Putin determined to avoid Occupy Moscow, but at what cost?

By Jenia Ustinova

The Occupy Wall Street campaign is spreading from New York to other American cities, Europe, and Asia. But Vladimir Putin says there will be no Occupy Moscow. Speaking this month to foreign investors, the presumptive president elect of Russia downplayed the likelihood of protests emerging in his country. His argument was simple: such protests develop when citizens don’t feel the impact of government largesse in their everyday lives, and Moscow will maintain ample spending on pensions, salaries, and social welfare to keep its people off the streets. The state’s already burgeoning social expenditures — typically about one third of the budget is allocated for social welfare-are therefore set to go up by 20% year-on-year, nearing $125 billion in 2012.

Putin’s argument makes some sense. Judging by independent opinion polls, the government is genuinely popular, likely due in no small part to the trickling down of oil wealth to the masses. Average per capita monthly income rose by more than 700 percent in the past decade, from $81 to more than $614.

The problem with Putin’s socio-economic arithmetic is that the budget is growing unwieldy and there’s no clear path back to the modest pre-crisis days, when the country posted a surplus every year. The draft budget that Moscow just approved for 2012 assumes that global oil prices of more than $100 per barrel will hold steady, and so it will only balance if oil prices average higher than $117 per barrel. Given that the average per barrel price of oil was only $60 or so over the last 10 years and hit a low of $34 per barrel in December 2008, Moscow is entering risky territory. If the eurozone crisis magnifies and a second global downturn ensues, the country’s leaders will have to make some tough choices.

Worse yet, last month’s budget spat between Russia’s ruling tandem and the fiscally conservative then-finance minister Alexei Kudrin culminated in Kudrin’s ouster. The well-respected former minister, who oversaw the country’s economic renaissance, had been railing against record-high spending, taking particular aim at benefits for civil and military employees. Despite his departure, his argument remains salient: Where will Russia turn if the price of oil plummets and risk-averse markets withhold credit from emerging market economies? When asked whether Moscow would be able to right its economic course before it was too late, Kudrin replied: "fifty-fifty."

Maybe he was being too brazen, failing to factor in the risk of an Occupy Moscow movement, which Russia’s leadership is of course all too aware of. As Putin’s comments to foreign investors illustrate, the government still courts public opinion (authoritarian tendencies notwithstanding), and there’s a deep-seated fear among officials at all levels of a public backlash that would undermine the system. But the likelihood of such an uprising is very low, particularly without Kudrin to keep spending in check. And with the premium Moscow is paying for social stability, Kudrin’s concern — the health of the Russian economy — is the more worrisome one.

Jenia Ustinova is an analyst in Eurasia Group’s Eurasia practice.