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Economic Implications

The economic implications of the Crimean annexation should be seen within the context of broader debates over the costs of an aggressive and militarized foreign policy. In nonsecurity areas the so-called economic block, in particular the Ministry of Finance, but also the Central Bank and in a more ambiguous way the Ministry of Economic Development, exercises significant bureaucratic control over policy actors that want to spend money. The Ministry of Finance plays the standard fiscal custodian role, protecting tax revenues at all costs and attacking expenditure at every opportunity. Putin often supports the ministry, placing major emphasis on the need to balance the budget. Highly sensitive national security debates are less open to the public, but we have evidence that the Ministry of Finance at least tries to contain military expenditures. Long-time minister Aleksei Kudrin seemingly lost his job over it, and current minister Anton Siluanov occasionally indicates that he is no happier than Kudrin (minfin. ru/ru/press-center/?id_4=33034).

But it is not just Kudrin’s fate that suggests that the economic block has limited influence over military expenditures. The Ministry of Finance has some dedicated capacity for the analysis of security-related spending, with a Department of Budgetary Policy in the Area of State Military and Law

Enforcement Services and Military Procurement.10 But both Monaghan and Cooper point to the lack of institutions and mechanisms for linking socioeconomic and security planning, with Cooper suggesting that the security block has a greater capacity to influence socioeconomic planning than vice versa (Monaghan 2013, p. 1233; Cooper nd, pp. 7-8).

Other than Medvedev as prime minister, the economic block has no permanent membership of the Security Council.11 There is no reason to believe that senior figures in the economic block do not have direct access to Putin on an individual basis (Gabuev et al. 2013), and Putin could well be willing to hear their views on the economic implications of national security actions. But the fate of Kudrin is enough for them to know that there is a limit to how hard they can push such matters. On top of that, the Security Council has its own claims to economic expertise, briefly outlined above.

At this point we return more specifically to Crimea. Among the most significant consequences of the Crimean annexation were economic sanctions. They appear to have been unexpected, a failure of foreign policy rather than economic analysis.12 Nevertheless, the response, as ad hoc as it appeared, derived from long-standing economic debates with an ideological dimension. The view that sanctions could be readily made up for by deals with the Chinese or by domestic effort fitted within the heavily pushed “turn to the East” policy and a long-standing debate over industry policy and import substitution. It could be argued, on the basis of slight evidence, that the Security Council apparatus was a supporter of the Chinese option, through its interest in new reserve currencies and BRICS as an anti-Western organization, an issue considered by the economic and social security section of the Council’s Scientific Council (Fortescue 2014, pp. 230-231). The pros and cons of a domestically oriented industry policy had been exhaustively debated and generally rejected by policy-makers over many years, with the Security Council through its Interdepartmental Commission on Economic and Social Security being one of the platforms for presentation of the pros (Butrin 2015).

It is likely that to the extent that sanctions were recognized as a possibility in advance of the decision to annex Crimea, the response - the turn to China and import substitution - was attractive to decision-makers keen to justify to themselves an action they wanted to take regardless, despite both elements of the response having always been regarded with scepticism in extensive analysis and debate over many years. Putin was clearly aware of the arguments against the two policy responses; to a considerable extent he shared them. But when the moment came security-oriented information providers - based in or linked to the Security Council - were in a privileged position, through the direct access to Putin of their bosses, to present them to a receptive audience.

 
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