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The Political Costs of Making Bad Decisions

From Yulia Latynina in the Moscow Times:

Of all the official statements coming from the government and big business over the past few weeks, three stand out as most important. First, multibillionaire Oleg Deripaska announced that he would not request any more government assistance for his ailing business empire. Second, Olimpstroi, the state corporation responsible for preparing Sochi for the 2014 Olympics, will reportedly return 50 billion rubles ($1.4 billion) to state coffers. (Rosnano and Russian Railways will also hand back 130 billion rubles and 80 billion rubles, respectively.) The third most-important announcement was made by Prime Minister Vladimir Putin on Friday when he met with United Russia leaders: “The crisis is far from hitting its peak,” he said.

Translated from”Kremlinese” into ordinary English, the first statement means that evenDeripaska — the most-connected oligarch among Putin’s favorites –won’t get any more cold cash from the government. The second means thatfinancing for Putin’s pet project to turn Sochi into a winterwonderland is drying up.

When oil prices were high, theKremlin suffered no political fallout for making poor decisions. Afterformer Yukos CEO Mikhail Khodorkovsky was sentenced in May 2005 toeight years in a prison located in a remote, radioactive Siberian town,the markets had a brief scare, but they recovered relatively quicklybecause the economy was in the midst of an oil-driven boom. Almost ayear after Khodorkovsky was arrested, then-President Putin canceledelections of governors, but few seemed to care too much because mostRussians enjoyed higher living standards as petrodollars flooded theeconomy.

Now, of course, the situation has reversedcompletely. The political cost of making bad decisions is extremelyhigh, but poor decisions are the only kind the Kremlin is capable ofmaking — both in good times as well as bad.