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April 14, 2003
Council on Foreign Relations
[Note: A transcript of this meeting is unavailable. The discussion is summarized below.]
1. What we know:
A number of different actors and interests groups are involved in determining Russia’s economic policy on integration into the world economy and issues, such as World Trade Organization (WTO) membership, and relations with the United States and the EU. Each interest group pursues its own economic policy agenda. Some support the liberalization of Russia’s economy and its integration into the world economy, while others oppose it.
President Putin has a major stake in determining Russia’s economic agenda abroad. He understands the necessity of Russia’s integration into the world economy and supports free trade. Overall, he could be considered a positive factor in liberalizing Russia’s economy.
There are three circles around the president with competing foreign policy agendas. First, the so-called “family, ” the former Yeltsin team, represents various oligarchic groups whose interests are very divided. The economic circle, consisting of former St. Petersburg economists, pushes a liberal economic agenda and supports Russia’s integration in the global economy. Third, the security circle, consisting of members of Russia’s security apparatus, is the most protectionist and least interested in integrating Russia into the global economy.
The ministries of the Russian federal government are also able to influence the economic policy agenda to a different extent depending on their portfolios. Some are for free trade and the liberalization of Russia’s economy, while others are more protectionist.
The most liberal and pro-free trade is Russia’s Economic Ministry headed by German Gref. It has been a major driving force behind the debate on Russia’s WTO accession. Gref’s ministry is responsible for legislation of trade regulation and economic reform. The Finance Ministry is another part of the government with a liberal economic agenda. It is responsible for managing Russia’s foreign debt and is interested in Russia’s participation in the foreign financial markets. The Ministry of Foreign Relations promotes Russian economic interests, but not very effectively.
Some ministries, such as the Ministry of Defense, do not support the liberalization of Russia’s economy and free trade. Many of Russia’s generals believe that Russia should be self-sufficient and does not need to become a part of the world economy. At the same time, this ministry represents the Russian military industrial complex, which is in fact interested in selling Russian arms in foreign markets.
Other parts of the federal government, such as the Customs Committee, are also against Russia’s integration in the world economy and WTO accession because they benefit from the lack of transparency and clearly-established rules.
The Russian Duma has very little influence on Russian economic policy. It mostly represents the interests of different lobbies and oligarchic groups with competing agendas. The interests of Russia’s oligarchs and business groups are much divided. Some of them, such as the oil companies, already participate in the international market. They support liberalization and free trade. At the same time, they are afraid of foreign competition and are ambivalent about foreign investment. Others, representing industries that will be affected by Russia’s WTO accession, oppose trade liberalization and the lifting of subsidies for their industries.
2. What we don’t know:
How will this conglomeration of interests play out in Russian international economic policy?
It is difficult to predict what Russian international agenda will be with so many actors and interests at stake. This conglomeration of interests is more likely to produce a messy rather than a coherent Russian foreign economic policy agenda. In the long term, free trade will probably win, although protectionists may have small victories in the shorter term.
What will be the effect of the war in Iraq on Russia’s international economic agenda?
Putin’s position on Iraq eliminated the opportunity for Russia to take part in post-war reconstruction in Iraq. The Iraq issue has already hampered Russia’s chances for accession to the WTO and will continue to affect Russia’s relations with the United States. It is possible that Putin will try to redress the situation since he recognizes the importance of partnership with the United States. Putin values his relationship with President Bush and also supports liberalization and integration of Russia into the global economy.
Putin’s support for France and Germany regarding the Iraq war may temporarily improve Russia’s relationship with the EU. The European Union has created many obstacles to Russia’s eventual accession to the WTO. Russia and the EU have competing interests and their disagreement over important issues, such as gas prices and agricultural subsidies, are likely to persist.
Will public attitude have any effect on Russia’s agenda?
The Russian public is against free trade and does not believe in international institutions. There is very little popular support for Russia’s WTO membership. At the same time, few among the Russian public oppose WTO accession since most of Russia’s population does not know anything about the organization. This lack of knowledge, in addition to the high popularity and the strong hand of the Russian president, will push WTO accession and a liberal economic agenda.
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