of the Arab Spring?" The panels covered democratic development, human rights, energy, trade, and the media. (Your humble columnist offered a gloomy narrative of the reversals of press freedom in the Arab world over the last two years, and warned against treating social media as intrinsically liberatory.) The mood was suitably downbeat, though the panelists were divided over whether one should blame the West for trying to meddle in Arab affairs or for failing to stand with Arab citizens against autocratic leaders.

The Forum's headliner was Dominique de Villepin, former French foreign minister and prime minister, and future presidential hopeful. Villepin is a wonderfully handsome man with a fine mane of silver hair and an astonishing gift of verbal fluency. He makes the most abstract formulations at peak speed, like a Grand Prix orator. At our opening dinner, Villepin explained that the world had been thrown out of balance by the "excess" of American ideology and aggression. Statesmen needed to re-discover the wisdom -- the very French wisdom -- of "balance."

In a speech on democracy the following morning, Villepin made an extended case for Gaullist realism. He argued that the ideology of democracy promotion had not only weakened its intended beneficiaries but hastened the decline of the nation-state itself. Yes, that's what he said. The European Union, he asserted, was as guilty as the United States. EU expansion had produced "formal democracies without the democratic spirit" and "a return to corruption and clientilism." Villepin proposed instead a "second age of democracy," guided by the recognition that each nation must evolve according to its own organic logic, and in its own time. This is an admonition which very few senior Western diplomats actually need to hear; one had the impression that, having led the international campaign to stop the United States from going to war in Iraq, Villepin was re-litigating 2003.

A rejoinder of sorts came from Jacek Protasiewicz, the Polish vice president of the European Union. As the official responsible for the Eastern partners to whom Villepin had referred, Protasiewicz said that he was struck by how often autocrats in places like Belarus and Azerbaijan said, "Our people don't want democracy; we prefer strong leadership," while on the other side of a border citizens demanded democratic freedoms. How strange that one people separated only by a river should be so different from one another! Of course, democratic development takes time, Protasiewicz conceded, but we should not allow the stratagems of dictators to blind us to people's aspirations.

There were a few genuinely odd moments. Shahid Malik, a British former minister for international development in the government of Gordon Brown, harangued the audience with a litany of the West's abject moral failures in Syria and Egypt. Malik compared the jihadists who travel from England and other European countries to fight in Syria to the anti-fascists who fought in Spain in 1936. Westerners were in no position to criticize such choices, he said, so long as they clung to the "double standard" of mounting a military intervention in Libya, but not Syria. When an audience member wondered whether the jihadists might be even worse than the regime they sought to topple, Malik ridiculed the question as "silly," since no imaginable government could be as evil as that of Bashar al-Assad. Take that, M. de Villepin!

The panelists went round and round on Syria and the Arab Spring. On the sidelines, where most of the invitees spent most of their time, there was much talk of Qatar itself. Saudi Arabia has picked a nasty fight with its tiny Gulf neighbor, which maintains relations with Iran, the Saudis' mortal enemy, and has offered refuge to leaders of the Egyptian Muslim Brotherhood, which the Saudis view as a regional fifth column. The Saudis have broken diplomatic relations, demanding that Qatar expel senior Brotherhood figures and, for all intents and purposes, close down Al Jazeera. The Saudis seem intent on punishing Qatar for seeking to fill a diplomatic vacuum created in part by the Saudis' own traditional passivity.

The view at the Forum was that this tempest in a gilded teacup says more about Riyadh's insecurity than it does about Doha's ambitions. "Why do they feel a need to prove their superiority?" asked a Western diplomat who uses the forum as a schmoozefest. "They have the wealth, the population, the industrial base. It just shows you how brittle they are."

The Saudis are, of course, even more exercised at the United States than they are at Qatar. At a panel on U.S. President Barack Obama's foreign policy, Abdullah Alshammari, a former Saudi diplomat, accused the United States of staging an "intervention" by calling for Egyptian President Hosni Mubarak to step down in 2011, and of "crossing a red line" in relations with Saudi Arabia by holding secret nuclear negotiations with Iran. An irate audience member -- German, not American -- tartly reminded the speaker that Saudi Arabia was "a "security receiver," not a "security provider," and suggested the kingdom "step back" and start "behaving as an adult."

That may have been the most satisfying moment of the Doha Forum. The American arrogance which Dominique de Villepin rebuked is an artifact of a bygone era of overreach. The much more salient critique is the one heard relentlessly from senior figures in the Gulf -- viz, that the Obama administration is faithless and feckless. The wise men of international affairs, peculiarly susceptible to the hard-headed Saudis, have recycled this contempt and given it the force of conventional belief. It is, at least, closer to the truth than the tired shibboleths of American belligerence. Nevertheless, the Saudis need a reality check far more than the Americans do. That should be the theme of next year's forum.   

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