More than a month ago, suspecting that the Russian leadership could be thinking like this, I
wrote that toward autumn – that is, when the 2026 budget will be close to being wrapped up – an elite clash between the
siloviki and the technocrats is inevitable (see Russia.Post
here). Events now seem to be playing out even quicker. Though the technocrats (I would call them just reasonable people) are yet unwilling to break ranks openly, they have started issuing demarches.
One of them was a meeting of the entire economic bloc of the government, the Central Bank and tax service, chaired by the prime minister, where for the first time a
fiscal five-year plan of sorts was discussed instead of the usual three-year budget. This looked to be an attempt to calculate the longer-term consequences of the Kremlin’s current strategy and signal concern to the Kremlin.
Further, more public demarches followed at SPIEF, where economic managers tried to sound the alarm bell for Putin that the financial system is approaching the danger zone. Some of Putin’s recent proposals look outright delusional. In particular, at SPIEF he
called for, “wherever feasible… [achieving] integration between the defense industry and the civilian sector, facilitating the production of dual-use goods” – basically citing the late-Soviet model as an effective way to grow the economy.
Is there reason to believe that the
demarches of the technocrats have been heard? We do not have an answer yet.
Kremlin-fueled uncertainty as the main risk factor for the economyAutumn should add some certainty as to the outlook for Russia’s war economy. It is important to keep in mind that the horrors described at SPIEF by many Russian businesspeople are because of the current uncertainty. If they had a clear understanding of what the Kremlin has in mind (not just, for the fourth year in a row, hearing that everything is going “according to plan”), they could make moves to minimize potential losses and maximize potential gains.
The top leadership has repeatedly claimed that a normalization is forthcoming. But one has never materialized. The Kremlin promises “in principle” not to change the tax system, but in reality it changes it every year. At first the assets of “unfriendly” investors were expropriated, but soon, on dubious grounds, yours could be next.
The sense of total uncertainty on the part of economic actors is worse than a continuation of the war or efforts to make peace.