The Kremlin Pretends the Heat Is Off

Television shows in Russia and Ukraine are worlds apart when it comes to covering the financial crisis. Watching Russian television over the past month, it might be easy to miss that the country is mired in the same twin crises gripping the world -- the ongoing credit crunch and the emerging downturn in the real economy.

Instead, television news usually focuses on the financial woes in the United States and the U.S. responsibility for the global crisis. Stressing Russia's emergence as the world's new economic superpower is high on the agenda for the state-run media. For the average viewer just tuning in, the outlook might seem rosy in Russia, especially compared to other countries.

One can also frequently find reports of new credit being extended to troubled banks and Kremlin-friendly corporations, as well as segments on economic directives being issued down the political chain of command. Coverage of Russia's collapsing stock exchanges, which have fallen much more than their counterparts in other countries, has been scant.

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One would have to dig much deeper to find other worrisome stories, like when some Russian banks refused to give out cash to depositors wishing to make early withdrawals on their fixed-term savings accounts. These issues are not mentioned in the mainstream media, but they are on peoples' lips. Moreover, there is hardly any debate about the structure of the planned bailout, which some are now calling the reversal of the loans-for-shares scheme of the mid-1990s.

It is interesting to compare this picture to the one in Ukraine. They could hardly be more different. On daily talk shows and live broadcasts from Ukraine's parliament, one can watch bickering politicians debate the conditions of the International Monetary Fund loan to Ukraine. And around Kiev, the rumor mill is grinding out stories of imminent hyrvnia devaluation.

News reports do not shy away from discussing which firms are having trouble paying off their debts, and speculation is rife about which political forces benefit most from avoiding a solution to the crisis.

Russia is arguably better positioned than Ukraine to deal with the effects of a prolonged crisis. First, Moscow's foreign currency reserves are much larger than Ukraine's. Second, Russia's inflation rate is much lower. Third, Ukraine is heavily dependent on Russia's supply of gas, and if Moscow raises its prices, this will be an additional blow to Ukraine's economy.

But the key element that differentiates Ukraine from Russia is the simple acknowledgement by the state and the media that the financial situation is a mess. Obfuscation, finger-pointing, blame-shifting and denial have been the Russian government's standard responses to the first signs of the country's crisis. Ukraine, however, seems to have learned a key lesson of an open society -- that sweeping your problems under the carpet does not get them solved. There is a benefit in engaging in political and economic discussion and debate. Keeping such debates out in the open does not guarantee that the best solutions will be found and implemented, but the chances for such solutions are much higher.

It is difficult to predict what direction economic and financial recovery will take in the coming months and years. Yet one thing is certain: Ukraine is not Russia. Access to information, press scrutiny and open debate on available policy options and the ramifications of bailout plans will speed Ukraine's rebound. But in Russia, the absence of conflicting opinions and debate and selective media coverage will undermine that country's path out of the crisis.

It has been said that if a frog is thrown into boiling water, it will jump out to save itself, while a frog in cold water will boil to death if the heat were slowly turned up. The theory isn't particularly scientific, but it nonetheless provides a useful framework for observing Russia and Ukraine during these times.

Like the frog in cold water, people have a tendency to avoid gradual changes. If the problems are ignored, they can escalate in severity. By extension, it may be easier for outside observers to notice important developments that seem insignificant to those on the inside who have grown accustomed to them.

Ukraine is trying to jump out of the pot while the temperature hasn't yet reached the boiling point, and it is doing this in the public view. But in Russia, the state continues to pretend that the heat is not even turned on. In a matter of months, however, Russia will not be able to escape the heat, and at that point, the crisis will become so severe that it could have catastrophic consequences for the country.

Marc Schleifer is program officer for Eurasia and Aleksandr Shkolnikov is senior program officer for global programs at the Center for International Private Enterprise in Washington.