For Putin, economic and political reality dampen any appetite for arms race

By Andrew Osborn

With his ratings down and state funds needed to hedge against new Western sanctions and raise living standards, Russian President Vladimir Putin cannot afford to get sucked into a costly nuclear arms race with the United States.

Alleging Russian violations, Washington said this month it was suspending its obligations under the Intermediate-range Nuclear Forces Treaty (INF) and starting the process of quitting it, untying its hands to develop new missiles.

That raises the prospect of a new arms race between Washington and Moscow, which denies flouting the treaty. Putin responded by saying Russia would mirror the U.S. moves by suspending its own obligations and quitting the pact.

But Putin, who has sometimes used bellicose rhetoric to talk up Russia's standoff with the West and to rally Russians round the flag, did not up the ante.

He did not announce new missile deployments, said money for new systems must come from existing budget funds and declared that Moscow would not deploy new land-based missiles in Europe or elsewhere unless Washington did so first.

"...We must not and will not let ourselves be drawn into an expensive arms race," Putin told Defense Minister Sergei Shoigu.

His statement was borne of necessity.

Harsh economic and political realities and memories of how the cost of the Cold War arms race contributed to the Soviet Union's demise means Putin's options are limited, a situation that may curb his appetite for expensive escalation in future.

"We need to keep in mind that the question of an arms race that could cut us into pieces is entirely realistic," Sergei Dubinin, former governor of Russia's central bank, told Russia's RBC TV channel before Washington announced its exit.

He said the United States was trying to repeat its successful Cold War strategy of pushing Moscow into an arms race it could not afford and that Russia would be ill-advised to try to attain parity and needed a smart response instead.

Memories of empty supermarket shelves in the run-up to the 1991 Soviet collapse still haunt many older Russians as the then Soviet Union directed huge cash flows to the military-industrial complex to try to keep up with the United States while neglecting the consumer economy.

"They (the Americans) recall that the Soviet Union collapsed in part because it tried to keep up with the United States when it came to who produced more missiles, nuclear submarines and tanks," Viktor Litovkin, a military expert, told the Russian army's Zvezda TV channel. "They are trying to do the same thing today."

With the INF treaty suspended, Washington and Moscow have said they will develop previously prohibited short- and intermediate-range land-based missiles, with Russia saying it wants them ready by 2021.

Shoigu told Putin the money to develop two new land-based missile launchers would come from this year's budget by reallocating existing funds.

Russia does not disclose the full extent of its military and national security spending, but says it will account for around 30 percent of its 18-trillion-ruble ($273-billion) budget this year.

Oil revenues mean Russia is not short of money. Its budget surplus this year is projected to be 1.932 trillion rubles ($29.3 billion) or 1.8 percent of gross domestic product. Russia's foreign exchange reserves stand at $478 billion, the fifth largest in the world. But 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 $200-billion buffer against new Western sanctions and is embarking on a multi-billion 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 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," said Nikolaev. "Cutting spending on national projects would receive a mixed reaction."

Though 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 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?" wrote blogger Vladimir Akimov, 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."

© (c) Copyright Thomson Reuters 2019.

©2019 GPlusMedia Inc.

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Its budget surplus this year is projected to be 1.932 trillion rubles ($29.3 billion) or 1.8 percent of gross domestic product. Russia's foreign exchange reserves stand at $478 billion,

A budget surplus and a half trillion in reserves... WOW

So when are those sanctions going to bite?

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This is why Russia is not the threat on the world stage that China or North Korea are. Whatever Cold War-type projections some might like to make about Putin and the current regime, they are constrained by their own economic circumstances from trying to spread their influence too far and the leadership is far more guided by realpolitik than it is by ideology. According to the article linked below, this money is far more likely to be put into much-needed infrastructure projects than it is into making Russia a major player outside its own region, or in trying to match the US in a pointless arms race. And unlike Stalin or the post-war Communist leaders, Putin does have to worry about Russian domestic reactions to his policies.

Of course, if you're a neighbour of Russia, you always have to keep one eye open for what the big Bear might do.

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Whatever the cause, lets be glad there’s one less military competition..especially on the atomic and space scale.

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Russia's ruble value lost more than 20% in 2018. The trend is even sadder because the total volume of losses since 2014 has been more than 100%, resulting in knocking 6% off Russia's GDP since 2014. Russia's GDP is now 10% smaller than might have been expected at the end of 2013

"What Caused the Russian Ruble Crisis? Russia's Ruble Crisis and Its Implications"

"We are not willing to argue that all the negative effects [of possible new sanctions], which we may face, will affect us in a painless manner, and that it will not have any impact on the Russian economy," the director of the Bank of Russia's Research and Forecasting Department, Alexander Morozov, said in a statement. "This is certainly not the case. But the effect cannot be overestimated since in most of the scenarios it will be much less than the one we observed in 2014-2015."

President Vladimir Putin has openly admitted that these economic sanctions are severely harming the economy. Over the long term, there are signs that these sanctions may be discouraging families from having more children, which could have devastating long-term effects.

Such that Putin just signed a law in Dec 18th banning boards showing currency exchange rates in public places - outlawing the signs that have been a familiar feature on Russian city streets since the 90's

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the total volume of losses since 2014 has been more than 100%,

I don't see how this number is possible.

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the total volume of losses since 2014 has been more than 100%,

I don't see how this number is possible.

It just means more than double

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