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Saturday, Sep. 29, 2012

EDITORIAL

Mr. Putin's 'pivot' toward Asia

Russia is a huge country that spans eight time zones, stretching from the borders of Europe to the Pacific Ocean. For centuries it has grappled with its "Eurasian" identity, debating whether its national interest are best served by choosing between one half or the other or offering itself as a bridge between them.

After the collapse of the Soviet Union, Russia chose Europe, arguing that its future was best served by deeper integration with the West. The economic stagnation in Europe and the striking contrast with Asia's dynamism have pushed Moscow to reconsider.

Echoing U.S. President Barack Obama, Russian President Vladimir Putin in September announced Russia's own "pivot" to Asia. Writing in the Wall Street Journal just before he hosted the annual leaders summit of the Asia Pacific Economic Cooperation Forum (APEC) in early September, Mr. Putin noted that "Russia has long been an intrinsic part of the Asian-Pacific region."

Mr. Putin explained: "We view this dynamic region as the most important factor for the successful future of the whole country, as well as the development of Siberia and the (Russian) Far East." At the end of the leaders' meeting, he declared that "development of regional economic integration is Russia's strategic choice."

The logic is compelling. Mr. Putin set a goal of 6 percent economic growth for Russia over the medium term. Yet, last quarter, Russian GDP grew just 4 percent. A great part of the reason is that Europe, Russia's main trading partner, accounting for just about 50 percent of its trade, is experiencing an economic and political crisis.

Only Asia can provide the boost he and his country need. The Asian Development Bank reports that growth in developing Asia in 2012 will be 6.6 percent; Europe, in contrast, will shrink 0.7 percent. Pacific economies, which include more slowly growing Japan and the United States, expanded 4.1 percent last year, which still outpaced the global average of 3.9 percent.

With APEC economies accounting for less than 23 percent of Russian trade, Mr. Putin smells opportunity. The opportunities are real. "Asia" makes up more than half of Russian territory; the Far Eastern Federal District, which was established in 2000, constitutes over a third of Russia's total land mass. The region is rich in natural resources, especially energy and timber. In more optimistic moments, Russian officials insist that the Russian Far East could become a "breadbasket," exporting grain to the world via Pacific ports.

The opening of Arctic trade routes and the upgrading of railroad lines that span Russian territory could make the country a transportation corridor between Europe and Asia. Vladivostok is just two hours by air from all the national capitals in Northeast Asia.

But if Russia's trade with APEC is to surpass that with Europe — Mr. Putin's stated goal in five to 10 years — much has to be done. First, infrastructure has to be built. Russia's Far East is woefully underdeveloped, lacking roads, ports and airports. Moscow pumped nearly $21 billion into Vladivostok to prepare it for the APEC meeting. A new government department has been created in the Kremlin to oversee the region's development.

But a flood of money will not do the trick if it is not spent wisely. Vladivostok is more than 6,400 km from Moscow and residents of Pacific Russia have long complained about a lack of attention, a claim validated by the region's status as one of Russia's poorest despite its great wealth in natural resources.

Pacific Russia continues to lose its brightest young people, who go elsewhere for jobs and opportunities. When Moscow does pay attention, there are complaints of excessive bureaucracy and regulation. And a frequent handmaiden of bureaucracy is corruption. When decisions are made in the Kremlin, money flows to Moscow's favorites; when decisions are made locally, funds go to those preferred clients. In neither case does capital go to those who need it most or use it best.

Foreign interest in the Russian Far East has ebbed and flowed, usually in response to those decisions made in Moscow. Currently, interest in the region is on the rise. According to a recent survey of APEC business leaders, Russia ranks among the top five investment targets over the next five years. Toyota is reportedly considering building a plant in Vladivostok and Mazda has already done so.

A Japanese consortium that includes Itochu signed a memorandum with Gazprom to develop a liquefied natural gas project in Vladivostok as well.

Ironically, while Mr. Putin's thinking is dictated by strategic concerns, geopolitical issues may prove to be its undoing. While Moscow and Beijing present a united front on many diplomatic issues — they particularly seem to enjoy thwarting U.S. designs in international institutions — their distrust of Washington is only matched by their mistrust of each other.

Russia has a long-standing fear that China harbors its own ambitions for the Russian Far East. Both countries resent the other and see relations in zero-sum terms. Their list of grievances is long.

Japan and Russia have not yet signed a peace treaty from World War II. Japan seeks return of the Northern Territories — known as the Southern Kurils to Russians — seized just after the end of that conflict. Failure to make progress on the issue continues to block progress in their bilateral relationship.

Moscow's effort to build stronger relations with Seoul are slowed by Russia's ties to Pyongyang; Russia is seen as having facilitated North Korean intransigence rather than encouraging good behavior.

Mr. Putin's pivot toward Asia makes sense, but it demands a dexterity for which Moscow has shown little proficiency.



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