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Monday, February 27, 2006

Finally a Strong, Independent Russia?

February 22, 2006  Russia Profile by Vladimir Ryzhkov
Or At Least That’s How It Looks From the Outside
It’s clear that Vladimir Putin’s presidency has strengthened Russia’s independence in the international sphere. Gross domestic product has grown by 40 percent, meaning that the country has become stronger. External debt has been reduced from $190 billion to $100 billion, and talk is that the Paris Club debt will be paid off in full this year. Russia’s debt-to-GDP ratio should be the envy of much of the G8 during this year’s summit, which Russia is hosting for the first time.
Russia’s economic growth has allowed it to shed its humiliating dependency on foreign credits and humanitarian aid and instead become a participant in aid programs for the world’s poorest nations.
What we are talking about is external independence, which has to be differentiated from internal independence. The latter depends on the internal strength and resilience of the state, society and public institutions. In a democratic state, the people are sovereign, and realize their independence through democratic institutions.
The paradox of Putin’s Russia is that, while the external position of the country is stronger, internal development is taking an increasingly dangerous form. With the strengthening of external independence, the people’s independence is weakening. From a young democratic state in the making, Russia has transformed into a bureaucratic monopoly.
The last five years have seen many restrictive changes: citizens have lost the right to elect regional governors; the election of individual candidates from districts has been jettisoned; and the parliament has been subjugated to the president. The national television channels all support the powers that be. Thousands of candidates – as a rule, those who disagree with government policy – are weeded out of the electoral process. The courts, as seen in the Yukos case, have returned to their Soviet state of dependency on the executive. Recent laws regulating NGOs limit nongovernmental initiatives. The strengthening of Russia’s international position is taking place against the backdrop – and even at the expense of – shrinking democratic liberties and civil rights.
These developments have created three serious threats:
First, the strengthening bureaucratic monopoly is restructuring Russia’s economy to its own needs. The share of state-owned companies is growing fast, particularly in the natural resource sector, which increases the economy’s dependency on the external market prices for raw materials. The growing share of the economy run not by businessmen, but by corrupt bureaucrats, renders economic growth unstable and prone to major crises.
Second, the state is growing increasingly alienated from the people. Russia is changing from a democratic, federal, multinational state into a traditional multinational empire centered in Moscow and based on an imperial bureaucracy. A deficit of democratic legitimacy and the omnipresent corruption fostered by petrodollars only aggravate the problem. Mass protests and the spread of armed conflicts in the Caucasus are adding to the deep crisis of Russian statehood. The erosion of legality, destruction of institutions and disproportionate growth of bureaucratic power are making the political situation increasingly unpredictable, despite the officially proclaimed stability. Similar regimes in Latin America have demonstrated how quickly such “stability” crumbles.
The third threat is in the field of foreign policy. The wager on hydrocarbon exports, the growing appetite of the military and revival of imperial illusions among the political elite are increasing the government’s readiness to gamble externally. Elements of this policy can be seen in the support for authoritarian, even dictatorial regimes along Russia’s borders, attempts at energy blackmail and uncertain positions on some highly dangerous territorial issues.
It sounds a lot like the late Soviet period. From the outside, it looked like a great power controlling half the globe. On the inside, it suffered from a combination of diseases that proved fatal. In the long run, external independence cannot be achieved if it is not backed by internal strength: a strong civil society, efficient institutions, public oversight of the government, and political and economic competition. Until this kind of popular sovereignty is secured, the external “greatness” and “independence” will remain nothing more than a typically Russian Potemkin village.
Vladimir Ryzhkov is an independent deputy in the State Duma. He contributed this comment to Russia Profile.

Russian Banks Plan Acquisitions in European Union

Photo: ImageBank26.02.2006 - MosNews - Russian banks plan to buy old and create new banks in the European Union, said on Sunday, Feb. 26, head of Association of Russian Banks Garegin Tosunyan. He was speaking in Vilnius, Lithuania. "There are plans not only to acquire, but also to establish new banks in the European zone," Tosunyan said, quoted by the Interfax agency. "Many banks have such plans, and in the next few years we'll see examples of this happening. Most likely, it will happen in Czech republic." The head of the Association also forecasted that Russian banks will become more active in Lithuania. "Lithuania interests our banks, first of all, because there is a minimal language barrier, and well-preserved warm relations which eliminate all barriers for the business. I am convinced that in the next few years we'll see new banks that will come to Lithuania," Tosunyan said.

Monday, February 13, 2006

Kudrin welcomes foreign capital in Russian banks

Russia to Repay $12 Bln of Debt to Paris Club Ahead of Schedule in 2006MOSCOW, February 11 (RIA Novosti) – Russia's finance minister spoke positively Saturday about the role of foreign capital in Russian banks, but reiterated the government's position that it should remain limited. Alexei Kudrin said: "I welcome the arrival of foreign capital in Russian banks, but on the terms of affiliate banks in Russia and given that they operate within the framework of Russian legislation and present their financial statements to the Central Bank." Russian experts have consistently argued that the sector remains too weak to allow foreign financial institutions to open their own branches under current legislation in the country. Kudrin singled out the recent acquisition of Impexbank by Austrian banking group Raiffeisen International. "This is an absolutely normal process," he said. "Russian banks are going through a certain capitalization and are becoming increasingly attractive." Raiffeisen said Wednesday it was seeking to buy a 100% stake in Impexbank for $550 million provided the deal is approved by the Central Bank of Russia, as well as Russian and Austrian regulatory authorities. Raiffeisen will make the payment in two tranches. The first, up to $500 mln, will be released after the audited financial results for 2005 are presented, and the second, up to $50 mln, will be contingent on 2006 financials. The $550-mln price tag on the deal is the maximum, but it could be revised following a revaluation of real estate, according to the Austrian group.

Wednesday, February 01, 2006

Subsoil Law in Deep Trouble

02.01.2006 The Moscow Times – by Yuriy Humber - The bill on subsoil resources is very unlikely to be approved before summer and it is far from certain that it will become law at all this year, a senior natural resources official said Tuesday. In its present form, the bill addresses only six out of 40 factors that hold back the development of subsoil exploration and mining in Russia and deter investors, and it needs further work, Viktor Orlov, head of the Federation Council's committee on natural resources and environmental protection, said at an international forum on mineral resources in Moscow. "The main problems in mining and exploration will not be resolved by the current [wording of the] legislation, which we have sent back for reworking," Orlov said. Bills must be approved by the Federation Council after each of their three readings in the State Duma, and are then signed into law by President Vladimir Putin. The subsoil bill -- which has been in the works since at least 2001 -- was presented before the Duma last June but failed to pass first reading due to opposition, including from regional governments. Natural Resources Minister Yury Trutnev said last December that he would push for the law to be adopted in the second half of 2006. The subsoil law should not only deal with the distribution of mining licenses but also aim to stimulate more effective use of subsoil resources, an objective the current draft fails to achieve, Orlov said. Russia's unified tax grade for all deposits and lack of legislation encouraging the activities of small and mid-size mining enterprises discourage companies from fully exploiting their deposits or taking on less lucrative projects, Yevgeny Melekhin, professor at the Moscow University for Geological Exploration, said at the forum. "The tax system makes the development of less lucrative deposits unprofitable," he said. Trutnev said in December that the law would tackle issues such as the provision of more administrative freedom for the sector, a graded tax system for oil exploration and clear rules on which deposits would be labeled strategic, meaning foreign investors' access would be limited. However, restrictions on strategic deposits are not Russia's biggest problem in attracting foreign investors, said Anton Yelistratov, an associate at Macleod Dixon, a law firm catering mainly to foreign clients in the mining and natural resources sectors. Limitations on investment in strategic assets do not worry foreign companies if the rules are concise, clearly grounded and justified by national security concerns, Yelistratov said at the forum. What worries investors more is the general lack of clarity in Russian business rules and the dearth of guarantees that their investments will be liquid, he said. "Foreign investors are first of all looking for stability. They want to know that in 20 to 50 years time they will still be able to mine their deposits under the same conditions," Yelistratov said. Russia plans to conduct 1,400 tenders for licenses to develop mineral deposits in 2006, Vladimir Bavlov, deputy head of the Natural Resources Service, said Tuesday.

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