Russia's political transition
Economic growth and investment
Military and security policies
North Caucasus
Foreign Policy Developments

The past year has tested the resilience of Russia’s ‘stability’ paradigm, established by Vladimir Putin during his eight-year tenure as president. It saw parliamentary and presidential elections, following which Putin handed the presidency to his hand-picked successor Dmitry Medvedev, but remained in government as prime minister. Russia continued to face challenges in its relations with Europe and the United States. During the year to mid 2008, Russia suspended its obligations under the Conventional Forces in Europe (CFE) Treaty and stepped up its opposition to the plans of President George W. Bush to place elements of a US missile-defence system in Poland and the Czech Republic.

Russia continued to project the image of an assertive and confident power. Beneath the surface, however, the fundamentals of its domestic order were in question as its governmental system was fraught with legitimacy problems and insufficient capacity to deliver the reforms necessary to sustain economic growth. The country had rejected democratic accountability and transparency in favour of a state-controlled and elite-based modernisation project. The fundamental political challenge now lay in crafting a new balance of power between Putin, who as prime minister appeared to be determined to retain all the real levers of power, and Medvedev, whose political ambitions remained untested.

It appeared that the government would need to reconcile two opposing economic forces. On one hand there was growing state interference in the economy, evidenced by state corporations assuming control of lucrative enterprises and by the anticipated increase in state funding for major innovation and infrastructure projects. On the other hand, there was a rising, albeit still politically immature, middle class, which had a greater stake in eradicating corruption, establishing the rule of law and developing modern state institutions. The ability of the state to get the balance between these two forces right will determine whether it can forge longer-term economic and political stability.

In the foreign-policy sphere, Moscow’s disappointing implementation of domestic political reforms was a major obstacle to the creation of strategic alliances with Western democracies. Russia lacked the economic and demographic capacity to assert itself as a genuinely equal geopolitical partner for China and India. Its partnerships with neighbours in the Commonwealth of Independent States (CIS) have been propped up by economic growth and rising wealth, but countries in post-Soviet Eurasia have sought to counter Russian pressure by forging stronger relations with other powers in Europe and Asia. Over the past year these trends emerged even among such close Russian allies as Kazakhstan, Tajikistan, Armenia, Uzbekistan and Belarus.

Russia has thus become increasingly inward looking and isolated. It has wasted political capital pursuing bargains with the West on issues such as the CFE, and in some cases has taken risks, as in its relations with Georgia. However, there were signs that Medvedev could adopt a more outward-looking approach and was interested in improved relations with the West, although his limited domestic power-base will constrain his ability to implement a substantially different foreign-policy strategy.

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