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'Shock Prediction': Putin Wins Russian Presidential Election. What's Next?

March 16,2018 18:07

It will be to no one's surprise when Russian president Vladimir Putin is re-elected for a fourth and—supposedly—final term on Sunday. This would make him the second longest serving Russian leader since Joseph Stalin. There has only been two ...


Kenneth Rapoza , Contributor Opinions expressed by Forbes Contributors are their own.

He's baaaaaack! Barring some sort of unusual warp in the time-space continuum, Russia's President Vladimir Putin will be re-elected on Sunday. (Photo by Mikhail MetzelTASS via Getty Images)

It will be to no one's surprise when Russian president Vladimir Putin is re-elected for a fourth and—supposedly—final term on Sunday. This would make him the second longest serving Russian leader since Joseph Stalin. There has only been two presidents of Russia after the 1991 fall of the U.S.S.R., and Putin -- in the eyes of most of Europe and the U.S.—is the worst of them. He has challenged their sensibilities on just about everything for 18 years.
With the Russian investigation ongoing, and with U.K. kicking out dozens of Russian diplomats this week, coupled with Washington blaming the Kremlin for hacking the American power grid, what is next for Russia?
"There are two ways to read this. One is that Putin plans no changes and is happy with a business as usual approach, given that oil prices are stable and well above the minimum assumption in the fiscal budget," says Craig Botham, emerging markets economist for Schroders in London. "There is an argument that only crises will spark reforms in Russia, and there is certainly evidence to back this up."
From a Western perspective, Russia is facing a crisis. Putin is roundly distrusted everywhere outside of Russia.  The Baltic states are constantly worried about a Russian invasion. Sweden is reportedly ratcheting up anti-Russia rhetoric and military drills, with Kaliningrad, a Russian piece of real estate carved out of northern Europe right next door.
Theresa May has punished Russian diplomats and kicked them out of the country, believing the government killed a former spy with chemical poisoning, a typical Russian hit job.
To the skeptics, this may be the Anglo-American way of trying to influence Russia's own election. A message to the voters there that says: your leader is a bad man.  Whether true or not, all of this is wear and tear on Putin, though the wear is minimal as his approval ratings rise whenever the West picks on him.
Plus, the economy is no longer in recession.
What does Putin's last hurrah look like? Investors are not the type to predict foreign intrigue until the evidence is clear. Is there a proxy war somewhere with the U.S., like in Syria? Is there a Russian invasion of Ukraine or the Baltics, something the anti-Putin think tankers from Kiev to Washington believe is a real possibility. Only they seem to know the answer on that. Investors are less Hollywood about this stuff.
See: A Bad Year For Russian Billionaires -- Forbes

Maybe in 2024? Presidential candidate and former TV star Ksenia Sobchak speaks at a rally declaring her intention to create a new liberal party in Moscow on Thursday, March 15, 2018. This year, she has no chance. (AP Photo/Evgeny Feldman)

Russia is not a democracy. It is more an authoritarian state that relies upon democratic elections for credibility. However, swings in the vote share can lead to changes in policy, and as they do here, elections have policy implications.
The reform program Putin tasked his former finance minister Alexei Kudrin with drawing up has been studiously ignored so far, says Botham. In a press conference in December 2017, Putin stated that there would be no government changes until after the March election. Normally, significant changes would have already been announced.
"The more optimistic take would be that Putin is merely waiting for the elections to pass to begin enacting a set of painful but needed reforms," Botham says. Proponents of this view would argue first that Putin would not have instructed Kudrin to come up with a reform program if he did not intend to use it. Secondly, opinion polls show that Putin is not universally and constantly loved. His approval ratings were tanking in 2013 and 2014. His approval numbers rose after the crisis in Ukraine, starting with the annexation of Crimea in March 2014.
"It seems unlikely that policy will take a turn for the worse after the elections," Botham says.
The elections seem to provide some upside to Russia's economic policy outlook.
As for downside risk, a weaker than expected vote share for Putin could translate to populism, either in the form of more generous social spending, or military operations elsewhere, namely Syria and Ukraine.
"The next six years will be an attempt to build a coalition government of two big parts of the Russian bureaucracy. There is one part of the government that is linked to the economic policy side that sees Russia as a modern economy linked to the rest of the world," Alexander Baunov, Carnegie Moscow Center senior fellow, told Bloomberg on Friday. "And the other part of the bureaucracy is not only more militaristic in their worldview, but still see the economy as a big factory...an old, Soviet-style, industrial economy."
Despite all the noise about Russia the pariah state, eurobonds being sold by Russia today saw bids near $7.2 billion.
Should Putin's final six years beging mired in political crisis with the west, Russian bonds face a worst case scenario of being sanctioned by the U.S. Treasury Department. That is the most obvious risk Putin's election brings to the table this year.

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