Russian Prime Minister Dmitri Medvedev made headlines recently, though not the way he wanted. During a visit to Crimea, the Ukrainian peninsula Russia illegally annexed in 2014, Medvedev tried to ignore pensioners complaining that their pensions were not keeping up with the rising cost of living.
Under their relentless badgering, Medvedev acknowledged that no one in Russia—let alone those in illegally annexed Crimea—has had his or her pension adjusted for inflation. “There just isn’t any money now,” Medvedev explained. “When we find money, we’ll make the adjustment.” In a scene played over and over, Medvedev then hurried away, but not before saying, “You hang in there. Best wishes! Cheers! Take care!” His comments have since become an internet meme.
Pensioners in Crimea are not the only ones hurting. Average citizens in Russia are also feeling the squeeze amid a declining economic situation. Russia’s GDP dropped 3.7 percent last year and is forecast to decline another 1.5 percent this year, caused by government mismanagement and the drop in the price of oil, as well as by the economic sanctions the West imposed in response to the invasion of Ukraine.
The sanction that has most affected average Russians, however, is the one Vladimir Putin himself put in place: the ban on the import of Western agricultural and other goods in retaliation for Ukraine-related sanctions. Putin’s move produced a spike in food prices higher than the rate of inflation, and Russians are spending a higher percentage of their income on food these days than they have in decades. Russians are also having difficulty paying for medications and health care, according to recent reports.
According to a recent RBC news report, the average Russian monthly wage was roughly equivalent to salaries in the Central Asian nation of Kazakhstan at the end of last year, as the gap between Russia and its neighbors is narrowing.
The Russian government has warned that it doesn’t have the financial wherewithal to soften the pain for average citizens. Making matters worse, Moscow is considering limiting social benefits for in-debt Russians to try to press them into paying off outstanding loans. “We have a huge amount of debt, and we need to do something about it,” Vedomosti quoted a member of the Committee on Constitutional Reform, Vladimir Ponevezhsy, as saying.
In contrast to its attitude toward average Russians and despite the country’s economic hardships, the Kremlin seems able to find lots of money for a number of Putin’s cronies and pet projects. Gennady Timchenko, an oligarch close to Putin who has been sanctioned by the United States, recently saw his company Stroytransgaz awarded a contract (amount undisclosed but sure to be in the billions) to build a gas pipeline to China. The total cost of the pipeline is estimated between $60 and $70 billion (up from the original estimate of $55 billion), and the money for the contracts to the likes of Timchenko comes out of the Russian federal budget.
Strogazmontazh, the company belonging to another Putin crony, Arkady Rotenberg, also sanctioned by the United States, received an uncompeted contract worth $3 billion late last year for the same pipeline project. Both Timchenko and Rotenberg have been huge beneficiaries of no-bid contracts paid for by Russian taxpayers, securing more than $10 billion in such sweetheart deals within the past year alone. No wonder the Kremlin doesn’t have any funds to help pensioners and average citizens make ends meet.
The Moscow Times, citing Bloomberg news agency reporting, noted that Timchenko’s Volga Group company added an extra $2 billion to its overall value in the first five months of this year, making Timchenko the “most successful Russian billionaire in 2016.”
Rotenberg also secured ownership of Sheremetyevo, Russia’s largest airport, last year under an order signed by Putin, part of a consolidation of control over Moscow’s various airports into Putin-friendly hands. In addition, Russia’s state budget is allocating roughly $1.5 billion for construction of several new planes for the country’s domestic airlines.
The 2014 Sochi Olympics are estimated to have cost Russia more than $50 billion, and several of Putin’s close associates, including Rotenberg, benefitted handsomely from uncompeted construction contracts for the big event. And while the government may be cracking down on individuals’ debt, it is doubtful that the same tough-love approach applies to state-owned behemoth Gazprom, which has net debt close to $30 billion, and rising.
Two-thirds of executives at Russia’s largest companies saw pay increases in 2015 despite the country’s economic crisis, according to the RBC news. Even other countries are benefitting. Egypt earlier this month received a $25 billion loan from Russia to build a nuclear power plant, on very favorable terms. It remains to be seen who will do most of the construction of that plant, but presumably it will be pals of the Russian leader.
After Israeli Prime Minister Benjamin Netanyahu’s recent visit to Moscow, Russia’s Labor Ministry announced on Thursday that Russia would pay $83 million in pensions to Russians living in Israel who moved there before 1992, a decision unlikely to placate Russians still living and struggling in Russia. And none of this even includes the billions of dollars being spent for Putin’s invasion of Crimea and eastern Ukraine, his muscle-flexing in Syria, or his military modernization campaign.
Putin presides over one of the most kleptocratic regimes in the world; Putin himself has been estimated to be worth tens of billions of dollars. The West needs to do a much better job of informing Russians that the Kremlin is too busy doling out billions to Putin and his buddies to give a damn about their welfare. The Hudson Institute’s Kleptocracy Initiative has made a good start in tracing money flows and documenting insider dealing. (Disclosure: I am a member of its Advisory Council.)
More importantly, Western governments need to make sure we don’t allow the Timchenkos, Rotenbergs, Putins, and others to use our financial systems or to buy our assets and properties as a way to launder their ill-gotten gains. Putin’s greatest export is corruption, but he’ll make no profits from it if we refuse to import dirty Russian money. That might also help Russia’s struggling citizens.
