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Tuesday, May 26, 2009

Medvedev warns Russian economy's 2009 decline to exceed earlier estimates

Medvedev05-25-2009 - (AP by Natalia Vasilieva) - MOSCOW — President Dmitry Medvedev warned Monday that Russia's economy will perform worse than expected this year and the country will have to squeeze spending for the first time in years. Outlining Russia's budget strategy for the coming years, Medvedev told a Kremlin meeting with government officials and top lawmakers that financial constraints will require strict economizing and tight controls over spending at all levels of government. "In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said. "The global economic crisis is far from nearing the end." Government figures Friday showed that the economy shrank at an annual rate of 9.5 percent in the first quarter. A quarter-on-quarter 23.2 percent drop includes eleven daylong New Year holidays, making it somewhat less revealing. Officials had forecast that Russia's GDP would decline by 2.2 percent this year, but that estimate has to be radically revised after the first quarter data were released. The International Monetary Fund has said Russia's GDP could drop as much as 6 percent this year — the most pessimistic outlook so far. Medvedev did not give a new estimate for the GDP decline this year. The Finance Ministry plans to present it soon. Russia has experienced a sharp reversal of an eight-year economic boom fueled by high oil prices, during which growth averaged about 7 percent. The economy started to nosedive last fall after the price of oil, Russia's key export, collapsed, investors pulled billions of dollars out of the country and industrial output slowed. Medvedev said the budget deficit will be at least 7 percent of GDP — "and that's an optimistic forecast." Finance Minister Alexei Kudrin told reporters after the meeting that Russia plans to cut spending in all areas, for the first time in years. "We will have to cut spending — including the key areas," Kudrin said without elaboration. Kudrin said the budget for the next three years would be based on a world oil price of $53, which he described as a conservative estimate. Officials have already predicted a budget deficit of between 7 percent and 8 percent. Russia plans to shore up the budget with the help of the Reserve Fund, which has accumulated windfall oil revenues of the past years. Kudrin predicted the Reserve Fund would probably be used up next year if Russia runs a 5 percent budget deficit. However, oil prices of more than $50 and low budget deficits would see the rainy day fund replenishing itself again as early as in 2011, he said. Kudrin said Russia will not turn to the International Monetary Fund for help — as it did in the years following the 1991 collapse of the Soviet Union. But said it would consider borrowing more than $7 billion abroad next year and an additional $10 billion in the years to come. Medvedev pointed to social spending as number one goal for Russia's 2010 budget. The announcement came as Deputy Prime Minister Alexander Zhukov said unemployment in Russia is 10.5 percent, or 7.7 million people — the highest level in years, according to Russian news agencies. Prime Minister Vladimir Putin urged the Cabinet to use state funds efficiently and "provide the full account of every ruble spent," according to a transcript of the meeting on the government Web-site. Putin also proposed to move the deadline for submitting next year's budget to the parliament from late August to October 1 so it could reflect the latest economic developments.

Foreign investment in Russia’s economy drops by 30% in 1Q09

Foreign investment in Russia’s economy drops by 30% in 1Q0905–23–2009 – The Moscow News – Foreign investment in the Russian economy in the first quarter of this year was $12 billion, 30.3% less than the same period of 2008, the Federal Statistics Service said on Friday, RIA Novosti reports. It said the share of foreign direct investment in the accumulated foreign capital was 42%, down from 48% as of March 2008. The largest investors in Russia during the reporting period were the Netherlands, Luxembourg, Germany, Cyprus, the United States, and France. "These countries accounted for 76.2% of total accumulated foreign investment and 76.3% of total foreign direct investment," the federal service said. It said foreign investors prefer to invest in the mining of mineral resources, the manufacturing industry, consumer goods production, and the services sector.

Thursday, May 21, 2009

Nord Stream section in "home stretch"

05-21-2009 - Upstream OnLine - The construction of the ground section of the Nord Stream gas pipeline is “entering the home stretch”, Gazprom board chair Valery Golubev said today. The Gryazevets-Vyborg pipeline, which is the ground section of the Nord Stream pipeline, is 917 kilometres, of which 597 kilometres run in the Leningrad region. Four compressor stations will be located in the region. The maritime section of the gas pipeline will begin from the last of them, Portovaya, and run to Germany. “There is no doubt that the remaining 320 kilometres will be built by 2010 so that the gas pipeline could be commissioned by the middle of next year,” he said in an Itar-Tass report. Meanwhile, Russian Energy Minister Sergei Shmatko said environmental issues might affect the Nord Stream project schedule. "We think that current processes related to the acquisition of permissions, including environmental ones, will be completed shortly," the minister said during a video conference between Moscow and Berlin earlier this week. "Nevertheless the Gazprom and Nord Stream companies are taking measures to make up for possible delays, I mean delays in full performance of work on the Russian side," Shmatko said. Gazprom has a 51%stake in the joint venture and BASF (Wintershall and E.ON Rurhgas) have equal shares of 20% each. The Netherlands' N.V. Nederlandse Gasunies has 9%.

Russia and EU begin summit amid mutual exasperation

// EU's overtures to eastern Europe and Moscow's gas war among contentious issues for talks at remote venue
05-21-2009 - Guardian by Luke Harding - Khabarovsk - Russia and the European Union were today holding a summit intended to improve their battered relationship, amid mutual exasperation and irritation in Moscow at the EU's recent attempts to lure eastern European countries away from Moscow's orbit. Russia's president, Dmitry Medvedev, was hosting a two-day EU-Russia summit in the far eastern city of Khabarovsk, close to Vladivostok and Russia's Pacific coast. EU leaders, including the European commission president, José Manuel Barroso, arrived in the city this morning. The summit comes at a time of growing frustration between Brussels and Moscow over a host of issues ranging from energy policy to the war in Georgia. The EU was irritated by Russia's gas war in January with Ukraine and Medvedev's failure to pull Russian troops out of the breakaway Georgian republics of South Ossetia and Abkhazia. For its part, the Kremlin is annoyed by the EU's attempt earlier this month to improve ties with half a dozen post-Soviet countries. A summit of 33 countries in Prague brought the EU's 27 governments together for the first time with the leaders of Ukraine, Georgia, Moldova, Armenia, Azerbaijan and Belarus. Russia believes the EU's "eastern partnership" initiative is a challenge to its own strategic and security interests in a region it regards as its backyard. Medvedev insists that Moscow enjoys what he calls "privileged interests" in states occupying the volatile buffer zone between the EU and the Russian Federation. Today Medvedev joked with a group of students that the remote summit venue, 3,800 miles from Moscow or 5,300 miles via the epic Trans-Siberian Express, had been chosen to remind the Europeans of Russia's vast size. Several EU delegates moaned when Russia held last year's summit with the EU in western Siberia, Medvedev said. "They complained: 'Oh, it's a long way.' We said: 'If you don't like it you can fly somewhere else.' They thought for a bit and said: 'OK, we're ready,'" Medvedev said. He added: "They [the Europeans] should understand how big Russia is and should feel its greatness. On the other hand, we also want a partnership with the EU. It's important for us to get together." Today analysts were pessimistic that this latest EU-Russia summit would make much progress. "Russia and EU relations are in stalemate. There is a serious lack of mutual understanding, a lack of willingness to understand each other, and a lack of strategic common values," Fyodor Lukyanov, editor-in-chief of Russia in Global Affairs, told the Guardian. He went on: "Relations with Obama and the US are now better. At the same time relations with the EU are getting worse. Since the 1990s Russian-EU relations have been governed by the assumption that Russia would go the European way without applying for membership. This model is now exhausted. They need a new model." According to Lukyanov, the Kremlin was furious after the EU pressured Belarus this month not to recognise South Ossetia and Abkhazia. "The message was: choose Russia or not Russia. It was absolutely unnecessary from the European side. Alexander Lukashenko [Belarus's president] wasn't going to recognise them anyway for his own reasons," Lukyanov said. Today Barroso stuck a conciliatory note. "Russia and the EU are interdependent. The global financial and economic crisis stresses the need to develop the potential of our relationship, remove obstacles and co-ordinate our efforts," he declared, saying that "regular and frank dialogue" was the way to overcome "difficult" issues. This afternoon Medvedev took his European colleagues on a scenic boat trip along the vast Amur river. The Amur, which is home to the giant Kaluga sturgeon, passes remote sandy bays and a rustic embankment of willows and oaks, before winding its way to nearby northern China. Negotiations are due to start tomorrow.

Monday, May 18, 2009

Russian Economy Shrank Annual 9.5% in First Quarter

05-15-2009 - Bloomberg by Alex Nicholson - Russia’s economy shrank an annual 9.5 percent in the first quarter, the worst contraction in 15 years, as industrial production slumped and the government’s 3 trillion ruble ($93.5 billion) stimulus package failed to boost lending. Gross domestic product shrank 23 percent from the previous quarter, the Federal Statistics Service said on its Web site today, citing preliminary data. The annual decline was forecast by Deputy Economy Minister Andrei Klepach on April 23. While the first-quarter performance indicates Prime Minister Vladimir Putin’s stimulus plan was insufficient, investors are anticipating a recovery. The ruble rose 0.3 percent today, capping its 12th weekly advance, after crude oil rebounded and the central bank predicted a current-account surplus. The Micex stock index rose 0.2 percent and is up 62 percent this year. “The big dip in industrial production jumps in your face,” said Tatiana Orlova, a Moscow-based economist with ING Groep NV, who plans to lower her forecast for a 2.7 percent contraction this year. “The government should be worried. It’s very easy to come up with headlines announcing bailout measures, but the situation shows that you have to adjust them. It’s hard to do these things fast.”
Medvedev Criticism: President Dmitry Medvedev has criticized the work of the government this week, while Putin was on a trip to the country’s Far East, Japan and Mongolia. A $9 billion slate of guarantees aimed at kick-starting lending to the companies designated as strategic enterprises had “failed,” Medvedev said on May 13. Today, Medvedev poured cold water on the government’s bid to diversify the economy away from a dependence on exporting oil, gas and metals. The average price of Urals crude oil in the first quarter of the year is 53 percent lower than in the year before period at $44.08 per barrel. Urals was at $56.94 per barrel today. Energy, including crude oil and natural gas, accounted for 68.7 percent of exports to the Baltics and countries outside of the former Soviet Union in the first two months of the year, according to the Federal Customs Service. “There have been no significant changes in the technological level of our economy,” Medvedev said in a meeting today outside Moscow.
‘Only on Paper’: The country’s venture fund, special economic zones and so- called techno-parks, all aimed at nurturing high-tech industries, “exist only on paper,” he said. Businesses are also to blame and only invest where a “high, quick return” is guaranteed, he said. Productivity in Russia is one-fourth the level in the U.S., Medvedev said at the meeting with ministers, including First Deputy Prime Minister Igor Shuvalov and Economy Minister Elvira Nabiullina. Alfa Bank, Russia’s largest privately owned bank, yesterday joined Goldman Sachs Group Inc., Citigroup Inc. and the International Monetary Fund in revising down the forecast for growth this year. Alfa cut its outlook to a 5.7 percent contraction from a drop of 3 percent. First-quarter declines in the construction industry and transportation, seen as proxies for economic activity, suggest “further negative surprises,” according to Alfa economist Natalia Orlova.
Property Developers: Billionaire Mikhail Prokhorov, Russia’s richest man, said Russian property developers may suffer more as the country slides into recession. “The crisis hasn’t hit developers in full yet,” Prokhorov told reporters in Yelets, Russia, today. “The worst is yet to come.” Still, Tatiana Orlova, at ING, said she expected the contraction the first quarter to be the deepest in the year. While the economy is not improving, “at least it is deteriorating at a slower pace,” she said. The stimulus measures, that were approved in the revised budget, which was approved in April, will gradually start to slow the fall, she said. The economy grew 8.7 percent in the first three months of last year, the second-highest rate since the third quarter of 2000.

Friday, May 15, 2009

Medvedev Scolds Cabinet for Energy Dependence

15 May 2009 - The Associated Press - GORKI, Moscow Region — President Dmitry Medvedev harshly criticized senior ministers Friday for failing to diversify the country's economy away from oil and gas production. Medvedev said Russian companies spend "shockingly low" amount on modernizing their aging production facilities, adding that productivity of labor at Russian plants is just a quarter of that in the United States. "There is barely any progress on the issue which is supposed to be one of our priorities," Medvedev told senior ministers and bankers, referring to the modernization of the economy. "No substantial changes in the technological level of our economy are happening." The global financial crisis has hit the country particularly hard as the economy is heavily dependent on energy resources and other commodities — markets that have plummeted in the past six months. Liberal-leaning ministers, such as Deputy Prime Minister Igor Shuvalov, said the crisis gives Russia a chance to turn around its economy. Low commodity prices must teach Russia that it has to modernize to a "new model of economy," he said in a recent interview. At a meeting with Shuvalov, Economic Development Minister Elvira Nabiullina and heads of state-controlled banks, Medvedev admitted that such widely publicized initiatives as IT parks and special economic zones "exist only on paper." Medvedev said that Russian business expects a quick yield and remains reluctant to invest in modernization. He described Russian companies' investment in innovation — 6 percent of their total spending — as "shockingly low." "We spend very little on that and will get nowhere if we continue like that," Medvedev said, adding that he will personally take charge of the issue. Medvedev's comments were the latest in a series of statements in which he criticized the Cabinet led by Prime Minister Vladimir Putin for low efficiency and failure to fulfill its objectives. Medvedev never criticized his predecessor Putin by name, but some observers saw the statements as a sign of emerging rift between the two men amid the nation's financial crisis.

Thursday, May 14, 2009

Kremlin Sees Threats In Economy, Energy

Moscow Kremlin14 May 2009 - The Moscow Times by Nikolaus von Twickel - Russia's security is threatened by economic instability, potential wars over energy resources and foreign spies, the Kremlin said in a key policy paper released Wednesday. The Kremlin's long-awaited new national security strategy includes several standard threat assessments — from NATO expansion to a planned U.S. missile defense shield — but it also sets new priorities by addressing nonmilitary issues such as economic stability, science, education, culture and even ecological risks. President Dmitry Medvedev on Tuesday signed off on the policy paper, which spells out national security policy through 2020, and it was officially published Wednesday by the Security Council, which is comprised of top politicians and intelligence chiefs. The 7,300-word document says the country should develop its economy and catch up with the world's five largest economies "in the medium term." Last year, the International Monetary Fund ranked Russia's GDP as the world's eighth largest. It also identifies the banking sector and natural resources as vital for national security because of their role in economic stability. It states that international policy will in the long run be focused on energy resources, including in the Arctic. "With the ongoing competition for resources, attempts to use military force to solve emerging problems cannot be excluded — and this might destroy the balance of forces on Russia's and its allies' borders," the paper states. The paper also singles out NATO and the United States as security risks. "A global security architecture exclusively oriented toward the North Atlantic Treaty Organization was bound to fail," it says, adding that Russia "will not cease its vigilance with respect to plans to move NATO's military infrastructure closer to its borders and efforts to give the alliance a global character." In a thinly veiled condemnation of U.S. foreign policy, the document asserts that Russia's military security is endangered "by efforts of a number of foreign countries to achieve military predominance, especially with nuclear forces." Security analyst Andrei Soldatov said one new aspect of the strategy was a section identifying as a key security threat — even more greater than terrorism — "intelligence gathering and other activities of foreign states' special services and organizations." In the jargon of Russia's security services, Soldatov said, "special services and organizations" also refers to nongovernmental organizations, which senior officials — including Prime Minister Vladimir Putin — have often characterized as fifth columns. Alexander Konovalov, head of the Institute of Strategic Assessments, said the new strategy was actually less precise than its predecessor, adopted in 2000. The new paper says little about the use of nuclear weapons, while the national strategy approved by Putin, then the president, in 2000 said Russia may use nuclear weapons to counter a nuclear or a large-scale conventional attack on the country or an ally, Konovalov said. He also said it is strange that the strategy came out almost a year after the Kremlin published a new foreign policy conception last July. "The national strategy is the most basic document from which foreign policy and military doctrine should be developed, Konovalov said.

Thursday, May 07, 2009

A Czar in Chains

Russian President Dmitry Medvedev may be in charge on paper, but Prime Minister Vladimir Putin continues to pull strings in the background.//Medvedev's first year
05/07/2009 - Der Spiegel by Benjamin Bidder - One year after taking office, Russian President Dmitry Medvedev's track record has been less than impressive. Prime Minister Vladimir Putin still pulls the strings of power while his former protégé struggles unsuccessfully to free himself. It was February 2008 when Dmitry Medvedev presented his reform program as incoming president of Russia, standing stiffly before hundreds of business leaders in the Siberian city of Krasnoyarsk. He included a sentence that, to the audience, sounded like a promise: "Freedom is better than no freedom." It was almost like a liberal coming-out party for Vladimir Putin's protégé, one that set the stage for the withdrawal of the increasingly authoritarian, controlling, ex-KGB chief. The erstwhile crown prince condemned the rampant corruption and the arbitrariness of Russia's bureaucracy, and promised to complete the laborious task of strengthening Russia's governmental institutions, infrastructure, innovation, and investments. After that speech, people spoke respectfully of "Medvedev's four I's." But since Medvedev's inauguration at the beginning of May 2008, his presidency has more often been associated with the letters C -- for corruption and crisis -- and W -- for war. Russia has been especially hard hit by the worldwide financial crisis and unemployment currently stands at 10 percent. Medvedev's tentative overtures toward Europe and the United States have been overshadowed by conflicts. Foreign Minister Sergey Lavrov cancelled a planned mid-May meeting of the NATO-Russia Council on Tuesday, in protest against NATO maneuvers in Georgia. The body had just reopened discussions that had been suspended following the war in the breakaway Georgian province of South Ossetia in August 2008. Russian infrastructure is as dilapidated as ever, innovation has been a long time coming, and there's even less progress to report regarding institutional reform, as evidenced by the recently revived court case against leading ex-oligarch Mikhail Khodorkovsky.
Medvedev's 'Golden 100' One year after Medvedev's inauguration, media and political observers are puzzled as to just how free the supposedly most powerful man in Russia really is. According to the Russian constitution, the president is supposed to define the guidelines for domestic and foreign policies. But in practice, he is a ruler without his own troops. Medvedev may be the official head of state, but it is actually his predecessor, current Prime Minister Putin, who controls Russia's fate, believes political scientist Fyodor Lukyanov. The editor of the journal Russia in Global Affairs told Moscow magazine The New Times that Medvedev is crippled "by the very source from which he derives his legitimacy -- Vladimir Putin." Although Medvedev introduced a 100-member talent pool for key government positions, and helped a few classmates with their ascent to higher judicial posts, the real power positions remain firmly in the hands of Putin loyalists. But Medvedev has eagerly sent out the message that he is devoted to a more liberal course. He wisely agreed to an interview with the highly regarded, Kremlin-critical newspaper Novaya Gazeta. On the day of the interview, he also invited human rights activists to the Kremlin, heartily congratulated the chair of the Committee of Soldiers' Mothers on her birthday and addressed the guests as "honored colleagues." Another signal of a softer stance in the Kremlin is the release of Svetlana Bakhmina. The respected former attorney of Khodorkovsky's Yukos oil company had been in prison since 2004 and the Kremlin refused to reduce her sentence despite the fact that she was pregnant. However, shortly after Medvedev's meeting with human rights activists, she was released on parole and reunited with her family.
Nothing Like Gorbachev "Medvedev is sending important signals to the liberal opposition," explains Russia expert Alexander Rahr of the German Council on Foreign Relations. "He presumably wants to stay true to his program and institute reforms, but with whom should he be working? He has so far been unable to bring any true confidants into leadership positions." It is rumored that even the president's bodyguards are the same as those in Putin's time. During his presidency Putin filled the Kremlin, government, and state enterprises with loyal cronies which leaves Medvedev with limited space to operate. "Words are good, but they don't change the system," says Rahr. "No one can say what kind of leverage Medvedev actually has. Perhaps he can free himself, but he has little room for maneuver." As far as Russia's power structure is concerned, the vital security and energy policies remains firmly under the control of Putin and Deputy Prime Minister Igor Sechin. "Putin will be watching to make sure Medvedev doesn't overstep his limits, as Mikhail Gorbachev once did," says Rahr. As general secretary of the central committee of the Communist Party in the late 1980s, Gorbachev heralded the end of the Soviet Union and Russia's turn toward the West. Medvedev's strategy has even been dubbed "Perestroika 2" in allusion to Gorbachev's reform policies. However, unlike the current head of state, Gorbachev realized the importance of bringing in powerful colleagues as allies -- Eduard Shevardnadze was his foreign minister and Alexander Yakovlev was a senior party official. Together with Yakovlev, Gorbachev pushed his opponents out of the central committee, 98 people alone in 1989, most of whom were aging supporters of the neo-Stalinist former President Leonid Brezhnev. "But there is no one like Yakovlev and Shevardnadze at the moment," says Rahr.

2 Americans Convicted of Spying on Gazprom

07 May 2009 - The Moscow Times by Nikolaus von Twickel - A Moscow court has convicted an American who once worked at oil firm TNK-BP and his brother of spying on Gazprom and handed them suspended sentences, the Federal Security Service said Thursday. Ilya Zaslavsky and his brother Alexander received one year suspended sentences and two years probation on charges of industrial espionage, filed last year during a high-profile power struggle between the Russian and British owners of TNK-BP. Moscow's Tverskoi District Court ruled that the brothers, who also have Russian citizenship, had collected classified information about state energy giant Gazprom, an unidentified FSB official told Interfax. The official said the FSB had been tipped off by the employee of an energy firm who said the Zaslavskys had tried to buy company secrets from him. "The court found that the evidence provided by the FSB about Ilya and Alexander Zaslavsky's criminal behavior fully confirmed their guilt," the official said. It was unclear Thursday when the ruling had been made. Calls to the court's press office were not immediately answered. The brothers were arrested in March last year as TNK-BP's owners fought over their 50-50 ownership structure. Around the same time, the company came under scrutiny from law enforcement agencies — a development that some observers said suggested that one side was playing dirty by unfairly enlisting state assistance. But other observers linked the law enforcement scrutiny to a long-running dispute between Gazprom and TNK-BP over control of TNK-BP's flagship Kovykta gas field, saying Gazprom was trying to take over TNK-BP as well. The Zaslavsky brothers both graduated from Oxford University, and Ilya still heads the Moscow Oxford Society. At the time of his arrest, Ilya Zaslavsky, then 29, worked as a manager in TNK-BP's international affairs office. Alexander Zaslavsky, who is three years older, worked as an independent energy consultant and headed the British Alumni Club, a graduate network run by the British Council. The British Council at the time had been forced to close most of its offices in Russia because of a dispute that the Foreign Ministry has linked to British demands that State Duma Deputy Andrei Lugovoi be extradited to face murder charges in the poisoning death of former security services officer Alexander Litvinenko.

Russia's stock market demonstrates robust share growth

MOSCOW, May 7, 2009 (RIA Novosti) - Russia's two main stock exchanges, MICEX and the RTS, demonstrated strong share growth on Thursday, with their key indexes rising above psychologically important levels. As of 6: 00 p.m. Moscow time (14:00 GMT), the index of the ruble-denominated MICEX had climbed 5.52% from Wednesday's close to above the psychologically important level of 1,000 points to 1,040.52 points, while the index of the dollar-denominated RTS had risen 5.04% to close beyond the benchmark level of 900 points at 942.31 points. Analysts say that the Russian stock market's rally can be attributed to signs of improvement in the situation on global financial markets, rising world oil prices and the return of foreign investors to Russian stock exchanges.

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