In Translation: Friends in the New Term: What Awaits Putin’s Associates After 2018? Five rules for the state oligarchy.

By Tatiana Stanovaya. Translation by Claire Haffner. This piece originally appeared in Republic

Vladimir Putin’s announcement of his willingness to run for reelection became the latest stimulus for discussions about the future composition of the government, the power balance, and the election campaign of the favorite in the presidential race. However, after all these certainly very interesting questions there is another, much less discussed question: what can we expect from Putin’s friends in a fourth term? His third term did not end well for everyone: Vladimir Yakunin, Andrei Belyaninov, Evgeny Murov, Sergei Ivanov (who could still come out of hiding) – a far from exhaustive list of losses among the president’s “warriors”. The new term doesn’t promise to be simpler, as the rules of the game gradually change and competition for resources increases.

Judging by the political landscape at the end of Putin’s third term, one can discern a code of unspoken boundaries that the Russian president outlines for his associates, who every year accumulate an ever greater amount of resources.

Rule #1: don’t steal. This may seem funny, but even corruption, in Putin’s understanding, has its limits. A case study of the 2016 post of the Head of the Federal Customs Service, Andrei Belyaninov, is a perfect example of this. Money hidden in shoeboxes at his home, his alleged backing of illegal customs transactions, and in general a complicated situation at customs – all of this played a decisive role in the fate of one of the most powerful senior officials. Belyaninov didn’t go on trial – Putin himself clearly intervened on Belyaninov’s behalf with the investigation coming to a grinding halt – getting off with a slap on the wrist. After a year and a half, he managed to be named Head of the Eurasian Development Bank.

The dismissal of the head of the Federal Protection Service, Evgeny Murov, yet another political bigwig, likely did not come about without accusations of dubious connections. In his case though the punishment was not forced retirement (which he had long been preparing for), but rather complete exclusion from the opportunity to participate in choosing his successor and restructuring the FPS team.

How Putin feels about corrupt officials is rather well known: go ahead and steal, but don’t become a thief. This applies not only to his associates, but also to all prominent figures in power. Putin’s friends, however, in contrast to the rest, are often viewed not from the standpoint of their factual “honesty”, but as a whole – balanced with the frequent unofficial accountability that is entrusted to them. In Putin’s eyes, to varying degrees they each have a set of “hard-won merits” earned in difficult conditions. First and foremost this concerns those who were affected by sanctions and under such circumstances undertook the implementation of risky, labor-intensive projects – from the Crimean bridge to the Soccer World Cup stadiums.

The President’s attitude toward those affected will be a priori more forgiving. It is fair to assume that one of the key features of Putin’s relationships with his associates during his fourth term will be the following: those more willing to take on politically significant obligations and suffer external pressures are more deserving of forgiveness in the eyes of the leader.

Rule #2: you may expand business, but be careful. Putin himself mentioned this on December 7, speaking at an event dedicated to the tenth anniversary of the state corporation Rostec. “No one can expand forever and without control; there must be an understanding of why a company has been created, what it should be moving towards, and the parameters of its functioning in order for its work to be optimal, competitive, and as efficient as possible.”

Here, of course, a whole host of questions immediately arises, the first being: will anyone actually stop expanding? The very same Rostec has absorbed so much over the past few years that it has become a clumsy industrial monster, having difficulty digesting more and more new assets. The United Aircraft Corporation is only one of its latest potential acquisitions.

Secondly, what about Rosneft? Does Putin’s warning apply only to Sergei Chemezov, or to all of his associates with big appetites? Is this related to a conceptual understanding of the danger of “uncontrolled expansion” or did Putin react this way to a specific (unknown) episode associated with Rostec? It seems that the reality of his fourth term will be a significantly objective limitation on opportunities for expansion, regardless of what Putin wants. In earlier years, expansion occurred owing to assets created on the basis of industries then in crisis (mechanical engineering, medicine, aircraft and shipbuilding, etc.), and as a result of active industrial policy, strong state control over financial investment. Now there’s nowhere to expand to unless you’re coveting your neighbor’s goods.

The story of Rosneft is a prime example: the purchase of Bashneft, then the strange sale of 19% of their assets, rumors about interest in Lukoil, and in the end, the courts against AFK Sistema. The process by which some players squeeze assets from others is simply referred to as “redistribution of property”. This is exactly what Putin’s associates will be doing during his next term, considering that it will become harder to take over state assets or “bad assets” and targeting private holdings is unrealistic. Now begins the period when the state oligarchy brought up under Putin will begin to take an active interest in the property accumulated in the 90s by the previous Yeltsin-era oligarchs. It’s not hard to imagine what Putin will say to this. General, abstract permission will be given in accordance with two key conditions: avoid excessively heated conflicts (don’t take, just repurchase) and don’t count on the government’s help. Most likely, this last point in particular will be a hassle for Putin in the expansion of Rostec: the corporation routinely collects assets from the government and puts them in their own bins, encountering regular pushback (which leads to the endless issue of files containing compromising material lying on the President’s desk).

Rule #3: “The interests of the company are important, but there are still the interests of the entire economy.” Development by development, but budget revenues according to schedule. It was exactly this that Vladimir Yakunin did not understand, continuing to demand new subsidies for RZhD each year. But Igor Sechin, having taken into account the mistakes of his colleague, also tried to ask for more and more resources and benefits, and after a while ran into the president’s direct criticism. Since then, Rosneft’s leadership understood that they needed to play by different rules, promoting not corporate, but rather national interests (or more precisely, corporate interests framed as national interests). The purchase of Bashneft and the subsequent organization of its own privatization was the result of Sechin’s active exploitation of the idea that Rosneft would save the country’s budget from a deficit, civil servants from withheld salaries, the army from underfunding, and defense and safety from financial depletion. Underlined emphasis of the fact that Rosneft makes up the lion’s share of the budget was Sechin’s main political message to Putin at the end of his third term.

Admittedly, prioritizing national over corporate interests during Putin’s fourth term will be even harder: the main challenge in this context will be the struggle between the government and state companies for dividends. The development of the company or the development of the country – this is a difficult dilemma for Putin’s associates, having demonstrated to the president that one is inseparable from the other. Who to take money from will be one of the most difficult budget problems for the government. In 2016, Bashneft and a block of Rosneft shares were sold. In 2018 and subsequent years, there will be no privatization plans of a comparable scope, and Aleksei Ulyukaev’s experience, it seems, will discourage officials from pushing market privatization deals for years to come. This means that the institutional conflict between the government, wanting to receive its dividends, and state companies, not wanting to share them, will only get worse.

Rule #4: sort it out yourself. Putin’s third term very clearly showed the President distancing himself from inter-clan conflicts and fallouts. It’s difficult to reach the President, and having reached him, to engage him in disputes as an arbiter. There are more and more conflicts and less and less Putin: he can’t be bothered to spend his time and energy solving the mundane problems of high-ranking officials, associates, and friends. This is the overall state of the current situation: the president involves himself less and less in issues that are not directly related to his geopolitical agenda. The FSB functions with an increasing degree of independence, state corporations show initiative by offering to give the FSB their assets one after another, and the fate of Rosneft is decided by attacking Sistema and imprisoning Ulyukaev. Sechin quarrels with Yevtushenkov, Ulyukaev, Tokarev, and Kadyrov; Kadyrov quarrels with the FSB; the FSB with the National Guard; the National Guard with the Ministry of Internal Affairs; and so on.

In addition to this, the country has been living under the competition of domestic demigods (Kirienko’s against Volodin’s) for more than a year, and for almost six years with the competition between the government and the Security Council as well as between the government and the presidential administration.  During Putin’s fourth term, his arbitration role will continue to decline: the President surrounds himself with technocrats, military officials and “security guarantors” raising and educating the new Putin generation, intercepting the initiative of political heavyweights in the current government routine. Putin’s long-time associates, inflated by assets and facing increasingly fierce competition as well as the depoliticization of their status will inevitably be doomed to a more bitter and uncompromising fight for their own survival.

Finally, rule #5: be a patriot. Anti-Westernism and anti-Americanism will remain a means of self-identification in the coordinate grid of Putin’s Russia. The logic of the besieged fortress, the low-level geopolitical crisis, the risks of growing pressure on the Russian elite in the West, the persisting isolationist trends – all of this will require Putin’s associates to regularly position themselves on the side of Russia and against a hostile external environment.

In the meantime, there is no reason to hope that geopolitical tensions will ease during Putin’s fourth term. Rather, on the contrary: the Ukrainian crisis is far from being resolved (the situation is slowly getting worse), relations with the US are the worst they’ve been in decades, and strategic contacts with Europe have been put on hold. Over the past three years, Russia’s international reputation has deteriorated dramatically and information wars have been lost.

The fourth term will require Putin’s associates to be patriots rather than businessmen, to integrate themselves into national priorities and not seek resources for development. And what kind of development can there even be when there’s a shortage of cheap currency and limited fiscal capacity? There isn’t any money, but you have to hang in there. All of this taken together leads to the fact that the overall situation of Putin’s friends will be more dynamic and conflicted, while their behavior will become more aggressive and artificially politicized.

The main signal of the fact that something inside the system has changed will be the appearance of the first political investments, when major players, desperate to resolve issues through Putin, will begin to actively invest in ministers, deputies, senators, and governors. Having broken away from power in the 2000s and having passed through the period of formation in conditions of maximal political and economic favor, the new state oligarchy will return to the strategy of political “conquests” in the vacuum that Putin will gradually form around himself in а politically empty technocratic hierarchy.

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