Institute of Modern Russia

Vedomosti: Where Growth Should Not Be Expected

• Author: political commentator Kirill Rogov
• Rogov continues the debate on Russia’s economic growth started by Vladimir Nazarov in his article titled “Where Growth Should Be Expected” noting that this crucial issue is hardly being addressed in public discourse. The public thus grows used to the idea that a lack of growth is the “new normal.”
• Contrary to popular opinion, low oil prices are not the biggest problem in the Russian economy. Russia is in a state of long-term stagnation: compared to 2008, its GDP increased by only 1.5 percent, while the global economy grew by 18 percent and developing countries by 40 percent.
• A common explanation for Russia’s sluggish growth is its lack of institutions, but according to Rogov, this argument is universal and in this case misses the point. The key underlying reason for Russia’s lack of growth is misguided priorities in the government’s economic policy.
• A current example: the government set up a goal of lowering inflation to 4 percent to boost long-term investment. However, with Russia’s traditionally high political risks (exacerbated by its foreign policy over the last two years), this measure will not help.
• Plus, the Russian ruble is a currency heavily dependent on implicitly volatile commodity prices; therefore it’s unwise for the government to make the stability of domestic prices a competitive advantage of the economy.
• Empirical data shows that countries with high GDP growth rates (more than 5 percent) spanning the last 15 years also had inflation in the high single digits—about 8 percent.
• By setting up a 4-percent inflation target, the Russian government tries to decrease the budget deficit through tough fiscal policy (additional emission and taxation plus combined with high credit rates), while at the same time spending every third ruble on national security. All of this disincentivizes efficient market agents and encourages inefficient, subsidized government contractors.
• The problem, concludes Rogov, is not a lack of smart economists inside the Russian government who should know better, but rather a lack of political will to change the country’s priorities. 

Ведомости, Откуда роста не ждать, Кирилл Рогов, 2 ноября 2016 г.

The New Times: KremlinRosneftegaz

• Author: Russian journalist and author Boris Grozovsky
• Grozovsky explains the situation around the state company called Rosneftegaz, an intermediate structure founded by Rosneft CEO Igor Sechin, through which the state owns 69.4 percent of Rosneft, 11 percent of Gazprom, and 26.3 percent of InterRAO (Russia’s major state corporations).
• Rosneftegaz runs no business of its own; it only accumulates profits from its sister companies (dividends) and is supposed to transfer this money to the federal budget, but instead, Mr. Sechin usually invests it in projects that he personally considers strategically important.
• According to estimates of the Economic Development Ministry, in 2016 Rosneftegaz accumulated profits worth 149.3 billion rubles ($2.36 billion), but it only paid 36 billion rubles ($570 million) to the budget. Facing a budget deficit as a result of the economic crisis, the Finance Ministry suggested this fall that Rosneftegaz for once transfer all of its profits to the budget.
• However, Rosneftegaz ignores requests from the government and refuses to even reveal its investment program. The company prefers to go directly to President Putin and have him settle the issues in Sechin’s favor.
• This behind-the-scenes struggle inside the top echelons of power suddenly became public knowledge when the Russian newspaper Vedomosti published an article on October 25 quoting an anonymous federal official who said it’s not clear why Rosneftegaz speaks to Putin on this issue, as the president is the company’s owner.
• The following day, Tatiana Lysova, editor-in-chief of Vedomosti, suddenly announced her resignation, though her exit was allegedly unrelated to the article in question.
• Grozovsky concludes that while the federal budget continues to shrink, Bloomberg reports that Rosneftegaz is planning to transfer a whopping 1.8 trillion rubles ($29 billion) to the accounts of Gazprombank. “This money could have been in the budget and used to build factories or electricity plants,” but in Russia, the author writes, “Gazprombank is not just a bank; it’s a bank of ‘none of your business.’”

The New Times, Кремльроснефтегаз, Борис Грозовский, 31 октября 2016 г.

Slon.ru: Detente Without Concessions: What Signals Putin Sends to the Future U.S. President

• Author: Vladimir Frolov, expert in international relations
• Speaking last week at the Valdai Forum, Vladimir Putin noticeably toned down his adversarial rhetoric toward the West, leading some observers to hope for a potential detente with Russia. However, the author argues that Putin offered no meaningful concessions; therefore what he is suggesting is not a “new deal,” but the same “plutonium ultimatum,” only articulated in softer terms.
• The Kremlin’s message remains the same: Russia is right, its actions are justified, and the West has to accept Russia’s new geopolitical interests.
• Still, Frolov observes that the Kremlin is trying to send certain signals to the next U.S. president—who it presumes will be Hillary Clinton.
• First, in his recent foreign policy statements, Putin mentioned the U.S. withdrawal from the Anti-Ballistic Missile Treaty as a major factor in the current rift. He implied that he is interested in limiting U.S. anti-missile defense in Europe, especially given the planned NATO forces deployment in Romania. Putin links this issue to Russia’s keeping its end of the Intermediate-Range Nuclear Forces Treaty (1987).
• Second, Putin is interested in revising the 1997 NATO–Russia Founding Act, i.e. setting clear limits to NATO deployments near Russia’s borders. He also wants to overhaul the decisions of the 2008 NATO summit wherein Ukraine and Georgia were promised NATO membership.
• Third, Putin signals that he will not challenge the world order established after World War II on the basis of the U.N. Charter and Helsinki Accords, as long as the U.S. abandons its interpretations of certain provisions of the international law that are being used to justify “humanitarian interventions” and “responsibility to defend.”
• Finally, Putin wants the U.S. to stop sponsoring armed rebellions against autocratic regimes in the Middle East. The Kremlin is willing to resume Geneva talks on Syria as long as the U.S. agrees on a broader understanding of “international terrorism,” according to which all opposition factions to the “legitimately elected” president Bashar Assad would be considered terrorists.
• Overall, Putin’s speech shows that the Kremlin’s foreign policy offense has reached its climax and Moscow is currently looking for a way to rebalance it as the costs of a hostile approach are growing. The stakes are high for the Kremlin, concludes Frolov, as the regime’s legitimacy largely hinges on the success of its foreign policy. 

Slon.ru, Разрядка без уступок. Какие сигналы Путин посылает новому президенту США? Владимир Фролов, 31 октября 2016 г.

Vedomosti: Political Entrenchment

• Author: Anton Oleynik, sociologist, Memorial University, Canada.
• Managerial entrenchment is a process in which CEOs and senior managers “entrench” themselves in a business, thus making themselves unremovable. These individuals achieve this by organizing and reforming the business in a way which makes it impossible or at least very expensive to run without them.
• Oleynik argues that this concept has become a reality in Russian political life. Those who hold power are attempting to make it impossible —or at least extremely damaging — for others to remove them.  
• Adam Przeworski in his book Democracy and the Market presents some very real parallels between both managerial and political entrenchment.  
• If the people in the higher echelons of power cannot be removed, then all further democratic aspects, in particular elections, are devalued. The longer a person remains in power, the harder it is to separate him (or her) from it.  
• This phenomenon is universal: it is present in all existing systems, yet some political systems control the removal of people from positions of power through political institutions.
• In Russia, the latter are absent. The longer someone remains in power, the more they learn about the art of holding on to it—a skill learnt through raw experience of holding top office.  
• The author believes that Putin has managed to outwit his Western “partners” so effectively precisely because he has had much more time to master the art of using Being in power for a long time schools you not only in how to play your international partners, but your own population too.  
• The author suggests that the “point of no return” was crossed almost three years ago after the initiation of military action in Ukraine.  
• S. sociologist Charles Tilly compares Putin’s manipulation of Russian people’s fears to racketeering. A racketeer offers you his “protection” from a threat that he himself has created and controls.  
• The Russian political elite acts like the mafia in creating the conditions of fear that justify its existence, leaving the population convinced that there is no alternative to the current elite. In neutralizing these threats, the leader further entrenches himself in power, the only impediment to which is age.  

Vedomosti, Окапывание во власти, Антон Олейник, 30 октября 2016 г.  

The New Times: Russia’s primary asset

• Author: Alexander Golts, chief editor of Ezhenedelny Journal (Daily Journal).
• This week the world watched anxiously as the Russian naval fleet made its way to the shores of Syria. The fleet, while demonstrating growing Russian military might, also showed its reliance on outdated technology.
• Golts suggests that Moscow is thus further adopting the politics of North Korea.   
• Regardless of the war rhetoric from Russian officials, the Russian military does not bear comparison to NATO. It is unprepared, Russia’s ageing population cannot provide large-scale infantry conscripts, and the country’s industrial sector is not up to the task of mass-producing arms.  
• Moscow’s greatest strength is its nuclear arsenal, which is comparable with that of the United States (Moscow: 1796 warheads to 508 missiles / Washington: 1367 warheads to 681 missiles). Moscow has sought to maintain this arsenal in spite of the country’s current economic crisis.  
• The problem is that the Kremlin’s current nuclear arsenal far exceeds that of the post-Cold War era. Moscow wants nuclear weapons to be a means of putting pressure on Western countries.  
• Traditional deterrence was based upon the guarantee of mutual destruction. What we observe right now is a revival of the doctrine of “extended deterrence,” the idea that you can deter an attack by threatening to use nuclear weapons.
• This doctrine came about due to the fact that the very possession of weapons of mass destruction played a key role in solving international disputes.  
• Russia is threatening to use nuclear weapons in the event that its interests are challenged. However, bearing that in mind, it is not yet clear exactly what Russia considers a legitimate “challenge.”  

The New Times, Первичная ценность России, Александр Гольц 31 oктября 2016 г.

Nathan Andrews helped compile this week's roundup. 

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