(Bloomberg) -- The ruble is slumping, the shock of a failed mutiny has yet to fade and the war in Ukraine has crossed the 18-month mark with no end in sight.
Yet preparations are already underway for Vladimir Putin to secure a fifth term in March 2024 elections, even as anxiety about the future spreads among senior officials and business tycoons, according to four people close to the Kremlin.
The Bank of Russia’s emergency interest rate hike this week was not just a response to the latest fall in the ruble but part of a wider effort to subdue inflation before the vote, said one of the people and a second person close to the government.
Without the election to consider, the central bank may have waited for the next scheduled monetary policy meeting to take action. As it stands, it’s facing open pressure from Putin’s aides to stabilize the exchange rate and prevent any further erosion of real household incomes.
The government is also working on a three-year budget plan that will offer pre-election sweeteners including additional stimulus measures that could contribute to inflation, one of the people said, adding to the urgency to get the ruble under control. “Domestic political considerations favor tighter monetary policy,” said Alexander Isakov, Russia economist at Bloomberg Economics. “If the ruble were to continue losing value it would have lifted inflation by 1-1.5 percentage points with price growth peaking at exactly the wrong time — in the run up to March elections.”Read More: Russia’s Elite Split Into Squabbling Factions Over the RublePutin Faces Historic Threat to Absolute Grip on Power in RussiaRussian Elite Is Souring on Putin’s Chances of Winning His War
Though few see any immediate threat to his grip on power, Putin’s authority as a guarantor of stability has taken a big hit in the wake of the mutiny by Yevgeny Prigozhin, leader of the Wagner mercenary group that’s acted as a military contractor for the state in Ukraine and elsewhere.
The Kremlin is looking to the election as an opportunity to present Putin as a leader who is fully supported and in control both at home and in his confrontation with the US and NATO allies.
Though many countries have refused to join the US, European Union and allies in imposing sanctions over Russia’s invasion of Ukraine, Putin’s having to skip this month’s summit of BRICS leaders, highlighting his international isolation. An arrest warrant from the International Criminal Court has made it risky for the Russian leader to travel, even to friendly countries like South Africa. For nations that had looked to Moscow as a counterbalance to US power on the global stage, Putin is an increasingly problematic bet.
Many within the elite were astonished by his weak response to the mutiny and subsequent failure to punish Prigozhin, stirring unease among officials about the potential for high-level in-fighting or further challenges. Discontent over Russia’s failures on the battlefield is still simmering inside the security establishment.
The chief targets of Prigozhin’s assault — Defense Minister Sergei Shoigu and Chief of the General Staff Valery Gerasimov — remain in their posts but his attempt to oust them had some support in key state security agencies, according to two people with knowledge of the matter.
Security hardliners want Shoigu replaced as part of a shift toward a more aggressive prosecution of the war, including full-scale mobilization and martial law, according to five people with knowledge of the situation. But there’s no sign so far that they’ll be removed and Russian general Sergei Surovikin, who’s been questioned over the failed mutiny, hasn’t been seen since.
The detention last month of Igor Girkin, a prominent former Russian intelligence officer, after he lashed out at Putin brought those tensions to the fore. Girkin, who was convicted in absentia by a Dutch court for the deadly attack on a Malaysia Airlines flight in 2014, claims to have led Moscow-backed insurgents in Ukraine’s eastern Donbas region at the start of the conflict.
“The country will not survive another six years of power of this useless coward,” he said of Putin on his Telegram channel, which has almost 840,000 followers. The president should “ensure a transfer of power to someone truly capable and responsible.”
With the implications of the mutiny still reverberating through Russia’s top echelons, the Kremlin has taken steps to respond more decisively to any future challenges to Putin’s power.
The State Duma passed legislation giving the president powers to order regional governors to set up specialized militias to combat illegal armed groups. The lower house of parliament also approved a bill last month to provide heavy weaponry to Russia’s National Guard, which answers directly to Putin and is led by his former chief personal bodyguard Viktor Zolotov.
Already the longest-serving ruler in Russia’s modern history since Josef Stalin, 70-year-old Putin will match the Soviet dictator if he stays in the Kremlin until 2030. He could remain until 2036 after revising the constitution to allow himself two more terms.
Russian officials are looking to regional elections taking place on Sept. 10 as the start of a campaign that will restore any lost authority or doubts over his future at the helm.
“Putin himself doesn’t feel he is weakened, he’s convinced he’s at the height of his strength, is sure of himself and full of optimism, even euphoria,” said Tatiana Stanovaya, founder of R.Politik, a consultancy. “No one, even in Putin’s closest entourage, can question his decision to stand in the elections.”
Despite growing misgivings among Russia’s elites, for the regular voter, Putin remains wildly popular. While the proportion believing the country was going in the wrong direction spiked briefly to 30% on the day of the mutiny, it quickly returned to the average of 23% seen in recent months, according to a July 26 study by the independent Moscow-based Levada Center. It found Putin’s personal approval rating was as high as 82%.
Denis Volkov, a director of the Levada Center, attributed that resilience in part to the Kremlin’s decision to expand social benefits to the poorest and most vulnerable segments of the population — who are also Putin’s core voters — after the invasion of Ukraine in February 2022.
“The ratings have been holding up despite the ongoing conflict,” Volkov said. “Payments were made to not very rich people: state employees, the poor, participants of the special operation. Budget payments significantly improved the well-being of these groups.”
Notwithstanding the ruble’s troubles, Russia’s economy ended four quarters of contraction with a bigger growth spurt than forecast in the second quarter, expanding by 4.9%.
The turnaround is defying predictions of a prolonged slump in response to sanctions. Increased defense spending has boosted industrial production while consumer demand is gaining momentum due to social support and wage increases. All that puts the economy on track to return to its pre-war position as soon as next year, economists predict.
Even the poverty rate decreased to a historical low of 9.8% last year from a pre-war level of 11%, the Federal Statistic Service’s data shows.
Putin’s unassailable image may have disappeared with the Prigozhin revolt but, with no obvious alternative, Russia’s elite still see him as their best guarantee of survival, said Nikolay Petrov, a visiting fellow at the Berlin-based SWP think tank. At least for now.
“At a time when it’s unclear what would happen if Putin left,” Petrov said, “it’s in the interests of the elite to keep the status quo.”
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