Zee Beam News

Russian economy continues to slide

2009-06-24T07:45:00.001-07:00

06.23.09 - Associated Press by Catrina Stewart - MOSCOW. Russia's economic downturn showed no signs of slowing in May, with preliminary figures released Tuesday revealing an 11 percent annual contraction in the economy during the month. The slide in gross domestic product was worse than the 10.5 percent annual drop in April. During the first five months of the year, the economy shrank by 10.2 percent compared with last year, Deputy Economy Minister Andrei Klepach said. Russia has been the hardest hit of the major developing economies as oil prices plunged last year and demand for metals dropped off. It is widely expected that second quarter GDP figures will show the economy is in a technical recession - often defined as two consecutive quarters of negative growth. Growing fears over Russia's dependency on the oil price and the specter of rising bad loans in the banking sector have spooked investors, who had helped drive Russia's growth in the oil-fueled boom years under Vladimir Putin's eight-year presidency that ended in 2008. Klepach said that a hoped-for recovery had been thwarted by plunging investment, and warned it would be a "heroic achievement" if Russia posted a GDP decline this year of about 6 to 8 percent - roughly in line with official forecasts. "The economy is close to the lowest point of its contraction," Klepach said, according to the Interfax news agency. "In several sectors close to the global situation, a revival has been seen and exports can be expected to grow, but the sectors tied to investment demand are showing a major decline."

Russia dismisses ambassador to Ukraine Chernomyrdin

2009-06-15T07:06:00.001-07:00

06-11-2009 - (Reuters by Conor Humphries) - MOSCOW, Russia has dismissed its ambassador to Ukraine, former prime minister Viktor Chernomyrdin, the Kremlin said in a statement on Thursday. Chernomyrdin, 71, who had served as Russia's ambassador to Ukraine since 2001, watched relations between the countries deteriorate sharply when the Orange Revolution in 2004 brought pro-West President Viktor Yushchenko to power in Kiev. Once one of the most powerful men in Russian gas export monopoly, Gazprom, Chernomyrdin's final years as ambassador were marked by bitter disputes between Russia and Ukraine over gas deliveries. Russian prime minister from 1992 to 1998, Chernomyrdin was on Thursday appointed an adviser to the Russian president, the Kremlin statement said.

HSBC goes retail in Russia

2009-06-11T15:24:00.001-07:00

06-10-2009 - Russia Today - Europe’s biggest bank, HSBC, has started retail lending in Russia. Analysts say, HSBC is one of the few foreign lenders taking the chance to enter the local market. The bank launched its first retail branch in Moscow on Tuesday and plans to open 3 more, including one in St. Petersburg, within a month. The lender is targeting Russians able to deposit at least $2400. Tony Mahoney, Head of International business at HSBC, says the Russian middle class has been relatively unscathed by the crisis. “There was a survey recently that suggested that, in three years, there will be approximately 30 million people in Russia earning over $20 000 a year. Now, if that proves to be correct, that makes Russia such an attractive market. So yes, there will be a lot of foreign banks looking to come in.” The bank says it’s cheaper to enter the market at the moment – prices for everything from real-estate to advertising have plummeted. But analysts say, not many foreign lenders are using these chances to enter the local market. Central Bank data shows the market share of foreign lenders is falling, as the rate of bad loans grows according to Rustam Botashev, Senior Bank Analyst at Unicredit. "Two years ago any foreign bank would pay 4 times book just to enter the market. Now the prices are much lower and even they dont have to purchase anythin, they can start up their operations from scratch, starting lending to retailers and get market share like this. But they don’t do this obviously because, in terms of their risk management, they probably think that it doesn't make sense." However, many Russians find established foreign names more reliable than domestic private lenders. Retail deposits in subsidiaries of foreign banks have increased over the past six months.

Foreign investment in Russia down 30% to $12 bln in 1Q09

2009-06-10T12:00:00.001-07:00

NOVO-OGARYOVO, June 8, 2009 (RIA Novosti) - Foreign investment in Russia totaled $12 billion in the first three months of 2009, down 30% against January-March 2008, the prime minister said on Monday. "Although foreign investment fell in the first quarter amid the economic crisis, there was $12 billion in foreign investment in the first quarter," Vladimir Putin said. The largest investors in Russia during the reporting period were the Netherlands, Luxembourg, Germany, Cyprus, the United States, and France, according to the country's statistics service. He said foreign investors maintained their confidence in long-term prospects for the Russian market and that it would survive the current global financial crunch. Putin said over 60 bids from foreign investors were currently awaiting approval from the country's antimonopoly regulator. In light of potential deals, the owners of strategic mining and transport and machine-building firms are seeking to increase their companies' competitiveness and solve some of the problems caused by the financial crisis, Putin said.

Russia to borrow over $10 bln a year after 2010 - Kudrin

2009-06-05T15:03:00.001-07:00

June 5, 2009 (RIA Novosti) - ST. PETERSBURG, Russia's annual foreign borrowing will exceed $10 billion after next year, the finance minister said on Friday. Alexei Kudrin said the figure would be so high because "the reserve fund will no longer be there." He previously said Russia's foreign borrowing could total $7 billion in 2010 but that the country did not intend to seek loans from the International Monetary Fund. As of May 1, Russia's foreign debt was 1.28 trillion rubles ($41.5 billion), up 7.8% on the January 1 figure. Kurdin said earlier on Friday Russia's federal budget deficit could be as high as 9% of GDP in 2009. "The budget deficit could total from 7.4% to 9% of GDP in 2009," he told journalists on the sidelines of the St. Petersburg International Economic Forum. The Finance Ministry said on Monday Russia's Reserve Fund, set up to cushion the federal budget against a fall in oil prices, dropped 11.9% to 3.127 trillion rubles ($100 billion) in May. It earlier said a total of 1.6 trillion rubles will be spent from the Reserve Fund to cover the deficit in the first half of 2009 alone. Budget spending increased in the first quarter as the government allocated additional funds for anti-crisis measures, in particular to support the pension system, provincial administrations and key sectors of the economy, such as the defense and auto industry.

IMF predicts sharp contraction as private funds desert Russia

2009-06-02T13:43:00.001-07:00

06-01-2009 - Russia Today - The international monetary fund has issued a new forecast for the Russian economy for this year. It's predicting a sharp contraction, but there's some good news amongst the grim statistics. The Russian economy will shrink 6.5% in 2009 according to an International Monetary Fund report presented on Monday. That's in sharp contrast to growth of over 5% last year, and despite stimulus measures equal to almost 10% of GDP, according to Paul Thomsen, Head of the IMF's mission in Russia. “Russia has some strong advantages compared to other emerging markets. The policy of taxing and saving oil revenues means that Russia has the fiscal room and reserves to have a monetary exchange policy that can counter negative shocks from abroad.” IMF experts say the key to any revival is the banking sector. The Russian government claims a level of bad debt of around 10% is not bad. The main problem for Russia lies not in bank balance sheets, but according to Clemens Grafe, Economist at UBS in the outflow of capital from Russia. “The big story there is really returning capital to Russia. The way we think about the crisis, it’s not the oil price or the oil revenue that is missing in the economy, it’s the private sector capital that left when the oil prices fell.” Russia's stock markets rallied to seven month highs on Monday, as demand from China picked up and oil reached over $67/bbl. UBS is predicting a return to growth in the third quarter.

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

2009-05-26T11:29:00.001-07:00

05-25-2009 - (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

2009-05-26T08:40:00.001-07:00

05–23–2009 – 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.

Nord Stream section in "home stretch"

2009-05-21T10:59:00.001-07:00

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

2009-05-21T10:01:00.001-07:00

// 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.

Russian Economy Shrank Annual 9.5% in First Quarter

2009-05-18T15:30:00.001-07:00

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.

Medvedev Scolds Cabinet for Energy Dependence

2009-05-15T15:13:00.001-07:00

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.

Kremlin Sees Threats In Economy, Energy

2009-05-14T15:32:00.001-07:00

14 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.

A Czar in Chains

2009-05-07T14:33:00.001-07:00

//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

2009-05-07T14:27:00.001-07:00

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

2009-05-07T14:03:00.001-07:00

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.

Two-Part Czar

2009-04-28T09:15:00.001-07:00

04.27.2009 – The National Interest onLine by Peter Reddaway
THE WORLD’S economic crisis may have profound political effects in many countries over the next year or two, but it certainly won’t cause President Obama to leave office early. The same cannot be said with any certainty about President Medvedev or Prime Minister Putin of Russia. Indeed, the system of dual-executive leadership that they operate is the subject of continuous debate and increasing anxiety on the part of Russian elite groups. Some observers fear that the tandem system is becoming unstable, is undermining the cohesion of the state and—in particular—may not be able to handle the deepening recession. They are apprehensive that the two men could, before too long, lose the public trust that they now enjoy, which is a crucial linchpin holding a fragile state and society together. This in turn could cause dangerous convulsions over who should lead the country.
These observers, from academe to think tanks to business circles, see the tandem system as unnatural, first because the executive branch has only rarely in Russian history been divided. On those occasions, as in 1917 after the fall of the monarchy and in the early 1990s when Gorbachev and Yeltsin competed, the division was short-lived. Second, the history of the present arrangement, launched in December 2007, has been bizarre. Toward the end of his presidency, Vladimir Putin rejected calls to change the constitution and run for office again. Instead, he anointed a protege, the politically weak Dmitri Medvedev, to succeed him as president. Then he had Medvedev appoint him to what was, formally, the politically inferior position of prime minister.
Subsequently, however, with some exceptions, Putin went on acting as though he, not Medvedev, was “the real czar.” Meanwhile, Medvedev took occasional initiatives and made periodic speeches about the need for change, but remained, at crucial moments, essentially subservient to his longtime boss.
WHAT HAS imposed new strains on the awkward tandem rule is the deepening recession. Responding to this requires a well-devised strategy and agile tactics. To date, these have been lacking, partly because Putin and Medvedev have somewhat different interests and instincts, partly because the mafia-like clans of Russia’s power elite are seriously divided, and partly because the deeply ingrained vices of “the Putin system” have made personal and clan interests, not Russia’s interests, the ruling class’s priority. None of the clans wants to upset the covert and intricate arrangements of the status quo with an honest debate about the national interest. They are rich, sometimes superrich, with too many secrets to hide about how they acquired their wealth. Usually their business interests conflict with the national interest, to the detriment of the latter. Members of Putin’s main clan—his comrades from the security services in St. Petersburg—are especially determined to hang on to their power and wealth, and may, in the short term at least, have more ways both of influencing Putin and of undercutting Medvedev than do others.
The clans are trying to adapt to the disorienting political system in which there are suddenly two masters and not one. Even though Putin is clearly more powerful than Medvedev, they see that this might change if, say, Putin decides to retire. So maybe it is best to get close to Medvedev in advance, or at least to hedge their bets. On the other hand, maybe Putin will push Medvedev out and resume the presidency, in which case he’d take revenge on them for having sucked up to Medvedev. After a year of this, the uncertainties facing Russia’s rich are as enervating as ever. And with a drop of 70–75 percent in the value of the stock market, the well-off are losing a lot of money and their moods have become sourer still. Thus the risk grows that the bolder clans could start to seek change in the leadership, a potentially disruptive outcome.
If, as seems plausible, the recession and the clumsy tandem structure should make the Putin-Medvedev leadership increasingly erratic, the implications would be many—a deteriorating economic policy, business and bureaucratic groups ever-more aggressive in their demands, regional governors asserting more autonomy, the spread of popular discontent, weakened media censorship and a less predictable Russian foreign policy, to name a few. The future of the leadership would be subject to even-more discussion, maneuvering and plotting than it is already. And the critical public support for the present leaders would start to fragment. This would throw their futures into doubt and could lead to an unstable transfer of power.
THE RECESSION is also having painful effects on the Russian populace. What scares many ordinary people is the rising level of unemployment and the fear that, with production falling, the job situation will continue to get worse. One well-known economist with ties to Medvedev’s entourage, Yevgeny Gontmakher, believes that real unemployment will likely go up by year’s end to about 13–14 percent (from the current 8 percent). At the same time, annual inflation has officially risen to 14 percent, fueling fears that it may go higher still if the government sticks to its present course of undiminished social spending.
Also, for the first time in a decade, the 2009 budget projects a deficit—a hefty 7.4 percent of GDP. This will be wholly financed, Putin said on March 19, by tapping what amounts to more than half of the government’s Reserve Fund, a stockpile built up from taxes on oil and gas sales. Acknowledging that deficits would probably continue for a few years, he said that these would be funded, if necessary, by borrowing from domestic, not foreign sources.
Critics, such as former–Prime Minister Mikhail Kasyanov, argued that the budget was unrealistic, notably in its overoptimistic projections for inflation and GDP. A World Bank report predicted that GDP would fall by 4.5 percent, not the 2.2 percent estimated in the budget.
A more specific threat to working people is the $500 billion debt to Western lenders accumulated by Russian companies. Some $130 billion of this is due to be repaid this year alone. However, most of the companies cannot pay, and the prospects for debt restructuring are unclear. At the Davos World Economic Forum in January, Putin discreetly sounded out Western banks on this score, but reportedly met with a cold reception.
Already, in a way that Americans will recognize, companies are downsizing or closing, and experts predict the trend will likely go much further. Russian firms cannot turn to domestic banks, because even though these have received the largest share of the government’s bailout money to date, they are still not lending.
Among ordinary people, the threatening economic trends have stimulated an emerging readiness in some Russian cities for citizens to publicly express their discontent. While demonstrations usually attract only a few-hundred protesters, their demands have turned more radical. Attacks on the government have become more specific, including placards saying “Putin Out!” and “Enough lies, enough blood, enough Putin.” Other subjects of demonstrators’ discontent have been the lack of housing for military personnel, the disbandment of a military-intelligence unit and the imposition of a tax designed to curtail the import of used cars from Japan. The authorities have shown their concern and uncertainty about these demonstrations both in the inconsistency of their responses—unpredictably peaceful or brutal—and also in the priority given to the training and funding of riot police. The last point is one of several recent omens that elements of the power elite may be preparing to answer a deepening of the recession and popular unrest with a shift to outright authoritarianism. Such a shift would be risky, in my view, and could easily backfire.
Some of the latest movements in public opinion certainly give cause for official concern. Whereas last summer 75 percent of the population supported the course set by the leadership, a poll by Moscow’s Levada Center, a private opinion-research organization, showed that in February, Russians were evenly divided on how they rated the Kremlin’s competence. While slightly over 40 percent thought their leaders would handle the crisis, another 40 percent did not believe they would succeed—or doubted they would.
CLEAR-SIGHTED members of the wider elite can see that Russia’s state capacity—the efficiency and cohesion of its system—is declining. The cause of any particular problem may be the recession, the dysfunctional leadership, the accumulated systemic vices of the Yeltsin and Putin eras, or some combination of all three.
At the national level, this push and pull is seen when Medvedev and the finance minister, Aleksei Kudrin, state that the recession will go on getting worse before it gets better, only to be contradicted by a deputy prime minister, Igor Shuvalov. Shuvalov holds that Russia has reached or almost reached the bottom, and recovery will probably begin by the end of the year. The conflict is also seen when Medvedev’s economic adviser, Arkady Dvorkovich, backs the view of many economists that the government should abolish the sprawling and inefficient state-owned corporations, but the government pays no attention. Instead, it gives special favors to the largest of them, Russian Technologies, a weapons and manufacturing firm that happens to be headed by a Putin crony, Sergei Chemezov. Putin’s highly placed allies, whom he promoted from the police and intelligence services, then try once more to undermine a key enemy, Kudrin, by renewing their efforts to get his deputy imprisoned for alleged past corruption. They use such accusations because this is their favorite modus operandi against their opponents, even though they have little public support for their goal. Meanwhile, the plans of Medvedev and others to fight endemic corruption receive much fanfare and get onto the legislative agenda. However, no one believes that anything much will change. This is because Russia’s rulers have taken similar initiatives every year or two since the early 1990s to no avail.
At the regional level of government, which becomes more important as the national government weakens, the administrations of Russia’s eighty-three regions have been under severe pressure from the recession. They have also, like the Moscow elites, been suffering from the confusion caused by the tandem leadership. Like most recipients of Kremlin funds, the administrations have recently found that Moscow officials are not reducing the kickbacks they demand just because they are giving the regions less cash than before to run their jurisdictions.1 Last summer, the regions’ governors were perplexed as local elections approached. They received from Putin’s and Medvedev’s offices, simultaneously, lists of candidates “recommended” to them for election. But the names were different: the leaders had not coordinated them. In Tatarstan, the Caucasian republics of Dagestan and Ingushetia, and elsewhere, the local authorities have recently taken advantage of Moscow’s weakness. With the Putin-Medvedev duo distracted by the recession and their complex relations with each other, these regions have increased their autonomy with impunity. For example, Dagestan simply refused to accept a tax official appointed by Moscow, while Tatarstan practiced regional protectionism by favoring local companies over outsiders.
Finally, in December, in the Pacific city of Vladivostok, the local government sympathized with the above-mentioned demonstrators against the new tax on used-car imports from Japan. So it declined to disperse the crowd by force. The Kremlin then sent riot police across eleven time zones from Moscow. They proceeded to do the job with considerable violence, thus angering additional people and recruiting them for subsequent demonstrations. Putin wanted to fire the local police chief, but Medvedev persuaded him to desist.
WHO IS to blame for the recession and government weakness? Putin is more obviously vulnerable than Medvedev. As prime minister, he has been directly responsible for handling the financial and economic crisis. Most independent observers consider that, overall, he has performed this job without distinction and with undue favoritism to the companies of his cronies. Moreover, they see the severity and likely persistence of the crisis as stemming, in considerable part, from his failure to take on the deep structural problems of Russia’s economy and society over the last decade, especially in the “good years” of the oil bonanza.
Russia’s neglected infrastructure of roads, ports, railways and public buildings, its lack of economic diversification, the corruption of the bureaucracy and the business world, the subservience of the judiciary, the underfunded educational system, the largely unreformed military, the neglected public-health facilities and the acute demographic crisis—these are the sort of major problems that, in most cases, as Clifford Gaddy and Barry Ickes have said in these pages, “remain worse now than they were at the beginning of Putin’s tenure.”
Some critics, such as former–Deputy Prime Minister Boris Nemtsov, former–Deputy Energy Minister Vladimir Milov and newspaper editor Konstantin Remchukov, have made a damning case for Putin’s departure—though without directly calling for his ouster. They point out that since 2000 the ultimate responsibility for policymaking has rested with him. They also note that his boasts about the strong economic and political system he built have proved hollow, as have his repeated claims of last fall that this system would insulate Russia from the global recession.
Motivated to protect their wealth, elite groups are beginning to blame Russia’s rulers, Putin in particular, and they are doing so either in private or through their media outlets. They ask what economic and political strategy could extricate Russia from its wide-ranging crisis. And some wonder which leader would be best qualified to replace their most frequent target, the prime minister, and implement a new course. Deputy Prime Minister Shuvalov has been mentioned more than others in the media.
Nonetheless, Putin’s political defenses have so far taken relatively few blows. His popularity accrued over the last several years as he presided over the punctual paying of government wages and pensions and the steady, oil-fueled rise in Russians’ personal incomes. He controls most of the key institutions, and strict censorship of the main TV channels limits Russians’ understanding of the economic crisis. As a result, his sky-high popular-approval ratings have begun to come down only recently and—despite the growing intellectual and popular protests—only a little.
But dissent is still brewing. Especially notable in some articles on the internet and in papers like Kommersant, Novaya Gazeta and Nezavisimaya Gazeta is the lack of respect for Putin, his government and the party he heads, United Russia. With power at least to some extent divided, censorship and self-censorship have waned or vanished in parts of the media even with all that government control. Here authors can say, at last, what they really think. The more daring papers now publish articles on the covert business affairs of top politicians and solicit the often-disrespectful views of public figures about the government, Putin and his future. The aforementioned editor of the upscale newspaper Nezavisimaya Gazeta, Konstantin Remchukov, for example, writes dismissively about him, arguing that he’s not up to handling the recession: “The structure of his government is ineffective, it is focused neither on reforms, nor on development.” Putin’s “concept of development ‘from above’ is based on the illusion that the successes of the 1950s, the era of industrialization and the state sector, can be repeated. Experience has long shown the ineffectiveness of the top-down model.” Finally, the author writes, Putin’s centralization of decision making is “a road to a dead-end,” and the present system has entered a state of “entropy.”2
Of course, Putin has his defenders in the media too. But most of them are, in one way or another, on his payroll (television host Mikhail Leontiev and the media analyst Vyacheslav Nikonov, to name just two). What is more striking are the increasingly strong and frequent critiques of him. However, unless and until the critical views they present spread into society and the population at large, they can be ignored and the Putin-Medvedev leadership may retain some stability. But this seems unlikely.
ALONG WITH the public perception of Putin, the relationship between the president and the prime minister is key to both men’s futures. When it comes to everyday relations, some things have been going quite well. Neither man has directly criticized the other in public. No apparent squabbling has developed over who should attend a particular conference or summit or meeting. And the first test of the tandem operating in conditions of military stress and heavy international criticism, during the five-day war with Georgia last August, was passed. The two men looked like a team, mainly perhaps because Medvedev went along with the tough line Putin took when dealing with both Georgia and the West.
What about tensions within the tandem? Between the two men personally, the relationship is quite close and superficially warm. Beneath the surface, however, frictions exist, caused in part by inevitable rivalries between their teams. More specifically, over time Medvedev has laid out fairly systematically his ideas for certain liberal reforms to be pursued in the future, providing considerable potential for tension. The same is true about some related actions that he has taken, it seems, when he thinks Putin won’t object too much or is distracted by the pressure of events. These ideas and actions have concerned such issues as: stepping up the fight against corruption, strengthening the judiciary’s independence from the executive, devolving some federal powers to the regions, curbing the state-owned corporations, and freeing business from unnecessary bureaucratic regulation and harassment by police agencies.
In general, Putin has not reacted in public to Medvedev’s presentation of at least the beginnings of a reform program. Thus, he has given the unverifiable impression that he may not be opposed to most of the proposals. In that case, Putin may want Medvedev to lay the basis for a reformist program before he, Putin, removes from Medvedev what might be called his training wheels.
However, on one occasion Putin appears to have lost his patience. It began with Medvedev speaking of the baneful effects of official corruption:
Decisions about who should be appointed to official positions are sometimes taken on the basis of personal ties, or on the principle of personal loyalty, or, and this is the most revolting of all, in return for money. In other words, positions are sold.
Seemingly, Putin took these words as an implied criticism of his own conduct of the presidency, because the next day he delivered an angry populist attack on the big-metals corporation Mechel. Evidently in order to give the impression that he was not cozy with big business, he accused Mechel of avoiding taxes and committing other criminal acts. A little later, Medvedev agreed publicly with Putin that Mechel was indeed negligent about paying taxes, but also referred to “the nightmares” faced by companies when government officials tried to shake them down, in league with one partner or another. Eventually Mechel escaped by paying a hefty fine.
That real tensions exist between the two men is also suggested by the report of a Russian official speaking anonymously in early February. According to the Washington Post, he said that they had
recently decided that a note-taker should keep minutes of their discussions because “misunderstandings” had arisen following past meetings. “It’s a very bad sign,” the official said, arguing that a rift in the leadership could destabilize the government.
More recently, Gleb Pavlovsky, a longtime Kremlin publicist, spoke about the Putin-Medvedev relationship with some revealing frankness leavening his usual spin. The editorial introduction to an interview with him starts:
Will the Russian political system survive the crisis? . . . Predictions vary from cautiously optimistic to extremely dark. The question is exceptionally important, because not only the personal fates of Putin and Medvedev depend on the outcome, but also, without exaggeration, the future of the country.4
Pavlovsky believes the crisis has already been politicized. He accuses what he polemically dubs the “pro-crisis party”—made up of people “from big business, the top levels of government, Moscow circles, and the governor corps”—of organizing a conspiracy. They are allegedly aiming to detach Medvedev from the tandem, get rid of Putin, declare Medvedev their hero and ride into power.
While this scenario seems considerably exaggerated, it may, as this article has indicated, contain some grains of truth.
In any case, Pavlovsky contends that a split in the tandem will not happen, because the two men have similar strategies for extricating Russia from the crisis:
Supposedly, Medvedev has a strategy of liberalization and Putin has an authoritarian strategy based on support from the security forces. This is not so. Putin is a clear-cut conservative national-liberal. Medvedev is a statist and an institutionalist, with expertise in the law. . . . If people get the impression that one of them wants to inflate himself at the expense of the other, or get rid of him . . . , then neither the president nor the premier would be forgiven for that.
If there’s a problem, Pavlovsky claims, it’s that “Putin and Medvedev are slightly fearful about their own joint potential.” But in fact, he urges, “Their alliance should be emphasized,” because it will only strengthen their leadership potential.
Pavlovsky does not believe the duo is blameless. They should, he says, improve outreach to societal groups if they hope to create policy cohesion and a strong joint message:
They’re avoiding this. . . . In a period of crisis they should appear together in public more often. Otherwise, if there’s trouble in some company town, the ruling tandem may not come up with a common response, and two different signals may be given.
The lack of outreach has incurred a certain cost for the duo, Pavlovsky says, “even highly trusted experts say that the system of decision making is unfathomable.” This must be especially frustrating to businessmen who need to know whose assistants to lobby and bribe.
In sum, then, even though Pavlovsky sees Russia’s system as having “extraordinarily large reserves of durability,” he nonetheless believes that Putin and Medvedev have some failings as a team, and fears that the opposition could exploit the economic crisis to incite popular discontent and change the leadership.
Going much further and portraying the duo’s relationship as dangerously underdeveloped, given the need for dynamic leadership in a major crisis, is Alexander Budberg, an established columnist for one of Russia’s best-known papers, Moskovsky Komsomolets. Not surprisingly, Budberg, whose marriage to Medvedev’s publicity chief enhances the significance of his articles, implicitly assigns responsibility for this situation to Putin.5 On the surface, he argues like this: The global crisis is an immediate threat and potential disaster for Russia, because it has exposed the hollowness and fakery of the country’s institutions and, therefore, the extreme vulnerability of its economy. However, Russia has one solid and invaluable asset that, if properly exploited, can avert catastrophe. This is the people’s enduring trust, demonstrated by opinion polls, in the leadership of Putin and Medvedev. Although “chaos is very close,” these leaders can bring Russia through the slough of despond. Yet danger comes from selfish forces intent on preserving their power, their wealth and the status quo as a whole. These forces are led by two unnamed officials easily identifiable as Igor Sechin, a deputy premier and hard-liner, and Vladislav Surkov, the top regime spinmeister. The blocking efforts of these people are, Budberg says, preventing Putin and Medvedev from unleashing their courage and drive, from pursuing the sort of innovative ideas demanded by the crisis and from cooperating fully with world leaders to bring it under control. Finally, he appeals to the two men to break free from their restraints and lead Russia to safety.
That is the superficial message of the articles. But it is not their true or full meaning. This becomes clear only if you know that Sechin is Putin’s longest and closest ally, that Surkov was a top aide to Putin until last year when Putin placed him in the position of deputy head of Medvedev’s presidential administration, and that both Sechin and Surkov are longtime enemies of Medvedev.
Then the message comes into focus. It is, in reality, a lightly disguised but impassioned appeal to Putin. Budberg is pleading with him to recognize the urgency of the economic crisis, to push aside Sechin and Surkov, to open himself up to new ideas and willing cooperation with world leaders, to make a genuine team with the primed-but-frustrated Medvedev and, in all these ways, to actually deserve the unwavering trust of the Russian people that both men enjoy.
Whether or not Budberg’s articles have made any impression on Putin remains to be seen. It seems unlikely. However, he and Pavlovsky, as insiders, tell us much about the nature of the tandem, Putin’s main clan and the political difficulties faced by Medvedev.
THIS BRINGS me to some brief conclusions about the near-term future of Russia’s leadership.
Clearly, one possibility is that the tandem will continue for the time being, with Putin calling most of the shots, while Medvedev, frustrated but loyal, tries to make a difference in places where he can insert himself. His ambition seems to be growing, along with his public exposure. But it’s not yet clear whether this is leading to a real increase in his political weight. Whatever the case on this point, in theory at least, the tandem might astonish observers and last through Medvedev’s four-year term.
What could perhaps force change in this conservative scenario would be the self-assertion of some of the more aggressive clans that have their roots in Moscow, rather than Putin’s St. Petersburg, and are unhappy with the political and economic status quo. Their chances would improve if the recession were to deepen and persist. They might be able to prevail privately on Putin to say that, since Medvedev was now firmly in the saddle, he himself could leave office for a high position outside the government. Medvedev might then appoint as prime minister a nominee from one of the clans.6 All this would probably conform to the constitution. However, it wouldn’t necessarily change the essence of the present system very much. Medvedev might try to liberalize the system, but be thwarted by powerful vested interests opposed to change.
Alternatively, at some stage Putin might, under certain circumstances, have Medvedev resign and get himself reelected as president. This much-discussed scenario seemed plausible late last year, when, in a series of swift authoritarian moves and without the urgency being convincingly explained, the constitution was changed to extend the president’s term in office from four years to six. Now, however, the scenario appears improbable. It’s hard to see Putin organizing an electoral diversion in the midst of an economic crisis. And it’s impossible to see him running again, if the crisis is long and deep. This would cause the pendulum of public opinion to swing against him (and probably against Medvedev too), as it did in earlier times against the once-popular leaders Gorbachev and Yeltsin, who both left office with their approval ratings close to zero.
Putin faces an unenviable dilemma. He cannot depart without looking like a cowardly deserter. But staying on would likely be politically fatal. Furthermore, he may not be a free agent. As is widely rumored in the media, key actors may have damaging information on his accumulation of personal wealth or other dark deeds from the past, which they can use to direct him along the path they prefer.
There is one last scenario. Some sort of non-constitutional and possibly violent change to the leadership might be attempted from the Far Right, and might or might not succeed. This would probably be fueled by the xenophobic and imperialist ideology that dominates most Far Right media, and by elements of the siloviki, i.e., the security services and the military. However, partly because the representatives of these groups who are currently in power have been politically weakened, this scenario looks unlikely, at least for now.
The Russian leadership is becoming unstable—for reasons mainly to do with the awkward tandem-leadership arrangement and the costs, economic, political and psychic, of the recession. None of the future scenarios is very promising—for Putin, Medvedev, the Russian economy, the clans, the wider elite, the newly unemployed or the country. The least disruptive development in the short term would be a transition to a situation in which Medvedev becomes a fully fledged president and appoints a competent prime minister to handle the recession. Then, in 2010–12, Medvedev or his successor might be able to mobilize enough elite and popular support to start tackling the urgent, deep-seated problems of Russia’s system of government.

Gazprom’s positions in Europe shattered

2009-04-28T09:00:00.001-07:00

28 April 2009 - Sofia FOCUS News Agency - Gazprom has sustained three strong blows on its European positions these days, Nezavisimaya Gazeta reads. The first blow came from the European Parliament (EP) and its package of measures for energy market liberalization, which in fact ditched Gazprom’s aspirations for direct access to European consumers. Then was Turkmenistan’s support for Nabucco. And on 25 April at the Energy Forum in Sofia, the South Stream pipeline project failed to find its place on the EU priority list. Gazprom’s defeat on the European arena could mean a collapse in the Russian gas giant’s doctrine for expansion abroad.

Medvedev's Macro-European Ambitions Ring Hollow

2009-04-28T08:35:00.001-07:00

April 27, 2009 - Eurasia Daily Monitor by Pavel K. Baev - President Dmitry Medvedev paid a state visit to Finland last week anticipating a warm welcome on "safe ground," since it was with Russia's help that Finland started building its own statehood exactly 200 years ago (Rossiiskaya Gazeta, Vremya novostei, April 22). He paid due respect to the memory of Carl Mannerheim, who led then newly-independent Finland in the "Winter War" with the USSR in 1940, but showed little interest in minor matters of bilateral relations -disappointing his traditionally pragmatic hosts (www.gazeta.ru, April 22). Instead, Medvedev tried to refresh his initiative on launching an all-European political process leading to a new collective security treaty. He first announced this idea last June in Berlin and has referred to it many times since without elaborating on the content (Ezhednevny Zhurnal, April 23). The Finns remained indifferent to Medvedev's vision despite the catchy name "Helsinki plus" and despite the undeniable fact that Russia's dissatisfaction with the existing security system makes it seriously unstable. The examples that Medvedev brought to illustrate this fact -from the conventional arms control breakdown to the August war in the Caucasus- proved primarily Russia's readiness to violate the post-Cold War norms of behavior, and there are few reasons to believe that new norms that would suit Moscow's ambitions could satisfy its neighbors. Medvedev explained that he expected long and complicated talks, but the start of this as yet hypothetical process will inevitably signify that the Organization for Security and Cooperation in Europe (OSCE) is compromised, while undermining NATO's role as the central security-providing institution. Russia's "principled" course against ceding any political territory to the Alliance was enriched with a new quarrel last week as the Foreign Ministry vigorously condemned NATO's "destabilizing" exercises in Georgia scheduled for May (RIA-Novosti, April 23). Medvedev's counterparts will eventually abandon their "we-will-think-about-it" approach and tell him bluntly that a new Kellogg-Briand pact is a non-starter. Meanwhile, Medvedev tries to supplement his grand initiative with a no less ambitious proposal for replacing the Energy Charter with a new framework agreement. The inconclusive Russian-Ukrainian "gas war" has proven that the current arrangement does not work, but the draft unveiled by Medvedev in Helsinki and uploaded to the presidential website is first and foremost self-serving (Vedomosti, Kommersant, April 21). Its three main goals are to secure expanded demand for Russian gas while returning to "fair" prices, to abolish the EU plans for liberalizing the gas market, and to discipline the states responsible for providing transit -first of all Ukraine. Moscow hardly expects that such a "conceptual approach" will secure support within Europe but it might help in making the Energy Charter null and void -and that would be a perfect hit as far as Russia is concerned. Putting more emphasis on spin in this grand energy bargain, Moscow maintains high levels of activity on all European gas fronts. Medvedev sought to get from the Finns the final approval for the delayed Nord Stream pipeline project across the Baltic Sea. Prime Minister Vladimir Putin sent a different signal by canceling his participation in an energy summit in Sofia, Bulgaria, sending instead Minister of Energy Sergei Shmatko, who insisted that the EU should grant priority to the Russian pipeline project South Stream across the Black Sea (Kommersant, April 22). Deputy Prime Minister Igor Sechin went to an international conference on energy transit in Ashgabat seeking to calm down President Gurbanguly Berdimuhamedov, who had blamed Gazprom for the explosion on a pipeline in Turkmenistan (Nezavisimaya Gazeta, April 21). In neither case, however, was significant progress registered, and Moscow now often finds itself in the uncomfortable position of suppliant instead of negotiating from a position of gas strength. Berdimuhamedov apparently presumes that Gazprom is not what it used to be, while probably not reflecting much on the predicament of his own gas-centric mono-state. Gazprom is indeed so tightly integrated into Russia's structures of governance that it is affected by the general economic downturn -even if the world energy prices have stabilized. Forecasts for the Russian economy are revised almost weekly -and invariably for the worse. The GDP decline in the first quarter has been corrected from 7.2 percent to 9.5 percent, so the Ministry for Economic Development now predicts a 6 percent contraction for the year (Kommersant, April 24). These macro-figures imply a 30 to 40 percent reduction in the state budget income, and if in the current year the government aims at minimal cuts in spending, covering the deficit from the accumulated reserves, by 2010 this policy will be unsustainable. Evgeni Gontmaher, an economist from the Institute of Contemporary Development that enjoys Medvedev's patronage, argues that that the presidential address in May with the key guidelines for the 2010 budget -which must be presented by the government to the parliament by August 25- could be crucially important for Russia's recovery from the devastating recession (Vedomosti, April 22). Large-scale sequestration and cuts for every program will mean that the government has failed to identify its priorities and set Russia on a course of stagnation at the "bottom" of the crisis (www.gazeta.ru, April 22). That might suit the interests of some parts of the ruling bureaucracy, but will leave the populist demands unaddressed and the main pressure groups, from the siloviki to Gazprom, entirely dissatisfied. The ruling "tandem" is quite possibly incapable of making hard choices, as Medvedev's vague ideas about modernization contradict Putin's commitment to preserve key elements of his power system. This system of corrupt patronage and triumphant consumerism was perhaps organic to Russia in the period of petro-prosperity (Rossiiskaya gazeta, April 21). It is, however, simply not viable in the years of scarcity and survival-of-the-fittest -so the Russians are remembering Boris Yeltsin, who died two years ago, with a new respect for a leader that steered the country across a sea of troubles.

Russia's economy shrank 9.5% in first quarter - ministry

2009-04-23T08:05:00.001-07:00

MOSCOW, April 23, 2009 (RIA Novosti) - Russia's gross domestic product (GDP) declined by an annualized 9.5% in January-March 2009, an Economic Development Ministry official said on Thursday. Andrei Klepach, a deputy economics minister, said that the GDP decline in March also equaled 9.5%. Klepach said the substantial decline in the first quarter was attributable to the slump in construction (a decline of about 20%) and lower tax revenues. The GDP also shrank due to reduced investment and retail trade volumes, Klepach said. The economics ministry expects the country's GDP to decline 8.7-10% in April-June 2009 as compared with the same period of last year, Klepach said, adding, however, that the Russian economy "was beginning to rebound." According to the ministry's estimates, Russia's economy will grow by 1.3% to 2.8% in the second quarter of 2009 as compared with January-March 2009. Klepach said that the economics ministry would revise downwards its forecast of the country's GDP decline from the current 2.2%, adding that the figure given by the IMF was quite realistic. The IMF issued a report earlier this week, saying that Russia's economy would shrink 6% in 2009 and grow 0.5% in 2010.

Khodorkovsky pleads not guilty

2009-04-22T11:19:00.001-07:00

04-21-2009 - Upstream OnLine - Mikhail Khodorkovsky, the founder of now-defunct Russian oil giant Yukos, pleaded not guilty today to four charges of embezzlement and money laundering in a fresh trial. In response to four separate charges that were read out, Khodorkovsky responded each time: "I plead not guilty." His co-defendant and former business partner, Platon Lebedev, condemned the conduct of the case, an AFP report said. "This is not an accusation but a schizophrenic fraud.... I have never stolen anything nor raided anything in my life, either individually or in a group. To confess to a crime that has not taken place is ridiculous," AFP quoted Lebedev as saying. Khodorkovsky was already convicted and sentenced to eight years imprisonment afetr being found guilty of fraud and tax evasion charges but is undergoing a new trial for embezzlement. His supporters have condemned the trial as politically motivated, aimed at keeping the 45-year-old critic of Prime Minister Vladimir Putin out of the political scene indefinitely. Current President Dmitry Medvedev has so far declined to intervene, while insisting on the independence of the courts and promising to improve legal standards in Russia. Prosecutors claim Khodorkovsky and Lebedev embezzled a massive quantity of oil worth 892.4 billion rubles ($25 billion) from three Yukos subsidiaries between 1998 and 2004. They are also accused of then laundering part of the proceeds, amounting to 487.4 billion rubles in Russian currency and $7.5 billion in hard currency. Defence lawyers say that in a worst-case scenario Khodorkovsky could face a further 22 years in jail.

Medvedev calls for new energy pact

2009-04-20T09:26:00.001-07:00

04-20-2009 - Upstream OnLine - Russian President Dmitry Medvedev said today he wanted to clinch a new energy pact with the European Union to ensure security of supplies and replace the European Energy Charter, which Moscow rejects. "As I promised, I will distribute today among G8 partners, G20 partners, [Commonwealth of Independent States] partners and closest neighbours such as Finland a basic document which will outline issues of international cooperation in the energy sphere, including proposals on transit agreements," Reuters quoted Medvedev as saying. Russia has refused to ratify the European Energy charter, saying it does not ensure a balance of the interests of energy producers, buyers and transit states. "The energy charter has failed to solve this imbalance. We have not ratified it and do not view ourselves bound by it," Medvedev told a joint news conference with Finnish President Tarja Halonen. "Our task is to ensure the balance of producers, transit states and energy buyers... We would like to start talks with the European Union and our other partners about these documents and hope our ideas will be taken positively," he said. Medvedev's economic adviser Arkady Dvorkovich told reporters afterwards the new document will cover coal and nuclear fuel along with oil and gas. "We are really interested in the nuclear materials' angle. We should spread the principles in this sphere as well," he said. The European Union relies on Russia for a quarter of its gas needs and EU politicians have called on the bloc to cut reliance on Russia after two severe disruptions to Russian gas supplies in recent years due of disputes with transit states Ukraine and Belarus. Russia expressed anger when Ukraine, which is responsible for the bulk of Russian gas transit to Europe, signed a deal last month with the European Union for the overhaul of its pipeline system without consulting Moscow. Moscow has also repeatedly warned the European Union it could reconsider building new pipelines to Europe, such as Nord Stream and South Stream, and choose to build gas liquefaction plants instead, if Europe fails to support its projects. Halonen told the same news conference the Nord Stream pipeline remained mainly an environmental issue for Finland. "If the pipeline can be built ecologically, then it is a good solution in our opinion," she said. She noted environmental impact studies were still under review by the Baltic Sea states and said when the prime ministers of Russia and Finland meet in June, more would likely be known about the timetable for the pipeline project.

Speakers’ Corner, Moscow Style?

2009-04-17T08:05:00.001-07:00

April 17th, 2009 - Reuters by Ralph Boulton - So President Medevedev would like to create a “Speakers’ Corner” in Central Moscow for Russians to vent their political passions. “It looks cool,” Medvedev told a group of human rights activists. “I need to speak with the Russian authorities and build our very own Hyde Park.” Was this just a rhetorical flourish to impress his guests, a signal that he would loosen the reins that his predecessor, Vladimir Putin, has pulled so tight? Free speech, say the rights activists, is not something Russian authorities have prized, whether on the streets or in the media. Would it, could it, work in Moscow? Where ever would you put it in that crowded, bustling city? Who would go there? What would they do there? Singaporeans, not know for a culture of dissent and protest, have led the way, setting up their own speakers’ corner to protest over economic hardship. Hundreds meet there every Saturday to demand government help. No trouble reported yet. The London speakers’ corner is held up by some as a symbol of British democracy, a place where anyone can stand on a box and say (more or less) whatever he wants without fear. Yes, in their day, Vladimir Lenin and Karl Marx haunted the place, touting ideas that would have had them dragged away by police in their own countries. Lenin’s wife, Nadezhda Krupskaya, wrote in her memoirs that the Bolshevik leaader was most impressed watching speakers “harangue the passing crowds on diverse themes”. All jolly stuff and not something he himself encouraged when he set up the dictatorship of the proletariat back at home. These days though, for the most part, London’s speakers’ corner is a gathering place for quirky exhibitionists and comedians, political oddballs of left and right and religious eccentrics of all ilks warning sinful tourists of hell and damnation. The occasional thoughtful soul will read through Shakespeare’s sonnets or expound the virtues of a forgotten philosopher. Heckling seems to be a central part of the fun. A policeman may be at hand in case things turn nasty, but they rarely do. Possibly, the spot in the north-east corner of Hyde Park was chosen for its closeness to Tyburn gallows where once the condemned would make their last declarations. The Moscow equivalent to Tyburn, I suppose, would be Red Square, where villains were put to death by the axe – though, in the Russian tradition, without those last words. Perhaps, then, Moscow’s Speakers’ Corner might fit nicely nearby at Alexandrov Gardens, at the Kremlin Walls. Arguably, though, a bit too close to Medvedev’s seat of power. My proposal would be a few hundred metres up Tver Avenue, on Pushkin Square where the Soviet Union once maintained its own bizarre and macabre form of speakers’ corner. Perhaps I should call it the hat-takers-offers corner. Every Human Rights Day, a keen crowd of journalists and plain-clothes KGB officers would gather in the winter cold around the perimeter of the square named after the great liberal poet Alexander Pushkin. As the hour of eleven approached, a tense hush would descend. A single figure would eventually appear, walk to the centre of the square, stand for a moment, and then take his hat (usually a rabbit-skin ‘shapka’) off; a symbolic protest against the suppression of human rights in the communist state. In an instant, the KGB officers would swoop down upon him, drag him across the square, bundle him into a van and speed him off to the Lubyanka prison. A few minutes would pass and a second dissident would arrive, take off his hat and stand to attention before being likewise borne away by the forces of order. And so it went on. Pity though the ‘innocent’ citizen who strayed unwittingly onto the square on that December day, carrying perhaps a magazine or a string bag of potatoes, and found himself suddenly the focus of this hawkeyed gathering. He would break his step and look around, of course, in wonder at his sudden and unexplained celebrity. Me? That was more enough. Hat or no hat, he followed the rest, bundled into the van and away. It happened, sadly. Finally, I ask myself who would pitch up at Moscow’s speakers’ corner and in what frame of mind? Memories of the breakup of the Soviet Union, the coups, the civil wars, the anger and the hardship, are still fresh. Economic crisis raises fears of another plunge into uncertainty and the eternal search continues. Kto Vinovat? Who is to blame? What makes London’s Speakers’ Corner possible, amid all the mockery and sometimes quite pernicious views, is that most people just don’t take it seriously. They laugh, make fun. There may be anger but it knows its bounds. People throw up their hands and walk away, triumphant or humiliated before their peers. How would Speakers’ Corner take root in Russian soil? Would liberal literati feast on Pushkin and Gogol, while the preachers invoke the fires of hell? Would it become a platform for Muscovites nursing private grievances against uncaring state institutions, the police, big business, the President? Could a Chechen malcontent plant his flag alongside angry nationalists and red-banner waving Stalinists? Are Russians ready yet to laugh at profanity?

Russia's richest 100 lose $380 bln in 12 months

2009-04-17T07:27:00.001-07:00

MOSCOW, April 17, 2009 (RIA Novosti) - The 100 richest Russians have lost $380 billion in the last 12 months as the global economic crisis has sent the values of their assets tumbling, Forbes magazine claimed on Friday. The total wealth of Russia's 100 richest people was put at $142 billion by the magazine, compared to $552 billion at this time last year. The total number of Russian billionaires also fell dramatically, from 110 to 32. Forbes said the largest tumble in wealth was experienced by Oleg Deripaska, the head of holding company Basic Element, who topped the list with $28.6 billion in 2008, and dropped to number 10 with a net wealth of $3.5 billion this year. The new Forbes list is topped by Oneksim Group owner, Mikhail Prokhorov, with $9.5 billion, followed by the Millhouse Company and Chelsea FC owner Roman Abramovich ($8.5 bln), and the president of LUKoil, Vagit Alekperov ($7.8 bln). Forbes also noted that no one in the top 100 had increased their wealth, just that some had lost more than others. Yelena Baturina, the wife of Moscow mayor Yury Luzhkov, was the only woman in the top 100 for the second year in a row, in 32nd place. Baturina, the president of the construction conglomerate Iteka, has lost some $4.2 billion, leaving her with a total wealth of $900 million, Forbes said. The average age of the Forbes' list is 47 years and six months.

Khodorkovsky hits out at Medvedev

2009-04-08T12:40:00.001-07:00

04-07-2009 - Upstream OnLine - Jailed Russian tycoon Mikhail Khodorkovsky today challenged President Dmitry Medvedev from the dock of a Moscow court to stand by his commitment to keep the judiciary independent of the Kremlin. The former boss of oil group Yukos, on trial for new charges that could keep him in jail for a further 22 years, said his fate would send a signal to Russians on whether to trust the court system or to take their grievances onto the streets. "President Medvedev has several times noted the importance of having an authoritative and independent judiciary in the country. This is a key question," Khodorkovsky, 45, dressed in jeans and a brown jacket, said from a glass cage in court. "The Yukos case, whether anyone likes it or not, is symbolic," Reuters quoted him as saying. Medvedev has promised to end what he terms "legal nihilism" in Russia's court system, and made the establishment of an independent judiciary a key pledge of his presidency. Khodorkovsky and his co-accused Platon Lebedev are already serving eight-year terms for fraud and tax evasion after a highly politicised trial in 2005, widely viewed as part of former president Vladimir Putin's campaign to rein in Russia's powerful oligarchs. Both deny the charges. The pair were brought to Moscow this year from their Siberian prison to face new charges for embezzlement and money laundering in a joint trial being watched for any signs of a softer line from Putin's successor, Medvedev. "It is clear that President Medvedev, in promising society independent and honest courts, has taken on an extremely heavy but very important burden," said Khodorkovsky. He said the verdict in his trial would send an important political signal to Russians. "When a person feels his rights have been violated in a crisis situation... there are two ways out: to proceed calmly through the courts or loudly through civil protests," he said.

G20 London summit: a stopover to destination

2009-04-06T08:15:00.001-07:00

04-01-2009 - MOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - The most frequently asked question ahead of the G20 summit in London was: Will it live up to our expectations? The answer depends on what you want from it. In fact, it would be completely wrong to judge an event by expectations. If you really want to know what was expected from the London summit, read the communique issued by the finance ministers and central bank governors of the G20 countries at Horsham in southern England in mid-March. It showed progress on the main issues on the agenda for the April summit, with agreement on action to restore global growth and lending by the world's banks. As for the London summit, you cannot seriously believe that the G20 leaders will solve all the problems within 4 hours and 35 minutes, the official duration of the summit. The summit's final statement could stipulate many necessary moves, but their effectiveness will be judged only in five or six months' time. Everything depends on the participants' readiness to take them and to make them part of a systemic approach to the crisis. Nobody believes that the London summit is "the last stop," or that the G20 must find a solution or the world will go bust. Brazilian President Lula da Silva said before going to London that the summit would be a failure if the participants did nothing more than agree to meet again. This is his hot Latin American blood speaking. The London summit is only, and could not be anything other than, a stopover to a final destination. It is logical to agree on some measures, give each other time to see how they are implemented, and then meet again to affirm or correct them. The April 2 summit should be viewed as part of the process, not its culmination. The participants know that they will have to meet again, and they even know where and when - in Asia, possibly in Japan or China, in November. The world's developed and emerging economies should learn their lessons from this crisis. One of the lessons is that summits cannot be judged by their final statements. In fact, we should reconsider holding summits of such groups as G5 and G8 - and the G20 that has grown out of them - altogether. The London summit cannot even be described as a G20 meeting, because not 20 but 29 national leaders and representatives of international organizations have met in the British capital. There is a lack of logic in the creation of all these groups and their subsequent expansion. An exclusive club, if its operation is effective, does not need to expand, to admit more members. And a club is not an ad hoc structure set up for the duration of a crisis. Such forms of interaction are good only for dealing with the consequences of a crisis. But if we want to eradicate the reasons for it, we should create a permanent agency. If the world's leaders who have gathered in London accept this simple truth, the summit will be a success. In fact, it is rumored that the G20 may be changed into a permanent organization with a secretariat and administration.

World Bank predicts 4.5% decline in Russia's GDP in 2009

2009-03-31T07:55:00.001-07:00

MOSCOW, March 30 (RIA Novosti) - Russia's gross domestic product (GDP) may decline by 4.5% this year, the World Bank said in a revised report published on Monday. "With a much worse global financial outlook and oil prices in the $45 a barrel range, Russia's economy is likely to contract by 4.5% in 2009, with further downside risks," the World Bank said in its Russian Economic Report. The Bank's previous estimate, released in November last year, predicted 3% growth in Russia in 2009. Russia's GDP grew 5.6%, year-on-year, in 2008, the country's top statistics body said in February. Most of the global economic crisis's adverse effect on Russia is expected to be concentrated in the first two quarters of 2009, the World Bank said in its report. "As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," the report said. According to the report, the current crisis in Russia is likely to be deeper in terms of growth deceleration and longer than the 1998 turmoil. However, "Russia's sound management of public finances and large fiscal and reserve buffers provide important cushion," the report said.

G20: Russia to play peripheral role at summit

2009-03-27T14:31:00.001-07:00

26 Mar 2009 - Telegraph.co.uk - Russia's ambitions of resurrecting its superpower status have received a jolt after Dmitry Medvedev, the country's president, was effectively told he would only play a peripheral role at next week's G-20 summit in London.
Just months after holding Europe to ransom during a gas dispute with Ukraine, Russia has discovered that continental energy dominance does not translate into commensurate influence in the debate over how to tackle the global economic crisis. Russian officials were said to be angered after the leak of a British government document that appeared to divide G20 members into two lists of descending importance. While three of the world's four largest emerging economies, Brazil, India and China, found themselves on "List A", the fourth - Russia - was relegated to second division status, alongside much smaller economies like Mexico. Britain has denied dividing the summit into two tiers, but Russian officials are allegedly upset nonetheless. "There is frustration over these lists," said an official close to Russia's finance ministry. "There is a belief that Britain is trying to trivialise Russia's contribution at the G20 for political reasons as a time when the two countries have found much common ground on economic issues." Russia's apparent relegation may well have a political undertone, although Western European countries might argue that the fault for that lies with the Kremlin itself. Theoretically, Russia should have powerful European allies at the summit. On paper at least, it has aligned itself with France and Germany on some of the most important issues that G20 leaders will discuss. Like Berlin and Paris, Moscow has rejected American calls to pour more money into the global economy through a second wave of stimulus and is instead backing new financial regulation to avoid a repeat of the crisis. But at the same time Russia has also alienated potential European allies by using the summit to push through what many see as an anti-US agenda. Since the beginning of the crisis, the Kremlin has persistently accused the United States of "economic egotism" and called for a new international financial architecture that would minimize American influence on the global economy. While Russia's calls for an overhaul of international financial institutions has won backing even from the United States, world leaders have baulked at Moscow's G20 proposals to scrap the US dollar as the world's main reserve currency and drastically reduce Washington's influence in general. Russia wants to see the dollar either replaced with an IMF currency unit -- a proposal one Moscow-based strategist called as mad as returning to the gold standard -- or, failing that, is demanding that world central banks start holding roubles in their reserves. Despite cautious Chinese backing for a similar proposal, Gordon Brown has given short shrift to the Russian idea. The European Union also appeared irritated that while the world was looking for ways to solve the economic crisis, Russia seemed more interested in using the summit to boost its political power at the expense of the United States. "It is unhelpful," said one European diplomat. Russia has also caused dismay ahead of the summit after Vladimir Putin, the country's prime minister, threatened to review relations with the EU after Ukraine made a deal with European partners to overhaul its energy pipeline infrastructure. Russia fears the move would undermine its ambitions to controlling energy in Europe from source to delivery point. Analysts in Moscow said that Russia's geopolitical ambitions had over-reached themselves because the country lacked the economic clout outside the field of energy to make the world pay it the attention it wants. "Russia is on the periphery of the debate on how to end the financial crisis because of the relatively small size of its economy and its limited share of international trade," said Mikhail Rogozhnikov, an economic analysts at the institute of Public Projects in Moscow.

Chinese central bank backs Russian idea for new reserve currency

2009-03-24T13:48:00.001-07:00

BEIJING, March 24, 2009 (RIA Novosti) - The chairman of the People's Bank of China has spoken out in support of Russia's proposal to create a new global reserve currency as an alternative to the U.S. dollar, Xinhua news agency reported on Tuesday. Zhou Xiaochuan wrote in an essay posted on the bank's website that the goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies." Russia earlier submitted a proposal to the G20 summit that could see the IMF examining possibilities for creating a supra-national reserve currency, as well as forcing national banks and international financial institutions to diversify their foreign currency reserves. "We believe it is necessary to consider the IMF's role in this process and also define the possibility and the need to adopt measures allowing for Special Drawing Rights (SDRs) to become an internationally recognized super-reserve currency," Russia's proposal read. Hu Xiaolian, a vice governor of the People's Bank of China, said on Monday that China was ready to discuss Russia's proposal of a new global reserve currency at the G20 summit. During the event, Chinese President Hu Jintao will meet Russian President Dmitry Medvedev and U.S. President Barack Obama. The G20 summit, involving developed and emerging economies and international financial institutions, will be held in London on April 2 with the aim of finding ways to overcome the ongoing global financial crisis.

Russian PM Putin threatens to review relations with EU

2009-03-24T13:39:00.001-07:00

SOCHI, March 23, 2009 (RIA Novosti) - Russia will start reviewing its relations with the European Union should Moscow's interests be ignored, Prime Minister Vladimir Putin said on Monday. Russian Energy Minister Sergei Shmatko said earlier in the day that Russia had been effectively excluded from talks at an international investment conference in Brussels on the modernization of the Ukrainian gas pipeline network, adding that the conference, convened by the European Commission, was limited to discussions between Ukraine and the EU. "If Russia's interests are ignored, we will also have to start reviewing the fundamentals of our relations," Putin said. "We would very much like for things not to reach this point." However Ukrainian news agency Unian said Kiev and Brussels intended to involve Moscow in the modernization of the network if Russia wanted to take part in the project. "Ukraine, just like the European Union, has the definite intention to attract Russia as a partner in this large reconstruction and modernization program," Prime Minister Yulia Tymoshenko said. The Russian premier also told journalists that a declaration on the gas market adopted in Brussels by Ukraine and the EU was poorly thought-out and unprofessional. Putin said the European Commission had refused to combine efforts with Russia to jointly allocate funds to Ukraine, whose economy has been badly hit by the global financial crisis. "We discussed at meetings uniting the efforts of Russia and the European Commission, but we were told that the European Commission has no money for Ukraine," he said.

New charges against Khodorkovsky

2009-03-18T11:34:00.001-07:00

03-18-2009 - RIA News - A Moscow court rejected on Tuesday a request from defense lawyers to drop new embezzlement charges against Yukos founder Mikhail Khodorkovsky and his business partner. Khodorkovsky and Platon Lebedev, serving prison terms on tax evasion and theft convictions described by many critics as politically motivated, now face a new trial, on charges of embezzlement and money laundering totaling about $50 billion. The court also rejected the defense's request to return the case for further investigation, and scheduled hearings on the new charges on March 31. Preliminary hearings in the new case against Khodorkovsky, 45, and Lebedev, 42, who are serving eight-year sentences, started in Moscow on March 3. The defense lawyers have described the charges as "ridiculous" and said prosecutors had no evidence to support their case. On Tuesday, lawyers said in a joint statement: "How can the charge of stealing 350 million tons of oil exist, if this insane case's 188 volumes [of case materials] contain no document, no line, no hint as to even one missing ton or kilogram?" The request to suspend confinement for the former businessmen during the trial was also turned down, as was a request to remove part of embezzlement charges due to the expiry of the period of limitation. "The court has ruled to turn down all the appeals lodged by the defense during the preliminary hearings," the Moscow City Court's press secretary Anna Usachyova said. A lawyer acting for Khodorkovsky, Vadim Klyuvgant, said the defense had not decided if it would appeal the court rulings. Klyuvgant said most appeals had been rejected as premature. Lebedev's lawyer, Yelena Liptser, said Moscow's Khamovniki Court would be unable to bring a just verdict on the second set of charges, as there had been numerous violations during the investigation, as well as during preliminary hearings. "There were so many violations that it makes it impossible to bring a fair ruling, and this outrage should be stopped," she said, adding that an appeal would be made to the European Court of Human Rights if her client was convicted on the second set of charges. The defense team acting for the Yukos founder and his business partner earlier said they planned to summon Finance Minister Alexei Kudrin to testify. "Kudrin signed a series of regulatory documents ... Being law-abiding citizens, Khodorkovsky and Lebedev were guided by them [in their business decisions], and we would like Kudrin to give testimony at the trial," Konstantin Rivkin, who is acting for Lebedev, said on March 11, without elaborating further. The lawyers earlier demanded the removal of prosecutors Dmitry Shokhin and Valery Lakhtin from the case, saying they had been involved in the businessmen's first trial and were biased. They also accused the presiding judge of bias and requested his dismissal. Viktor Danilkin refused to step down, saying there were no grounds for him to do so. Once Russia's largest oil producer, Yukos collapsed after charges of tax evasion led to the company being broken up and sold off to meet debts. The bulk of the company's assets were bought up by state-run oil company Rosneft

Russian tycoons fall off Forbes rich list amid credit crunch

2009-03-12T07:30:00.001-07:00

NEW YORK, March 12 (RIA Novosti) - Low commodity prices and stock declines amid the global credit crunch have slashed the net worth of many of Russia's super-rich, sending them down the rankings in the Forbes rich list published on Thursday. According to the magazine, Russia now has only 32 billionaires, down from last year's 87. None of them made it into the world's top 20 this year, compared to four in 2008. "Russia became the epicenter of the world's commodities bust, dropping 55 billionaires - two-thirds of its 2008 crop... Together with the 32 who managed to stay on the list, Russian billionaires and former billionaires lost $369 billion," Forbes said. Oleg Deripaska, ranked last year as Russia's richest man and the world's ninth richest, has seen much of his wealth disappear, due partly to falling aluminum prices and the heavy debt burden of his business empire, Forbes said. His personal wealth has shrunk from last year's $24.5 billion to $3.5 billion, ranking him 164th in the world. Mikhail Prokhorov, who sold most of his stake in the world's largest nickel company, Norilsk Nickel, to Deripaska before the company's value plummeted, is now Russia's richest man, with $9.5 billion, and is ranked 40th in the world. Chelsea FC owner Roman Abramovich has also been hard-hit by falling metals prices, seeing his share in steel giant Evraz lose two thirds of its value. His fortune has more than halved, to around $8.5 billion, which still keeps him among Europe's top 25 billionaires. Alexander Lebedev, who bought London's Evening Standard last year, has seen his fortune fall from last year's $3.1 billion to below $1 billion. Other high-profile victims are real estate magnate Kirill Pisaryov, down $5.5 billion to $600 million, Russia's richest woman Yelena Baturina, down $3.3 billion to $900 million, and fertilizer tycoon Vyacheslav Kantor, down $1.9 billion to $700 million. The number of billionaires in Moscow has fallen from last year's 74, which had put it in first place globally, to 27.

Russia ‘Not Yet on Brink’ of Downgrade, Moody’s Says

2009-03-11T08:47:00.001-07:00

March 11 (Bloomberg by Emma O’Brien) -- Russia is “not yet on the brink” of a credit-rating downgrade by Moody’s Investors Service as the ruble and foreign reserves stabilize and the government resists taking corporate debt obligations. The ratings firm has no current plans to follow Standard & Poor’s and Fitch Ratings, which both cut their debt ratings for Russia since December, according to Jonathan Schiffer, Moody’s lead analyst on Russian sovereign debt. Moody’s rates Russia at Baa1, three levels above non-investment grade and a step higher than equivalent ratings from S&P and Fitch. “Relative to where they were a couple of months ago, things are looking better for Russia, they’re no longer in free fall,” Schiffer said in a telephone interview from New York yesterday. “They would seem to have the resources to deal with debt payments for the next 12 to 18 months.” The ruble has gained 2.7 percent against the dollar since the end of January, paring a 35 percent slide in the previous six months that caused the central bank to drain more than a third of its foreign-currency reserves since August to slow the depreciation. Investor confidence is returning after oil, Russia’s main export earner, rebounded 1 percent this year and the central bank deterred speculators with pledges to defend the currency and restrict bank lending. The government is insulating the country’s finances from the debt burden of Russian companies. First Deputy Prime Minister Igor Shuvalov said yesterday that the government won’t guarantee taking over companies’ debt, a month after state lender Vnescheconombank said it will stop issuing loans to help companies repay foreign debt. Not Taking on Debt After giving loans to companies such as United Co. Rusal, the aluminum producer controlled by Oleg Deripaska, the government will no longer provide bailout cash to oligarchs and business tycoons, said Arkady Dvorkovich, President Dmitry Medvedev’s economic adviser, according to a Wall Street Journal report March 9. Rusal and steelmaker Evraz Group SA benefited from $11 billion in government funds last year. “From the point of view of the sovereign rating, it’s a good thing as it means that the government’s not taking onto its books all manner of other debts,” Schiffer said. “Going forward, the Rusals of the world are going to have to find their own solution.” Reserves rose $2.4 billion to $384.3 billion in the week to Feb. 27, as the strengthening ruble limited the need for the central bank to spend its foreign-exchange reserves. The $820 million decline of reserves in February was the smallest monthly drop since August. Arresting Drop Russia’s reserves, the world’s third-largest after China’s and Japan’s, have fallen 36 percent from a record $598.1 billion in the second week of August when Russia’s war with neighboring Georgia led investors to shun the country’s assets. Investors have withdrawn more than $300 billion from Russia since August, according to BNP Paribas SA data. The Micex stock index has slumped 49 percent in the period as Urals crude, the country’s chief export oil blend, fell 70 percent from a record $142.94 a barrel in July. Russia is “seen as going in a good direction rather than a bad direction,” Schiffer said. “They no longer have $600 billion, that’s clear, but they still have a reasonable amount of money. The rate at which the reserves decline is slowing is a good thing.” State Debt Moody’s, which raised its rating on Russia in July from Baa2, lowered its outlook on the rating in December to “stable” from “positive” because of the reserves attrition and lack of action to stabilize the banking system. S&P cut its debt rating for Russia for the first time in nine years that month and Fitch followed in February with its first downgrade of Russia in more than a decade. Both rating companies reduced Russia to BBB, two steps above the high-yield, high-risk category, citing capital outflows and declining reserves. State foreign debt dropped 9.8 percent last year to $40.5 billion as of Jan. 1, according to the Finance Ministry. That leaves the country “in a reasonable position at the moment,” Schiffer said. Banks such as OAO Sberbank and VTB Group are “not in great difficulty” and state-linked companies such as OAO Gazprom, the world’s largest gas company, and OAO Rosneft, Russia’s biggest oil producer, are likely to have enough access to funds to be able to pay their own debt, Schiffer said. Gazprom has $7.3 billion of debt due this year and Rosneft has $3.1 billion maturing in 2012, according to Bloomberg data. ‘Managing Better’ “Some countries are going to manage better than others and Russia seems to be in the latter category at this stage,” Schiffer said. “The issue is, can they pay their debt? They should be able to pay that for quite some time to come.” The ruble traded at 39.4375 against the basket, down 0.4 today and snapping a two-day advance. That’s still 3.8 percent stronger than the 41 level that Bank Rossii said it would defend in January when the central bank brought the ruble’s “gradual devaluation” to an end. Russia’s transition to a “dirty float” of the ruble is a “step in the right direction,” said Schiffer, adding Russia will probably eventually be forced to move to a full free float of the currency as the global crisis continues. In a dirty float, a central bank intervenes sparingly in a currency, only when it is judged necessary to avert an economic shock. Basis for Recovery The stabilization of the ruble and oil prices provide a “good basis” for recovery in Russian equities, Goldman Sachs Group Inc. analysts wrote in note today, echoing comments by UBS AG yesterday. Russian shares will play “catch up” with other emerging markets as investors target the stocks because they are cheap, the UBS report issued yesterday said. The benchmark Micex Index slipped 1.1 percent to 742.21 at 2:35 p.m. in Moscow, after closing yesterday at a four-month high. Crude oil fell for a second day in New York.

Medvedev’s Golden Hundred

2009-03-02T08:03:00.001-08:00

February 27, 2009 - Russia Profile by Vladimir Frolov - Last week the Kremlin publicized a list of 100 potential appointees to senior government positions—the top part of a much more extensive list of people making up the presidential personnel reserve, which Dmitry Medvedev sought to establish right after taking office last year. What is the significance of Medvedev’s activism in personnel policy? Is it a sign of his growing strength or a sign of desperation over his inability to change the entrenched bureaucratic system? Medvedev said that he had personally approved the first 100 candidates and planned to meet with them in the near future. He nominated one of the candidates on the new list, the 33-year-old Federation Council Senator Andrei Turchak, as governor of the Pskov region. Fifity-year-old Garry Minkh, the oldest person on the list, was appointed the Kremlin's envoy to the State Duma last week. An extensive lineup of Russia’s top business executives was included in the top 100 list, including former RusAl Chief Executive Officer (CEO) Alexander Bulygin, Yandex CEO Arkady Volozh, VTB-24 CEO and former Finance Minister Mikhail Zadornov, Sistema CEO Leonid Melamed, Vimpelcom/Beeline CEO Alexander Izosimov, and Lev Khasis, the CEO of the X5 Retail Group, which runs the largest chain of supermarkets in the country. Other candidates included four State Duma deputies (three from United Russia and one from the Communist Party), an assortment of young technocrats from government ministries, and even well-known economic liberals like Sergey Guriev, the provost of the Russian Economic School. Women such as Olga Dergunova, the former head of Microsoft in Russia and a senior executive at the state-owned VTB Bank at present, account for ten percent of the candidates on the list. None of the candidates is an active or former member of the security services, the pool from which Vladimir Putin used to draw most of his men into government (Igor Barinov, the Duma Deputy from United Russia who opens the top 100, served in Russia’s special forces, but has no KGB background). In an unusual occurrence, the top 100 list was publicly presented to the media by the Kremlin’s Chief of Staff Sergei Naryshkin, who promised to reveal the entire list of the presidential personnel reserve. The Kremlin is trying to convince the public that it knows how to respond to the growing personnel crisis in the country, and is prepared to significantly broaden the base from which it draws talent. Last week, Medvedev fired four regional governors and replaced a cabinet minister (Alexey Gordeev from the Ministry of Agriculture, a holdout from Boris Yeltsin’s era, was appointed the new governor of the Voronezh region) in an effort to boost the effectiveness of the regional governments in handling the financial crisis. Medvedev later told the Federation Council that “there will be an ongoing rotation in the cadre. In a situation where the impacts of the crisis are not subsiding but intensifying, the leaders of the Russian regions are required to have the ability to be able to work under these new conditions - to be able to work collectively and in a highly disciplined way,” he said. Citing anonymous sources, the Vedomosti daily reported that Medvedev plans to tap his list to overhaul much of the Russian political elite as soon as next month, when “some major changes in the government are planned.” Where do prime minister Putin and his friends from the “siloviki” stand on this? Have they signed off on the list, or do they not really care about it, since they know that it is intended largely for public consumption and will not be used in real personnel decisions? Is this a “parlor trick,” or a real effort to replenish the elite? How will this effect Russia’s political system and the government’s handling of the economic crisis? Will personnel reshuffles in the regions help stave off large scale social protest? What is the meaning of bringing star business executives and economic liberals into government? Is it a sign of new openness to talent from outside of the traditional elite structures, or a desire to maintain a semblance of political choice? Are there international precedents for Medvedev’s presidential personnel reserve for public service? Is there a precedent in Russia’s own history? How is this issue dealt with in Western political culture? Is this in any way similar to the U.S. presidential transition?

Capital flight from Russia reaches $40 bln in January - minister

2009-02-26T09:05:00.001-08:00

AKSAKOVO (Moscow Region), February 26, 2009 (RIA Novosti) - Capital flight from Russia reached some $40 billion in January, although the flow of money out of the country has now ground to a virtual halt, the finance minister said on Thursday. Alexei Kudrin told a meeting at the Federal Tax Service that net capital flight stood at around $130 billion in 2008. Addressing the service earlier Kudrin said that some $200 billion had been taken out of Russia from October 2008 through to late January 2009. "Those who wanted to take it out, did so, including Russian companies," the minister said. Kudrin gave an assurance that despite the capital outflow Russia would not introduce any currency limitations and that the ruble would remain a freely convertible currency. He added that the Russian oil industry would earn an additional 800 billion rubles ($22 billion) in 2009 due to the ruble's devaluation. Speaking about Russia's GDP, Kudrin said it was expected to fall in 2009, even if oil prices rise to $55 a barrel. The current forecast is $41 per barrel. "GDP will fall, even if oil prices climb not to $41 per barrel, but $44, $50, or $55," he said. With oil prices at $40 per barrel, the Reserve Fund will last 2.5 years provided budget parameters for 2010-2011 are kept within this year's target, the finance minister said. "Later we will have to balance the budget either by cutting spending, through borrowing or tax hikes," Kudrin said. He also said the country could be forced to cut spending further if oil prices fall below $40. Under an established forecast for 2009, drafted by the Economic Development Ministry, Russian GDP is expected to fall by 2.2% and industrial output by 7.4%, if the price for benchmark Urals oil remains at $41 per barrel.

Kremlin critic slams U.S. plans to 'reset' Russian ties

2009-02-26T08:50:00.001-08:00

MOSCOW, February 26, 2009 (RIA Novosti) - A former Russian presidential aide known for his criticism of current Kremlin policy has hit out at the U.S. administration's intention to "reset" ties with Moscow. Speaking in English on Wednesday before the U.S. House Committee on Foreign Affairs at a hearing on U.S.-Russia ties, Andrei Illarionov suggested that Washington's desire to improve relations with Moscow had been met with "joy and satisfaction" by what he called 'the Russian Chekists," a reference to the former Soviet secret police organization, a forerunner to the KGB. U.S. Vice President Joe Biden said earlier this month in Munich that relations with Russia would be given a new start after years of tension between Moscow and the administration of former U.S. president George W. Bush. "It is time to press the reset button and to revisit the many areas where we can and should be working together with Russia," Biden said. The Kremlin critic told the House that Biden's so-called Munich statement had been interpreted by the Russian leadership as the acceptance by the U.S. of "the idea of the de-facto restoration of the Russian Chekists' influence and power over the post-Soviet space." Illarionov, who served for three years as an economic policy advisor during Vladimir Putin's presidency, is currently a senior fellow of the Cato Institute, Washington, DC, and president of the Institute of Economic Analysis in Moscow. He resigned from his position as economic policy advisor in 2005, saying "the country has stopped being free and democratic." He also said Biden's statement was "not even an appeasement policy that is so well known to all of us by another Munich decision in 1938. It is a surrender. A full, absolute and unconditional surrender to the regime of the secret police officers, Chekists, Mafiosi, and bandits in today's Russia." Illarionov also issued a warning about the consequences of such a "surrender." "Those who retreat and surrender will get not peace, but war, war with unpredictable and nasty results," he said.

Russian GDP down by 8.8% in January year-on-year

2009-02-26T08:49:00.001-08:00

MOSCOW, February 24, 2009 (RIA Novosti) - Russian GDP fell 8.8% in January 2009 compared with the same period last year, the Economic Development Ministry said on its website Tuesday. "The main reasons for the economic recession in January 2009 were a considerable reduction of industrial output and investment activity, a drop in construction and slower growth in consumer demand," the ministry said. Economic Development Minister Elvira Nabiullina earlier said Russia's GDP, adjusted for seasonal factors, fell by 2.4% from December 2008. Russian exports stood at $20.2 billion in January 2009, down 41% year-in-year. Adjusted for seasonal factors, investment in fixed capital fell 1.9% in January 2009, a slower decline than December's 3.1%.

Russian Billionaire Total Halves to 49, Finans Says

2009-02-26T08:48:00.001-08:00

Feb. 13, 2009 (Bloomberg by Alex Nicholson and Ellen Pinchuk) - The number of Russian billionaires shrank to 49 from 101 in past year as asset prices tumbled and the global financial crisis pushed the country to the brink of recession after a decade of growth. Troika Dialog Chairman Ruben Vardanian, Mirax Group founder Sergei Polonsky, Sibir Energy Plc’s Chalva Tchigirinski and OAO Polymetal shareholder Alexander Mamut are among the 51 Russians who lost their billionaire status, Finans magazine said in an e- mailed statement today. The magazine will publish its sixth annual list on Feb. 16. Ex-billionaire Tchigirinski burst out laughing when asked how he felt about not being on the list. “Nobody knows who’s going to stay or not,” he said by telephone today. Russia’s 10 richest people saw their wealth drop by 66 percent to a combined $75.9 billion since the last survey by Finans, a Russian rival to Forbes. The Price of Urals crude, Russia’s chief export earner, has fallen 51 percent since Feb. 13 last year to $44.39 per barrel today. The Micex stock market has dropped 57 percent in the past year and the ruble has plunged 29 percent against the dollar as the global slowdown hobbles demand for the country’s energy and metals exports. Now, Russia’s richest are putting up chunks of their empires as collateral for government support, or loosing them to foreign creditors, after companies tripled their international debt in the past three years.
Deripaska’s Rusal: Oleg Deripaska, the 41-year-old founder of United Co. Rusal, the world’s biggest aluminum company by capacity, topped Finans’ list last year with a $40 billion fortune. In October Deripaska was forced to cede stakes in auto-parts maker Magna International Inc. in Canada and German builder Hochtief AG to banks after the stocks lost more than half of their market value. The magazine didn’t say how much he is worth now. Rusal was able to hold on to a 25 percent stake in OAO GMK Norilsk Nickel, Russia’s biggest metals producer after a $4.5 billion bailout loan from state development bank VEB. Some of Russia’s newest billionaires who owed their fortunes to the building boom were also the first to leave Finans’ list. Eight of the 15 mentioned in the press release made their money entirely or in part in construction. Work on Tchigirinsky’s Russia Tower, designed by architect Norman Foster to be the tallest building in Europe at 612 meters when completed, was “frozen” along with other projects in November.
Downgraded: Polonsky’s Mirax Group was downgraded by Fitch Ratings on Feb. 10 to CCC, eight steps below investment grade, on concern the company will struggle to meet its commitments to pay $133 million of debt due this year. The billionaire at the bottom of the top 10 is now worth $4.5 billion, compared with $15 billion for TNK-BP shareholder German Khan a year ago. “The majority of people are happy; they like that these oligarchs are getting poorer,” Tchigirinsky said. “Mentally, after the revolution and socialism they like it, they think these oligarchs deserve it.”

Financial crisis wipes out two-thirds of richest Russians' wealth

2009-02-13T07:38:00.001-08:00

MOSCOW, February 11, 2009 (RIA Novosti) - The global financial crisis has slashed the total wealth of Russia's top ten billionaires by 66% to $75.9 billion in the last 12 months, a leading Russian financial magazine said on Wednesday. According to Finans's 2008 rating, the combined wealth of Russia's top ten richest people was estimated at a record level of $221 billion. First place was held by Oleg Deripaska, the owner of aluminum giant RusAl, with $40 billion. (Richest Russians - Image Gallery) The 2008 list of Russia's ten richest people also included Roman Abramovich, the owner of London's Chelsea football club ($23 billion). This time last year, it was necessary to possess $15 billion to join the list of Russia's top ten richest people. That figure has now fallen to $4.5 billion, Finans said. Finans is to publish its new rating report on Russian billionaires on February 16.

Monument to 'goddess' Tymoshenko to be unveiled in Ukraine

2009-02-09T13:22:00.001-08:00

KIEV, February 9 (RIA Novosti) - A monument to Ukrainian Prime Minister Yulia Tymoshenko is to be unveiled in the west of the country on Tuesday, a local artist told Ukraine's UNIAN news agency on Monday. In commenting on his project, Anatoly Fedirko said he was inspired by the thought that "a simple Ukrainian woman, who is beautiful and an economist by education, must survive as a politician in a hostile male environment." "It is no exaggeration to say that Yulia Tymoshenko is a goddess who needs to change her wardrobe every day regardless of the world economic crisis," he said. The monument is to be unveiled in Ukraine's western "cultural capital" of Chernovtsy on the city's Main Street. Before becoming Ukraine's first female prime minister, Tymoshenko was one of the key leaders of the 2004-2005 Orange Revolution, during which some Western media publications dubbed her "Joan of Arc of the Revolution." Prior to her political career, Tymoshenko was a successful but controversial businesswoman in the gas industry. She first became prime minister in 2005, and was named to the post for a second time in late 2007. She is also widely expected to be one of the frontrunners in presidential polls due in the former Soviet republic in 2010.

CSTO: joining forces in a crisis

2009-02-09T13:11:00.001-08:00

MOSCOW. (RIA Novosti military commentator Ilya Kramnik) - The Collective Security Treaty Organization (CSTO) is gradually transforming itself into a full-blooded military set-up. A key factor here has been the decision taken just now at the organization's Moscow summit to set up a collective rapid-response force to help bloc members to repulse aggression or in an emergency. The strengthening of the CSTO has been one of Russia's main foreign policy successes in recent years. The process was a long and difficult one: the treaty, signed in 1992 following the collapse of the Soviet Union, remained on paper for a long time. It was not until 2000, when Russia began regaining its influence in Central Asia, that the treaty took on a life of its own. In 2002, an organization with a permanent structure was set up on the basis of the treaty. This was a time when Russia and the United States vied for a leading role in Central Asia, where the U.S. set up its bases after 2001 to supply NATO's troops in Afghanistan. The rivalry ended with the U.S. pulling out of most Central Asian republics where it originally deployed its forces. The government of Kyrgyzstan has recently decided to scrap its agreement with the U.S. on the Manas Air Base. This step will make the Americans seek new supply routes for their troops in Afghanistan. Current events show a strong desire on the part of CSTO member-countries and above all Russia to pursue an independent policy in this area, keeping third countries out. A collective rapid-response force will give the CSTO a quick tool, leaving no time for third parties to intervene. The make-up of the force is not yet defined. Russia was expected to make the largest contribution - an airborne division and an assault landing brigade. Some sources say these are units deployed in Ivanovo and Ulyanovsk, that is to say, the 98th Guards Svir Airborne Division (Ivanovo) and the 31st Guards Independent Order of Kutuzov 2nd Class Assault Landing Brigade (Ulyanovsk). Kazakhstan was to provide a brigade and become the second largest contributor. It has so far been decided that each participating country will contribute a battalion each. This is due, on the one hand, to fears that big-time players, Russia and Kazakhstan, and perhaps Belarus later, might wield too much clout, and on the other, to the insufficient economic strength of the other members to allow them to contribute more. Still, even such a limited force can deal with a number of situations - above all the suppression of terrorist and radical movements at short notice. A larger force is better fitted to fighting organized gangs or regular armies, but the CSTO is not yet facing such threats. The rapid-response force is a major but so far only one of the first steps toward creating a powerful military political organization. The bloc's future progress will depend on the ability of its member-countries to address the global crisis - without a workable economy it is impossible to build modern armed forces. In this context, Russia appears to play a much greater role and remain the undoubted CSTO economic leader despite the crisis. Russia's ability to stay economically sound and act as a powerhouse for its partners will be central to its claims to leadership among former Soviet republics and to the future role of the CSTO as one of the tools of that leadership. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

Putin Wants Loopholes Closed

2009-02-05T09:11:00.001-08:00

05 February 2009 - The Moscow Times by Anatoly Medetsky - Prime Minister Vladimir Putin on Wednesday ordered the elimination of loopholes that allow foreign entities to flout the government when buying into strategic companies. The law that requires government permission for such investment went into effect last year, installing the prime minister at the helm of a special commission to review potential deals. "We need to remove the gaps that allow some of our economic entities to circumvent the law's provisions and evade clearance for deals with strategic assets," Putin said, presiding over the commission's second session Wednesday. It was unclear whether by using the word "our" Putin meant foreign companies registered by Russian businessmen or any companies that already operate in the country. Putin also called for amendments that would simplify the rules for "conscientious" investors to make Russia more attractive for foreign money when the global economy bounces back. "A rather intense rivalry for investment resources will unfold in the period of a post-crisis development and recovery," he said. "And our task is to work actively on creating the most favorable conditions for bringing this investment into our economy." The work must be quick, open to the public and done in close contact with the business community, Putin said. Nonetheless, the media were deprived of access to the commission's debates on specific proposals to remove the loopholes and make the law more investor friendly. Putin's call to make Russia more competitive in attracting foreign capital echoed his statements last week in Davos, Switzerland, where he said his country would remain open to foreign investment. On Wednesday, the commission was going to review "several" potential deals in the areas of space-equipment building, natural resources and transport, Putin said. The commission had not reported on the session's outcome by Wednesday evening. In an attempt to stress that foreign investors are flocking to Russia despite the global economic crisis, Putin said they had recently filed 45 requests seeking deals with strategic companies. Putin spokesman Dmitry Peskov was unavailable for comment Wednesday afternoon. Yelena Nagaichuk, a spokeswoman for the Federal Anti-Monopoly Service, which handles foreign investors' requests, declined comment. Well-known foreign companies are unlikely to take the risks of breaking the law, said Jonathan Hines, a partner at law firm Dewey & LeBoeuf. "Any big foreign company is going to tread very, very carefully in this area and is not going to do something that might violate the law ... because the consequences of being wrong are just too grave," he said. A deal done in violation of the law is considered void. In addition, no "serious" company would want bad publicity, Hines said. "At the same time, there could be other foreign companies that fall within the law, including some companies owned by Russians," he said. "But because these Russians have invested into foreign companies, they need to comply with this law." Loopholes in the law might include situations where foreigners, without controlling the company through the management or board of directors, have such extensive veto rights that they are in control all the same, Hines said. Another possible issue is that the law allows two unrelated foreign-controlled companies to hold 30 percent each in a strategic asset, he said. "What happens if they have a secret shareholder agreement behind the scenes where they agree to vote everything the same way, that they'll control the investment together?" Hines said. In simplifying the law, the government could allow foreign investors to buy Russian assets from each other if these companies are part of the same larger group, Hines said. There may be an amendment to relieve banks, which are not strategic assets, from falling under the law just because they use encryption devices, he said. The government might also want to raise the 10 percent ceiling for investors in strategic natural resources companies, he said.

Russian government gives gloomy no-growth forecast for 2009

2009-02-02T08:11:00.001-08:00

MOSCOW, January 30 (RIA Novosti) - Russia's GDP growth will be close to zero and budgetary revenues could decline 40% in 2009 amid the ongoing global financial crisis, a deputy prime minister and finance minister said on Friday. "Our economic growth will most likely be close to zero," Alexei Kudrin told the State Duma, parliament's lower house. "Budgetary revenues will decline by 4.4 trillion rubles (about $133 billion), or more than 5.4% of GDP," he added, suggesting Russia's budgetary revenues could decline from 10.9 trillion rubles ($321 billion) to 6.5 trillion ($191.5 billion) He said Russia would have to spend a significant portion of its reserve funds to cover the 2009 budget deficit, and increase borrowing in 2010-2011. The Reserve Fund, designed to cushion the federal budget against a plunge in oil prices, and the National Wealth Fund, to help carry out pension reforms, currently total 7.3 trillion rubles ($215 billion), the minister said. In a report on the global crisis's impact on the Russian economy prepared for parliament, the Finance Ministry said GDP grew 6% in 2008, two percentage points less than in 2007, when GDP grew 8.1%. Kudrin said that in 2009 capital outflow could hit $110 billion and export revenues were expected to go down by $200 billion to $269 billion in 2009, and imports to $245 billion. Kudrin said the state had spent 1.145 trillion rubles ($33.8 billion) on measures to support the economy, which is heavily dependent on oil and gas exports, prices for which have plummeted as the crisis has dampened demand worldwide. First Deputy Prime Minister Igor Shuvalov said the current global crisis would continue for three years, and 2009 would be the hardest year. "On the whole the situation will be rather difficult throughout 2009," Shuvalov said. He said Russia could not "withstand global trends," but pledged anti-crisis measures.

The Arctic in NATO's Crosshairs

2009-01-30T09:05:00.001-08:00

January 26, 2009 - The Voice of Russia by David Brian - The endless desert of snow and ice has always been a subject for dispute among politicians, diplomats and scientists. The Arctic territory has now become a subject of a military dispute. NATO has declared it a strategically important region. The announcement was made by NATO spokesman James Appathurai who also said a meeting with the participation of high-ranking NATO officials is to take place January 28-29 in Reykjavik, Iceland. The list of participants leaves no doubt about NATO’s real goals in the region. The decision of the Western defense alliance to declare the northern territories as strategically important will create a tense international situation in the region. The struggle for the Arctic is becoming the subject of long-term military games. Chances are very high, therefore, that they will send military units to the Arctic sooner or later. Those, who keep an eye on the developments around the Arctic territories, will hardly fail to see that Mr. Appathurai’s remarks come hard on the heels of the initiatives outlined in the US national security directive. The document says that Washington has fundamental national interests in the Arctic region. These interests are crystal clear: missile defense, strategic deterrence, marine security operations. There are no references to terrorists or pirates, who obviously feel themselves way more comfortable in the warm waters off the coast of Somali than among the polar bears of the Far North. The US, Canada and NATO make no secret of why they need a military group deployed in the Arctic region. Their ice-breakers will arrive in the region to defend national interests of those members of the alliance who claim their right to the natural wealth of this part of the planet. The Arctic contains about 90 billion barrels of unexplored crude and enormous reserves of natural gas, which could be comparable to those of Russia making up about 30 percent of global gas reserves. Experts say that by 2030 Russia will be using many of its Arctic gas deposits to extract about 50 percent of its natural gas. For example, the Shtokman deposit in the Barents Sea contains 4 trillion cubic meters of gas. Fully aware of the Arctic’s strategic importance, Russia is ready to respond adequately to NATO’s claims. That is why NATO is in such a rush to stake out these claims in the region. Russia’s marine doctrine, which was signed during Vladimir Putin’s presidency, singles out the Arctic territory as one of the major directions of the country’s naval policy. Russia’s Security Council is to unveil a new strategy of Arctic development at the end of January. The key message of the document will be as follows: “Russia is not going to give the Arctic away.” Moscow also wants to considerably intensify the freight traffic activity along the Northern Seaway during the upcoming years and plans to build for this purpose six new powerful nuclear icebreakers before 2020. About a year from now Russia will submit to the UN documents substantiating its claim to the Arctic shelf. Five countries of the Arctic Ocean – Russia, Canada, the US, Norway and Denmark – made a reasonable decision last year to carve up the Arctic region on the basis of existent conventions only. However, NATO’s plans to add a military dimension to the Arctic dialogue may lead to drastic changes in the approach to the current issues. All this may result in a new flare point of tension on the global map…

Russia's Putin to open Davos forum

2009-01-29T15:40:00.001-08:00

MOSCOW, January 28 (RIA Novosti) - Russian Prime Minister Vladimir Putin will give the keynote address at the opening of the annual World Economic Forum in Davos, Switzerland on Wednesday. The forum, which will last until February 1 and involve over 40 leaders, will focus on ways to overcome the global financial crisis and anticipate its implications for further economic development. "Putin will speak about the crisis, and outline his ideas on the post-crisis period, the necessity of reviewing the current economic situation in order to protect us from new crisis in future," press secretary Dmitry Peskov said. "No doubt, he will mention measures being take by the Russian government on the national level to minimize consequences of the crisis. Perhaps he will briefly fix on the international situation," the official added. He said the forum would be a good opportunity for Putin to explain Russia's position on many problems, including the gas crisis earlier this month, when Russian gas transit to Europe via Ukraine was halted. Peskov said encouraging foreign investment in Russia was one of the goals of Putin's trip to the forum, and the premier would try to bring it home to world leaders that Russia "remains attractive for international investment and retains great potential for further growth." The participants of the forum, tentatively more than 2,500 people from 96 countries, are expected to discuss financial system stability, global economic recovery and problems of global, national and regional management in the long-term outlook among other issues. "Although no decisions are taken at the forum, discussions are subsequently considered when taking collective decisions as well as in decisions by certain countries and international organizations," said Yury Ushakov, a deputy chief of staff in the Russian government. The Russian delegation will number some 50 people, representing such companies as LUKoil, Bazel, RusAl, Novatek, Severstal, AFK-Sistema, VimpelCom, Wimm-Bill-Dann as well as the Development Bank and VTB. In an interview with the Bloomberg financial news agency on Sunday, Putin said the Russian delegation at the Davos forum intended to confirm its commitment to developing common standards for the world economy, as well as unified principles for international financial markets. According to Putin, the European Union has elaborated some agreements and Euro-zone countries are trying to comply with them, but there are no similar rules on a global scale. "They in general would play a stabilizing role. Secondly, now, in the conditions of globalization, inter-dependence is so great that all the countries would be interested in that," Putin said. "For example, Russia holds almost 50% of its gold and foreign currency reserves in the U.S. economy and it is important for us what the U.S. budget deficit in 2009 is," he added.

Rights court to hear Yukos case

2009-01-29T15:38:00.001-08:00

01-29-2009 - Upstream OnLine - The European Court of Human Rights has ruled that a case brought against Russia by shareholders in collapsed oil company Yukos is admissible and will be examined, a spokesman said. The decision paves the way for a trial of the case, in which shareholders argue that they were stripped of their possessions. "The admissibility decision has been pronounced and communicated to both parties," a spokesman for the Strasbourg-based court said. Once Russia's largest oil company, Yukos was brought to its knees under a multibillion-dollar back-tax claim that led to its bankruptcy and asset sales at state-forced auctions, most of which were snatched up by state-owned Rosneft. Yukos founder Mikhail Khodorkovsky is serving a nine-year prison sentence in Siberia. The company's former chief financial officer, Bruce Misamore, welcomed the decision in which he said the court had ruled that "aspects of the complaint" were admissible. "The decision by the European Court of Human Rights to investigate elements of our claim is excellent news for all of Yukos Oil Company's stakeholders," he said. "This is an important step towards the vindication of the company's belief in the rule of law - something it never secured in Russia," he said. Earlier today, Russia's ambassador to rights body the Council of Europe denounced what he called the "politicisation" of the court, which has repeatedly ruled against Russia for rights abuses in Chechnya, Russian prisons and elsewhere. Russia's lower house of parliament has refused for two years to ratify a protocol of the European Convention on Human Rights that would speed up the court's work. "The main reason is due to the political context and a certain politicisation of the court's work we have observed recently," Russian ambassador Alexander Alekseev told Reuters.

EU cannot trust Russia or Ukraine, Barroso says

2009-01-22T09:35:00.001-08:00

20.01.2009 - EUObserver by Philippa Runner - BRUSSELS - The leaders of Russia and Ukraine are less trustworthy than some African countries, European Commission President Jose Manuel Barroso said on Tuesday (20 January), as Russian gas finally began to arrive in EU states after a 13-day freeze. "I was very disappointed in these past few days by the way the leadership in those countries negotiates," the commission chief said, after making more than 30 personal telephone calls to Moscow and Kiev during the gas dispute. "I've been involved in mediation processes since I was young, including in African matters. It's the first time I saw agreements that were systematically not respected," he added. "Gas coming from Russia is not secure. Gas coming through Ukraine is not secure. This is an objective fact." The withering remarks come after Russia's Gazprom on Tuesday morning began pumping the normal amount of gas - 424 million cubic metres a day - to Ukraine and initial deliveries arrived in Hungary and Slovakia hours later. The resolution of the gas crisis will see Kiev pay double for gas in 2009 compared to 2008, with Brussels hoping the deal does not fall apart amid mounting political and economic turbulence in Ukraine. "This very peculiar episode is over. Let's hope it's over," Mr Barroso said. Apart from pushing for new pipelines and EU energy solidarity investments, the commission indicated the gas dispute could provoke legal action against Russia and Ukraine under the Energy Charter Treaty (ECT), a 1994 multilateral pact. "There is an Energy Charter Treaty that was signed but not ratified by Russia [and] a charter treaty signed and ratified by Ukraine. So here we have ...some public responsibilities in terms of international law," Mr Barroso explained. "We were preparing [legal] action for today, in case the gas was not coming back."
Russia not bound by treaty -- The Russian ambassador to the EU, Vladimir Chizhov, rejected Mr Barroso's analysis and questioned the value of the ECT, however. "We follow the principles of the treaty, but we are not bound by the obligations," he told EUobserver. "After hearing for months and years of the need for Russia to ratify the treaty, we have seen that Ukraine, which has signed and ratified it, did not adhere to it in the crisis." The diplomat said the gas dispute is unlikely to influence EU-Russia talks on a new strategic partnership treaty, with business as usual going on despite Mr Barroso's harsh words. "We will have our next working group on economic aspects in about 10 days' time and we'll see. We had one working group on different issues [justice and home affairs] this morning and it went well." "The EU has no reason to distrust Russia," Mr Chizhov explained. "As far as the EU-Russia relationship goes, I think the pattern of dialogue on energy issues has survived and has withstood the challenge."

Gazprom's $1Bln Gift to Tymoshenko

2009-01-21T13:23:00.001-08:00

21 January 2009 - The Moscow Times by Yulia Latynina - Prime Minister Vladimir Putin made it clear that he would never forgive Ukrainian President Viktor Yushchenko for his role in sending arms to Tbilisi to help Georgian President Mikheil Saakashvili fight in the August war -- although the conflict between the two goes back much further, to 2004, when Yushchenko beat out Moscow's preferred candidate in the presidential election. After this, many wondered if Russia would really start a war against Ukraine. On Jan. 1, Russia started a war, using the single most effective weapon in its arsenal -- energy. This was not a war between Russia and Ukraine but one between Putin and Yushchenko. The clear winner in this conflict is Ukrainian Prime Minister Yulia Tymoshenko, and the biggest loser is Yushchenko. The Kremlin was also a loser, but the losses were offset by its success in exposing Yushchenko's incompetence in managing the gas dispute. But what price did Moscow pay for its supposed victory? Tymoshenko, the indisputable winner in the conflict, is a brilliant politician who set her former enemy, the Kremlin, against Yushchenko, her former comrade-in-arms in the Orange Revolution. In the three-week gas war, Gazprom incurred more than $1 billion in lost profits, but this can be written off as a campaign contribution to Tymoshenko's 2009 presidential election campaign. If, in the war between Putin and Saakashvili, it was really South Ossetian leader Eduard Kokoity who emerged as the winner, then in the war between Putin and Yushchenko the clear winner is Tymoshenko. But the Kremlin will pay a huge price for defeating Yushchenko. The European Union's energy commissioner, Andris Piebalgs, has already confirmed that on the same day Putin and President Dmitry Medvedev accused Ukraine of refusing to transport Russian gas, the pumping stations at Orlovka and Sudzhu could not have possibly sent the gas to Europe for technical reasons. Thus, Piebalgs was implying that this was a deliberate, underhanded attempt by Moscow to frame Ukraine as the main culprit in the conflict. It is safe to say that the EU views Russia as an unreliable gas supplier, and I am sure many European politicians are now asking themselves: "Today, the Kremlin is trying to topple Yushchenko --what if tomorrow it uses the same energy weapon to bring down German Chancellor Angela Merkel or French President Nicolas Sarkozy?" There are three planned pipeline projects to supply gas to Europe. The first is the Nabucco pipeline, which is intended to supply Caspian gas to southeastern Europe via Turkey. Nabucco, which is backed by the United States and the EU, is meant to undermine Gazprom's South Stream pipeline, which would also deliver gas to southeastern Europe, but via the Black Sea. The third project is Nord Stream, a Russian-German pipeline that would bypass Ukraine to bring Russian gas directly to Germany via the Baltic Sea. But if as a result of the latest round of the Moscow-Kiev gas conflict the EU decides to build Nabucco and kill the Nord Stream project, this would mean a crushing defeat for the Kremlin's entire European gas strategy. Such a dramatic turn of events is unlikely given that the EU has little resolve to stand up to Russia's blackmail attempts. Moreover, European steel producers, who are in dire financial trouble, are in desperate need of securing the pipeline construction contracts. When a country is able to get anything it wants from its partners because they are weak, I wouldn't call it hooliganism. It is a rational business and political strategy.

The 18-Day Gas War – Why was it fought? Who Won?

2009-01-21T13:09:00.001-08:00

January 20, 2009 - Eurasia Daily Monitor by Roman Kupchinsky - A preliminary, and possibly premature, report of the 18-day Russian-Ukrainian “Gas War” of January 2009 might read as follows: This war should never have taken place. The conflict had little to do with “commercial disagreements” between Gazprom and Naftohaz Ukrainy—these were resolved by the “Memorandum of Agreement” signed on October 2, 2008, by Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko. For unknown reasons this agreement was never allowed to enter into force until January 19, when Putin and Tymoshenko essentially agreed to abide once again by its provisions. The new contract between Gazprom and Naftohaz Ukrainy is for 10 years; and the price for Russian gas, or more precisely Central Asian gas sold by Gazprom to Ukraine, will be based on the generally accepted formula used throughout Europe which links the price of gas to the price of diesel fuel plus transportation costs. Ukraine will receive a 20 percent discount on this price in 2009 and will pay the full European price in 2010. Russia will continue to pay a discounted price for the transit of gas to Europe until 2010, at which time it will begin paying European gas transit prices (Ukrayinska Pravda, January 18). The War was instigated by Putin and Russian President Dmitry Medvedev who decided that the time was ripe to discredit Ukraine in the eyes of European leaders by launching a huge public relations and disinformation campaign to convince the EU that Ukraine was an “unreliable transit country.” By turning off the gas spigot to Europe on January7 and blaming this on the Ukrainians, Moscow began systematically blackmailing Europe into supporting Russia’s plans to build the North Stream and South Stream pipelines. This argument became the central theme at press conferences by Putin and Deputy CEO of Gazprom Alexander Medvedev during the Gas War (see www.gazpromukrainefacts.com, the Gazprom website designed to discredit Ukraine). One major goal of the Russian leadership during the conflict was to discredit and denigrate the freely elected, pro-Western Ukrainian leadership and provide a measure of support for the pro-Russian opposition “Party of the Regions.” The greater gamble was an attempt by Russia to cut off gas supplies to the Eastern and Southern regions of Ukraine by attempting to manipulate the “re-opening of gas supplies to Europe,” using the Potemkin village ploy of opening only one gas entry station to Ukraine. Had the Ukrainian government agreed to this, it would have been forced to stop supplying gas to the highly industrialized and heavily pro-Russian Eastern and Southern regions of the country, thereby leaving itself open to mass discontent (EDM, January 16). Putin’s outlandishly abusive statements about the Ukrainian leadership throughout the conflict were not overlooked by the European Union. His off-the-cuff derogatory remarks calling Yushchenko a “thief” (Kommersant, October 2, 2008) and his liberal use of disinformation did more to bury the Russian public relations effort than anything else. Putin showed himself to be a vindictive and arrogant leader which forced the EU to unite in its response to the crisis. The War finally compelled the EU to do what its critics have been urging the organization to do for years—to speak to Moscow with one voice and not allow itself to be outmaneuvered by the Kremlin-Gazprom (“Kremlingaz”) team. In the early stages of the War, the EU made one large mistake—it agreed with Kremlingaz’s version that the dispute was merely “commercial.” Once Gazprom’s spokesmen took to the microphones in London and Brussels and Putin began his “Ukraineophobic” libel campaign, it became abundantly clear that commerce had little to do with the dispute. In a last ditch effort, Kremlingaz believed that by calling a summit of gas consuming countries in Moscow on January 18, it could once again impose its version of events and continue playing the Europeans off one against the other. This time the EU told its members not to attend and that the EU commission would handle all the talks with Kremlingaz. This stance, along with powerful reprimands of Russian behavior by Angela Merkel and other European leaders made the Russians not only lose face but realize that their game plan was a losing one. Putin and Medvedev had suffered a major blow. Not only did Kremlingaz lose almost $2 billion in revenue (Vedomosti, January 19), Gazprom’s highly touted reputation as a “reliable supplier” vanished in 18 days. The War once again showed that the Ukrainian leadership had dismally failed to take any steps to improve the country’s enormous energy inefficiency. Moreover, its standard backroom deals with Kremlingaz on gas prices were bizarre and opaque. The Ukrainian leadership had always insisted on buying gas at a set price not linked to the fluctuations of oil prices or to the laws of supply and demand. When Tymoshenko agreed to sign a gas contract based on real prices on January 19, the shock for Ukraine’s oligarchs must have been overwhelming. Their subsidized profiteering had come to an end. The only winner in the War was RosUkrEnergo (RUE), the Swiss middleman firm created by Putin and former Ukrainian president Leonid Kuchma in 2004. The January 19 contract removed RUE as the intermediary, but this will not lead to its demise. After years of swearing that RUE was absolutely clean, the Kremlin suddenly began denouncing its own creation as a “corrupt” entity, despite the fact that Gazprom owned 50 percent of the company. In fact, by early 2008 Gazprom, the 50 percent owner of RUE, knew that Turkmenistan would begin selling its gas at European prices in 2009 and this would destroy RUE’s profit margin for resale of the gas to its European clients. As a result there was no reason to maintain RUE as a middleman. In anticipation of this, RUE began buying up lucrative Ukrainian domestic gas distribution companies in 2008. On January 11 RUE co-owner, Dmytro Firtash, told Vedomosti that RUE controlled 75 percent of Ukraine’s highly lucrative domestic gas distribution network, which would make up for the loss of their sales to the EU. Thus the sun kept shining on RUE and it should be able to thrive for years if the Ukrainian and Russian authorities allow it to.

Medvedev takes apparent swipe at Putin

2009-01-20T14:34:00.001-08:00

January 11, 2009 - Financial Times by Isabel Gorst - Dmitry Medvedev, the Russian president, on Sunday took another apparent swipe at Vladimir Putin, rebuking the prime minister’s government for moving too slowly to alleviate the country’s economic crisis. Mr Medvedev said only 30 per cent of the government’s anti-crisis programme drafted last October had been fulfilled. “We have to acknowledge that at the present moment planned measures are being fulfilled more slowly than expected and, most important, more slowly than the current situation demands,” Mr Medvedev said at a meeting at the Salyut engine plant outside Moscow. Most Russians had believed Mr Medvedev would play second fiddle to Mr Putin, who named him as his chosen successor ahead of presidential elections last year. Although several attempts by Mr Medvedev to pursue independent policies have been thwarted, Kremlin watchers have noted a new assertiveness in the president of late. In comments last month that were seen as a signal to Mr Putin, the president said: “The final responsibility for what happens in the country and for the important decisions taken would rest on my shoulders alone and I would not be able to share this responsibility with anyone.” Mr Medvedev used Sunday’s meeting to cite a series of dismal economic indicators, including a 6 per cent drop in Russian industrial output in the final quarter of last year and a sharp drop in global commodities prices, which has hit the resource-based economy hard. He was speaking after Russia’s central bank allowed the rouble to depreciate against the dollar/euro basket and published data revealing that it had almost doubled currency market interventions in December to stem a slide in the rouble. The rouble fell 1.1 per cent to 30.5 to the dollar at the start of trading on Sunday, in the 13th mini-depreciation since November 11. However, the rouble rose slightly against the euro, to 41.2 from its close at 41.4 on December 30. The central bank sold $57.4bn and €12.6bn to buoy the rouble in December, compared with $30.1bn and €2.9bn in November. In all the rouble has lost more than 20 per cent of its value since reaching a peak last August, before the war with Georgia and the onset of the financial crisis, which triggered capital flight from Russia. Aleksey Ulyukaev, the deputy head of the Russian central bank, admitted he was under pressure from Russian bankers to sanction a one-off sharp devaluation to restore the balance of payments and halt the drain on reserves. But he defended the central bank’s slow depreciation policy on Sunday, saying a one-off devaluation would destroy confidence. “If we allowed ourselves to do such a thing we would have to start rebuilding our credit history all over again,” he told the Russian business daily Vedomosti.

Rouble eases further, with prospect of more to come

2009-01-20T14:30:00.001-08:00

12 January 2009 - Russia Today - The Russian Rouble fell to its lowest level in six years against the dollar after the central bank devalued the currency for a second day. The government seems set to continue its policy of a controlled devaluation. Russia's Central Bank has again widened the trading band of the Rouble against the dollar-euro bicurrency basket. The Bank let the Rouble slide nearly 4% to 30 Roubles 53 kopecks per dollar on Monday. That's a fall of 1 Rouble 66 kopecks compared to the fixed rate for the holiday period from the 1st of January. The Euro, meanwhile, declined 30 kopecks or less than a percent. It's the 14th drop since controlled devaluation began on November 11th. Vladimir Tikhomirov, Chief Economist at UralSib, is expecting further easing. "The Central Bank wants to bring the Rouble rate closer to the current state of Russia's trade balance, and the balance of inflows and outflows of capital from the country. The underlying reason here is obviously we have seen quite significant drops in commodity prices." The Central Bank plans to continue its policy of gradual devaluation of the Rouble - which cost it $70 Billion in reserves in December alone. It has also led to decreased confidence in the currency, and a squeeze on lending, according to Oleg Zamulin, Professor, at the New Economic School, in Moscow "It creates expectations of further devaluation and people expect the Rouble to fall. Therefore, they flee from the Rouble and start buying other currency. The banks don't give out loans in Roubles, and therefore this credit activity is pretty much shut out." In real terms, the Rouble strengthened about 4.5% against Russia's major trading partners currencies in 2008. It fell 0.2% against the dollar, but rose 5.3% against the euro. In the first month of 2009 - with credit markets in the U.S. and Europe sliding into recession - analysts predict the currency could dive 10% against the Euro-dollar currency basket.

Oil price collapse wreaks havoc on forecasts and budgeting

2009-01-20T14:03:00.001-08:00

31 December 2008 - Russia Today - The global economic slowdown which unfolded in the second half of 2008, hit Russia hardest through the collapse in oil prices. They have fallen more than 70% in 6 months, making a mockery of predictions earlier in 2008 and undermining the entire Russian economy. After rising steadily over the past five years, 2008 saw oil start the year by powering through the $100 dollar per barrel mark. It continued to climb through the first half, reaching $147 dollars per barrel in the second week of July, amidst claims of speculation and ‘peak oil’ driving prices, and Gazprom CEO Aleksey Miller, speaking in June, tipping even higher prices to come. “We believe speculation is influencing the oil price, but isn’t a determining factor. We are facing a large jump in hydrocarbon prices and they are approaching a new high level. We expect the price to reach $250 per barrel in the foreseeable future.” That "foreseeable future" didn’t arrive with crude prices crashing in the second half of the year - to $35 in late December - as oil exporters were forced to manage a dramatically changed outlook. Russian President Dmitry Medvedev, flagging an increasingly close relationship with OPEC, said the move was needed to protect Russia. “We must protect ourselves. This is our income base in both oil and gas. These protective measures may be associated with decreasing oil production, as well as with the participation as well as with the participation of certain suppliers in certain organizations, and with participation with new organizations if we manage to come to an agreement.” To stem the slide, OPEC has unveiled 3 production cuts since September, with Russian announcing it will join in. OPEC President, Chakhib Khelil, said he is expecting the cuts to put a floor under prices in the short term, and then enable a moderate rebound. “The OPEC decision was made at the right time, and we think also that as soon as the cuts will be effective in January then the market will stabilize around $45 to $55.” Oil managed to edge higher on Middle East tensions in late December. In the longer term prices are hesitantly forecast to rise, although a deepening global economic crisis will continue to play havoc with short term demand. This leaves Russia - about to face its first budget deficit in a decade - and other producers, preparing for the worst, while trying to finance the capital expenditure needed for the longer term.

Gloomy prospects for Russia's international reserves

2008-12-18T13:31:00.001-08:00

RBC, 18.12.2008, Moscow 17:41:28.– According to Russia's Deputy Economy Minister Andrei Klepach, Russia's international reserves will contract by $110bn-140bn to just $300bn by the end of 2009. As of December 1, 2008, the reserves stood at $455.73bn, down 5.95 percent month-on-month. Meanwhile, reserve assets in foreign currency amounted to $404.563bn, with Russia's IMF reserve position at $1.018bn, and special drawing rights (SDRs) at 1bn.

Russia stands by plan to join WTO despite credit crunch

2008-12-18T09:35:00.001-08:00

MOSCOW, December 10 (RIA Novosti) - Despite the difficulties facing Russia's economy amid the global credit crunch, the country has not abandoned its plans to join the World Trade Organization (WTO), the foreign minister said on Wednesday. "Despite continuing doubts in some circles, joining the WTO without unnecessary delays is still a priority of Russian foreign policy. Of course, it may be true that during a crisis period it is better to be outside the WTO system, but we take a long-term view and are aware of our international responsibilities," Sergei Lavrov told a meeting of European businessmen. He said Russia views WTO membership as "a necessary condition for improving the commodity structure of our foreign trade and GDP, and therefore a means for Russia of taking its rightful place in the international labor setup, in the future economy." However, the minister stressed that Russia is not ready to join the WTO "regardless of the price" involved. Moscow had expected to join the 153-member global trade body by the end of next year, but the accession process has dragged on due to a number of political and economic factors. Russia is the only major world economy still outside the WTO. The agreement of all 153 WTO members is necessary for a state to join the global trade body. The majority of analysts believe that Russia will not join the WTO earlier than 2010.

Russian companies most likely to offer bribes abroad says survey

2008-12-18T09:32:00.001-08:00

LONDON, December 9 (RIA Novosti) - Russian companies are considered the most likely to engage in bribery abroad according to the results of a survey of senior business executives released by Transparency International on Tuesday. The international organization, based in Berlin, asked just over 2,700 senior business executives from the world's 22 wealthiest and most economically influential countries how often, in their experience, firms headquartered in particular countries engaged in bribery. The 22 countries were Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, Netherlands, Russia, Singapore, South Africa, South Korea, Spain, Switzerland, Taiwan, the United Kingdom, and the United States. Belgium and Canada were rated the "most honest" countries in the Bribe Payer Index (BPI) with 8.8 points out a maximum of 10. Russia had 5.9 points, while the one but last place was taken by China, with 6.5. The most corrupt sectors were building, real estate, the oil and gas industry and the mining industry. Russia, India and China are among the counties which have not signed the Organisation for Economic Co-operation and Development's convention against bribery. "The BPI provides evidence that a number of companies from major exporting countries still use bribery to win business abroad, despite awareness of its damaging impact on corporate reputations and ordinary communities," said Transparency International Chair, Huguette Labelle, in a press release. "The inequity and injustice that corruption causes makes it vital for governments to redouble their efforts to enforce existing laws and regulations on foreign bribery and for companies to adopt effective anti-bribery programmes. In this spirit, all major exporting countries should commit to the provisions of the OECD Anti-Bribery Convention," she added. The survey was carried out by Gallup International for Transparency International between August 5 and October 29.

Light beckons from depths of financial crisis

2008-12-08T07:35:00.001-08:00

28 November 2008 - Russia Today - The credit crisis has not spared Russia, with its vast reserves and its once-massive windfall fund. But as severe as the current financial mess may seem, it will come to an end and experts are beginning to see light at the end of the tunnel. Recession, depression, depreciation and deflation - these are just a few scary terms that accompany global economy as it goes haywire. But some, including Finance Minister Alexei Kudrin, are beginning to see the light at the end of the tunnel. “The situation has normalized. People don’t seem to be as worried, so banks can slowly return to business as usual. They can finally focus on lending to the real economy. Within a few months, or perhaps even sooner, Russian banks, and State owned banks in particular, will boost their lending programs.” According to Erik Berglof, Chief Economist for the European Bank for Reconstruction and Development, the recovery signs are easy to spot. “We need to wait for the United States to pick up for this region to really have a chance to also turn around in a serious way in terms of growth, and so the most optimistic forecast now are talking about late 2009.” There is no sure way to tell when the global economy hits the bottom. But US economist Nouriel Roubini - who saw the crisis coming in 2006 - said Russia's path to recovering may be shorter than for its Western counterparts. "How fast Russia’s going to recover is going to depend on the set of financial policies and fiscal policies. It will still be a rough year, 2009, but policy responses are going to help to get you [Russia] out of it faster.” As the world nears the end of a total and indiscriminate mistrust in the market, it can count of having stronger banking systems and better regulated financial markets.

2008-12-08T07:34:00.001-08:00

pockin

U.S. Global Trends report predicts gloomy future

2008-11-25T12:14:00.001-08:00

11/24/2008 MOSCOW - (RIA Novosti political commentator Andrei Fedyashin) - The U.S. National Intelligence Council (NIC) published its new report "Global Trends 2025: A Transformed World." It is not a good prelude to President Barack Obama's inauguration on January 20. The report predicts a gloomy future for the United States, and the only scant consolation is that its predictions are for 2025 when neither Obama nor many other current leaders will be in power. The NIC comes up with these reports every four years. This report is the fourth since 1997, and the most dismal, at least for the United States. The report has some good news for Russia. The one negative for us is a reduction from the current 141 million people to 130 million in 2025, which is an open secret. Otherwise, we will continue to benefit from oil and gas, and even global warming. According to the report, by 2025 the European Union will not be able to diversify its energy imports and will still depend on Russian energy sources. By 2025, Europe's energy consumption will go up by 60%, and 57% of all gas reserves will be amassed in Russia, Iraq, and Qatar. Many of the current oil producers will lose their positions, and almost 40% of the world's oil will come from six countries: Russia, Saudi Arabia, Iran, Kuwait, the United Arab Emirates, and Iraq. For aggregate oil and gas reserves, there will be two great energy powers, Russia and Iran. Global warming will bring trouble, like floods and draughts, to some countries, whereas Russia will only gain from it. We will expand cultivated land, and have easier access to gas, oil, and other Arctic mineral resources. Russia will also gain from the opening of Arctic navigation. However, Russia may not be so lucky if it does not invest heavily in human resources, expand and diversify its economy (that is, if it does not kick its oil and gas habit), and integrate into the world markets. Our influence will not grow if oil prices do not exceed $50 to $70 per barrel. The report predicts that the United States will continue losing its influence. It will remain a powerful state in 2025, but will be less dominant. The same fate will befall the dollar. The void left from America's decline will be filled by Brazil, India, China, and the Korean Peninsular (apparently, by that time two Koreas will merge). The latter three are likely to form an association. The world will become multipolar, and Western models of economic liberalism and democracy will lose their appeal (which is already happening). The EU will lose its influence and become a "hobbled giant." Wars may break out because of limited resources, water, oil and gas... This sounds horrible. It would sound even worse if these reports were flawless. In the previous reports for 2010, 2015, and 2020, intelligence analysts made forecasts which contradict what they are writing now. They predicted the growth of the EU's role and influence, and the steady advance of Western economies by about 2% a year through 2010. These reports are not accurate forecasts but rather a reminder for U.S. leaders what will happen if they do not pursue this or that policy. They offer food for thought and encourage certain ideas. To see whether the NIC is objective in its reports, we should recall what it is. This is the number one think tank headed by the director of the U.S. National Intelligence Council, Michael McConnell, and conducts medium- and long-term strategic analysis. Its current chairman Thomas Fingar is his direct subordinate. The NIC was set up in 1979. The NIC submits its reports to all U.S. leaders. National Intelligence Estimates (NIE) is its main commodity. Most of them are classified, but there are always inspired leaks to the press. The council makes what it calls over-the-horizon analysis. Sometimes, it goes far beyond that for political reasons. The NIC, as is often the case with intelligence organizations set up for administrations, always deviates moderately from the party line. With time it dawns on them that they are expected to say what is required of them rather than make predictions. This makes the NIC's role most unrewarding. It is supposed to coordinate the analytical reports of all U.S. intelligence centers - the CIA, the Defense Intelligence Agency, the political intelligence of the Department of State, intelligence services of the army, air force, and navy, as well as of the border patrol, the departments of the Treasury and Energy, and finally, the FBI (counterintelligence). But here is the problem. All these services and departments are trying to take advantage of the NIC, trying to push presidents, departments, or Congress to make the "right" decisions. The NIE and analysis of intelligence information always lead to heated debates for this reason. They analyze any subject - from Russia or Israeli's nuclear weapons to the evaluation of potential consequences of a poor rice harvest in Asia. The NIC may produce several reports per year. The heads of the afore-mentioned departments are furious when they find out that their assessments did not make it to the NIE's final version. The same is happening with Global Trends.

China's Hu, Russia's Medvedev Discuss Crisis at APEC

2008-11-24T09:30:00.001-08:00

Nov. 23, 2008 (Bloomberg by Rob Delaney) -- China's President Hu Jintao and Russian President Dmitry Medvedev pledged closer cooperation on international efforts to ease the global credit crisis, China's Foreign Ministry spokesman Liu Jianchao said. The two leaders, in a one-on-one meeting, also vowed to implement a strategy they agreed on during the G-20 meeting in Washington this month that involves energy supplies and supporting each other's economic and trade interests, Liu said in an interview today at the end of the Asia-Pacific Economic summit in Lima. The ``strategic action plan' is meant to be carried out from 2009 to 2012 as part of a ``good neighborly relations and peace' treaty that guides the bilateral relationship, Liu said. ``Hu and Medvedev approved this plan in Washington and now they will implement it,' Liu said. ``This action plan covers politics, economics and energy, though energy -- including natural gas -- is a key part of it.' Leaders of Pacific Rim nations including China and Russia promised today to ``act quickly and decisively' to resolve the global economic crisis. A worldwide slump has prompted central bankers and governments to cut lending rates and announce spending packages and tax cuts designed to sustain growth.
Oil, North Korea: OAO Gazprom Neft plans to send 1.2 million tons of oil through the Atasu-Alashankou pipeline to China next year, Interfax reported on Nov. 14, citing a company official. Gazprom Neft has an agreement with China National Petroleum Corp. to deliver the crude, Deputy General Director Anatoly Cherner said, according to the Moscow-based news service. The Russian producer is allowed to export 250,000 tons of oil through the link in the fourth quarter of this year, Interfax said. Gazprom Neft is the oil arm of Russia's natural-gas export monopoly, OAO Gazprom. Liu declined to comment further on energy supply agreements Hu and Medvedev agreed to. Both governments also agreed to push for progress in efforts to restrain North Korea's nuclear program through a six-nation dialogue. The six nations, including the U.S., Japan, South Korea and Russia, will meet in China on Dec. 8 for a new round of negotiations on North Korea's nuclear program, Secretary of State Condoleezza Rice told reporters returning from Peru with President George W. Bush aboard Air Force One. The U.S. is seeking a pledge from North Korea to dismantle its nuclear program and assurance that a verification program will be put in place. Earlier negotiations stalled when North Korea indicated Nov. 12 that international inspectors wouldn't be allowed to remove samples from its Yongbyon reactor, saying that it had never agreed to do so.

Russian finance guru dies at 51

2008-11-24T09:00:00.001-08:00

21 November 2008 - Russia Today - Russia’s Former Vice-Premier and two times Finance Minister Boris Fedeorov has died on Thursday, November 20. Doctors from London’s Wellington clinic say the cause of death of the 51-year-old was from a stroke. Colleagues describe him as one of the brightest Russian economists and someone, whose contribution to the economic reforms in the country cannot be underestimated. Boris Fedorov was put into hospital over a month ago on October 13. He collapsed during a business trip to the English capital and since then had been in a coma. Several brain surgeries were performed to save the economist but they brought no result. Fedorov first became finance minister of Russia in 1990. He took an active part in the reforming of Russia’s economy, which switched from state-controlled to a free market after the collapse of Soviet Union in 1991. From 1991 – 1992 he worked for the European Bank for Reconstruction and Development and in 1992 became the director of the World Bank. He returned to the post of Finance Minister in 1993, but resigned in 1994. After that he started a business career and United Financial Group (UFG), an investment bank which was sold to Deutsche Bank in 2005. In 1995 Fedorov entered the Russian parliament. In 1998 he once again joined the government as Tax Minister and Deputy Prime Minister of Russia. He was also a member of various company boards, including Gazprom, Sberbank and Ingosstrakh.

World Bank lowers Russia's GDP growth outlook to 6% in 2008

2008-11-19T09:28:00.001-08:00

MOSCOW, November 18 (RIA Novosti) - The World Bank has downgraded its forecast for Russian GDP growth to 6% from 6.8% in 2008 and to 3% from 6.5% in 2009 due to effects of the global financial crisis. "After a decade of high growth, the global financial crisis has affected Russia, posing a new challenge for macroeconomic policy. Having grown at an impressive 7% a year during 1999-2007 - and at an overheating 8% in the first half of 2008 - the Russian economy has started a gradual slowdown," the World Bank said in its Russian Economic Report. The Russian government's GDP growth forecast for 2008 remains unchanged at 7.8%. However, government officials have recently said the domestic economy will grow by 7-7.3% in 2008. The Finance Ministry and the Economic Development Ministry are expected to give their forecast of GDP growth for 2009 by December 1. Experts say Russia's GDP growth is likely to slow down to 3%-5% next year due to the financial crisis. The report also said unemployment in Russia was expected to rise moderately to 5.9% from 5.3% by the end of the year, reflecting losses in labor intensive sectors such as construction, trade and services, and also the financial sector. Inflation in Russia is expected to be at least 12% in 2009 compared with the government's forecast of 7.5-8.5%, the report said. "In 2009, reducing inflation below 12% will be difficult. This could be possible if the global financial crisis shows signs of easing by the end of that year," the report said. Russia's inflation in 2008 is expected to hit 13.5%, corresponding to the Russian government's projections, the report said. Net capital outflow from Russia could reach $50 billion in 2008, and double in 2009 as companies continue to repay foreign debts amid a lack of large foreign investment, the report said. Russia's Central Bank predicted in late October that net capital outflow from Russia could reach $20 billion in 2008, with net inflow into the country forecast at $20 billion in 2009.

2008-11-19T09:27:00.001-08:00

weltun

Kasparov predicts short Medvedev presidency, mass protests

2008-11-17T08:38:00.001-08:00

MOSCOW, November 17 (RIA Novosti) - Russian opposition leader Garry Kasparov told a U.K. newspaper that he does not expect Dmitry Medvedev to last more than 18 months as president, and that the financial crisis will lead to mass protests. Discussing Medvedev's election as president earlier this year, the chess grandmaster told The Independent: "I don't like to call it an election: that gives the wrong impression. Barack Obama had 65 million voters. Medvedev had one." "I would be surprised if this regime lasts more than 18 months," he continued. "I don't know what form change will take. We just have to hope it won't be violent: this country has had enough violence. But the regime is pushing it towards that. Soon there will be hundreds of thousands of people on the streets." Kasparov leads the United Civil Front, part of The Other Russia, an umbrella group uniting various small opposition parties. He said that with Russia's economic downturn - the stock market has lost 70% of its value since May and the Central Bank's international reserves are falling by billions of dollars each week - the main support base of Prime Minister Vladimir Putin will decline. "The 15 per cent of people who make up this 'new middle class' - they are Putin's strongest support group - have had it good," he told the paper. "They could get credit, they could buy cars, maybe even an apartment, travel abroad. Now they are facing major problems. You can lose your job, you can lose your apartment because you cannot pay. They are used to a passive political mode, but they read the Internet and they see all these billions of dollars disappearing. Where does the money go? Into the hands of Putin's buddies. These people will learn quick political lessons." At a meeting of the World Association of Newspapers in June, Kasparov said he considers RIA Novosti to be a Kremlin mouthpiece, publishing only propaganda. The agency denied the allegation, noting that it had hosted 50 news conferences and other events involving fellow The Other Russia members. Kasparov was held by police in Moscow for five days after leading an opposition rally in the run-up to the parliamentary election, and pulled out of the presidential race the following month, saying the authorities had made it impossible for him to run.

G20 outcomes offer hope but little detail

2008-11-17T08:03:00.001-08:00

17 November 2008 - Russia Today - At the emergency summit in Washington, G20 leaders agreed to tighten regulations, clarify accounting rules and increase the transparency of the financial markets. But how to go about it remains unclear. The big bang many hoped for at the G20 summit didn’t happen. But that’s no reason to feel dissatisfied according to Russian President Dmitry Medvedev. “I think the results are quite positive. All the participating countries have demonstrated the will and the desire to overcome the crisis that perhaps has not reached its peak yet. That’s why we have to double our efforts.” The efforts will focus on “better identifying vulnerabilities” by improving transparency and disclosure, and restructuring the IMF and the World Bank. But when it comes to specific details, the leaders didn’t offer much. Evgeny Nadorshin, Chief Economist at Trust Bank says the action plan is too vague to be impressive: “Its really difficult to understand how that might work and how that might be implemented and how deep those people who will be implementing it are ready to go. But still there is space for hope, which a lot of investors lack recently.” And while the hopes for a brand new global financial order could not have been realized over a one-day meeting, the summit proved that the greater role of emerging economies like Russia is the new reality of the 21st century.

Oil Falls Below $50, MICEX Sputters

2008-11-17T07:42:00.001-08:00

11-14-2008 - Moscow Times - The price of Urals crude fell below $50 per barrel on Thursday for the first time since early 2007, sinking Russian stocks and putting additional pressure on the ruble as the government struggles to balance the budget. Meanwhile, confusion dominated the MICEX stock exchange, as an order from the government watchdog commanding a resumption in trading contradicted an announcement earlier by the exchange that it would stay closed until Monday. The MICEX Index fell as much as 17 percent before the halt, only to recoup some of the losses later in the day to close down 8 percent. Plunging oil prices and shaky investor confidence have led to Russian stocks shedding more than $1 trillion dollars during Dmitry Medvedev's presidency, investors said. The dollar-denominated RTS exchange said the capitalization of the stocks it handles has fallen more than $1 trillion to $385 billion since a market peak on May 19. "Things are as bad as they possibly could be: The Russian market no longer functions," said James Beadle, an asset manager at Pilgrim Asset Management, which invests in stocks and bonds. "The main reasons are obviously what is going on globally, particularly with commodity prices, and political issues within Russia," Beadle said. As capital flight and the global credit crunch have drained investor confidence, the bourses have responded with frequent trade suspensions to the consternation of many funds, which have difficulties reporting net asset value to their investors. The MICEX, the country's most liquid index, was halted from late Tuesday, and activity resumed Thursday only to be stopped again after 35 minutes. The exchange said Thursday that the suspension would last until Monday or an order from the markets watchdog, which then commanded a resumption after just one hour. Half an hour later, the MICEX announced a one-hour suspension, followed within moments by an order from the watchdog for trade to continue uninterrupted. "The decision was taken in order to synchronize the trade of stocks on Russian bourses," said a watchdog representative, referring to the dollar-denominated RTS, which remained open for most of Wednesday. The sharp fall on the MICEX was in part due to its playing catch-up with Wednesday's 12.5 percent sell-off on RTS, as well as with London-listed Russian companies, which lost 17.6 percent while the MICEX was closed. Rosneft, the country's biggest oil producer, led the decline as crude for December delivery traded near a 21-month low in New York. Urals blend crude traded at $48.80 to $48.90 a barrel, its lowest since January 2007. The government says its budget can be sustained on $50 oil next year, as it can resort to the use of gold and forex reserves. The Central Bank reported on Thursday a $9.2 billion drop in reserves, which are now down about $120 billion since their August peak, mainly on the back of heavy interventions to support the ruble.

So Much for Secretary of State

2008-11-13T07:53:00.001-08:00

// Moscow received William Burns, but will hold talks with Barack Obama only Moscow to conduct political negotiations with Barack Obama only
11-13-2008 - Kommersant by Mikhail Zygar - Moscow, seemingly, is not going to conduct political negotiations with Washington until Barack Obama substitutes for George Bush. Yesterday's visit of Under Secretary for Political Affairs William J. Burns to Moscow was a failure — news agencies cited Kremlin sources as saying that Bush's administration “tries to put new U.S. President in a stalemate” using the current negotiations. Meanwhile yesterday it became known that Dmitry Medvedev's meeting with Barack Obama in Washington this weekend will not take place. U.S. political analysts, interrogated by Kommersant, stated that the relations of the two Presidents are unlikely to be as warm as George Bush and Vladimir Putin had.
It is possible to shift the meeting: Yesterday a high-ranking Washington official Under Secretary for Political Affairs William J. Burns visited Moscow for the first time after the end of the war in Georgia. According to the U.S. embassy’s press attaché, David Sifkin, former U.S. ambassador to Russia William Burns was to meet with a number of Russian politicians: Foreign Minister Sergei Lavrov, Presidential Aide Sergey Prikhodko, Finance Minister Alexei Kudrin, the Government’s Deputy Chief of Staff Yury Ushakov, and Deputy Foreign Minister Sergey Ryabkov. According to Mr Sifkin, a new round of ABM negotiations, planned for December, was to be highlighted during talks.
As a matter of fact, this news was sensational — after all, the Russian government in a pointed manner refused to have any contacts with the outgoing American administration, preferring to postpone addressing the matters till Barack Obama’s inauguration. Therefore William Burns' arrival could testify that Moscow decided to abandon its hard line and become more emollient towards George Bush's team. However, Mr Burns received such a cold welcome that it showed that Russia still sticks to its policy. After the end of the negotiations Russian news agencies began reporting their failure referring to high-ranking sources in the Kremlin.
The Government’s Deputy Chief of Staff Yury Ushakov stated that “neither party wants this pause to be absolutely empty”, therefore, according to Mr Ushakov, Russia and the U.S. will hold negotiations about START and the economy in the near future. Mr Ushakov said nothing about the next round of ABM negotiations in December.
It is obvious that Moscow expects Barack Obama to be more compliant during talks about ABM. However, Stephen Sestanovich, the foreign relations expert of the American Council and the former adviser to U.S. State Secretary Madeleine Albright, told Kommersant that “both Barack Obama and John McCain supported the idea of an antimissile shield against Iran, but expressed doubts over the project’s technical practicability.” According to Mr Sestanovich, “ABM will be deployed only in case there is an obvious threat posed by Iran. Even if the Russian military officials continue arguing that a small number of interceptors are a mortal threat to Russia, few people will listen to them.”
Nevertheless, Dmitry Medvedev won’t be able to discuss this problem with his future counterpart in Washington. Despite Russian Foreign Minister Sergey Lavrov’s statement that such an informal meeting during the economic summit of the G20 in Washington is rather probable, Barack Obama decided to abstain from premature negotiations with his future partners. Yesterday head of his transition team, John Podesta, stated that the next U.S. President decided not to come to Washington these days at all, staying at home in Chicago.
A source of Kommersant in the Kremlin confirmed that Dmitry Medvedev will have bilateral meetings with George Bush, China’s President Hu Jintao, Britain’s Prime Minister Gordon Brown and German Chancellor Angela Merkel in Washington. Meanwhile, according to the interlocutor of Kommersant, during their recent telephone conversation last Saturday, Barack Obama and Dmitry Medvedev agreed to meet in the near future — however, obviously, it will happen already after the summit.
End of friendship: Vice President of the Heritage foundation, Kim Holmes, told Kommersant that it depends on Moscow whether Russian-American relations will change after Barack Obama’s inauguration. “I feel that confrontation with the USA is just what the Russian Government wants. It makes Vladimir Putin more popular at home, Russia appears a stronger player in the international arena, and Europeans are more fearful of it. If the Russian Government wants a confrontation, it will happen. In either case, it is impossible to say all the time that the U.S. is degrading and that Russia and China’s time has come, remaining a G8 member. Perhaps it no cold war, but it is not partnership any longer,” Mr Holmes considers.
Anyway, according to American political scientists, the warm relations, the U.S. and Russian Presidents tried to demonstrate every time they met, are in the past. Barack Obama is a much more reserved person than George Bush, and you can hardly expect him to quickly make friends with Dmitry Medvedev. “George Bush’s policy has been unintelligible. On the one hand, he invited Vladimir Putin to his ranch, called him his friend, and on the other hand, the U.S. lobbied for admitting Georgia to NATO, whereas Russia rebuffed it,” Kim Holmes told Kommersant. “If we have problems with Russia, it is pointless pretending that you see Putin's soul. It is necessary that someone tell him, “We are not friends any longer, and we are dissatisfied with what you do.”
John McCain’s defeat in the presidential election made the matter of excluding Russia from the G8 obsolete; however, American analysts believe that after the war in Georgia and the economic crisis the G8 will never be the same again. “I cannot imagine that Russia is excluded from the G8 or it is necessary to explain to Russia why it is not excluded. But it is possible to imagine that the Group of Eight will cease to exist at all. Most likely, its place will be taken by an extensive group of the world’s largest economies. Probably, there will be a smaller group of democracies within that group, and it won’t include Russia,” Stephen Sestanovich opines.
Evidently, such an organization already exists. It is the G20, gathering in Washington this weekend; apart from the G8, the new body includes Argentina, Brazil, Mexico, the Republic of South Africa, Turkey, Saudi Arabia, China, India, South Korea, Indonesia and Australia, as well as the EU. The Group of Seven can easily co-exist with the Group of 20. And Barack Obama is unlikely to insist on adding Russia to it.

WTO odyssey approaching final straight?

2008-11-13T07:16:00.001-08:00

November 10, 2008 - Russia Today - Russian president Dmitry Medvedev is expected to announce this week that Russia is ready to settle the issue of its entry into the World Trade Organisation within weeks. It's understood he'll be raising the subject at this Friday's Russia-EU Summit in Nice. But it's unclear whether the current financial crisis could speed up Russia’s WTO accession or hold it back. When will Russia finally join the WTO? - that was the only question left unresolved as Russian WTO negotiator Maksim Medvedkov met with businesses to discuss progress on accession. “Russia’s economy will not die without WTO. We have alternative methods of securing our trade policy interests. At the same time we would like to be in and we will be in as soon as our partners will agree that we should join.” Russia has been in negotiations about joining the WTO since 1995. Its entry to the bloc has been delayed by a number of issues, including rules managing Russian state monopolies, export taxes, and agricultural subsidies. At the end of August Prime Minister Vladimir Putin said Russia may abandon some of the deals it had previously made in order to join the organization. Moscow has cut quotas for poultry imports and raised duties on imported cars. Evgenny Nadorshin, Chief Economist at Trust Bank, says Russia's anti-crisis measures and domestic market protectionism won't help the process, but the global financial crisis could do. “There is more space to compromise actually. Especially taking into account that our internal market is still strong. And as our internal market is attractive we can use it as kind of economic feature that may improve our bargaining position negotiating our new terms of WTO entry.” Russia is set on finalizing its entry into the WTO this year. Analysts say, its chances are slim. The next meeting of the working group will take place in Geneva on November 24.

Russia's net capital outflow hit $50 bln in October

2008-11-12T07:41:00.001-08:00

MOSCOW, November 10, 2008 (RIA Novosti) - Net capital outflow from Russia totaled around $50 billion in October, Central Bank Chairman Sergei Ignatyev said on Monday. He said the Central Bank would release more exact figures in the near future. October's figure is an all-time high. Net capital outflow in September was $26 billion and about $7 billion in August. The Central Bank has warned that further outflow could affect the country's balance of payments. Billions of dollars have been pulled out of Russia by international investors since the global credit crisis hit in August, while lower oil prices have also reduced the flow of capital into the country.

Main points of Medvedev's state of the nation address

2008-11-07T07:43:00.001-08:00

11/05/2008 - MOSCOW, November 5 (RIA Novosti) - Russian President Dmitry Medvedev delivered his first state of the nation address to both houses of parliament on Wednesday. His speech to the Russian parliament was broadcast on state television and became the longest-ever presidential address, lasting 1 hour and 25 minutes. In line with the Russian Constitution, the president annually addresses the Federal Assembly, comprising the Federation Council and State Duma, talking about the domestic situation and the key areas of Russia's foreign policy. The Russian president in his address:
- Georgia's military offensive on South Ossetia was a consequence of policies unilaterally followed by the U.S. administration
- Russia will push for reforms to global political and economic systems
- Russia will not give up its role in the Caucasus
- Political and economic changes in Russia will not violate political freedoms and private property
- Russia will fulfill its obligations to protect individuals' savings, pensions and social security
- Russia will establish a self-sufficient financial system in the near future
- pledged that the implementation of the country's strategic programs will continue on schedule
- the global credit crisis is far from over, and the government and business must consider this factor in their planning
- warned against attempts to ignite social and national strife amid the financial crisis
- proposed guaranteeing parliamentary seats for parties that win between 5% and 7% of the vote
- warned against delays in implementing the government's bailout measures
- proposed to abolish election deposits in Russia
- proposed drawing up amendments to ensure a rotation of party leaders
- said the Internet and digital TV guarantee freedom of speech
- proposed extending the presidential and parliamentary terms of office from the current four years to six and five years respectively
- proposed a gradual reduction in the number of voter signatures required for parliamentary polls
- said he would present a draft law reducing the time civil cases are considered by courts
- said the Constitution plays an important role in establishing Russia's democracy and is a guarantee of the country's resurgence
- urged a reduction in federal executive bodies in the regions
- suggested granting more power to parliament, placing the activities of the government under the supervision of the State Duma
- announced that 2010 will be the Year of the Teacher
- Russia will deploy short-range Iskander missiles in its exclave of Kaliningrad next to Poland in response to U.S. missile plans for Europe
- Russia has cancelled plans to take three missile regiments out of service in the central part of the country, in response to the U.S. missile shield plans for Europe
- Russia will not be drawn into an arms race, but will continue to ensure the security of its citizens
- hoped the new U.S. administration will seek better relations with Russia
- the ongoing global economic crisis is no reason to nationalize domestic industries and banks
- Russia has sent its proposals on reforming the global economic system to the G20 nations
- Russia should adopt legislation on establishing the country as a global financial center by the end of the year
- Russia will continue its efforts to settle the post-Soviet conflicts over Nagorny Karabakh and Transdnestr
- Russia will use electronic warfare to counteract the U.S. missile shield - urged a switch to the ruble in payments for gas and oil supplies

Russian Reserve Fund tops $134bn

2008-11-04T08:46:00.001-08:00

11–01–2008 – RBC News – Russia’s Reserve Fund reached RUB 3.572 trillion, or $134.6bn, as of November 1, 2008, the Finance Ministry reported. The balances of the fund's foreign currency accounts stood at $64.64 billion, EUR 43.81 billion, and GBP 7.31 billion as of November 1. Since its creation, when the Reserve Fund was worth RUB 3.057 billion, it has increased 16.8 percent. In October, it was up 0.36 percent. Total return on the investment of the Reserve Fund’s assets, as expressed in dollars, amounted to $4.16 billion (RUB 110.36bn) in the period from January 30 to October 31, 2008, including $1.45 billion (RUB 38.50bn), EUR 1.59 billion (RUB 55.65bn), and GBP 370 million (RUB 16.22bn). Exchange rate difference from the revaluation of the balances of the fund’s foreign currency accounts in the period from January 30 to October 31, 2008 reached RUB 54.55 billion (approx. $2bn). The National Wealth Fund stood at RUB 1,667.48 billion, or $62.82bn, as of November 1, according to the Finance Ministry. Of this amount, RUB 170bn (approx. $6.27bn) is deposited with the Bank for Development and Foreign Economic Affairs (Vnesheconombank), including RUB 125 billion (approx. $4.6bn) until December 31, 2019, at an interest rate of 7 percent, and RUB 45 billion (approx. $1.7bn) until December 31, 2013, at an interest rate of 7 percent. In October, the fund added 35.7 percent from RUB 1,228.88 trillion (approx. $47.56bn) as of October 1. The National Wealth Fund was worth RUB 782.8bn (approx. $28.89bn) as of February 1, when it was established, and it has more than doubled since then. RUB 435.77 billion (approx. $16.14bn) of the federal budget’s oil and gas revenues was transferred to the National Wealth Fund in October 2008. As of November 1, the balances of the fund's accounts in the Central Bank stood at RUB 358.12 billion (approx. $13.26bn), $20.41 billion, EUR 14.07 billion, and GBP 2.38 billion; and RUB 170 billion (approx. $6.3bn) in Vnesheconombank. Total return on the investment of the National Wealth Fund’s assets, as expressed in dollars, amounted to $1.09 billion (RUB 28.81bn) in the period from January 30 to October 31, 2008, including $350 million (RUB 9.31bn), EUR 430 million (RUB 15.24bn), and GBP 100 million (RUB 4.26bn). Exchange rate difference from the revaluation of the balances of the fund’s foreign currency accounts in the period from January 30 to October 31, 2008 reached RUB 9.33 billion (approx. $345.56m).

U.S. elections unpredictable

2008-11-04T08:44:00.001-08:00

11–01–2008 – RBC News – It is very hard to predict the outcome of the 2008 presidential election in the United States, chairman of the Federation Council’s foreign affairs committee Mikhail Margelov told journalists today. He pointed out that, although Republican candidate John McCain was lagging behind Democrat Barack Obama, he could still win the race. Everyone is talking about Obama’s lead, but these figures are just poll results, the Russian politician notes. “It is one thing when we look at polls, as many respondents cannot even tell one soldier from the other, but it is a whole different matter when people actually have to press an actual button and cast a vote in favor of one candidate,” Margelov said. He reiterated that there were precedents in U.S. history, for instance in governors’ elections, when the candidate had the lead during an election campaign, but lost in the elections. Furthermore, we should not forget that popular California Governor Arnold Schwarzenegger, who endorses Republican candidate John McCain, has encouraged Barack Obama to “start beefing up” and “put some meat on his ideas.” Evidently, most of affluent Americans are going to vote for McCain, the senator believes. “It is hard to forecast how the Jewish population will vote. They say that in terms of money, these people have just as much money as the Republicans do, but usually vote democratic. At the same time, influential Americans are scared of Obama’s economic program,” Margelov stated. According to the official, “the pitfall of Barack Obama’s campaign was buying up prime time on television.” During the crisis, the candidate should be a little more frugal and behave in the way most Americans do at the moment. “But McCain’s primary point is his army-style boldness and predictability, while his less experienced competitor may fail under the load of problems, as some experts say,” the official warned. Margelov stressed that he understood that “making forecasts is not the best thing to do, but the gap separating Obama and McCain is closing, and it is happening not in the middle of the campaign, but just prior to the Election Day.”

Russian-U.S. relations after the elections

2008-11-04T08:38:00.001-08:00

10/29/2008 MOSCOW - RIA Novosti world affairs commentator Ivan Zakharchenko - Next week Americans will face a difficult choice - they will cast their ballots for the candidate, who, in their view, will ensure enough jobs in the country, protect their bank accounts, and bring a sense of normalcy back to the government after George Bush's two disastrous terms. Other countries are following the U.S. election campaign to find out how the world order will change in its aftermath. Let us then examine what outcome on the other side of the Atlantic would be beneficial to Russia and Russian-U.S. relations in general. Russia's foreign policy strategy, approved by President Dmitry Medvedev on July 12, is different from the previous one, issued eight years ago. Although its principles - a pragmatic and multi-vector approach, as well as advancement of national interests in a non-confrontational manner - remain the same, experts point out that the strategy's wording is not as emphatic as it was before: no fear, no illusions, and no euphoria. For this reason, Moscow's reaction to the U.S. election is likely to lack emotional coloring as well. No matter who triumphs in the U.S. election - Barack Obama (D-IL) or John McCain (R-AZ) - Russia's cooperation with the U.S. will be based on equal rights and mutual interests. Aware of possible risks, Moscow is ready to face any developments. The same holds true for Russian-U.S. relations. Even if the new U.S. administration prefers not to have any relations at all with Russia, Moscow is ready for it. One hopes, however, that the outlook is not so gloomy. In fact, the situation appears paradoxical. Since the end of the Cold War, Russia and the U.S. no longer regard each other as adversaries; on the other hand, they have not become friends either, a fact that is evident during George Bush's time in office. The two countries are becoming less dependent on each other in many aspects; Moscow can even afford to abstain from debates with Americans about issues they might be keen on. Obviously, taking strategic stability interests into consideration, one can say that Russia has been historically linked with the U.S. However, the foundations of these relations are gradually shattering, as experts have noted many times. When they finally collapse, there will be nothing left to bind the two states. Nevertheless, Russia is unlikely to abandon its efforts to keep the positive potential it has accumulated in its relations with the U.S. It should be, though, that Moscow will only make prudent, pragmatic and reciprocal moves. It is reciprocity that should become the basis of international relations, and only time will tell if it does. Many people are alarmed by McCain's anti-Russian statements, namely his support of Russia's exclusion from the G8. One might conclude that his triumph bodes ill for Russian-U.S. relations, but it is important to keep in mind that presidential candidates often say things that voters expect or want them to say, rather than what they really believe. After winning, such people may change their tone and attitude. Strange as it might seem, there is a popular assumption that John McCain's victory would benefit Russia more than Barack Obama's coming to power. The thing is, under George Bush, Moscow and Washington agreed to draft a new bilateral Strategic Offensive Reductions Treaty, and confirmed their commitments for the Nuclear Non-Proliferation Treaty. Russia and the U.S. launched talks about the U.S. plan to deploy AMD elements in Poland and the Czech Republic, which raised concerns in Moscow. Should Democrats come to power, it might be that the parties will need to rebuild contacts. Moreover, it may happen that Democrats will pick on Russia even more, accusing it of violating human rights and relegating matters of strategic importance. Even if the McCain administration's stance toward Russia turns out to be more negative and biased than it is now, Moscow will always have the opportunity to point to the agreements reached with their predecessors, and thus seek their complete implementation. The current voting will be held against the backdrop of a snowballing global financial crisis. Russia and the U.S. have already expressed their eagerness to jointly confront new challenges, including international terrorism, drug trafficking, and climate change. The financial crunch gives both countries an opportunity to combine efforts with other states. Collective measures will be discussed on November 15 at an emergency G8 summit in the Washington D.C. area, with other major economic powers invited. The common struggles may bring Russia and the new U.S. administration closer, no matter who moves into the White House.

Muammar Gaddafi Visits Moscow

2008-10-31T08:21:00.001-07:00

Oct. 31, 2008 - Kommersant - Libyan leader Col. Muammar Gaddafi arrives today in Moscow for an official visit. He faces difficult a talk with Russian President Dmitry Medvedev. Libya did not fulfill the agreement reached in April with Prime Minster Vladimir Putin, even though Russia wrote off $4.5 billion in Libyan debt. But Kommersant has learned that Libya has a pleasant surprise for Russia as well. It is willing to host a Russian naval base. The Libyan leader’s visit is fraught with unsettled issues, not the least of which is where to erect the Bedouin tent that he travels with and spends most of his time in. Gaddafi will spend three days in Russia. The last time he was here was 23 years ago. Like his previous visit, this trip will focus to a great extent on ordering Russian arms. Libya ran up a $5.4-billion debt for arms at one time. That debt was a stumbling block in bilateral relations after the collapse of the Soviet Union. A breakthrough in relations came with Putin’s visit to Tripoli earlier this year, when he cancelled much of the Libyan debt in exchange for promises to conclude contracts with Russian heavy industry and construction companies and to buy a shipment of arms. They value of the contracts was to reach $4.5 billion, the same amount that was written off Libya’s debt. Libya has taken no action to fulfill its side of the agreement, however. Russian Railways, which has a contract worth $3.2 billion for the construction of a rail line from Sirt to Benghazi, has received only a small advance payment from Libya. Libya has also disappointed Russian hopes for the creation of a “gas OPEC.” Libya and Qatar were Russia’s original choice for partners in the undertaking, but Tripoli refused to cooperate. Qatar was unwilling to form an organization with only two members. Iran stepped in to save the plan at the last moment, even though it does not export natural gas. Gaddafi has suggested that allowing Libyan gas companies to operate in Russia would improve bilateral relations. That idea has not created enthusiasm in Russia.

Battle for the ruble

2008-10-31T08:08:00.001-07:00

The Central Bank is using Russia’s international reserves to support the ruble
10–30–2008 – RBC News – The Central Bank of Russia reported a sharp decrease in Russia’s international reserves yesterday: from October 17 to 24 they dropped by $31 billion to $484.7 billion, largely due to the dollar’s appreciation against the euro and the British pound, as well as the Central Bank’s interventions on the forex market. Yesterday, however, the bank changed tack, saying it could withdraw its helping hand from banks that continue to build up foreign currency reserves. Russia’s international reserves have been declining over the past month, falling $31 billion from October 17 to 24 to $484.7 billion. According to Trust Bank’s analysts, the reserves shed some $10 billion due to the dollar’s strengthening against the euro and the British pound, shrinking by another $15 billion as a result of the Central Bank’s forex interventions. Stanislav Yarushevichyus, at ING Bank, also estimates the Central Bank’s interventions last week at between $12 billion and $15 billion. The rest seems to reflect the Central Bank’s allocations to Vnesheconombank for loans to banks and corporations, according to experts. Vnesheconombank Chairman Vladimir Dmitriyev announced yesterday that his bank was ready to invest about RUB 5 billion (approx. $185.2m) daily in the domestic stock market:”We plan to use the National Wealth Fund to diversify and support the Russian financial market. On average, we expect to receive about RUB 5 billion daily, and invest it.” The bank has already invested RUB 25 billion (approx. $925.9m), according to Prime TASS. The RTS index climbed 17.81 percent yesterday, reaching 758.71 points, and the MICEX jumped 19.46 percent to 727.39 points. Trading volumes were quite high on Thursday, especially in state companies’ stocks, according to Mikhail Molodov, at Kapital Investment Group: “Indeed, there were a lot of state funds on the market, due not only to Vnesheconombank, but also to VTB and Sberbank.” He said the market might decline at the end of the week as investors could be willing to take profits. At the same time, the Central Bank of Russia withdrew from currency swap operations yesterday, stopping providing banks with rubles for such operations. As a result, the ruble strengthened slightly against the dollar and the euro as banks had to sell foreign currency to buy rubles, analysts at MDM Bank say. ING Bank’s Yarushevichyus, however, argues that this restriction would not affect speculators as there is enough ruble liquidity on the market currently, with interbank borrowing rates standing at 4-5 percent. A more effective measure against speculators betting on a weak ruble could be refinancing restrictions for banks that continue to build up their foreign currency reserves. The Central Bank published a letter yesterday on the monitoring of foreign currency assets of credit organizations, in which it recommended that in November and December banks should not increase their balances of foreign currency as accumulated in the period from August 1 to October 25. “Compliance with this recommendation will be considered by the Central Bank when deciding on limits on the participation of credit organizations in the Central Bank’s auctions for collateral-free loans,” the document says.

Russia's international reserves shrinking rapidly

2008-10-31T08:04:00.001-07:00

RBC, 30.10.2008, Moscow 15:18:05 - Russia's international reserves have been contracting at a remarkably fast pace, down a record $31bn within a week from October 17 to October 24. The outflow of capital and exchange rate adjustment due to the euro's fall are still seen as the main reasons for declining reserves. The strained global financial market has forced investors to sell assets and withdraw funds, including from the Russian economy. In the first nine months, however, net private foreign capital inflow stood at $0.8bn, First Deputy Chairman of the Bank of Russia Alexei Ulyukayev stated last week. According to Ulyukayev, some $7bn was taken from the Russian economy in August, and roughly $25bn more in September. Although the Bank of Russian forecasts outflow for October as well, the amount is predicted to be smaller than in September. The cash transferred to Vnesheconombank to support Russian companies and banks in the face of a financial crisis has been another blow to the reserves. The bank is to be granted up to $50bn in international reserves to refinance external debts of Russian publicly traded companies. For the full year, the Bank of Russia expects the international reserves to rise 14.8 percent to $547bn, down from the previous forecast of $632bn (up 32.7 percent).

China and India to become Russia's strategic trade partners

2008-10-29T11:48:00.001-07:00

27 October 2008 - Russia Today - Russian business is looking to new strategic trade partners. By 2020 China and India will become priority markets for Russia just as the European Union is now. The government has approved the change of direction in Russia’s approach to foreign trade. Russia sees a new trading status for countries, from Kazakhstan and Uzbekhistan to China and India. In just over a decade, it wants these countries to be among its main markets.Last year Russia exported goods worth 580 billion dollars. But most of this consisted of energy sales. This doesn’t satisfy Russia’s prime minister Vladimir Putin who urged the Government to boost exports of other Russian products. “Russia is dependent on exports of hydrocarbons and other raw materials. Russian goods and services are poorly presented on such growing markets like Latin America and Asia.” Experts like Evegeny Nadorshin, Chief Economist at Trust Bank say new markets are essential for Russia if it is to diversify away from reliance on energy exports – and thereby broaden the base of its economy. “Russia can sell to EU only energy. EU won’t accept Russian machinery because its not up to European standards. We need to search for external consumers if we want to diversify the economy.” But some doubt that China will eagerly snap up Russia’s hi-tech products as the country develops its own innovation sector. The main markets for such goods will be members of the Eurasian economic community like Uzbekhistan and Kazakhstan. Experts say China will be still interested in Russian weapons, space technology and energy supplies.

Medvedev to address parliament

2008-10-29T11:40:00.001-07:00

RBC, 29.10.2008, Moscow 15:46:26.Russian President Dmitry Medvedev's address to the Federal Assembly will be delivered on November 5, the presidential press office announced today. The leader today signed instructions authorizing his envoys to Federation Council Alexander Kotenkov and State Duma Alexander Kosopkin to propose to the houses' chairmen that they assemble their chambers at the Georgiyevsky Hall of the Grand Kremlin Palace at noon on November 5, 2008 for hearing the president's address to the Federal Assembly. Government members, chairmen of the Constitutional, Supreme and Supreme Arbitration courts, the Central Election commission, and the Audit Chamber, as well as the General Prosecutor, members of the State Council of Russia and religious leaders have also been invited to attend.

Russia teams with China and India to tackle crisis

2008-10-27T07:33:00.001-07:00

10-24-2008 - RBC News - Russia will consult India and China on measures to combat the global financial crisis, Russian Foreign Minister Sergei Lavrov told reporters today. “Russia will certainly coordinate its steps with the world’s leading emerging economies,” he stressed, pointing out Moscow’s strong ties with India, China and Brazil. The finance minister of the G20 group of rich and developing nations will gather next month in Sao Paulo, Brazil. Russian and Chinese finance ministers are also scheduled to meet there, according to Lavrov. “Despite the emergence of new centers of economic growth and financial power, as well as their rising political influence, it is only through joint efforts that we can solve the current crisis and prevent such things from happening in the future,” he asserted. Lavrov stressed the importance of the G20 summit in Washington on November 15 to discuss the global financial crisis. It will be of vital importance because “all the major players will come together,” he emphasized. “It is vital that they not merely come together, but also make plans relying on collective analysis,” Lavrov concluded. The Finance Minister also said Russia was against any rash moves that could undermine Iran’s cooperation with the International Atomic Energy Agency (IAEA). In its latest report in September, the agency said it had found no military dimension to Iran’s nuclear program, while confirming that Iran continued to enrich uranium. The UN nuclear watchdog said it had failed to make any meaningful progress in assessing Iran's past nuclear activities. "Regrettably, the agency has not been able to make any substantial progress on the alleged studies and other associated key remaining issues which remain of serious concern," the report said. Iran insists that it is not developing nuclear weapons and defends its right to peaceful nuclear programs.

Medvedev: Russia must avoid crisis

2008-10-27T07:30:00.001-07:00

10-23-2008 - RBC News - Russia must avoid the heaviest consequences of the global financial crisis, President Dmitry Medvedev said in a video blog posted on the Kremlin’s website on Thursday. The crisis that originated in the United States has ricocheted on the economies of almost every country because both the power of America’s financial market and its impact on the global economy are great, according to Medvedev. A rapid decrease in credit availability has dented demand; sales markets themselves are shrinking; the use of production facilities is declining, and people are losing jobs, which leads to even further recession in demand. As if that were not bad enough, investment programs are being suspended, and production expansion plans are being frozen. “Russia has not yet been ensnared in this gloomy turmoil. And it can avoid it. It must avoid it,” the President emphasized. Had it happened five or seven years ago, the crisis would probably have had less impact on Russia, he added. But today, the situation is quite different: Russia is a country with an open economy. “On the one hand, this gives us enormous advantages; on the other, it forces us to react and tackle the problems faced by all other major powers,” Medvedev emphasized. Russia has a chance to avoid currency, banking, or debt crises and go through today’s troubles without losing its potential. “We have taken a number of steps to restore confidence in the finance sector and ensure normal lending. In addition, decisions have been made to ensure the stable development of retail trade, agriculture, construction and mechanical engineering, as well as the defense industry, and small businesses. Given the decline in global demand and the impossibility of borrowing as before, it is these spheres that require our immediate support. Our actions should largely offset the above-mentioned negative effects,” the President said, adding that Russia’s international reserves and the Stabilization Fund had been created exactly for such times of trouble. Medvedev pointed out that Russia should not only protect itself from problems now, also “make the most out of the emerging opportunities, of which there are many.” First, the formation of highly competitive companies is certain to begin. They will mainly appear through consolidation in various economy sectors, including the banking sector, retail trade, and construction. “We will be ready to take the necessary measures and provide additional financing for those purposes. Stability of development in those spheres will also help create new jobs,” the President maintained. Second, financial organisations must become more efficient and pay more attention to their own reliability. This will boost the overall stability of Russia’s banking sector, making it more appealing to investors and depositors. Third, falling demand will force Russian companies to cut production costs. It is vital, then, to make their business operations, technologies, and management as state-of-the-art as possible, and in as short a time as possible. Thus, energy and labor efficiency could rise to levels allowing them to compete with the most successfully international companies. The government will support the creation of efficient jobs, tax incentives for innovations, and staff training, Medvedev stressed. Fourth, the current situation should be used to modernize the spheres in which the authorities and businesses have acted too slowly, especially in regard to education and healthcare, judicial reform, technical regulations, and the shift to digital technologies. Finally, Russia should actively participate in the development of new rules of the game in the global economy “to ensure maximum advantages for ourselves and for the promotion of a new ideology that will provide for a democratic and sustainable financial architecture in the world,” Medvedev said. To achieve this goal, new financial centers should be created, and new reserve currencies should appear, as well as new collective decision-making mechanisms. “This is good both for us and for all our partners,” the President emphasized. The heads of the world’s leading nations will meet in Washington on November 15 to discuss all these issues, according to Medvedev. “Russia is determined to actively promote its ideas,” he said. In the latest move to stabilize the situation, Medvedev has signed a decree to establish a national crisis management center, which will be supervised by the Emergencies Ministry, the presidential press office reported. The decree guarantees salary payments to the employees of civil defense forces on contract and the employees of the Fire Fighting Service of the Emergencies Ministry appointed to the national control center for resolving crisis situations. Those appointed to positions with a lower salary will retain their pay until they have a right to a pay raise. The decree took effect upon signing.

MEPs due in Moscow on Friday for cooperation deal talks

2008-10-23T07:12:00.001-07:00

MOSCOW, October 23 (RIA Novosti) - European parliamentarians will visit Moscow later this week to discuss prospects for a new Russia-EU framework agreement, the European Commission's delegation to Russia said on Thursday. "A delegation of 12 members of the European Parliament led by the co-chair of the EU-Russia Parliamentary Cooperation Committee, Ria Oomen-Ruijten, will visit Moscow on October 24 - 25, 2008 for meetings with their counterparts from the Duma and the Federation Council," the delegation said. The agenda of the visit includes a working group meeting with members of both chambers of Russia's parliament and discussions with governmental representatives of the prospects for talks on a new EU-Russia framework agreement. The program also includes a meeting with representatives of civil society organizations and nongovernmental organizations. The first round of talks on a new wide-ranging deal between Russia and the EU was held in July this year. The agreement is set to replace the 1997 Partnership and Cooperation Agreement, which was extended for a year when it expired in December 2007. The talks were delayed over disputes between Russia and EU members Poland and Lithuania. The second round of talks was due to take place on September 16, but was delayed by the EU over Moscow's military operation in Georgia and subsequent recognition of the breakaway republics of South Ossetia and Abkhazia as independent states.

Capital flowing from Russia

2008-10-23T07:08:00.001-07:00

//For the first time since 2004, Russia is facing an outflow of capital
10-23-2008 - RBC News - For the first time in four years, capital flight from Russia will exceed its inflow in 2008, Finance Minister Alexei Kudrin announced yesterday. The net outflow could actually be insignificant, he said. Experts, however, are less optimistic, saying that a radical change in international financial markets was needed to ensure a net inflow of capital into Russia in November and December. “The net outflow of capital from Russia in August and September reached $33 billion, and we had a zero result from January-September,” Kudrin said at a finance ministerial meeting of the CIS on Tuesday. “We did not lose as there was no net outflow, but we have to conclude that we will have a net outflow by the end of the year. If the situation stabilizes, it will be small,” he said. The last time Russia had a net outflow of capital was in 2004, when it stood at $8.9 billion. This time, financial difficulties have been aggravated by political problems, comments Tatyana Orlova, an economist at ING Bank. It started with the criticism of pricing methods used by the Mechel mining and metals company, then the military operation in Georgia, the worsening of relations with the United States - all this has frightened investors, according to Orlova. The government’s initial forecast for the net inflow of capital in 2008 was between $30 billion and $40 billion. Global economic outlooks worsened in September as the crisis spilled over into emerging markets and investors began to withdraw, relying on the dollar instead. Russia was seen by many as the riskiest among the BRIC economies. Tatyana Orlova expects capital flight to reach $10 billion - $15 billion in 2008. Julia Tseplyayeva, chief economist at Merrill Lynch, is more pessimistic, projecting a higher outflow of $30 billion to $40 billion. “To hope for a small outflow, of say $20 billion, means to expect an inflow of capital in November and December. I don’t know what needs to happen to change the situation so radically in favor of Russian assets: everything depends on the global market now, not on internal factors,” she argued. The shift from rubles to dollars also adds to capital flight. “The Central Bank’s priority right now is to calm the market,” believes Natalya Orlova, chief economist at Alfa-Bank. In an effort to allay fears yesterday, Alexei Kudrin promised that the ruble would remain stable thanks to Russia’s huge international reserves.

Europe and Russia: losing momentum?

2008-10-22T14:48:00.001-07:00

10-21-2008 - Orietta Moscatelli, head of the Italian Information Agency APCOM 'New Europe' project - The Nabucco project, the gas pipeline that should link Erzurum in Turkey to Austria, was born in Europe out of fears of growing energy dependence on Russia. A fear spread by the ‘gas war' with Ukraine in 2005-2006 and refreshed by the new Caucasus conflict this year. Strange as it may seem, however, these days in Brussels politicians and technicians are mumbling that, perhaps, Moscow should be invited to join: it has the primary good - gas - and the picture would not really change compared to one quarter of supplies EU gets from its Eastern giant neighbour. Bizarre at first glance, but it is a sign of pragmatism tempting the Old Continent after August's events, and at the same time, a confirmation of European doubts and divisions over how to deal with Russia. Two faces of a medal that both EU and Moscow should be careful when throwing into the air: on the side shown when it comes down will depend more than a new pipeline. Moreover, it is a very delicate time, as in a phase of global and scary financial crisis, the danger to lose momentum is bigger. So: what about a new sign to move forward. As a British colleague was pointing out recently, the August conflict has had at least one "sane" consequence: Europe has woken up feeling it should have a more independent voice when talking to Russia. How one (a European one) could not agree. A few concrete facts are showing that several European leaders are realizing it is dangerous to jump on the Us train when it comes to acting vis-a-vis to Russia, in the name of a Transatlantic cooperation that after 50 years can not count on simple make up any more. So much more, in a phase of ‘power void' in Washington and one of serious doubts about America leadership in the future. France's Nicolas Sarkozy seems to have realized that. Germany's Angela Merkel definitely has. Silvio Berlusconi came out from the European emergency summit in September telling the press he challenged his colleagues to explain what "disproportioned use of force" means and what would they consider a "proportionate" reaction to Georgian attack. We do not know the answers, but as a declared friend of both Mr Putin and Mr Bush, the Italian prime minister seems to have made a clear choice. Certainly, it is easier with an outgoing American administration, still it should not only be about that. In Brussels, though, at the last summit on October 15th, EU decided to take more time before re-launching negotiations with Russia on a new Strategic Partnership. "It is better to wait a bit", said French Foreign Affairs minister Bernard Kouchner. Poland, the Baltics, Britain and Sweden are against resuming talks, and the Big in Europe - starting from Germany - are saving the ‘unity dose' for more urgent dossiers, such as the financial crisis and the new dispute about measures to fight climate change. The differences about measures to reduce gas-emissions have taken the stage at the Luxembourg meeting, and the 27 will talk again about talking to Russia in November, when Italy and Germany will push again to break the ‘New European' barrier. The two countries have lead the campaign to resume discussions after Moscow withdrew its forces from parts of Georgia, as asked by the Sarkozy-brokered cease fire. But Great Britain is insisting that EU should wait on the result of the Geneva talks between Georgia and Russia in Geneva, where the first round last week was a total failure and where the next one, November 18th, could easily mark a new stand-off. Talking about risks of loosing momentum. So, something new is needed to move on. If a constructive message should come through from Moscow before the next European summit, things could get much easier. President Dmitri Medvedev is offering consultations about a new security architecture for the old Continent, but that season seems still too distant to chose a proper wardrobe. A proposal of cooperation against pollution, instead, might seem diminutive, but would be concrete enough to give a sign. A sign easy to read in Europe, also beyond diplomatic circles. In December, NATO will have to decide whether to invite Ukraine and Georgia into a Membership Action Plan (Map), the first step towards proper membership. It won't go ahead, most probably. But it would make a change if European allies could oppose US not out fears of a new fight with Russia, but out of hope in a really new, possible partnership.

Russia and the unfolding global recession

2008-10-20T07:58:00.001-07:00

20 October 2008 - Russia Today by James Blake - There will be a global economic downturn, but there are a few factors specific to Russia that offer at least a ray of hope that it can minimize the effects locally, and get its economy into better shape for the upturn when it eventually comes. The great international bank bailout of 2008 may, and only may, head off the meltdown of the global financial system, but it isn’t likely to head off a recession which will hit most if not all of the world. How Russia works it way through that global recession will, in large part, determine not just its place in the world on the other side, but also the day to day lives of a population that, by and large, has only recently started to become accustomed to improving living standards and modest increases in their spending power and wealth. But to look through various aspects of what is unfolding;
Exchange rates: Here in the second week of October we’ve already seen the stock market crash, or part of it at least. But unlike much of the rest of the world most Russians don’t own shares, and aren’t particularly interested in them at a day to day level. The import of what is happening on financial markets is producing its most immediate effect with changes in currency exchange rates, where for the first time in a couple of years many average Russians are looking at the Dollar to Ruble rate and wondering if they might be better off putting some of their hard earned into Dollars after the Ruble has fallen from just above 23 to the dollar in August to more than 26 to the dollar in October. With Oil and most commodities being savagely hit in the wake of the chaos on financial markets the short to medium case for the ruble looks less compelling than it has in ages. Adding to gloom is the prospect of oil now being below the level on which the National budget is formed. This means Russia is now looking at a possible budget deficit far earlier than was forecast – 2010 according to most estimates. Throw in the capital outflow resulting from global investors repatriating funds to deal with chaos on their home markets, and you can see the CBR has had to work overtime to keep the Ruble from depreciating more than it has.
Inflation: The Ruble move into reverse gear, has one immediate impact, and that is to add to Russia’s chronically bad inflation outlook. Russia already has 11% inflation for the year and any significant weakening of the Ruble is likely to add to it. For this reason that we can expect the central bank of Russia to think long and hard before it allows much further weakening as Ruble appreciation has been its one effective tool. Interest rates aren’t real. But with global turmoil moving into the wider economy, inflationary pressures from expenditure and competition for services and materials can be expected to lessen, despite Ruble depreciation. This gives the CBR and government the opportunity to bring the beast under control. Helping them in this task will be increased agricultural production figures, which have seen upward pressure on prices for many food items ease, an expected easing of consumer demand, and over the longer term, the infrastructure expenditure currently underway which will relieve the logistical bottlenecks which have exacerbated the problem.
Consumer sentiment: The vast bulk of the Russian population isn’t particularly well paid, and doesn’t save much. They spend up on whatever is there to be spent upon, but with the upside that they usually don’t go too far into debt to do it. An additional bonus in comparison with many of their global counterparts is that they usually aren’t leveraged by large housing debts. With banks still viewed suspiciously by many Russians – a legacy of the banking collapses of the 1990s – taking out large loans still isn’t part of Russia’s social fabric, even if it has the downside of that same population not being particularly keen to put its money into banks. This provides some upside in the outlook, particularly so if the government can ensure that the downturn isn’t accompanied by a significant jump in unemployment. That may seem a near impossible task, but it is helped by the fact that for most Russians a significant part of their annual salary comes in the form of bonuses – estimated as being as high as 25-30% in many cases. It means two things, first that many Russians can live off less than their total earnings would suggest, and second, that – painful as it may be – there is scope for trimming bonuses rather than laying off employees. If widespread layoffs can be avoided, while maintaining day to day expenditures, the impact of the downturn on general spending can be minimized. That’s not to say that there won’t be major changes in expenditure. There will, and the consumer boom that has become a key part of Russian economic growth for the last 2 years will almost certainly ease back a gear or two. Earlier this week the Rosinter Group, while unveiling its first half figures, announced that it was already planning for changes in customer behaviour. It won’t be the only company. Retail outlets of all descriptions are likely to have similar changes in mind, and the conspicuous expenditure, which has made Russia such a fixture for luxury goods makers, will invariably be toned down.
Employment: The key to keeping retail expenditure up, whilst easing, is going to be employment. Already we are seeing plenty of indication that major players are trimming Capex, lowering outlooks, trimming expansion plans, and deferring projects. One of the major factors behind the governments drive to keep interbank and corporate lending going has been to ensure that major projects can still proceed and that expansion and development plans currently funded by international borrowings can be continued with domestic funding if need be. If those companies can weather the downturn without shedding too many employees – maybe by reducing working hours, or slashing bonuses – then there is scope for Russia’s economy, and society, to weather the global recession.
Infrastructure spending – the key: Russia will face up to this global downturn with a large infrastructure development program already underway. Initially unveiled at the height of the boom to reduce the structural problems facing Russian business it will now become a potential godsend in terms of keeping corporate wheels turning and people in jobs. It may well be a considerable advantage to have such a program already in place, and it can be expected that governments elsewhere will soon be looking at measures to keep domestic consumption up as well, as well as having, at present, a budget surplus to help keep them going, as well as Russia’s reserves to call on in the worst case scenario. The massive investments already unveiled in transport and logistics infrastructure will help to keep heavy industry – steelmakers and construction outfits in particular – generating turnover. Some of the massive gas and oil developments will see the energy majors, along with services companies and pipemakers get a look in at keeping the energy sector going. The refurbishment of the electricity sector is another source of both long term outcome gains and shorter term fiscal and employment boosts. To go with this there is massive investment underway already in improving a lot of social infrastructure – particularly in health and education, as well as massive investment in housing stock. Some of this will certainly be trimmed back, but as long as the bulk of it continues then there is scope for it keeping the economic engine ticking over and keeping employment up, therefore keeping consumption up, while generating long term quality of life improvements for everyday Russians.

Russia’s “curse of the well”

2008-10-20T07:38:00.001-07:00

10-20-2008 - MOSCOW - (RIA Novosti economic analyst Vlad Grinkevich) - Brent crude has fallen to $70 per barrel on the New York and London exchanges, the lowest in the last 14 months. But analysts say oil prices may continue to fall, because the global economy continues to slow resulting in no reason to expect energy prices to resume growth. Oil will most likely cost between $50 and $70 per barrel next year. Russian officials must hurry to review the 2009-2011 budgets to keep them in the black. At the same time, President Dmitry Medvedev has expressed astonishment at exceedingly high domestic fuel prices. About two years ago, when oil cost $70 per barrel, economists said the global economy would be unable to function with such high oil prices. The economy has adjusted to these prices, but it will be more difficult for the world, and especially oil exporting countries, to return to cheap oil. The Russian budget is based on oil prices of $95 per barrel, and the leading crude producers' investment plans were formed on the assumption that oil prices will exceed $100. It is not surprising that oil prices have fallen; this was bound to happen, sooner or later. What is surprising is that the Russian authorities and oil companies failed to forecast the fall and prepare for it. Much has been said about the speculative nature of high hydrocarbon prices. Oil futures and other commodity securities have become an alternative currency in which speculators readily invested. Their enthusiasm was fed by the nearly mystical belief in the unstoppable growth of the global economy, which would need a growing amount of resources. Raw materials providers had nothing to worry about in that scenario. Also, speculative demand was spurred by the rapidly developing Chinese and Indian economies, which needed ever increasing hydrocarbon imports. Some hotheaded experts even predicted that oil prices would soar to $200 per barrel before the end of this year. The financial crunch is an abstract disaster for the majority of Russians, but everyone will hear the loud pop of the oil bubble. Hydrocarbons are Russia's main export providing more than half of its export income and the bulk of the budget revenues. Russia's 2008 budget is based on oil prices of more than $90, and similar figures form the core of the 2009-2011 budget. The Finance Ministry claims there is no reason to review the three-year budget. But then, it also said the 2009-2011 budget would be deficit-free even if oil prices fell to $70, which is approximately what Urals crude now costs. The Russian economy may have a deficit budget and a negative trade balance, for the first time in several years. This means the government will have to dip into reserves to pay for budgetary programs and for the growing amount of imports. The state will be unable to adjust the wages of public-sector workers to inflation, and pensioners may not receive the planned 30% increase in 2009. Paradoxically, fuel prices in Russia remain very high, even though they have fallen in the United States following the plunge in oil prices. The increase in jet fuel prices in Russia in August-October has led to a crisis in the airline industry with flights delayed or cancelled by the hundreds and ground services denying maintenance services to debtors. This is not surprising, as it is not the market but the insatiable appetites of oil companies that regulate fuel prices in Russia. In mid-summer, when oil cost $140, prices of jet fuel were higher in Russia than on the London exchange. Now that global prices have taken a plunge, large oil producers want to make up for their losses by shifting the burden to their Russian customers. In the last few years, the government pretended not to notice the pricing games of the oil companies. Officials sometimes chided crude producers, but did not do anything to stop the growth of domestic prices. This is logical because the oil sector is one of the drivers of the Russian economy, tax deductions from domestic hydrocarbon sales make up a substantial part of budget revenues, and Rosneft, the largest crude producer, is controlled by the state. Fuel consumption continued to grow despite rising prices in Russia. But the economic crisis has forced the government to cast a fresh look at the problem and admit that unjustifiably high commodities prices are increasing the outlays of Russian companies and making their output and services uncompetitive. President Medvedev has described the situation with jet fuel prices as unacceptable and instructed the Russian government to take decisive anti-trust measures to regulate them, up to and including the launch of criminal proceedings. The task has been turned over to the Federal Antimonopoly Service and law-enforcement agencies. Deputy Prime Minister Sergei Ivanov, who is responsible for the fuel sector, has said that since oil prices dropped by half, domestic fuel prices should be reduced accordingly. We will see in the next few days if this was a direct order or another mild chiding.

Russian capital flight at $33 bln in Aug.-Sept. -finance minister

2008-10-20T07:34:00.001-07:00

MOSCOW, October 17 (RIA Novosti) - Investors withdrew $33 billion from Russia in August-September, Russia's finance minister said on Friday. "In August-September, investors took a total of $33 billion out of Russia," Alexei Kudrin said, speaking in the State Duma, the lower house of parliament. He said the amount represented dollars that investors had bought from the Russian Central Bank for rubles and then taken out of the country. Russia's financial system has been affected by a global credit crunch which started in the U.S. and quickly spread to Asia and Europe leading to record losses on Russia's financial markets, rising interest rates and a liquidity shortage. The minister also said national welfare funds would be used to buy stock in Russian companies. "Next week, we will start investing 175 billion rubles [$6.7 billion] from the National Welfare Fund [into buying stock]," said Kudrin. The State Duma approved last week anti-crisis packages worth a total of $86 billion. The government earmarked $50 billion of budget funds to banks and firms to refinance foreign debt, and some $36 billion to key banks in subordinated loans.

EU leaders fail to agree on Russia

2008-10-20T07:29:00.001-07:00

MOSCOW (RIA Novosti foreign news commentator Ivan Zakharchenko) - Meeting in Brussels to discuss the global financial crisis, the 27 EU leaders held separate debates about relations with Russia. Relations have deteriorated because of Moscow's intercession in Georgia's attack of South Ossetia two months ago. Russia, however, is not making a drama of the EU's failure to agree on Russian-European partnership negotiations. France, which currently holds the EU rotating presidency, insisted on continuing talks with Russia. Paris and Berlin appreciated Russian peacekeepers' timely withdrawal from Georgia. Italy even suggested that Russia should become a member of the European Union. For all that, the parties didn't manage to arrive at consensus. The "opposition," represented by Great Britain, Poland, the Baltic countries, Denmark, Sweden and the Czech Republic, considered it premature to improve relations with Russia and suggested monitoring the developments in the Caucasus. As a result, the EU debate was postponed until November 10, which means it will be held four days before the Russia-EU summit in Nice, France, at the foreign minister level. "We don't take it as a tragedy. If the European Union needs more time to prepare for talks, we have patience. It took the EU a year and a half to prepare to launch the talks, after all," Russia's EU envoy, Vladimir Chizhov, stated during a video link between Moscow and Brussels. The new Russia-EU agreement is to replace the Partnership and Cooperation Agreement, which expired in late 2007, but was automatically extended. At the emergency summit on Georgia in Brussels on September 1, EU leaders decided to suspend negotiations on a new basic agreement between Russia and the European Union, as a sign of support for Georgia. Initially, it was Poland and Lithuania that blocked the launch of the talks, which finally started in Brussels on July 4. According to Mr Chizhov, in November the matter of resuming talks with Russia will be considered along with a report on EU-Russia relations, which is now being prepared by the European Commission. Both Moscow and its European partners need stable relationship, and they are aware of this. The EU accounts for over 50% of Russia's foreign trade. Russia ranks third (after the U.S. and China) among EU exporters (export volume totaled $197 billion in 2007), and fourth among those consuming EU production (EU imports to Russia amounted to $87 billion in 2007). At the same time Russia is the leading gas supplier to the EU, ranking second in oil and petroleum products supplies. Europe depends on energy imports to such an extent that it reacts painfully to any global disturbances in this sphere. Europe imports over 80% of its oil and 75% of its gas. Analysts predict that in the near future the EU's dependence on energy imports will only increase. In this situation it would be reasonable for Europeans to develop a partnership with Russia to ensure the energy security Europe needs so much. In other words, Europe's energy security depends on Russia, and it can be achieved only by building normal relations regardless of disagreements on some or other issues. Problems should be addressed during constructive negotiations, rather than resorting to "punishments" or demarches like freezing the talks on a new EU-Russia partnership agreement.

Russia's next revolution has started - at the bank

2008-10-16T08:23:00.001-07:00

17 Oct. 2008 - Asia Times by John Helmer - MOSCOW - The first sign of a Russian economic crisis is a line of desperate people, pushing and shoving outside a locked door, on which a scribbled sign has been posted indicating that the cash those outside thought they owned would be unavailable until further notice. In the classic Soviet tradition, a handful of enterprising individuals would go to the back door to see what could be arranged out of the glare of publicity and with a little bribery for those inside. There they were told the truth - their money had gone.
So far, as the financial crisis continues to engulf the world, only four or five Russian banks have gone to the wall, visibly - KIT Finance, a small St Petersburg investment institution connected to cabinet ministers; Bank Soyuz, the cash box of Oleg Deripaska's aluminum-based holding; EvrasiaTsentr ("Eurasia Center"), a tiny Moscow lender; and Globex, a slightly bigger retail deposit bank, also in Moscow. All have been swiftly secured, without the distress becoming too public or a line of angry depositors forming outside. The sale of Renaissance Capital, a fifth investment house, for a fraction of its pre-crisis value, was another distress sign, but not in the mass market.
The apparent calm reflects Russians' confidence in the state. Since the earlier financial crises of the post-communist period were all triggered by the weakness of the state treasury, Russian depositors believe their savings are relatively secure this time because state reserves are huge and the state banks flush. And the depositors are right. They can also hear their leaders assuring them that the state budget will be used to revive and re-stimulate domestic investment and demand. A decade ago, former president Boris Yeltsin let the International Monetary Fund dictate massive cuts in government spending while letting his brand new oligarchs ship the untaxed profits of their export concessions in oil, gas, steel, nickel and aluminum to safe havens abroad. This time there is no danger of the first type of disinvestment. The second type is also less likely, because President Dmitry Medvedev and Prime Minister Vladimir Putin control the oligarchs and not the other way round.
Nonetheless, there is a crisis queue right now; according to Vnesheconombank (VEB), a state financial institution, at the last count there were 55 applicants for help standing outside the door. Until this month, the 55 - 20 banks and 35 industrial corporations - were among the most powerful and richest enterprises in the country, whose shares made their proprietors the richest men in Russia and in Europe. VEB has a history of servicing lines of desperate Russian enterprises. Begun in 1922, it was the first state trading bank after the communist revolution had wiped out privately owned, commercial banks and initially handled short-term financing needs for export-import transactions. By the time the Soviet Union ended in 1991, VEB was responsible for all foreign debts of the defunct state. Renamed the Bank for Development in 2007, it has been revived as the conduit through which the vast cash reserves and special wealth funds of the government can be channeled into the domestic economy. Not since the 1920s has VEB played the role of peak power banker to Russian commerce. Then and now, that's a unique political role, and those on the present VEB board have their own special standing in the current factional alignment between the Kremlin of Medvedev and the White House (as the prime ministry is known in Moscow) of Putin. Putin is chairman of the VEB board. Under him sit eight members, including Victor Zubkov, first deputy prime minister and the senior official in charge of domestic consumption and agriculture; Sergei Ivanov, a former intelligence officer, defense minister, and now supervisor of the military-industrial complex; and Dmitry Kozak.
Kozak, a St Petersburg lawyer, was until this week obliged to cool his heels as the junior minister of regional development. On Tuesday, he was promoted by Medvedev to be minister in charge of the preparations for the Sochi Olympic Games to be held in the winter of 2014. Although that job remains a provincial one, and Kozak has not quite escaped the exile from Moscow into which he was sent in September 2004, he is a powerful figure for the faction that opposes the ambitions of Deputy Prime Minister Igor Sechin and his allies. Sechin, a former Kremlin assistant to Putin, is now the deputy prime minister in charge of resources, energy and industry. In that position, he supervises the concessions through which the oligarchs control their oil, gas, metal and mining empires. Those who have challenged Sechin in the past - cabinet ministers, the head of the state oil pipeline company, the head of the state tanker fleet, as well as St Petersburgers Ivanov and Kozak - have all been beaten, and many forced into exile. For some, opposing Sechin has led to prison or foreign asylum.
The first challenge to Sechin since Medvedev became president in May was the clash between British Petroleum (BP) and TNK-BP, controlled by Mikhail Fridman. As Fridman openly pointed out, BP had tried to oust Fridman and his co-shareholders by making a secret pact with Gazprom to buy them out. What Fridman didn't say was that Medvedev, formerly chairman of the Gazprom board, and his legal counsel at Gazprom, Konstantin Chuichenko, had encouraged BP to believe it would be supported. BP then made the mistake of trying to play Kremlin politics. Fridman rallied Putin and Sechin, who also serves as chairman of Rosneft, the state oil producer. Medvedev saw the lineup, and the outcome was inevitable. BP was defeated, and TNK-BP emerged with Fridman to call the shots on how this oil company will be managed in future.
Fridman and his diversified conglomerate of banking, oil, mining and other assets has also consolidated his relationship with Medvedev. On present indications, Fridman's core business, Alfa Bank, is "in great shape - cash on hand, unexposed and gaining market share", an insider claims. "We see the current environment as an opportunity to increase our market share in our retail, commercial and investment banking businesses." Fridman is also the only commercial banker publicly known to have met Medvedev since the crisis broke. That was on October 6. The following day, Medvedev met with and the state bankers - from SBerbank, VTB and VEB and the head of the central bank head.
Such visible signs are clues. Calculations of how much paper value the Russian oligarchs have lost in the crisis create mind-boggling numbers, but their accuracy is questionable. That's because they don't discriminate between the gross wealth generated by stock market value and the wealth that is net of debt. Leverage is now the key to the survival of Russia's biggest enterprises and the oligarchs who control them; the lower the leverage, the higher the survival chances. But if oligarchs lack short-term liquidity or access to credit, they face loss of assets, dwindling of their cash piles and re-nationalization - that is the transfer of their concessions to competitors. What passes through the money window of VEB is therefore the real evidence of how the distribution of power may be changing in Russia today. Sechin, it should be noted, is not a member of the VEB board. This creates a more level playing field at VEB for those aspiring to enlarge their concessions, and attack those concessions Sechin protects. This is now the revolutionary dynamic of Russian politics. It is also governed by simple arithmetic. Legislation enacted by parliament last week for the emergency stimulus of the Russian economy provides up to US$50 billion in loans from VEB for the refinancing of foreign debt which Russian banks and other companies have raised but face trouble repaying or refinancing in the current crisis. That's the amount in the vault, behind the locked door, in front of which stands the queue of 55. The notice on the door says that credits will be issued on a discretionary basis, priced at no less than 5% over the benchmark London Interbank Offered Rate, and - here's the crunch - no more than $2.5 billion for a single applicant. According to VEB chairman Vladimir Dmitriev, the aggregate borrowing applications already amount to more than VEB has agreed with the government and central bank to lend. Who gets refinancing, and how much, is thus a crucial test of how stable the current oligarch system is, and how likely the concessions they administer may be about to change. VEB has promised the queue that within 18 days it will decide on all applications filed by October 25.
The first test puts Sechin on the defensive, for it is his Rosneft whose financing need is the largest and most urgent. Rosneft absorbed the oil production assets of the defunct Yukos when its founder Mikhail Khodorkovsky went to jail and Yukos was convicted of tax fraud and wound up. The company now owes $11 billion in short-term debt, and $23 billion in total debt. Only Gazprom is more heavily leveraged, with $21 billion in short-term debt and $61 billion in long-term debt. According to news repots in Moscow, Rosneft has applied to VEB for $4.2 billion in emergency cash; LUKOIL, controlled by Vagit Alekperov, for $2 billion; Fridman's TNK-BP for $1.8 billion; and Gazprom for $1 billion. At the moment, LUKOIL has total debts of almost $9 billion, and short-term pressure for $2.3 billion. TNK-BP owes $1.9 billion in aggregate, but only $277 million must be funded soon. Rosneft is under the heaviest immediate pressure. This pain translates, for Sechin's rivals, into potential political opportunity. If Sechin stumbles in the Rosneft refinancing, then his rivals in government may argue that Rosneft should be reorganized. That would mean a new state team taking over from Sechin loyalists. Rosneft must pay $750 million of debt by December 31 and $2.4 billion three months later. Given that the price of oil is falling, and production is not increasing to offset this, nor foreign demand for oil exports, Rosneft must test the full extent of its political clout to secure cash. It has already refinanced $2.35 billion of debt on September 17, using 4.67% of its shares (out of 9.44% treasury stock) as collateral. Whatever VEB decides to loan Rosneft, the company has other state lenders to whom it can turn. There are reports that one option is a $2 billion credit line from a consortium of Sberbank, the state savings institution; Gazprombank, which is owned by the state through Gazprom; and VTB, a state controlled bank. More credits might be available bilaterally from Sberbank and VTB. In addition, Rosneft is negotiating an export finance facility with Chinese banks that is tied to the flow of crude oil to China, currently running at 10 million tonnes per annum (192,000 barrels daily). China wants much more, but overland delivery by pipeline through eastern Siberia is taking time to build. Tanker delivery by sea is costly, and no longer so profitable to arrange for traders such as Gunvor, which dominates Rosneft's marketing of oil. The Geneva-based Gunvor is owned by Gennady Timchenko, a close ally of Sechin. What happens to him, and their alliance, is now in the balance.
Gunvor has told Asia Times Online it is seeking finance to expand Timchenko's stakes in the Baltic energy trade, including a new Russian oil terminal at Ust-Luga, as well as rail transportation of oil, tanker fleet operations, and gas exports. The decline of Russian equity values has reached the level where the underlying asset value is based on a price of a barrel of oil of $50 to $60, industry analysts have told Asia Times Online. If this materializes in the export markets, the industry will see Rosneft demanding an end to trade discounting under the market price. It will also cause a significant delay in the sale of shares of the merged and privatized tanker fleets of the two state-owned shipping companies, Sovcomflot and Novorossiysk Shipping Company (Novoship).
Merged, as Sechin has arranged, and privatized as Timchenko wants to see, the combination of Sovcomflot and Novoship makes one of the world's largest oil shipping companies. If Rosneft catches a cold, Russian ports, pipelines, and fleet companies, which depend on it, may begin to suffocate. "According to the exchange quotes, the share price of Novoship has dramatically fallen even from the price of Sovcomflot's minority share buyout offer," said Kirill Kazanli, a Troika Dialog analyst in Moscow. "Sovcomflot proposed $3.36 per share, while the current price is around $2 per share. The market for these shares has simply disappeared." Kazanali told Asia Times Online that an international IPO for the Russian tanker group is now unlikely until 2010. Alexei Bezborodov, a leading transportation analyst in Moscow, says that the valuation cut reflects the oil price now, and tanker rates later. "I think their revenues are dependent on freight rates, not on oil prices. And freight rates don't always correlate with oil prices, although now they do. There is a lot of news about the dramatic fall in freight rates and growth in tanker availability. But as Sovcomflot and Novoship both operate on long-term freight contracts, their revenues won't be affected immediately. They have contracts roughly until May 2009." According to Kazanli, excess capacity and falling tanker rates will strike as Sovcomflot and Novoship must pay for new vessels. "They have very big new-building portfolios for the next two to three years, and a long-planned expansion of tanker capacities. This is definitely not a very attractive configuration for the market for the next two years."
Rosneft and Gazprom are at the head of the line in front of VEB's loan window. But close behind them are all of the oligarchs, representing all of Russia's mineable resources, power sources, industrial assets, and consumer demand. Oleg Deripaska, who controls the state aluminum champion, is looking for $10 billion, divided between United Company Rusal, and his holding Basic Element. Vladimir Potanin, the controlling shareholder of Norilsk Nickel, Russia's largest mining enterprise, argues that VEB should not lend Deripaska money he borrowed to start a hostile takeover against Norilsk Nickel. The application process for state funding obliges Medvedev and Putin to make a choice between oligarchs and their competing demands. And this in turn triggers the choice of whom they prefer. Enterprises and assets which were once handed out by Yeltsin, in return for little more than a bribe, are now passing back to the state, stripped of their cash, heavily indebted, their shares or property mortgaged and potentially forfeit to foreign lenders. The last time such a momentous policy choice materialized in Russia was in 2003, when oil was less then $20 per barrel; the US was preparing to attack Iraq and lower oil to $13 per barrel; and Khodorkovsky proposed selling Yukos to a US oil company. For the five succeeding years, the oligarchs have largely avoided positioning themselves under the chopper that decapitated Yukos and Khdorkovsky. Now reason and cause may be different; but the stakes for Russia's future are just as high, and the axe is still as sharp. Read Putin's lips carefully. Last week, he said: "We should refinance only those credits which were involved for realization of investment projects or acquisitions of shares in Russia." That means he intends to make a choice. Oligarchs with famously expensive houses in London or the French Riviera, English football teams, steelmills in the United States and aluminum smelters in Nigeria, need not apply. Disinvestment in Russia, job cuts, transfer pricing of profit abroad - these are criteria for passing over an applicant for bail-out finance from the state. "The crisis has shown," said Sergei Chizhov, a former federal oil minister, "that without the aid of the state, Russian companies realize that they cannot survive. I do not exclude that Rusal can be nationalized." The implication is that those of Russia's leading corporations left penniless outside the VEB loan window, when it closes, face re-nationalization. For this to happen requires another revolutionary shift of Russian political and financial power. Don't mistake how stationary the VEB line looks to be, for how rapidly this revolution is moving at this very moment.

PM doubts U.S. ability to regain leading positions

2008-10-10T07:17:00.001-07:00

RBC, 09.10.2008, Moscow 17:10:49. – Russian Prime Minister Vladimir Putin believes that the United States will not be able to regain its leading position in the world economy after the crisis, he said during a meeting with deputies of the Communist Party faction in the State Duma. Putin agreed with faction leader Gennady Zyuganov's statement that the United States had lost its leading position and the U.S. crisis would continue. Confidence in the U.S. as the leader of the free world, as well as in Wall Street, has been undermined forever, the Russian PM said. He added that it was not only his personal opinion, as European leaders, heads of central banks, finance ministers, and experts spoke about it as well, be it disguised or blatant.

Sechin Gains Power

2008-10-06T15:05:00.001-07:00

Oct. 06, 2008 - Kommersant - Vice Premier Igor Sechin has set to mastering a new business field, the power engineering. Sechin will head the BOD of Inter RAO UES, which is expected to turn into one of the country’s giants by 2015. The key business of Inter RAO is overseas operations and French Electricite de France will soon become its co-holder and partner. As to Sechin, he chairs the BOD at Russia’s oil company, Rosneft, and the control over Rosneft and Inter RAO will enable this powerful vice premier to pursue the independent energy policy. A political liaison of both companies is a soft variant of Gazprom, the analysts say. Inter RAO released the list of 20 candidates to the BOD. Igor Sechin is the obvious frontrunner and exactly he is likely to chair that body. The EGM will elect the BOD October 23 and the results are expected to be made public on the same day. Inter RAO UES is Russia’s monopoly for energy export and import; it owns facilities of roughly 8,000MW capacity both in Russia and overseas. Russia’s nuclear energy agency Rosatom holds over 57 percent in Inter RAO, minor holders (former minors of RAO UES of Russia) have 38.5 percent and the treasury stocks account for around 4 percent. The company’s worth stood at $1.06 billion, according to Friday quotes on RTS. The plans are that Inter RAO will step up facilities to 30,000MW by 2015 and boost capitalization to $14 billion. So far, Sechin has never been the BOD member at an energy company. But he heads the BOD of Rosneft. A new authority will widen Sechin’s control over the fuel and energy sector of the country to the extent that nears the power of Russia’s gas monopoly Gazprom that is aggressively acquiring energy assets and with which Rosneft has been long competing for influence. According to the analysts, Sechin’s personal control over Inter RAO signals the government has revised its attitude towards the company. Nowadays, Inter RAO is more a lever of influence than a certain business undertaking. It could be viewed as the continuation of gas expansion but through softer methods. Gazprom arouses fear but no one is scared of Inter RAO. Besides, the expansion of the kind matches Sechin’s positon, whereby “not all energy assets should go to Gazprom but Russia must have everything.” The investors have appreciated Inter RAO potential. The company grew 1.4 percent on RTS Friday contrary to the index decline of 7.09 percent.

Russneft's Gutseriev Surface in Britain

2008-10-06T15:02:00.001-07:00

Oct. 06, 2008 - Kommersant - Russia has sent an enquiry to Great Britain for the extradition of Mikhail Gutseriev, founder of the Russneft company accused of tax evasion and illegal entrepreneurship, reports RIA Novosti information agency, citing a statement from the Russian Interior Ministry’s Investigative Committee. Gutseriev has denied the charges against him. Gutseriev announced the sale of his company, Russneft, in July 2007. In August 2007, a warrant was issued for his arrest. An international warrant was issued at the end of the year. In April 2008, deputy chairman of the Interior Ministry Investigative Committee Oleg Logunov stated that Gutseriev was living in Great Britain and occasionally visiting Azerbaijan. He added that the issue of his extradition would be settled through Interpol. Affiliates of Oleg Deripaska’s Basic Element holding acquired Russneft. They have been waiting for over a year for permission from the Federal Antimonopoly Service to finalize the deal.

Panic as Russian stock market falls by almost 20%

2008-10-06T14:41:00.003-07:00

MOSCOW, October 6 (RIA Novosti) - The Russian stock market gave in to panic on Monday with the MICEX dropping 18.6% to 752 points and the RTS falling by 19.1% to 866.39 points - the worst losses since the 1998 crash. Russia's financial system has been affected by a global credit crunch which started in the U.S. and quickly spread to Asia and Europe leading to record losses on Russia's financial markets, rising interest rates and a liquidity shortage. Sergei Sheikov, managing director for corporate clients at the Olma Company said: "Monday became one of the blackest days for most market participants - for the first time since 2005 the RTS index closed below the psychologically important benchmarks of 900 and 1,000 points." Losses for many blue chip stocks exceeded 20% with Norilsk Nickel shares worst hit as they plunged 30.2%. The losses forced the closure of the MICEX, Russia largest index, and RTS three times on Monday. Fears regarding the spread of financial crisis caused all world markets to plunge, which contributed to Russia's market losses. Britain's FTSE 100 experienced its worst day since 1987 as stocks plunged 7.85% and France's Cac 40 index fell 9.04%, and in the U.S. shares fell below the 10,000 point level for the first time in four years as they shed 4.65%.

Crisis to change global financial system, minister says

2008-10-06T14:41:00.001-07:00

RBC, 03.10.2008, Astrakhan 13:30:52.In light of the global financial crisis, many international regulations may be revised, Russian Economy Minister Elvira Nabiullina told a Caspian Sea summit in Astrakhan, a major city in southern European Russia. International financial architecture as a whole will inevitably change, Nabiullina asserted, and the role of traditional financial investment institutions, financial organizations, and separate currencies will be reconsidered. The minister stressed that the creation of effective multilateral economic ties within the Caspian Sea region was especially important in this context. She reiterated that trade between Russia and Azerbaijan grew 56.5 percent to $1.256bn in January-June and Russia-Kazakhstan trade rose 28.4 percent to $11.6bn. Russia's trade with Turkmenistan (excluding natural gas trade) surged 2.3 times to $464m in the first seven months of 2008, whereas Russia-Iran trade stood at $3.3bn in 2007, up 53.7 percent from the year before.

Russian capital flight $16.7 bln in Q3 - Central Bank

2008-10-03T08:17:00.001-07:00

MOSCOW, October 3 (RIA Novosti) - Russia saw $16.7 billion net capital outflow in July-September, the Central Bank said on Friday. Net capital inflow in Russia stood at $40.7 billion in the second quarter of the year while net capital outflow reached $23.2 billion in the first, leaving the country with $0.8 billion in net inflow for the year to September. Deputy Economic Development Minister Andrei Klepach said on Monday that capital inflow into Russia in 2008 would be less than $30 billion. According to Central Bank and Finance Ministry forecasts, net capital inflow into Russia this year was expected to total around $40 billion. Net capital inflow into Russia totaled $25.5 billion in January-August 2008, including around $4.6 billion in August. Alexei Ulyukayev, the bank's first deputy chairman, earlier said net capital inflow into Russia in January-September this year would reach $20 billion, with net capital outflow in September hovering around August levels. The International Monetary Fund has said that net capital inflow into Russia this year would reach between zero and $15 billion.

Russia's Ekho Moskvy Under Mounting Pressure

2008-09-18T08:42:00.001-07:00

September 18, 2008 - RFE/RL by Daisy Sindelar - Compared to the many press and media outlets created in the wake of the Soviet collapse, Ekho Moskvy has enjoyed a relatively long life. The radio station, which broadcasts a mixture of news, commentary, and public call-in shows, first went on the air in 1990. Since then, it has made and maintained a reputation as one of the most respected news outlets in a country where impartial information has become an increasingly rare commodity. (Russia's ranking in global press-freedom surveys has steadily declined in recent years; Freedom House's 2008 report ranks it on par with Kazakhstan, Sudan, and Yemen.) But Ekho Moskvy's coverage of the recent war in Georgia has brought it unwelcome attention from both the Kremlin and the public. In August, the station -- which employs a wide spectrum of political commentators and relied on reporters in the field, rather than state media reports, for much of its Georgia coverage -- was singled out for criticism by Prime Minister Vladimir Putin. During an August 16 gathering in Sochi of some 30 the country's top media professionals, Putin singled out Ekho Moskvy's chief editor, Aleksei Venediktov, berating him for a series of alleged errors in the station's reporting on the war. And on September 16, members of two nationalist groups, the Eurasian Youth Union and the Union of Orthodox Standard-Bearers, staged a demonstration in Moscow accusing Ekho Moskvy of threatening national interests by hosting Georgian officials on the air. The motley gathering of young nationalists and bearded Orthodox faithful began the protest with a prayer before accusing the station of inciting racial hatred and insulting the honor of Russian federal troops. They called for Ekho Moskvy to be closed and for Venediktov to be jailed. Chilling Effect - Such protests -- which typically feature no more than 50 people and appear to stir little public sentiment -- are nonetheless becoming a frequent feature of grassroots political life in Russia. The Eurasian Youth Union, whose followers support calls for the creation of a new empire centered around Russia, recently staged protests outside the Georgian Embassy in Moscow. The group, which is seen as having the tacit support of the Kremlin, has been banned in Ukraine following a series of cyberattacks on government websites and incidents of vandalism targeting Ukrainian national monuments. Ekho Moskvy did not cover the September 16 protest, and neither Venediktov nor his deputy, Sergei Buntman, could be reached for an interview. But Venediktov -- who is featured in a lengthy profile of the station in the September 22 issue of "The New Yorker" magazine -- has made no secret of his difficulties at the hands of the regime. According to Oleg Panfilov, who directs the Center for Journalists in Extreme Situations, Putin's scolding in August has already had a chilling effect on the station's coverage. "I think it's a very serious warning, and I see that the station has already sharply altered its news policy. At least, I feel this as far as I'm concerned," Panfilov says. "I was in Georgia in August, through August 30. Before August 16, [Ekho Moskvy] would call me several times a day in Tbilisi for commentary; I would talk about what was going on in Georgia. After August 16 they stopped calling me, and since then I haven't received a single call from the station." Free, Fair, And Insignificant - Ekho Moskvy, which has a reputation for being free and fair despite being partially owned by the state gas giant Gazprom, joins newspapers like "Novaya gazeta" and "Kommersant," as well as the Internet, to form the last bastion of independent information in Russia. Such outlets, as a whole, are estimated to reach just 5-6 percent of the population in Russia, with the vast majority of people receiving information via television -- the Kremlin's sleek and entirely state-controlled medium of choice. These independent media outlets' relative insignificance, in fact, may prove to be their saving grace. Panfilov says news outlets like Ekho Moskvy may be permitted to continue functioning as long as their influence remains small and their clean reputations are useful for the Kremlin. "These alternative sources of information can't influence the population and public opinion," Panfilov says. "There is also the fact that Putin -- and now [President Dmitry] Medvedev -- is always able to say that Russia has freedom of speech because there are things like Ekho Moskvy, and even a couple of newspapers," he adds. "After all, the people from the Kremlin are buying villas and apartments in Europe, and they want to be able to use them, so they have to preserve their ties with the West."

It's All About Oil

2008-09-18T08:18:00.001-07:00

16 September 2008 - The Moscow Times by Clifford G. Gaddy - It's great fun to explain a sudden boom or bust in the stock markets after the fact by alluding to some unique event that happened to occur at just that time. Anyone can do it, and no one can refute you, since the experiment cannot be repeated. Normally, it's also an innocent exercise. In recent days and weeks, however, some people have carried this game into a more serious arena, that of geopolitics, and are using it to draw wrong policy conclusions. It by now seems to be an article of faith for many people that Russia's invasion of Georgia on Aug. 8 caused a massive fall in the Russian stock market, as well as a crash of the currency and outflow of foreign capital. The serious misstep is when some people take this as evidence that Western governments don't have to worry about making tough decisions as to whether and how to react to Russia's actions in Georgia because "the markets are punishing it." Implicit in such thinking is that Prime Minister Vladimir Putin obviously did not realize what a penalty he would pay. Now that he does, Putin -- or the oligarchs who back him -- will be deterred in the future. Is this at all credible? Let us look at some facts. Yes, the ruble has lost 6.9 percent against the dollar since Aug. 7. Then again, nearly all currencies have lost against the dollar recently. Maybe it would be better to ask how the ruble has fared against the euro. The answer is that the ruble now is stronger against the euro than it was on Aug. 7. And the foreign exchange impact? Again, there's some reality here. In the week following the invasion, the country's foreign exchange reserves dropped by $16.4 billion. But that is still less than 3 percent of the total of nearly $600 billion. Since then, the reserves have held more or less steady. So neither the currency nor the foreign exchange situation seems particularly dire after the Georgia events. The Russian stock market is a different story. The fact that it is collapsing is indisputable. The market value of the country's main exchange, the RTS, is now down to barely half of what it was earlier this year. A lot of value has been lost, although commentators disagree on just how much. Anders Бslund wrote in The Moscow Times on Sept. 3: "Aug. 8 ... marks Prime Minister Vladimir Putin's greatest strategic blunder. In one blow, he wiped out half a trillion dollars of stock market value." Gideon Rachman adhered to the same figure in his Sept. 8 column in the Financial Times. But David Ignatius in The Washington Post on Sept. 10 wrote more cautiously that the RTS index lost "about $290 billion in value since Aug. 7." To be precise, between Aug. 7 and Sept. 9, the RTS lost $183 billion. What is true, however, is that since its peak on May 19, the RTS has lost about $600 billion, or around 43 percent. The issue is when it lost that value, and why? Did it really happen, as Бslund wrote, "in one blow"? Most important, was it because of Georgia? Consider this: In the four weeks before the invasion, the RTS lost more value than in the four weeks after -- $192 billion before and $167 billion after. In fact, the Russian market has been declining since early July. So if the Georgia events did not cause the decline, what did? One alternative explanation is the worldwide decline in stock markets, which has had an especially strong impact on emerging markets like Russia. Another suggestion is that the Russian market has suffered from a general climate of distrust that has been growing over a longer period, highlighted first by the acrimonious dispute among the owners of TNK-BP and then by Putin's July 24 attack on the mining company Mechel and its CEO. It may well be that all of these various factors, including the Georgia factor, have played into the market's fall. But if we are looking for a main cause, the best bet is to turn one's attention to the main driver of economic events in Russia since the 1970s -- namely global oil markets. After peaking in mid-summer at over $140 a barrel, the world oil price has steadily declined. From its high on July 14 to Sept. 8, the oil price dropped by 29.8 percent. Over that same period, the value of the Russian stock market fell by 29.3 percent. The extreme closeness of those two numbers is certainly a coincidence. But the stock market's general dependence on oil prices should not be a surprise. I suspect that Putin and his advisers are smarter than the Western analysts on this one and are well aware of the oil factor. If so, the lesson for Putin and Co. will be that since the markets have imposed little penalty for the military action in Georgia, there is no reason to be deterred for fear of further such "punishment" in the future. Meanwhile, Western policymakers would be wise to realize that spurious post hoc, ergo propter hoc explanations for stock market behavior do not take them off the hook. They still need to decide about how to react to Russia with real policy.

Ex-Ambassador in U.S. Senate Hearings

2008-09-18T07:54:00.001-07:00

Sep. 18, 2008 - Kommersant - William Burns, former U.S. ambassador to Russia and current under secretary of state for political affairs, appeared before a U.S. Senate hearing on Wednesday. He told the hearing that the Russian political leadership is highly unified and the Kremlin and government have a firm consensus on issues of national interest. He added that the Russian political system is complex and does not lend itself to easy analysis. Burns noted that any Russian president has considerable authority, particularly in issues of national security and foreign policy, and that applies to Russian president Dmitry Medvedev, regardless of the influence and former president and current Prime Minister Vladimir Putin retains. Burns characterized the two leaders’ relations as “shared power” in many aspects. The former ambassador recommended maintaining close relations with both leaders, noting that Putin’s economic role will also play a part in the relations between the two countries. In spite of the unity of the Russian political leadership about Georgia, Burns opined that internal dissent occurs in Russia. He noted that such debates are practically undetectable from the outside. He thought it possible that Russian leaders will begin to “rethink” some of their recent political moves with time, especially after the consequences of their actions become more apparent. "In many ways the most damaging consequences thus far for Russia have been self-inflicted economic and political wounds," he noted. Nonetheless, he acknowledged that the Russian political leadership is enjoying high popularity at home at the moment.

The true price of war in Georgia

2008-09-15T10:10:00.001-07:00

09-13-2008 - Rzeczpospolita by Wojciech Szpocinski - Damages in civil infrastructure estimated at 1.5 to 2 billion dollars. Western countries pledging aid to Georgia – 3.5-4 billion USD - writes Wojtek Szpociński, Institute of Eastern Studies/Economic Forum, School of Commerce and Law The war in Georgia has not demolished the country’s economy, although losses are substantial. But Europe’s energy security depends on whether an upheaval may be averted. The conflict in Georgia has resulted in a serious undermining of the supply route for energy resources from the Caspian basin. This is evident from the recent actions of neighbouring countries, which have suddenly undertaken intensive negotiations with Gazprom. Governments of Turkmenistan and Uzbekistan recently signed agreements with Gazprom on intermediation in sale of natural gas to external markets. On the other side of the Caspian Sea, the very same Gazprom is holding negotiations with Azerbaijan. The threat of a lack of supplies is real enough for Azeri Socar to stop the expansion of a gas storage facility outside of Tbilisi, which had been planned for a year. With regards to oil, the Kazakh company KazMunajGaz is giving up on its plans to build a new refinery in its oil terminal in Batumi. This is no surprise, however. After all, it was Kazakh oil, burning on the train, which had been blown up near Gori. Images of this fire made the news all over the world. Bombs also fell mere metres away from the BTC oil pipeline. The Russians missed, but the threat was a clear one. In these circumstances, the trans-Caspian project may only be saved by giving the Georgia conflict a genuine international dimension, together with bringing effective peacekeeping forces, into so-called buffer zones.This is not all, however. The fate of the Georgian economy is no less important to the trans-Caspian project. An economically stable Georgia will by default be an independent and pro-West state. Although the headlines of newspapers are very worrying, so far one can hardly talk of a breakdown of the Georgian economy. Optimistic forecasts made already after the war point to GDP growth of 5 percent at the end of the year. This means a reduction by more than half, as before the outbreak of the conflict, growth was expected to reach 10 percent. Tax revenues have not began to disappear – they are 3 percent lower than in the respective half of the previous year. However, a turn for the worse is possible: with the borders becoming more difficult to control, trafficking would increase and excise revenues diminish. The decline in customs revenues is precisely what hit the Georgian economy the hardest. In the first week of war, they were 20 percent lower than forecast. This is not surprising, given the collapse in exports and transit of goods through the country. The comforting news is that the situation is gradually coming back to normal. Paradoxically, privatization proceeds are not declining, even though all privatization auctions concerning plants located in areas controlled by the Russian army resulted in failure. Luckily, the large privatizations planned for this year were completed already before the outbreak of the conflict. This includes the port of Poti, still occupied by the Russians.The intervention in defence of lari, the Georgian currency, was successful, although it cost the Georgian central bank 300 million dollars. This is a very high amount relative to the country’s small reserves, reaching barely 1.5 billion dollars. By comparison, Russia has spent 16 billion dollars to defend the rouble, which in spite of the incomparable magnitude of the market and reserves, is a significant amount. In the most critical moment of the conflict, the Georgian central bank salvaged itself by lowering interest rates, increasing the money supply, but at the same time increasing the risk of rising inflation. The fight over the exchange rate of the lari was a key issue. To an average Georgian, the stability of the domestic currency is a testament to the effectiveness of the state. Over the past 2-3 years the value of both deposits, as well as loans in lari has been rising at a fast pace.During the first days of the crisis, around 10 percent of deposits were withdrawn from the two largest commercial banks – Bank of Georgia and TBC. In spite of this, the banking sector, in large part foreign-owned, managed to maintain liquidity and the banking system did not break down. After a week or two the money returned to the banks. However, it was not possible to avoid completely any consequences of the war: banks are currently very cautious about granting new loans. This is probably due to the losses of insurance companies linked to them, which have not been assessed as yet. Georgia’s banking system, efficient to an extent unseen in the post-Soviet region, has been fuelling consumption and the construction boom. After the outbreak of the war, the value of transactions made in the real estate market declined by 60 percent. And while lower economic growth is unlikely to be avoided, such a cold shower could have a positive impact on restoring a balance in the Georgian economy. Before the conflict, consumption in Georgia had been too high relative to investment. In order for such a positive scenario to materialise, however, it is necessary to resolve other economic problems, not to mention the issue of rebuilding the country. Damages in civil infrastructure are estimated at 1.5 to 2 billion dollars. The conflict also has a negative impact on Georgia’s image. It has been downgraded by Fitch and Standard & Poor’s agencies. This led to a drop in ratings of local banks. Turnover on the Georgian stock exchange also weakened. There is no sector, which depends more on reputation, than tourism. Fires in the Kharagauli National Park, source of the Borjomi water or the oil contamination from demolished fishing boats in Kolkhida Park have resulted in losses of at least half a billion dollars and immeasurable damage to the environment. It was here, that luxury hotels were being built and new skiing facilities planned. War will definitely hit this group of investors hard. Losses will be substantial – tourists have left right in the middle of the tourist season and they will certainly not return this year. The situation may return to norm already next year. Three quarters of the visitors come from neighbouring countries: Armenia, Azerbaijan or Turkey. For them, such a trip will still have its advantages – price and proximity. Meanwhile, people from the West usually come to Georgia in search of an adventure; there are still few mass tourists. They are still likely to continue coming, because outside of the direct conflict areas, there are no major threats to safety. There is also no news of nervous decisions of foreign investors, of course other than those from the fuel and energy sector. Political risk is taken into account when investing in this region. Exporters probably suffered the biggest losses, both large companies, as well as smaller family businesses. Losses arising from export difficulties may be estimated at 200 million dollars. They could become higher, because the damages have not been fully assessed and the situation is not yet stable. Western countries are pledging substantial aid to Georgia – as much as 3.5-4 billion dollars in grants and loans. These amounts are entirely sufficient, provided that they are sensibly spent. They need to be devoted to reconstruction of infrastructure, but also to reducing the disproportions in the growth potential of Tbilisi and the rest of the country. This is the prerequisite for genuine stability of this country, which is what the West should care about.

Overplaying the ‘Blame America’ Card

2008-09-10T11:55:00.001-07:00

09-09-2008 - The St.Petersburg Times by Alexei Bayer - Last month’s blitzkrieg against Georgia unleashed a stunning wave of anti-Americanism in Russia. Russians obviously like to think that their country not only roughed up a small, poor neighbor but, more important, dealt a blow to U.S. efforts to encircle Russia with military bases. Superpower rivalry is back and, by extension, Russia is once more a superpower. What is happening in Russia may indeed be Washington’s fault, but not in the way Russians believe. Back in the early 1990s, when U.S. President George H.W. Bush declared an end of the Cold War and proclaimed a “new world order,” many people hoped that the international system would henceforth be based on the Western principles of democracy, freedom, decency, international cooperation and the rule of law. Indeed, over the past two decades the world has enjoyed a broadly based economic success. Many long-emerging economies have finally emerged, millions of people have been able to escape poverty, and many previously poor nations, including Russia and China, have become bankers to the world. But the political picture has been far less bright. Over the past eight years — and especially since Sept.11, 2001 — the United States has been increasingly flouting the very principles it encouraged the world to adapt. As Russia slid toward authoritarianism under President Vladimir Putin, the United States under President George W. Bush effectively squandered its moral authority to judge other nations. How can Washington criticize abolition of gubernatorial elections in Russia if the U.S. president was himself appointed by the Supreme Court? Or complain about human rights abuses when it kidnaps, tortures and indefinitely holds terror suspects in legal limbo? Or encourage Russia to open up if it is building a 3,200-kilometer fence on its Mexican border? U.S. officials can declare that actions such as the Russian invasion of Georgia have no place in the 21st century only if they forget their own unprovoked attack on Iraq. And, of course, Russia’s recognition of breakaway South Ossetia and Abkhazia bring to mind the U.S.-inspired recognition of Kosovo. An ascendant, angry and anti-U.S. Russia is likely to be a major headache for the next U.S. president, whoever he is. Perhaps when Republican candidate John McCain solemnly declared in August that “we’re now all Georgians,” he meant that the world would have to deal with George Bush’s disastrous legacy for a long time to come. But blaming the United States can also be overdone. It is, after all, Russia’s future that is at stake. Russia may be overly reliant on oil and gas exports and its wealth extremely top-heavy, but the country is enjoying the kind of prosperity that was never seen under communism. Its free enterprise is flourishing and its economy is vibrant, with most people able to afford a variety of goods and services that only the elites could get access to in Soviet times. Similarly, Russia may no longer be as free as a decade ago, but its citizens can still travel, access information, express their opinions and practice whatever religion they choose. None of this came about by happenstance. It was the result of the country opening to the world after the Soviet collapse and its desire to adopt Western values. Conversely, whenever in its history Russia chose to isolate itself, it invariably suffered poverty, oppression and, worse, bloody state terror. The current burst of jingoism has already shown an ominous side. On state television, the “liberal intelligentsia” has been excoriated as unpatriotic and pro-Western — the fifth column in a looming struggle with foreign enemies. Mark Twain remarked that history may not repeat itself, but it rhymes a lot. If so, recent events in Russia are starting to rhyme with some of the worst pages of the country’s history.

Gaddafi impressed but not suppressed by Rice

2008-09-10T11:15:00.001-07:00

09-08-2008 - MOSCOW - RIA Novosti by Maria Appakova - U.S. Secretary of State Condoleezza Rice has completed her tour of North African nations. Her visit to Libya was its focal point, and Rice herself called it historic. For the first time in 55 years, the head of U.S. diplomacy arrived in that country. Moreover, for the first time, a high-ranking U.S. politician met with Libyan leader Muammar Gaddafi, whom U.S. President Ronald Reagan called the “mad dog” of the Middle East. Rice also visited Tunisia, Algeria, and Morocco. This was her first visit to these countries as secretary of state, although at the beginning of his term U.S. President George W. Bush paid much attention to these countries. Tunisia, for example, took an active part in carrying out the Washington-initiated partnership between the United States and these countries. The West cited Tunisia as an example of successful democracy in the region. But later on, Washington turned its attention to Iraq, Palestine, and Afghanistan, which took all of its time. Besides, the experiments with democracy in these countries were too dubious to continue with the plan of developing democracy in the Greater Middle East. Now Washington wants to prevent northern Africa from turning into Al-Qaeda’s new base. How is it possible to combine democracy with radical Islamism? How can the countries engulfed in regional conflicts be united into a single front of struggle against terror? These difficult tasks are not likely to be resolved by the outgoing U.S. administration. In this context, Rice’s visit is belated. Libya, however, is another matter. Restoration of diplomatic relations with that country is Washington’s only achievement in the Middle East during the Bush presidency. Washington started this process in 2004, after Libya renounced the development of weapons of mass destruction and condemned terrorism. Rice said that the restoration of diplomatic relations “demonstrates that the U.S. doesn't have permanent enemies. It demonstrates that when countries are prepared to make strategic changes in direction, the United States is prepared to respond.” This is a clear hint to Iran and North Korea, as well as Hamas and Hezbollah, but they are not likely to accept it, primarily because of Washington’s lecturing tone, which it never allowed itself in the dialogue with Gaddafi. Tripoli has done everything in its power to present the restoration of diplomatic relations and Rice’s visit as a favor to Washington rather than a concession. She was met with much reserve, and all her attempts to talk about the favorite subject of democracy were nipped in the bud. Thus, at a joint news conference, Libyan Foreign Minister Abd al-Rahman Shalgam pointed out that his country does not need any pressure or lectures on human rights. Ironically, Gaddafi invited Rice to his residence, which was bombed by the Americans in 1986 and where his adopted daughter was killed. In fact, every delegation to Libya has to visit it to honor the “victims of U.S. aggression” and sign the memorial book. But the media did not show Rice signing the book. Judging by this, Gaddafi decided not to finish off his guests, and parted with this page of the past, although he invited Rice to this palace rather than his favorite Bedouin tent where he met with Putin last April. However, Rice did not look insulted. TV channels demonstrated her radiant smile during her meetings with both Gaddafi and Shalgam. She merely said that Washington and Tripoli had certain differences, and that they may have them in the future but this was not a hindrance to the resumed relations between the two countries. This was surprising restraint on the part of the United States. Even when its relations with Russia were at the prime, and U.S. politicians emphasized its successes on the road to democracy, they never forgot to tell Moscow what it still had to do, and what mistakes it had made. There was always a fly in the ointment, and Russia got used to explain it by Washington’s desire to impress its domestic audience. Relations with Libya are essentially the same game. Tripoli’s renunciation of the weapons of mass destruction is too important a gain in Washington’s political piggy-bank to overshadow it by reproaches or lectures. Apparently, Washington wants to postpone lecturing for the future. As long as Col. Gaddafi is alive, Libya will conduct dialogue with America as an equal, if not as its superior. Speaking on the Al Jazeera network, Gaddafi said about Rice: “I support my darling black African woman. I admire and am very proud of the way she leans back and gives orders to the Arab leaders.” These words show that he sincerely admires Rice, and despises leaders who are toadying to the United States. But they also hint that Tripoli cannot be broken, and that an alliance with it may be beneficial. Libya is too important a player in Africa. Moreover, intelligence sources maintain that Libya is fifth in the world in oil deposits. It is and a major supplier of energy resources on a par with Persian Gulf monarchies and Iraq, which traditionally export them to the United States. But the political situation in the Gulf is too unstable, and it would be wise for Washington to play it safe, especially now that relations with Russia, another supplier, have become much worse. However, Rice said that Libyan-U.S. relations are not limited to energy, and extend beyond U.S. demand for oil. This may be so, but it is energy resources that prompted Washington to restore diplomatic relations with Tripoli. The next U.S. administration will receive good legacy.

Cheney to shoot Caucasian troubles

2008-09-06T08:33:00.001-07:00

09/03/2008 - MOSCOW. (RIA Novosti political commentator Andrei Fedyashin) - U.S. Vice President Dick Cheney started a Caucasian-Ukrainian tour yesterday. His challenging task is to promise weapons to Georgia and NATO membership to Ukraine, and to convince Azerbaijan to accept the Nabucco pipeline project. He will talk with the Azerbaijani president in Baku on September 2 and 3, reaffirm American support for the Georgian president on September 4, and later in the day go to Ukraine. The weeklong trip was planned long ago. In fact, Cheney intended to stop over in Tbilisi and Baku on his way to the Ambrosetti Forum, Italy's own annual mini-Davos set next to Lake Como. Kiev was added to his itinerary at the last moment. Although visits to Azerbaijan and Georgia were planned long before the conflict over South Ossetia erupted, they have since acquired special meaning. Cheney's trip to the Caucasus and Ukraine is possibly the last attempt by the Bush Administration to set up a Black Sea-Caucasian cordon on Russia's southern border as a gift to the next administration. Cheney seldom goes abroad without a bulky portfolio of proposals and/or warnings to U.S. allies, potential allies, or countries unenlightened about the benefits of friendship with Washington. Richard Bruce Cheney, 67, is a politician with terrific punch and the main author of the current U.S. foreign and military policies (perhaps better described as military policy with a minor diplomatic slant). Cheney is a man in his own league and the main ideologist of the neoconservative policy of the Republican administration and the country as a whole. He is the epitome of American conservatism, having served as chief of staff under President Gerald Ford, defense minister for President George Bush Sr. and vice president of President George Bush Jr. In 1997, Cheney teamed up with Donald Rumsfeld, William Kristol and others to establish the Project for the New American Century, a neoconservative U.S. think tank whose self-stated goal is to "promote American global leadership." The project's ideas have been implanted in all the foreign policy programs of the Bush Administration. Cheney says his foreign policy teacher Bradford Wesferfield, a Yale political scientist, helped to shape his hard-line approach to foreign policy, but an article in The Nation in 2004 reported that Dr. Westerfield came to regret the hard-nosed lessons Mr. Cheney said he had learned. Dr. Westerfield characterized the current Bush Administration as overly confrontational, calling that "precisely the wrong approach." Cheney orchestrated the U.S. invasion of Panama, Operation Desert Storm in the Middle East, the anti-Iraqi policy and, some say, the molding of Mikheil Saakashvili, described as the United States' main ally in the Caucasus. Wherever Cheney goes, he always makes clear what the U.S. wants and how best to fulfill its wishes and, by implication, avoid the unpleasant consequences of non-compliance. In Tbilisi, he will offer "friend Michael" U.S. support and rearmament of the Georgian army with U.S.-made weapons. In Kiev, he will assure President Viktor Yushchenko that Ukraine will definitely enter NATO, which is not quite true, of course, but will help Cheney, who has always seen military ties as the main instrument of U.S. foreign policy, to promote military cooperation with Ukraine. His task in Baku will be more difficult. He must cajole President Ilkham Aliyev into approving the Nabucco gas pipeline, which Baku, along with much of Europe, is coming to view with growing mistrust. The nearly 2,000-mile pipeline, which the United States has been advocating, would connect Azerbaijan with Central Europe. It will run across Georgia (bypassing Armenia and Russia) towards Erzurum in Turkey and on to Austria's Baumgarten via Bulgaria, Romania and Hungary. In fact, there are plans to add a trans-Caspian extension to Nabucco, to pump gas from Turkmenistan to Europe. Nabucco has already had its share of problems. The geopolitical rationale for the project - to bypass Russia - has increased spending from $3 billion to $4.9 billion, and the cost now stands at $7.9 billion. Construction should begin in 2010 and the pipeline is to come on stream in 2013. To turn a profit, the pipeline should annually pump 30 billion cubic meters (1.06 trillion cu f) of gas. Azerbaijan can supply only 8 billion, and that only after it commissions the second phase of the Shah Deniz deposit in the Caspian Sea. So, there is not enough gas for the pipe, which will make its gas very expensive indeed. The Caucasian conflict has scared the European gas and energy block, which thinks in cubic meters or feet. The European and Azerbaijani energy and gas processing companies are alarmed at the prospect of the pipe being controlled by such an unbalanced politician as Saakashvili. The State Oil Company of Azerbaijan Republic (SOCAR) has started sending oil to Europe bypassing Georgia. This year, it will pump between 300,000 tons (2.2 million bbl) and 400,000 tons (2.9 million bbl) of crude, initially delivered along the Baku-Tbilisi-Ceyhan pipeline, through the Baku-Novorossiisk pipe. It made the decision on August 7, when Georgia started bombing South Ossetia's capital, Tskhinvali. Azerbaijan is also negotiating the transit of additional gas to Europe via Russia. "Baku's new interest [in Russia] may stem from a desire to protect the relationship with Moscow, or a sense that Nabucco is less likely than ever to materialize," writes the Eurasia Group, British energy consultants who offer analysis on developments in Russia and the CIS, Central Asia and the Caspian. Europeans have started talking about the need to involve Russia in the Nabucco project to make it viable. Russia alone can provide enough gas to make the pipeline profitable by rerouting its gas from Blue Stream. Interestingly, Russian energy giant Gazprom holds a 50% stake in Austria's Baumgarten, the terminal for the Nabucco pipeline. "This goes against the whole concept of Nabucco, that it would not be either Russian or Russian-controlled gas," says Zeyno Baran, an energy and Central Asian expert at the conservative Hudson Institute in Washington and the wife of Matthew Bryza, U.S. Deputy Assistant Secretary of State for European and Eurasian Affairs. Mr. Bryza covers the Caucasian region and has been actively lobbying for Saakashvili. Some even say he was his direct political mentor.