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Putin Stresses Foreign Policy and Economic Goals After ‘Difficult Year’ Putin Stresses His Assertive Policy Amid Stark Challenges
(about 7 hours later)
• In annual speech, President Vladimir V. Putin made a strong defense of Russia’s annexation of Crimea. MOSCOW — The defining event of Vladimir V. Putin’s initial rise to power was the crushing of an Islamist insurgency in Chechnya, at the cost of human rights abuses and years of dictatorial rule there.
• Mr. Putin used an aggrieved, angry tone in pronouncements on foreign policy. The defining event since his return to the presidency two years ago was his hard-line response to the Ukraine uprising in February, with the invasion and annexation of Crimea and the incursion into southeastern Ukraine — while sneering at critics in the West.
• He said Russia should overhaul its struggling economy and help small businesses. On Thursday, Mr. Putin was forced to contend with trouble on both fronts, as insurgents mounted a deadly attack in the Chechen capital of Grozny, and he was compelled in his yearly address to reassure Russians that his assertive foreign policy would not bring economic ruin.
MOSCOW — President Vladimir V. Putin said on Thursday that Russia had endured a “difficult year,” but he pledged that the country would pursue its independent foreign policy and economic objectives despite dogged Western efforts to weaken it. An overnight attack in Grozny left at least 20 people dead and shattered years of relative calm. Yet just as the attack reminded Russians that the insurgency in the Caucasus Mountains never really ended, Mr. Putin’s speech did not convincingly explain how the Kremlin would contend with the economic damage from Western sanctions — and a simultaneous plunge in oil prices and the ruble.
Mr. Putin used his annual state of the nation speech both to reaffirm the Kremlin’s intention to restore Russia’s great power status and to reassure the Russian people that he was addressing troubling economic developments. Mr. Putin sought to portray himself as a leader with Russia’s glorious destiny firmly in hand, a viewpoint echoed by his supporters. His critics, however, called the speech way off the mark, if not delusional, with Mr. Putin acknowledging neither the scope of the problems nor his role in creating them.
On a dais in a vast white marble hall at the Kremlin filled with the country’s political elite, Mr. Putin called Crimea the country’s Temple Mount and said that its annexation from Ukraine in March confirmed that Moscow could protect Russian people everywhere. “He thinks that overall the situation is under control, the problems with the foreign currency reserves, oil, the budget, the ruble, the economy, inflation and so on, but the situation is not under control,” said Vladimir A. Ryzhkov, an opposition politician. “The country needs surgery, and he proposed therapy.”
Before the speech, there had been widespread speculation in Russia on whether Mr. Putin would favor conservatives who want to pursue a confrontation with the West despite the economic costs or liberals who think that attitude brought disaster to the Soviet Union. Standing in the Kremlin’s glittering white marble St. George Hall before more than 1,000 members of the country’s political elite, Mr. Putin acknowledged that Russia was facing hard times, but reaffirmed the combative foreign policy course he set earlier this year.
Mr. Putin did a little of both, taking a defiant stand on foreign policy but vowing to put in place policies that would help small and medium businesses. Most liberals believe that unshackling the private sector is the key to solving Russia’s economic problems, given that the state controls 55 percent of the economy. In the first part of the 70-minute speech, Mr. Putin adopted the angry, aggrieved tone toward the West that he has used since Russia annexed Crimea last March, blaming the United States for starting the trouble by fomenting a coup in Ukraine. He used a more professorial tone in the second, economic part of the speech, but it proved to be a laundry list of small adjustments, many of them recycled.
The Russian leader used the same aggrieved, angry tone he has often adopted in his public pronouncements since the Ukrainian crisis erupted in March. The West has reacted to the annexation of Crimea and the conflict in Ukraine by imposing sanctions, but Mr. Putin said those events were just a pretext. In one striking passage, Mr. Putin compared Crimea to the Temple Mount in Jerusalem, saying the peninsula held sacred importance for Russians because the Russian Orthodox Church was born there. Grand Prince Vladimir, considered the ruler who converted the tribes to Christianity, was said to have been baptized near today’s modern city of Sebastopol.
“This is not just a nervous reaction of the United States and its allies to our position with regards to events and the coup in Ukraine,” he said near the beginning of his 70-minute speech. Mr. Putin said the West used the annexation as a pretext to continue its historical attempts to restrain Russia.
“If all that had not happened, they would have come up with a different mode to restrain Russia,” Mr. Putin said, accusing the West of pursing the same policy for “decades if not centuries.” Whenever the West feels that Russia is becoming too strong, it resorts to such measures, he added. “The policy of containment was not invented yesterday,” he said. “It has been carried out against our country for many years, always, for decades, if not centuries. In short, whenever someone thinks that Russia has become too strong or independent, these tools are quickly put into use.”
Mr. Putin again dismissed the idea that the popular uprising in Kiev, the capital of Ukraine, was sufficient to topple a president close to the Kremlin. He accused Washington of manipulating events there, saying that when it came to negotiations about solving the crisis, he was never sure whether he should address Ukrainians or the United States. Evoking World War II history, a favorite device, Mr. Putin suggested attempts to dismember Russia through sanctions and other means would fail just as Adolf Hitler had failed to conquer Russia.
He sprinkled the speech with numerous references to his standard line that Russia would remain the global standard-bearer for conservative values. Mr. Putin also stressed that Russia did not want to restore the Iron Curtain, that the country was open to the world and that it would never “pursue paranoia, suspicion and looking for enemies.”
But he also said that Russia did not want to restore the Iron Curtain, that the country was open to the world and that it would never “pursue paranoia, suspicion and looking for enemies.” This will come as a surprise to some, especially employees of nongovernmental organizations who have been labeled “foreign agents” over the past years and whose groups were shuttered or pursued to pay huge new tax bills. That avowal will come as a surprise to some, especially government critics, employees of nongovernmental organizations and others who have been labeled “foreign agents” over the past year by the state-controlled media.
The initial part of the speech focused on foreign policy issues, with Mr. Putin still riding a popular wave of support for the annexation of Crimea. Before moving on to economic policy, Mr. Putin made a passing reference to the attack in Chechnya, but contended that local law enforcement officers could handle it. Still, even as he tried to brush off the most brazen attack there in many years, it was clear Mr. Putin’s determination to restore stability was being challenged on yet another front. With his budget already strained, Mr. Putin was again confronted with dedicating resources to Grozny even as he is committed to supplying a not-so-stealth campaign in Eastern Ukraine.
Mr. Putin made a passing reference to clashes overnight in Grozny, the Chechen capital. Russia was capable of facing the threat from such terrorism, he said. While Mr. Putin’s resolve appeared strong — his treasury’s health was not.
But the bulk of the speech focused on the economy. The government conceded for the first time this week that Russia faces a recession next year. The economy is expected to contract by at least 0.8 percent instead of growing by the previously projected 1.2 percent. Independent economists say they believe the contraction could well be 2 or 3 percent. And that is assuming oil prices rebound somewhat from their current level of around $65 a barrel.
After 15 years of prosperity under Mr. Putin, Russians are increasingly worried that their living standards will suffer as tumbling oil prices compound the problems brought by Western sanctions imposed in response to Russia destabilizing Ukraine. The problems have sparked an extended fight in the Kremlin, which was already divided over Ukraine. “One school says that Putin will keep the mobilization among the people, the society and the elite despite the economic crisis,” Mr. Ryzhkov said. “If he prolongs the policy of greatness, of expansion, of confrontation with the West, he will be popular and supported by the people despite any economic crisis.”
Mr. Putin said that his country should use the current confrontation with the West to try to overhaul its economy, and to depend more on itself for food, medicine and technology. Just as Russia once broke boundaries in space and atomic energy, he said, it should also become a leader in creating goods the world wants. But Mr. Ryzhkov and others calling for greater economic and political liberalization doubt that. Mr. Putin enjoyed ever-greater support from March to August, but in the months since, as sanctions began to bite with inflation, support began to erode — though his approval ratings remain in the 80s.
His economic proposals included a no-questions-asked policy toward anyone who brought home their offshore wealth, a reprieve from government inspections for small and medium businesses, and a four-year freeze in the tax rate.  “I don’t believe the Russian people will support him if they lose their medicine, their health benefits, their education and their good standard of living,” Mr. Ryzhkov said.
Mr. Putin said that the fall in the price of the ruble, from about 33 to the dollar at the beginning of the year to around 53 now, was caused in part by currency speculators. The government is aware of who they are, he said rather ominously. Economists describe the enormous Russian corporate debt, with about $650 billion owed to Western banks, as the worst problem. The sanctions block access to any new Western capital and it is not clear how the debts can be repaid.
The Russian leader acknowledged that inflation was a problem, and he called on regional governments to help control the price of food. While not ignoring the current economic problems, Mr. Putin did not go into details that would highlight their severity. Mr. Putin said on Thursday that billions of dollars salted away in one of the government’s sovereign wealth funds should be used to prop up domestic banks. Some of Russia’s largest banks, including VTB and Gazprombank, have already asked for handouts from the roughly $81 billion sitting in the National Wealth Fund, out of total foreign currency reserves of $420 billion.
The economy is definitely sinking, with the government conceding for the first time this week that Russia faces a recession next year. The economy is expected to contract by at least 0.8 percent instead of growing by the previously projected 1.2 percent. Independent economists say they believe the contraction could well be 2 or 3 percent. Mr. Putin did not say how Russia would close the enormous gap between the corporate debts and the reserves. Analysts suggest that the government thinks the sanctions will be lifted in a year so they will not have to find a solution.
Each week brings a welter of new bad economic developments. The Russian economy is heavily dependent on oil exports, with the budget constructed on a price of at least $100 per barrel. It is now trading at around $70. Mr. Putin said that his country should use the confrontation with the West to try to overhaul its economy, and to depend more on itself for food, medicine and technology. He said there should be a four-year freeze in the business tax rate and proposed that honest small and medium-size businesses get a reprieve from constant government inspections — a font of corruption.
The ruble has fallen sharply against the dollar and the euro, losing a third of its value. Inflation, creeping up toward 9 percent overall, has hovered around 20 percent for food after Russia cut off imports of staples like meat, seafood, dairy products, fruit and vegetables from the West. Over all, analysts said the speech would probably not achieve its main purpose: That is to assure the budgetniki — people like teachers, doctors and government workers who depend on the federal budget for their salaries — that growing inflation and the dropping ruble would not undermine their standard of living.
Capital flight is expected to reach $128 billion this year. “There are people totally oriented toward the government — I think that he calmed them down, but they were already calm,” said Aleksei V. Makarkin, an analyst at Moscow’s Center for Political Technologies.
But economists said the worst problem was that Russian corporate debt was enormous at around $650 billion as sanctions have blocked companies from Western credit markets. Everyone else will face a different reality, he said, “From the businessman thinking about how he can continue working under the new conditions to the simple man who goes to the store and sees that prices have risen — I think that this speech could not have answered all these questions.”