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Monday, June 30, 2008

U.S. promises favorable conditions for Russian investors

the U.S. treasury secretary Henry PaulsonMOSCOW, June 30 (RIA Novosti) - The United States intends to set favorable conditions for investment, including from Russia, the U.S. treasury secretary said Monday in Moscow. At a meeting with the Russian prime minister, Henry Paulson told Vladimir Putin that the U.S. welcomed investment, including from state sources, and would do everything to make sure the investment flows continue. Paulson said investing in the U.S. should be attractive to Russia's "sovereign fund", but Putin told him Russia does not yet have a sovereign investment fund, although the authorities are ready to consider setting up one. Paulson arrived in Moscow on Sunday for his first visit to Russia since being appointed to the post some two years ago. The U.S. treasury secretary also said Russia's joining the World Trade Organization is an important and necessary step. "I would very much like to see Russia's accession to the WTO. We're making progress on Russian accession," Paulson said on Ekho Moskvy radio. Russia, the only major economy outside the WTO, has been seeking membership in the organization since 1993. EU Trade Commissioner Peter Mandelson said earlier in June that Russia would become a WTO member by November 2009, and could complete accession talks later this year. But he warned that although Russia had already concluded 90% of the negotiations necessary, it still had a number of issues to settle. For example, Georgia, which became a WTO member in 2000, is threatening to block Russia's accession to the WTO unless Moscow halts support for its breakaway regions of Abkhazia and South Ossetia. Another stumbling block is the Jackson-Vanik amendment, which restricts Russian-U.S. trade relations. Paulson said he did not know whether it would be lifted in the next six months. "It will not be easy. There will be opposition in the Congress," the treasury secretary said. The Jackson-Vanik amendment was passed in 1974 and restricted trade with the Soviet Union over human rights violations. The amendment, which still applies to Russia, puts restrictions on Russian-American trade relations but Russia's WTO accession would require the amendment be lifted.

EU-Russia: Khanty-Mansiysk engagement

the EU-Russia summit in Khanty-MansiyskMOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - The European Union (EU) and Russia have been so slow in starting negotiations on regulating their new relationship that now they will talk about it in Siberia. As we know, Siberia is a land of opportunity. On June 26-27, the EU-Russia summit in Khanty-Mansiysk is expected to produce a decision on the start of negotiations on a new strategic cooperation agreement. The negotiations themselves are supposed to begin on July 4. They may start earlier, or be delayed for another week. But at this stage the exact date is not so important, for this is an engagement rather than a wedding. Russian and EU leaders have blessed the talks, but this does not mean that they will be quick or that from now on it will be "all sail, no anchor." The EU-Russia Partnership and Cooperation Agreement (PCA) expired in 2007, and was automatically extended for a year. The talks on a new strategic cooperation agreement to replace the PCA may last from a year and a half to several years. That is no big deal. The sides can extend the old PCA as long as they want, until one of them gets sick and tired of it. Russia, at least, has no reason to rush - it is successfully trading with its European partners. The problem is therefore not one of time, but of substance. There are many points of dispute between the two sides, which have been further complicated by the Irish rejection of the EU's Lisbon Treaty. Moscow finds it increasingly difficult to understand the EU's attitude to the talks, and is unsure what to expect from the process. Even if we eventually sign a new PCA, and nobody is able to change its provisions, how long will it take the parliaments of 27 EU members to ratify it? Europe has again rejected its new Constitution (in the guise of the Lisbon Treaty), and it will find it even easier to freeze the PCA. The start of the talks has already been delayed several times, and we have enough patience to wait for the PCA's ratification. But we find it difficult to understand why Russia is being used as a guinea pig in the process of formulating a common European foreign policy. It is clear that many of the new EU members are emphatically anti-Russian because they have amassed many grievances against us in the past. But why is their position becoming the backbone of EU policy? Why are the new members using their right of veto so easily to force their views on others? Russia has changed, and it is tired of tests on democratic standards or European identity, all the more so since they are often demanded by those who have yet to achieve complete European identity themselves. It will be even more difficult to match Russia's and the EU's systems of values. They still have very different views on sovereignty, human rights, the role of civil society, and interference in domestic affairs. Nor their social-economic models are similar. Such differences also exist in EU relations with the United States and Japan, but it is only with Russia that Europe is trying to conclude agreements that would impose the European system of values on it. All too often, we are asked to sign bilateral versions of EU documents or follow instructions meant to adapt us to European political and economic standards. For some reason, the Europeans deem it necessary to seal in legal agreements even the minutest commitments of this kind, ratify them, and turn them into norms of Russian national law. This is like signing a prenuptial contract. One of the most indicative (and odious) examples is the Litvinenko case, which at British insistence will be included on the agenda as a "judicial cooperation" issue. Russia is unlikely, however, to give official seal to a commitment on mutual extradition of criminals. Let's recall a little history. The future Russia-EU agreement should replace the PCA, which was signed by Russia's first president, Boris Yeltsin, in Corfu in 1994, and came into force in 1997(the delay in validation was caused by the Chechen war). It was concluded by a different Russia with a different EU. At that time we were still in the intensive care unit after the collapse of the Soviet Union, and agreed to terms that we would hardly accept today. We can trade with any EU member without this agreement. Indeed, Europe needs it more than we do, because it wants to regulate all aspects of our co-existence, not only business, but also security, culture, politics, the judiciary, civil rights, and compliance with laws. From the European point of view, the future contract should specify everything which is allowed and which is not. That Brussels wants to regulate its relations with the world's only energy super-giant is understandable. But Russia is no longer interested in signing an agreement written in different ink for a "crippled giant," who may or may not be given access to European markets and wealth. Unlike the EU, Russia believes that it will be next to impossible to agree on an excessively detailed draft in reasonable time. Moscow favors a compact agreement, which would consider the new realities and would promote extensive partnership on the one hand, and allow the sides to be rather flexible in its implementation, on the other. It may be supplemented by more detailed agreements in specific areas of cooperation. The United States and the EU have successfully developed their cooperation on this basis, and continue to do so. The opinions expressed in this article are the author's

Monday, June 23, 2008

Home Corruption Hinders Foreign Business

Picture of John R. BeyrleJune 20, 2008 - Kommersant - Corruption and problems with the supremacy of law remain a problem in Russia and it has a negative effect on the business and investment climate, stated former U.S. ambassador to Bulgaria John Beyrle, whom U.S. President has nominated to be ambassador to Russia. He spoke at a session of the U.S. Senate on Thursday during confirmation proceedings for the post of ambassador to the Russian Federation. Beyrle emphasized in his speech that the United States considers cooperation with Russia important and it intends to support it however possible, while openly discussing with Moscow the issues the two countries disagree on. Beyrle said that the U.S.’ desire to strengthen its relations with Russia and its desire to see a strong, democratic Russia that has a constructive influence on world affairs meant that it had to be honest and open about the areas where disagreement exists.

Gazprom Comes Up in WTO Negotiations

June 19, 2008 - Kommersant - The latest obstacle on Russia’s long road to World Trade Organization membership has been put there by Germany, which raised the question of Gazprom’s status as a state trade organization with a trading policy that should be regulated by the WTO. The law limiting foreign investment in strategic sectors in Russia, which came into force last month, also elicited a howl of protest. It had not been translated into English. European Trade Commissioner Peter Mandelson will discuss Russian duties on timber in Moscow today. Russia does not intend to make concessions. Alexey Portansky, head of the information bureau for Russia’s accession to the WTO, commented for Kommersant, “As for Gazprom, the question is not likely to be as pressing for Europe. That is more a question for Saudi Arabia and the United States. Gas supply is the only thing that might be of interest to Germany, but the status of the enterprise is not within the sphere of Germany’s competence!” The discussion of Gazprom is not welcome news for Russia. Russia does not acknowledge Gazprom as a state trading organization, even though it is legislatively defined as the monopoly natural gas exporter. “State trading organizations” are regulated by the so-called GATT 1994 agreement, which makes export prices and subsidies subject to WTO negotiations. It also requires that such organizations make imports and exports exclusively on a commercial basis. The new format for cooperation between Gazprom and German energy giant E.On will be announced today, while Mandelson is in Moscow. It is possible that the discussion of Gazprom in the WTO context was part of the trading over that new format. Observers say the discussion of Gazprom could last for some time.

Tuesday, June 17, 2008

Medvedev, Kissinger Meet in Kremlin

June 17, 2008 - Kommersant - Russia’s President Dmitry Medvedev and former U.S. Secretary of State Henry Kissinger met in the Kremlin June 17, RIA Novosti reported. When meeting with Henri Kissinger in the Kremlin, President Dmitry Medvedev first expressed pleasure about the chance to get acquainted with the prominent policymaker of the U.S. and then proposed to Kissinger to deliberate on burning issues of Russia’s-American dialogue when having a cup of tea. Kissinger does a lot for relations of Russia and the U.S., Medvedev emphasized, reminding that he co-chairs a special format, the RF-U.S. Public Forum. Russia's president urged the American guest “to speak on any issue of current life.” The RF Chamber of Commerce chief Evgeni Primakov co-chairs the Public Forum on behalf of Russia. Kissinger responded by calling a grand privilege the mere chance of meeting a new president of Russia. He also wished success to Medvedev, as it is vital both for Russia and worldwide. After paying compliments to each other, the parties continued negotiations behind closed doors.

Monday, June 16, 2008

Capital Outflow Won’t Lower Inflation

June 16, 2008 - Kommersant - As of June 1, 2008, inflation had reached 8.1 percent in Russia since the beginning of the year, according to Rosstat, the state statistics service. It remains stably high even with a reduced money mass and net foreign capital outflow of $2.4 billion in that period. Inflation between June 1 and 9 was 0.42 percent. In the same period a year ago, it was 0.32 percent. One of the main arguments that inflation will fall has been the slowing rate of growth of the money mass. Finance Minister Alexey Kudrin recently claimed that a stricter monetary and credit policy will permit the government to hold inflation down to the forecast 10.5-percent level. The Central Bank acknowledges, however, that the stricter monetary policy has been due to external market conditions. First deputy chairman of the Central Bank Alexey Ulyukaev told a State Duma committee last week that the dynamics of the money mass were “positively influenced” by the outflow of capital between January and the end of May of this year. “That result was largely due to changes in the situation with the influx of capital,” he said. Foreign capital flows remain unstable, in spite of the fact that the Central Bank has permitted a wider range of fluctuation for the ruble and tightened up interbank loan practices. According to Bank first deputy chairman Gennady Melikyan, Capital outflow in the first five months of the year has come to $2.4 billion, compared to $61.7 billion in the same period a year ago. There was a $20-billion influx into Russia in April, where has only $2.6 billion entered Russia in May. So far there has been a net influx this month. Reserves rose $500 million between May 30 and June 6 to $549.1 billion. The Central Bank raised the refinancing rate for the third time this year last week. Both Russian and Western economists say that that step is insufficient to change the course of prices. They say budget spending needs to be curtailed as well. The IMF has gone so far as to advise Kudrin of its views, but its advice was dismissed.

Wednesday, June 11, 2008

Respect for law is in Russia's interest

June 10 2008 - Financial Times by Gideon Rachman - A burglar breaks into your house, ties you up and starts loading your possessions into a bag labelled "swag". From behind your gag, you say: "May I suggest that behaving in this fashion is not in your long-term interests?" That could be true. But the remark still sounds a little weak. Such bleating, however, tends to be the stock response of western businesses when they run into nastiness in Russia. The current dispute between BP and its Russian partners does not involve overt law-breaking. But BP executives may feel that they are being subjected to a sort of legalised mugging. Tony Hayward, BP's chief executive, is struggling to rescue the situation. Last week he issued the standard, futile appeal to Russian self-interest, arguing that the country's economic future depends on "consistent application of the rule of law". BP's Russian partners may, in fact, have some legitimate grievances about the management of their joint venture. But the sudden pressures being applied to BP have a distinctively Russian flavour. They include raids by the security police, mysterious tax investigations and the denial of visas. Western businesses involved in disputes in Russia are getting wearily familiar with this sort of thing. Shell was forced to sell part of its stake in a $20bn (€13bn, £10bn) energy project in Sakhalin to state-owned Gazprom - after months of pressure and investigations by the Russian environmental regulatory agency. A senior Shell executive likened the experience to eating "a polonium sandwich". Russian businesses have also discovered the cost of falling out of favour with the powerful. Most famously, Yukos - a huge energy company - was destroyed after tax investigations. Its former boss, Mikhail Khodorkovsky, is currently in prison in Siberia. Speaking at the St Petersburg Economic Forum in Russia last weekend, Rex Tillerson, chief executive of Exxon Mobil, told his audience bluntly that "there is no confidence in the rule of law in Russia today". Mr Tillerson and the other foreign executives tried to warn their Russian audience that they would pay a price for this. But the fact that the bosses of Shell, BP and Exxon had all chosen to appear on the same platform in Russia rather undermined the message. The oil and gas are in Russia - so the big western energy companies cannot afford to walk away from the country. Under the circumstances, the Russian authorities might be tempted to ignore self-interested warnings by foreigners about the rule of law. With the oil price soaring, why change anything? In fact, there are at least three reasons Russia needs to take the rule of law more seriously. The first is that the country cannot afford to be a one-club economy. The Russian government keeps insisting that it wants to diversify away from oil and gas. Dmitry Medvedev, the new Russian president, told the St Petersburg forum of his ambitions for Russia to become an important financial centre. But while the energy companies are compelled to operate in Russia, the same is not true for other businesses. Nobody has to site a manufacturing plant or a trading floor in Moscow. If foreign companies have no faith in the legal environment, they are less likely to open up in Russia. The second reason for Russia to pay attention to the rule of law is that the country now has an image problem that goes well beyond the business world. In its dealings with smaller neighbours such as Georgia, Ukraine and the Baltic states, the Russian state has a growing reputation for using legal pretexts to justify thuggish intimidation. So when the Ukrainians find their gas cut off in mid-winter, the Russians insist that it is just a business dispute about unpaid bills and pricing. The rest of the world, however, assumes that this is politically motivated intimidation. This kind of behaviour - whether in business or in foreign policy - means that foreigners increasingly talk of Russia as a gangster state. One big western businessman claims that dealing with the Kremlin is just like dealing with the Mafia - partly because job title and function bear little relationship to each other. A Mafia-style reputation can be useful in getting your way, in the short term. In the long run, it means that even when Russia has a strong case it will be treated with suspicion. But the biggest reason for the Russian government to get serious about the rule of law is the welfare of its own citizens. Wealthy foreign businessmen can ultimately look after themselves. It is ordinary Russians who suffer most from a lawless environment. They are the ones forced to pay bribes to get into university or to get medical care - and who know that, if things go wrong, they can be muscled out of their possessions by the well-connected. Mr Medvedev can be frank about Russia's shortcomings. In an interview with this paper last March, he called Russia "a country of legal nihilism". He has promised to take on the "monumental" task of improving matters. The St Petersburg forum was full of similar-sounding talk about the importance of corporate governance, transparency and the rule of law. Russian companies increasingly look and sound like their western counterparts. But appearances can be deceptive. St Petersburg itself was constructed to be a model European city - but remains a quintessentially Russian place. And Russia, after all, is the country that invented the Potemkin village. Mr Medvedev's biggest task is to end this gap between appearance and reality. As he must know, it really is in Russia's long-term interests.

German investment in Russia up 9% in 2007

germanyMOSCOW, June 11 (RIA Novosti) - German direct investment in Russia rose 9% year-on-year in 2007, to reach over $1 billion, Russia's statistics service said on Wednesday. Total German investment into Russia's economy totaled $5 billion during the year, remaining at the same level as 2006. Germany's direct investment in Russia in January-March this year totaled $408 million. Germany has provided large volumes of direct funding for Russia's wholesale and retail market, transport infrastructure, food and chemical industries, as well as electronics, construction and car production. Around 4,500 German companies are currently operating in Russia, most of them representing small and medium-sized businesses. Around 50% of Russian-German joint ventures are engaged in trade and consulting, and another 15% provide banking services.

G8 takes a look in the mirror

09 June 2008 - Upstream OnLine - Group of Eight (G8) energy ministers are looking inward for solutions to record oil prices, touting the need for domestic efficiency rather than piling pressure on a resistant Opec to pump more crude. Oil prices posted their biggest ever one-day surge on Friday, leaping more than $10 to a record high above $139 a barrel. Caught between mounting popular discontent at home and the need to invest billions in greener energy to cut world carbon emissions, the G8 ministers offered few new ideas for heads of state to consider at their summit next month. "(On) energy efficiency and energy diversification, we all recognise that tremendous progress is being made but more has to be done,” Canada's Natural Resources Minister Gary Lunn said. In a group ranging from top oil consumer the US to the second largest exporter Russia, few had expected the meeting to result in measures that could stem oil's six-year rally, which has gathered pace this year as investors fear the world will struggle to produce enough crude to meet demand in the decades ahead. However, their message appeared to reflect a growing acceptance that consumer nations must find ways to temper their own demand by focusing on technology, conservation and diversification rather than hounding Opec to pump ever more oil, as Australia's prime minister urged earlier in the day. The group of G8 ministers plus non-G8 guests China, India and South Korea, which together consume two-thirds of the world's energy, said they shared "serious concerns" over the cost of oil. Analysts said they were on the right track. "This is the right development and this will ... improve the supply and demand balance in the medium- and long-term, but it won't have an immediate impact on prices," said Toshinori Ito, senior analyst at UBS Securities Japan. "Oil prices are surging not because of a supply shortage, but because of massive liquidity," Ito said, referring to the influx of financial funds into markets, helped by low interest rates. The G8 comprises the United States, Britain, Canada, France, Germany, Italy, Russia and Japan. Oil has doubled in a year and risen 44% since January, forcing developing countries such as Indonesia and India into unpopular fuel prices rises while richer nations ponder how to soften the blow of soaring energy costs for the vulnerable. South Korea yesterday became one of the first countries to cave in to public pressure, announcing a $10 billion one-year handout to help 14 million low-income earners. The issue is certain to hang over G8 leaders when they meet in Japan early next month, a summit where host Japan hopes to win backing for a target to halve carbon emissions by 2050. The energy ministers agreed on the need for more large-scale carbon capture and storage (CSS) projects that bury emissions from power plants, a cornerstone of the International Energy Agency's (IEA’s) call for a $45 trillion energy "revolution". "The time for talking is over. We have to implement this," British Business Minister John Hutton told Reuters in an interview, referring to the IEA goals. The IEA report released on Friday, commissioned by G8 leaders three years ago, said the world would need to effectively "decarbonise" the power sector by building dozens of billion-dollar CCS plants over the next 40 years, although world governments remain at odds over who should foot the bill. About 190 nations are racing to craft a framework by the end of 2009 to succeed the Kyoto Protocol, a UN pact aimed at fighting climate change by mandating emissions curbs. The first phase, which ends in 2012, commits only 37 industrialised nations to emissions curbs between 2008 and 2012. The aim of the replacement pact for Kyoto is to bind all nations to cuts.

Friday, June 06, 2008

The Groundbreaking Visit

08.03.2008 Russia, Moscow. Russian President Vladimir Putin met with German Chancellor Angela Merkel at his Novo-Ogarevo residence.June 06, 2008 – Kommersant – Germany’s Chancellor Angela Merkel has been the first western leader to meet with Dmitry Medvedev after he was elected President: She came to Moscow short after the outcome of the voting was announced. Germany’s Vice-Chancellor, Head of the Foreign Office Frank-Walter Steinmeier has been the first high-ranking diplomat from the West to be received in the Kremlin by the Russian President after assuming office. Dmitry Medvedev is paying his first European visit in his capacity as President to Germany as well. This all points to the significance the parties attach to the development of the relations, which the Russian President called privileged, and the German Chancellor – strategic. Nonetheless, you could see that the bilateral political relations have obviously become less warm in two or three years. It is mainly caused by the fact that Angela Merkel has made no secret of her criticism of violation of human rights and crackdown on democratic freedoms in Russia, which couldn’t help irritating Vladimir Putin. More to the point, Berlin has been reluctant to have special relations with Russia: It could impede the cooperation with the EU and NATO partners and allies, which is essential for Germany. As to economic cooperation of Russia and Germany, it has reached a new level in the two years. So, it’s high time the low temperature of the political dialogue were increased to the optimal level. This is the crucial point: Dmitry Medvedev’s visit to the German capital must become a new hallmark in the political relations of the two countries. It need be said that chances of success are quite high. As far back as March Angela Merkel hinted that it’ll be no more difficult for her to work with Dmitry Medvedev than with his predecessor. In Berlin they have paid much attention to the repeated statements of the new President about his determination to strengthen the rule of law. If the Moscow guest manages to convince the hosts that deeds will follow his words, it will contribute to a thaw in the relations. Dmitry Medvedev is expected to deliver his first keynote speech on foreign policy, where priorities will differ from the ones Vladimir Putin listed in his notorious Munich speech, which smelled of cold war, as many people repute. For all that, economy, and energy in particular, will once again become the major talking point: Before starting official negotiations about a new agreement between the EU and Russia, it’s necessary to thrash out a range of basic matters at the top level. Angela Merkel is likely to offer Russia to become a partner in its modernization, which the German Chancellor has voiced several times. Nevertheless, the Russian party doesn’t seem to have duly estimated the gesture. And it can be evidence of Berlin’s taking seriously the intention of the Russian government to bring the country’s economy on the innovation track.

Thursday, June 05, 2008

Munich Talks

// Europe expects Dmitry Medvedev to liberalize Vladimir Putin’s line
Dmitry Medvedev’s debut in Europe
June 05, 2008 – Kommersant by Mikhail Zygar – Today Dmitry Medvedev starts his first visit to Europe as Russia’s President. In Berlin he will meet with the German Chancellor Angela Merkel and deliver a keynote speech, which is expected to counterbalance the Munich speech of Vladimir Putin. The audience really hopes that the new President will declare his determination to liberalize Russia’s foreign policy. In view of that, Angela Merkel even prepared a couple of questions for Mr Medvedev. Those from the Christian Democratic Union (Angela Merkel’s party) say that she is going to ask whether the new Russian leader will overhaul Khodorkovsky’s case. European premiere In international practice the first visits of the President point to the priorities in a county’s policy. Germany ranks third on the list of the international preferences of Dmitry Medvedev and the current Russian authorities on the whole. Before setting off for Berlin, President Medvedev paid a visit to Kazakhstan (Russia’s most reliable CIS neighbor) and China (the key strategic partner). Germany (the least problematic EU partner) would have occupied a higher position unless Russia’s relations with the EU were less tense. For all that, Dmitry Medvedev’s visit to Germany is regarded his European première. The agenda of the visit consists of four main points: Talks with Chancellor Merkel, Head of the German Foreign Office Frank-Walter Steinmeier, and addressing politicians and businessmen. This speech of Berlin is the one they are looking forward to in Germany. Dmitry Medvedev is expected to take advantage of his first European address to make keynote statements regarding his foreign policy. Some one thousand politicians and businessmen will gather in Berlin’s Intercontinental hotel to listen to President Medvedev. Judging from the thorough preparation for the speech, this event might be as significant as Vladimir Putin’s Munich speech once was. But the rhetoric proper will be different, they expect. According to the information of Kommersant, the Russian President is likely to tackle the idea, now popular with the Russian government, that Europe must unite not only in the framework of the European Union, but without overriding the interests of those countries which do not have EU-membership (and Russia is a historical part of Europe). Another major point in Dmitry Medvedev’s address might be the idea that Russia won’t use its energy resources as a weapon and blackmail Europe with its oil and gas. Yesterday’s speech of the First Deputy Prime Minister of the Russian government Igor Shuvalov at the Baltic summit in Riga was sort of a rehearsal of this part of the President’s address. Energy cooperation will evidently be highlighted during the negotiations between Dmitry Medvedev and Angela Merkel. Reminding her of his recent work at Gazprom, the Russian President might advise the Chancellor to allow the Russian gas monopoly to buy energy assets in Germany, rather than be afraid of it. In this case Berlin will become the major transit land and gas allocation center in Europe. Vladimir Putin repeatedly made such proposals to Angela Merkel, but so far she has been skeptical about Gazprom. Besides, Mr Medvedev is likely to remind her that the reform of the energy sector planned by the European Commission can prevent Gazprom from working in the EU, which will ensue an increase in energy carriers costs for European consumers. The President and the Chancellor will also touch upon the Nord Stream pipeline problems. Though it need be said that their views of the matter are practically the same. German embassies in the Baltic states as well as the BASF and E.ON companies have recently launched an information campaign that aims at improving the image of this project. Mr Medvedev and Ms Merkel are likely to discuss what else can be done to make Estonia, Sweden and Finland take back their objections to Nord Stream.
:: Khodorkovsky test :: Addressing Germany’s elite at the Intercontinental hotel, Dmitry Medvedev is likely to reiterate several of the theses from his previous speeches, which are quite popular in Germany. These include the supremacy of law, struggle against legal nihilism and the necessity of civil society. These issues are his strong points, and they will be welcomed with the audience. Germany’s mass media have stressed that ahead of his visit to Berlin Dmitry Medvedev spoke negatively of Shlegel’s amendment to the law on mass media, which means that it’s important for the Russian President to appear liberal in the view of Europeans. Interestingly, before the visit German officials and politicians would say that in the course of negotiations Angela Merkel will surely ask Dmitry Medvedev when he will move from words to deeds and start liberalizing Russia’s policy. Andreas Schockenhoff, the German government’s commissioner on Russian affairs, stated that Angela Merkel intends to call on Dmitry Medvedev to launch the reforms he mentioned before assuming the office of the President. “We must urge that he take concrete measures,” Mr Schockenhoff said (it need be emphasized that he is chairman of the CDU bloc in the German Parliament’s Foreign Affairs Committee). Moreover, according to the sources from the Chancellor’s circle, she is eager to suggest the Russian President a “liberal” test – that is remind him of the Khodorkovsky case. “If Medvedev is serious when he says that the state must be based on the rule of law, the Khodorkovsky case may be a good test for him,” MP and CDU/CSU Foreign Affairs Spokesman Eckhart von Klaeden stated. As is known, German Foreign Office Chief Frank-Walter Steinmeier doesn’t belong to Angela Merkel’s party – he is Gerhard Schroeder’s Social Democratic Party of Germany member. So he has always taken a different stance in relations with Russia – he has been a “kind policeman,” whereas Ms Merkel has been tough and fastidious. But recently Frank-Walter Steinmeier, who is reputed a likely rival of Angela Merkel in the next elections, has been more critical of Moscow than ever. More to the point, as he visited Russia in May, Mr Steinmeier, among other things, met with Mikhail Khodorkovsky’s lawyer Yury Shmidt. It can mean that the question concerning the ex-head of YUKOS can be raised throughout Dmitry Medvedev’s visit.
:: Georgian dispute :: The press-service of Chancellor Merkel reported that the key topics during the talks will include (besides the President’s pledges to reform the judicial system of Russia, and human rights and freedom of the press) the situation in the Balkans, and in Kosovo mainly. The Russian government has always linked the Kosovo matter with the problem of the former USSR’s breakaway republics. According to the information of Kommersant, in his Berlin speech Mr Medvedev can state that Russia opposes the practice of declaring independence unilaterally, and promise that Moscow won’t recognize self-proclaimed republics, at least unless some circumstances force it. The talks of Dmitry Medvedev and Angela Merkel featuring this topic can be rather unpleasant. The Chancellor will obviously remind the Russian President that Ukraine and Georgia were denied NATO membership action plan at the alliance’s summit in Bucharest. According to the sources with the German government, it was done in exchange for Russia’s promise to make the conflict with Georgia less tense. Now Angela Merkel can say that Moscow hasn’t fulfilled its commitments. As far back as April Germany, which is Coordinator of the so-called Group of Friends of the Secretary-General on Georgia, expressed its concerns over Russia establishing official contacts with Abkhazia and South Ossetia and called on Russia to cancel its decision. So, today Dmitry Medvedev will have to account to Angela Merkel for Vladimir Putin’s April order to change the format of relations with the two republics. Besides, the German Chancellor is likely to ask the Russian President about the deployment of Russia’s railroad construction troops in Abkhazia, which NATO’s leaders have officially opposed. Dmitry Medvedev will barely spend a day in Berlin, which won’t be longer than last week’s visit of Vladimir Putin to Paris. Nonetheless, the President won’t part with Angela Merkel for a long time: They’ll meet again at the G8 summit in Japan. Russia, which is a full-right G8 member, has been striving for joining the “financial 7” and reckons to get the admission at the present summit. But it is the distrust of the Russian rouble that prevents Russia from receiving this unofficial status. Moscow has been stating that it has reached the “financial 7” level, as it is an international donor. In Berlin Dmitry Medvedev must enlist Angela Merkel’s support to make his G8 debut impressive.

Tuesday, June 03, 2008

Why Merkel Could Skip Riga

// The price of the question
June 03, 2008- Kommersant - Andrey Gudkov, Deutsche Welle, Bonn - The year and a half standstill in relations between the European Union and Russia will end at last. A week ago, a mandate was approved in Brussels for negotiations on a new basic agreement, and the negotiating process will begin in Khanty-Mansiisk in three weeks. Naturally, as that meeting approaches, the sides will use any means available to them to make their case and grope toward a settlement of disputed issues. The political and economic forum in Riga is important, but not key, platform for the conciliation of positions. It is not a Baltic regional problem, but a partnership between the EU and Russia. That partnership needs a new foundation in the form of an agreement that corresponds to modern reality and the perspectives for the next ten years. The previous basic agreement was worked out in the mid-1990s, when Russia and the EU (and the entire world) were different. The fact that Khanty-Mansiisk, the capital of Russian oil and natural gas production was chosen for the summit is eloquent testimony of those changes. In that Siberian (and thus Asian) city, the Europeans and Russians will begin to lay the bases of their future relations. Is that not a symbol that the energy problem has become the key topic in cooperation between Russian and united Europe today? That is why the price of the question for Europeans in the working out of a new basic agreement is the energy security of the EU and, in essence, all of Europe. In that situation, the most important stop on the way to Khanty-Mansiisk is not Riga, but Paris, where Russian Prime Minister Vladimir Putin was last week, and Berlin, where Russian President Dmitry Medvedev will make his first European visit next week. Energy security is an especially crucial issue for Germany. First because it is the largest consumer of Russian energy resources in the EU. Second, because the dependence of the largest economy in Europe on foreign suppliers will only grow in the future due to its refusal to use atomic energy. Third, Berlin traditionally gives great attention to the interests of its Eastern European neighbors. And they depend on Russian energy supplies even more than the Germans. So the new basic agreement and its energy sections will be almost the main topic in talks between German Chancellor Angela Merkel and Medvedev next week. Acting in its own interests and in the name of the EU, Germany will push for a guarantee from Russia that the agreement reached on deliveries of oil and natural gas will be fulfilled without interruptions and that Russia will not turn off the pipelines for political reasons or because of conflicts with its neighbors.

Govt. and World Bank Disagree over Economy

Photo: Grigoriy Sobchenko,KommersantJune 03, 2008 - Kommersant - Economists at the World Bank and International Monetary Fund have released an analysis of the Russian economy in its current condition. The IMF warns of the risk of overheating the economy, while the World Bank states that the economy already is overheated. The government is not inclined to take the organizations’ advice to raise interest rates and lower budget expenditures. Deputy Minister of Economic Development Andrey Klepach told Kommersant, “Lowering inflation by reducing economic growth is senseless.” The annual World Bank report on the Russian economy had its positive moments as well. It noted that, between 1999 and 2007, the GDP rose from $196 billion to $1.3 trillion, unemployment fell from 13 percent to 6.1 percent and the budget deficit equal to 3.1 percent of the GDP has been replaced by a surplus equal to 6.1 percent of the GDP. International reserves have risen from $12.5 billion to $534.4 billion. “Only inflation spoils the picture,” commented chief economist in the World Bank Russian office Zeljko Bogetic, “and it is a clear sign that the economy is overheated.” Another sign of overheating, the World Bank claims, is the fact that the GDFP is growing by 8.1-8.8 percent per year, much higher than the “7-percent long-term trend.” To that can be added the growing gap between the rate of salary growth and the productivity of labor. Unless the economy is cooled down, the World Bank argues, economic growth will slow, the balance of payments will worsen significantly and, in the very long term, there will be a currency crisis. Bogetic placed the blame for inflation squarely on government policy, saying that budget policy had turned from the basis for steady economic growth to a source of macroeconomic destabilization. He noted that, without oil and gas income, which is not permanent, the federal budget deficit would have grown to 5.9 percent this year. In the Russian government, they called the organizations’ concerns exaggerated.

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