Latynina on a Fool Called Medvedev

Hero journalist Yulia Latynina, writing in the Moscow Times:

We all learned from the Russian media how President Dmitry Medvedev arrived in Washington for the Group of 20 summit and offered his ideas on how to build a new global financial system.

What the media did not report, however, is that Russia has been essentially evicted from the G8. After Prime Minister Vladimir Putin promised to “send a doctor” to Mechel and sent tanks into Georgia, the West, for all intents and purposes, reached a consensus that Russia has no place in the elite club of developed, wealthy and democratic nations.

Although Russia was “expelled” from the G8 for its poor performance, it was invited to attend the larger G20. What would a bad student probably do after being expelled from school for poor grades? He would probably stand up with his tail between his legs, promise to work harder on his homework and try to raise his grades. But what did Medvedev, the failing student, say in Washington? “I have an idea of how we can restructure the principle’s key job functions.”

Medvedev appeared so foolish in Washington that it looked as if his boss had intentionally scripted him to play the jester in this global theater.

In order to understand how the Russian economy was built, ask yourself one simple question: Is it possible to carry water in a colander? Yes — if you are able to pour more water into the colander than the amount that leaks out of its holes.

For the past eight years, the Russian economy was like a huge colander. With oil prices above $100 per barrel, petrodollars flooded into the colander with amazing force. As long as oil prices remained high, it seemed as if the colander could actually hold water.

Unfortunately, the sharp drop in oil prices cut off the flow coming into the colander, and we discovered that it doesn’t hold water after all.

There were other major leaks as well. Dollars have fled Russia at the rate of $3 billion to $7 billion per week. It is useless to try to stop this outflow because the dollars are being sent abroad by the very people who were the most active in drilling the holes in the colander in the first place.

There’s nothing the government can do about the problem either. If it gives money to the banks, they’ll just send it overseas. If it doesn’t give them money, there will be a catastrophic liquidity crisis and the interbank interest rates will reach astronomical levels.

To make matters worse, the government’s reserves are streaming out of the colander, but the Kremlin is only worried about choosing which oligarchs should get a slice of the bailout pie.

How can the Kremlin solve the problem of its leaking colander? Find a scapegoat. Who would be the best scapegoat? Russia’s new, young president.

The plan to frame Medvedev is clear from the haste with which he proposed changing the Constitution. What will follow over the next year is easy to predict. First, the ruble will collapse in early 2009 — or at the latest when the country’s gold and foreign currency reserves run out. When this happens, someone will have to explain to the people why all the money that had been amassed in the state colander over the past eight years vanished in only a few months.

Medvedev’s first reaction will be to blame the West for everything. Then he will explain that he lacks the moral strength to lead the country during a serious crisis. Medvedev will be noble in his display of mea culpa, explaining that he hasn’t lived up to the voters’ confidence and that he therefore wants to call early elections for a new president, who will now serve a six-year term.

This is Putin’s script in the Kremlin drama, and Medvedev is playing the leading role as the court jester.

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