Tue, Feb 12, 2019 - Page 9 News List

For Putin, economic reality dampens appetite for arms race

By Andrew Osborn  /  Reuters, MOSCOW

Oil revenues mean Russia is not short of money. Its budget surplus this year is projected to be 1.932 trillion rubles or 1.8 percent of GDP. Its foreign-exchange reserves stand at US$478 billion, the fifth-largest in the world.

However, the money is already allocated in a way dictated by Moscow’s difficult geopolitical situation and by Putin’s own increasingly tricky domestic political landscape. Reallocating the money would be painful.

Moscow is hoarding cash to try to give itself a US$200 billion buffer against new Western sanctions and is embarking on a multibillion dollar spending push to try to overhaul the country’s creaky infrastructure and raise living standards.

With signs of rising discontent over years of falling real incomes, rising prices, an increase in value-added tax and an unpopular plan to raise the pension age, Putin is under pressure to deliver.

Igor Nikolaev, director of auditor FBK’s Strategic Analysis Institute, said that Putin might have to take money from other parts of the budget to fund a new arms race, which would force him to scale back social spending plans or dip into the national wealth fund to top up the budget.

If a burgeoning arms race intensified, such a scenario would become more likely and Putin would be reluctant to spend more on defense in the current political climate, he said.

“It would not be desirable, especially as we know what’s happening with real incomes and that there are problems with his rating,” Nikolaev said. “Cutting spending on national projects would receive a mixed reaction.”

Although re-elected last year until 2024, and therefore not under immediate political pressure, Putin’s trust rating has fallen to a 13-year low. A poll this month showed that the number of Russians who believe their country is going in the wrong direction hit its highest level since 2006.

Putin’s symmetrical response to Washington, which involves developing new missiles, has already angered some Russians.

“Are new arms a source of joy?” blogger Vladimir Akimov wrote, saying the money would be better spent on lifting people out of poverty. “Why not begin by repairing the roads and knocking down the wooden shacks [that people live in] across the country.”

Additional reporting by Andrey Ostroukh

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