Russian President Vladimir Putin’s twoconsequential addresses to the nation, delivered on March 25 and April 2, came weeks after the country’s economy was hit by the COVID-19 global pandemic and falling oil prices. After the first speech was broadcasted, observers noticed the delay was similar to Joseph Stalin’s in 1941, when he waited nearly two weeks to make his first radio address after Nazi forces invaded the Soviet Union. What explains the delay? And why did Putin not outline any coherent measures to contain the virus and cure Russia’s ailing economy?
Putin’s first address was not anticipated even as of the morning it was delivered. He had to be in St. Petersburg for ordinary business, so he was not able to record it at the Kremlin. We believe the address, as well as the entire series of measures implemented since then, was the outcome of a fierce struggle inside the Russian leadership. Some leaders were arguing for a declaration of a state of emergency and nationwide quarantine, including the sealing of large cities like Moscow (which currently accounts for 65.6 percent of all COVID-19 cases recorded in Russia). Others feared these measures would threaten the economic and political stability of the country. While it appears that the former group won the debate, Putin opted not to make any definitive choices in the address—the holidays that he declared (first for a week, and later until April 30) mean nothing at all. Schools, cinemas, fitness centers, beauty parlors, large shopping malls, restaurants, and cafes are shut down, and citizens are urged to stay in their homes. But this “self-isolation” doesn’t mean that the state would compensate citizens or businesses for the losses incurred due to restrictive government regulation.
The first presidential address focused on economic measures that look disappointing, and the second one added nothing to the list. He promised to pay WWII veterans (a small number of whom are still alive) their bonuses not in May, but in April, and to disburse the newly introduced child subsidies in June, rather than July. Putin announced that the minimum unemployment benefits will be raised from the current monthly amount of $110 to $170—but one should bear in mind that less than 660,000 Russians (0.45 percent of the country’s population) are officially unemployed; people who become ill or unemployed would have their loan payments deferred; and businesses that are “the most hit by the pandemic” (what that means is still unclear) could delay tax payments by six to nine months.
Putin also declared all employees who get this one-and-a-halve month leave should be paid in full—but he didn’t mention whether the state will compensate them for the time lost, so presumably, the owners of the businesses are obliged to do so. Because of the emergency, bankruptcy filings should be facilitated. If we owned businesses, that would be the best option: to send workers home and start the insolvency proceedings. Now, it looks like this option is the only one available for owners of the closed businesses as well as tourist agencies, small restaurants, hostels, or shops that are not exempt from paying rent. Putin also added that the businesses can get cheap loans from banks to compensate their workers. However, it seems that more than 30 percent of all entrepreneurs already decided to force them into a non-paid leave, while another 20 percent will probably do the same next week. Recent polls suggest that up to roughly two-thirds of Russian do not possess any savings that would allow them to survive for more than a couple of weeks.
Finally, Putin went much further in his promises and announced that contributions to social security funds should be lowered from 30 to 15 percent of gross wages for all small- and medium-sized businesses if employee salaries exceed minimum wage (almost all are doing this). Interestingly enough, several days later, the government explained the move saying that not all of the wages are subject to the new rule, but only the part of it that exceeds the minimum wage of $170. For small businesses where the salaries may be as low as $250-300, it will mean a very small gain, which will be subject to additional paperwork.
Three major points are worth highlighting. First, the central idea of Putin’s addresses was to calm people. Second, the Russian leadership still believes it should just fulfill its budget obligations and (maybe) disburse some additional subsidies to the needy while ignoring the appeals of ailing businesses. Third, the Kremlin is betting that its reserves of 12.8 trillion rubles, roughly 11.4 percent of gross domestic product, can cure the economic emergency. Russia remains unique in having not cut its Central Bank’s key rate (now at a staggering six percent) nor announcing other kinds of monetary policy support. There is little chance the measures that Putin announced would provide a significant boost to the Russian economy during the global pandemic. We believe that the Kremlin’s stance will change quite soon, given that a forecast by McKinsey indicates Russia’s economy may shrink by as much as 10 percent this year, but it might be too late to intervene
The views expressed in this article are those of the author alone and do not necessarily reflect the position of the Foreign Policy Research Institute, a non-partisan organization that seeks to publish well-argued, policy-oriented articles on American foreign policy and national security priorities.