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Changing Course in Moscow
September 21, 2010 17:30

Since 2008 Russian foreign policy has begun to swing back toward cooperation with the West. The public face of this new course is At this point, hints about a new course for Russian foreign policy remain mostly that: hints. who succeeded Putin as president in 2008. Its fundamental premise is the belief that Russia needs better relations with the wealthy world - especially the United States and the European Union - in order to modernize its economy. Both the 2008 war in Georgia and the onset of the global economic crisis discredited the notion that Russia’s energy riches had decoupled its economy from the rest of the world. The war sparked a large-scale outflow of foreign capital, as international investors increasingly saw Russia as a risky and unpredictable place to keep their money. This capital flight was then greatly exacerbated by the fallout of the global financial crisis: by early 2009, the main Russian stock market index had fallen by more than 90 percent from its May 2008 peak while foreign direct investment dropped by more than 45 percent between 2008 and 2009. The global recession has been particularly savage in Russia: in 2009, Russian GDP declined by almost 8 percent, whereas U.S. GDP fell by 2.6 percent during the same period.

Medvedev’s new foreign policy strategy essentially argues that Russia’s limited influence is a direct result of its lack of global competitiveness. In today’s world, economic prowess matters more than military might. This new strategy aims to harness Western investment and technology in order to develop the Russian economy, reducing its dependence on oil and gas sales while promoting technological innovation. Since the West is the principal source of the investment and technology that Russia needs, there is no room for pointless confrontations. Supporters of the new course, who include senior economic officials, businessmen, and academics (especially at the Institute of Contemporary Development, of which Medvedev is the nominal chair), argue that Russia should pursue what Medvedev has termed “modernization alliances” - especially with the United States and major EU states such as Germany, France, and Italy - in which Russia offers investment opportunities and greater political cooperation in exchange for foreign capital and know-how.

Russia’s new course has already produced some results, most importantly in relations with the United States, in economics as well as in politics. In June, Medvedev traveled to Silicon Valley to drum up investment for a high-tech center the Kremlin is building outside of Moscow. His biggest success was convincing Cisco Systems to invest $1 billion in Russian technology ventures, providing a tangible vote of confidence on the part of the U.S. business community.

Though, it is impossible to separate the new direction in foreign policy from the economic downturn, which has cast doubt on Russia’s post-Soviet economic model of relying on a heavily centralized, state-dominated energy sector to the exclusion of innovation and entrepreneurship. When the Russian economy was booming, Moscow felt confident enough to ignore many of the policy preferences of the United States and the European Union. But as oil prices fell and Russia’s economy started contracting, this hubris became harder to maintain. If oil prices start climbing again and Russia’s fiscal situation improves, Moscow may well conclude that an energy-fueled status quo is preferable to the expensive and uncertain prospect of modernization. If so, the case for better relations with the West could be badly undermined - which suggests that Western leaders have an interest in taking advantage of the current moment to emphasize they are serious about putting relations with Russia on a new foundation.

How can the United States convince Moscow that it has more to gain from enhancing its cooperation with the West, regardless of oil prices? A major reason why U.S.-Russian relations have been so unpredictable is that the relationship is largely focused on hard security issues and not on economic ties. Last year, U.S.-Russian bilateral trade was only $25.3 billion (less than one-twentieth of U.S.-Chinese trade), and only four percent of foreign direct investment in Russia came from the United States. The Obama administration should do more to encourage trade with and investment in Russia, including launching a strategic economic dialogue with Moscow and making a concerted push in Congress to repeal the Jackson-Vanik amendment. Russia’s ascension to the WTO is particularly important, since membership would make a reversion to energy-driven mercantilism more difficult. The United States should put the ball firmly in Russia’s court, identifying as a priority Russia’s membership in the WTO by the end of the year and providing technical assistance to overcoming outstanding disputes (including addressing Georgian objections).

At this point, hints about a new course for Russian foreign policy remain mostly that: hints. It is possible that they have much to do with the troubled state of the Russian economy - and could fade once the economy recovers or if Medvedev is sidelined after 2012. Yet Medvedev compellingly argues that as long as Russia’s economy remains underdeveloped and dependent on resource extraction, the country’s foreign policy ambitions will always outstrip its capabilities. Although the United States has reason to be concerned about the extent of these ambitions, it has an interest in solidifying Moscow’s commitment to a foreign policy that prioritizes domestic development over threats to its neighbors. Washington should do what it can to show that if Moscow is serious about modernization alliances, the United States will do what it can to help.



Tags: Moscow Russia International    

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