Putin pushed towards economic reform

The economic dilemma facing Vladimir Putin in his third term as president may be familiar from his first two times around: crippling…

The economic dilemma facing Vladimir Putin in his third term as president may be familiar from his first two times around: crippling corruption and a dire dependence on natural resource exports.

But the added dimension of the middle class flexing its muscle in protests reminiscent of the late Soviet era is making Mr Putin's mission more urgent and his failure to act increasingly fraught with risk.

Economists are now looking to see if this street-driven energy can stir Mr Putin into committing to reforms he omitted while profiting from record oil prices as between 2000 and 2008.

Russia's "urban middle classes have evolved from being consumers to being members of a civil society," note the economists at New York's Citigroup.

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"The key question, then, is whether signs that Putin's popularity is slipping will trigger a wave of much needed economic reforms," London's Capital Economics consultancy adds.

The list of curses plaguing Russia's growth has changed little since Mr Putin emerged from the depths of the KGB spy agency to take command of Russia after its decade of early post-Soviet economic mayhem.

Russia since 2000 has recorded the lowest rates of foreign direct investment of all nations in Eastern Europe and seen its manufacturing sector play a steadily diminishing role in the overall economy.

The first problem is explained at least partially by Western mistrust of Russian justice while the latter is rooted in the ruble's unnatural oil export-driven strength.

Both Mr Putin and Dmitry Medvedev -- a close ally who has kept the president's seat warm for the past four years -- have promised to fix these setbacks through a commitment to court independence and an economic diversification drive.

But economists fear that they have largely failed on both fronts because Russia's malaise runs much deeper than either Mr Putin or Mr Medvedev dares to admit.

Estimates from local and foreign watchdogs show corruption now swallowing between a third and half of Russia's gross domestic product and state spending rising on inefficient projects.