Russian President Vladimir Putin’s Dec. 4 address to parliament is expected to outline a development strategy to cope with the new political and economic environment facing Russia in 2015.

Reporters listen to Russian President Vladimir Putin's speech, displayed on TV screens during a nationally televised question-and-answer session in Moscow, Thursday, April 17, 2014. Photo: AP

On Dec. 4 Russian President Vladimir Putin will deliver his annual address to the Russian parliament. It will be Vladimir Putin’s eleventh such address to the Federal Assembly during his time as president. The speech, in which the head of state traditionally wraps up the year and sets the strategic direction for all branches of government over the next 12 months, comes at a difficult time for Russia.

In 2014, the country found itself at the center of global attention. Russia’s position on Ukraine and the subsequent incorporation of Crimea, which was called an “annexation” in the West and a “reunion” in Russia, led to sanctions and political pressure.

Public approval ratings as a sign of national unity

The reaction of Russian society, which in recent years has seen a rise in opposition sentiment with the “white ribbon” movement (which was then followed by a period of political apathy), took many by surprise. Putin’s approval ratings soared, reaching a six-year high in May of almost 86 percent, according to the Russian Public Opinion Research Center (VTsIOM) (in January these approval ratings stood at about 60 percent). Only in the fall of 2008, after Russia’s engagement in the Georgian-Ossetian conflict, have they ever been higher. However, afterwards, the Russian president's ranking reached another maximum  of 89.7 percent, as a VTsIOM poll indicates.

Experts are unanimous that it demonstrates Russian unity in the face of external threats. The mood of the Russian public has yet to be dampened by the side effects of Russia’s “retaliatory measures.” That is the wording favored by the Kremlin, having declared an embargo on the import of food products from the European Union, the United States, Canada, and other countries.

Worrisome signs of Russia’s destabilizing economy

The deficiency of imports spurred price inflation in the domestic market. According to the latest forecast by the Russian Ministry of Economic Development, inflation for the year could reach as high as 9 percent, compared to an earlier expected level of 7.5 percent.
The pressure of sanctions initially caused the ruble to fall. The Central Bank’s attempt to stabilize the currency by allowing it to float freely gave a brief respite. The next blow came from the energy market. Falling oil prices in early December raised the price of one dollar to more than 50 rubles (up more than 40 percent since January 2014) and one euro to higher than 60 rubles (a price swing of more than 28 percent). [On Dec. 3, the ruble reached a historic low, with the dollar costing more than 54 rubles and the euro
— more than 67 rubles - Editor's note]

Russia, which for the past decade has been trying to break its oil addiction, was caught off guard. Consider, for example, that the budget for 2015-2017 assumes an average oil price of $100 per barrel.

Signs of panic are everywhere. Over the weekend, following the announcement of OPEC's decision not to reduce oil production quotas, Russian hypermarkets saw a phenomenon similar to U.S. “Black Friday.” Those who did not have time to convert savings into foreign currency were trying to spend them as quickly as possible before prices became exorbitant.

There is increased demand for expensive equipment and vehicles, though many carmakers have already adjusted prices – and not in favor of buyers. Experts and the media have competing estimates as to how much the dollar will cost. Some forecasts are predicting 200 rubles per dollar by summer 2015.

In November, Russia’s Central Bank stopped its currency interventions and abolish an official trading corridor for the ruble. This made the ruble a freely floating currency. Photo: Reuters

Russia’s foreign policy direction is now paramount

Perhaps never before in recent years has the international agenda dictated Russia’s domestic conditions to such an extent. In this challenging environment — the result of political and economic pressure over Ukraine, cheap oil, public anxiety, and the need for import substitution — the president’s message (formally addressed to the legislative branch of government, but in reality, to all branches) is of particular importance.

The strategic direction that Putin sets should seek less to lead the country out of crisis (which it has so far avoided) than to avert one in the first place. In that regard, it is the international, not the domestic, agenda that should be at the forefront. Experts expect Putin to remain faithful to his chosen rhetoric of patriotism, charting a course of national unity against external threats.

“The essence of the message will be that ‘surrounded by enemies, Russia must mobilize and improve security measures.’ The rhetoric will be bellicose, patriotic, militaristic,” State Duma Member of Parliament (MP) Dmitry Gudkov, a member of A Just Russia, told Russia Direct.

There is nothing to suggest that Putin will announce a softening of Russia’s counter-sanctions, since that would be an admission of defeat. Instead, new geopolitical reference points and a potential alternative to NATO influence will be the order of the day.

Russia’s shifting domestic agenda

Besides global objectives, there are tasks of a more domestic nature facing Russia. 2016 will see the end of the “maternity capital” program, designed to stimulate the country’s demographics. Since 2007, Russian families have been paid a lump sum for a second child. The money can be invested in accommodation, the child’s education, or a pension fund. In 2014, taking into account annual adjustments, it amounted to around 430,000 rubles (about $8,700).

A few weeks ago, Vladimir Putin said that his national address would raise the subject. Deputy Prime Minister Olga Golodets, who oversees social security, at the end of November, spoke out in favor of extending the program for at least another five years. Many expect the president to prolong the program, although Putin’s words seem to imply that new measures will be proposed to stimulate the birth rate in Russia.

Another topic announced by Putin himself is taxation. He promised to talk about “the stability of the tax system” in response to louder calls from business not to raise taxes. The president’s statement was immediately picked up by Federation Council Speaker Valentina Matviyenko, who proposed a freeze on tax increases. Earlier, lawmakers put forward the introduction of local taxes for small and medium businesses. Once more, it seems, the decision rests with the president.

Also in question is Moscow’s recently launched health care reform, which is set to cut medical staff (namely “superfluous specialists”) and consolidate hospitals (the closure of 28 medical institutions has been announced). Perhaps Putin will be forced to address this “metropolitan” issue, which runs the risk of spreading nationwide.

“Were the ruble as of yore and oil at $120 a barrel, the address would be mostly about foreign policy. But now it is rather about economizing and crisis management,” Director of the Institute of Political Sociology Vyacheslav Smirnov told Russia Direct.

But the expert community is more concerned about the president’s answer to the question of how the country will survive the dip in raw materials revenue and where all the money will be borrowed from, says Smirnov. He suggests that Russia needs to decide who will bear the greatest burden of deteriorating economic circumstances — state employees, pensioners, entrepreneurs or intellectuals.

Will Russia be able to overcome upcoming economic challenges? Photo: RIA Novosti

“Given the current economic situation, someone must be to blame,” he posits.

Smirnov also says that the question is about who has Putin’s ear. Is it former Finance Minister Alexei Kudrin, who is asking for less state control and less pressure on business from civil servants, or is it top Kremlin adviser Sergei Glazyev, who is demanding a return to foreign exchange controls and the introduction of a tax on the export of capital at the same rate as VAT (18 percent).

Another option is that Putin will continue to support the actions of Prime Minister Dmitry Medvedev’s government and not make any drastic changes. But, say experts, adhering to the status quo is unlikely.

“Putin likes to spring surprises, and everyone expects him to announce some kind of reform,” Gudkov said.

However, in his opinion, “The government is not ready for political changes, such as major judicial reform, without which it is impossible to improve the investment climate.”

“Not without purpose has the Duma started talking about new filters for political parties,” stresses Gudkov, adding that he is short of optimism. Recent statements, in particular by the power-wielding agencies, suggest that neither economic nor political liberalization is in the cards.