Institute of Modern Russia

1. New Times: Sergei Guriev: “Russia Continues to Sustain Losses from Isolation”

• New Times interviews Sergei Guriev, chief economist of the European Bank of Reconstruction and Development (EBRD), on Russian economic growth, the influence of anti-Russian sanctions, and how the rise in populism in Europe is related to economic issues.
• On the impact of Western sanctions: the Russian economy is growing, but slowly. It would grow more with structural reforms (the EBRD forecasts economic growth by 1-2 percent of GDP in the next several years and does not expect turbulence in the banking market).
• However, if present conditions prevail, Russia will continue to lag behind, and its share in the world economy will decrease.
• UN Special Rapporteur Idriss Jazairy estimates that Russia lost about $52-55 billion (1 percent of GDP), and that the U.S. and the EU together lost $155 billion as a result of the sanctions policy.
• Guriev notes that the U.S. losses are statistically indistinguishable from zero, and that Europe’s losses are less than Russia’s.
• The losses for Russia are real, but Guriev adds that the limits imposed by sanctions, particularly on technology, create risks for Russia’s future development—not only for today’s GDP, but for future economic growth. The lack of access to Western financial markets for all Russian economic agents is also a serious difficulty, particularly for private banks.
• On investment: Guriev estimates it remains at 21 percent of GDP. The government’s calls to attract five trillion rubles in investment have not succeeded in expanding its portion of GDP. There is money within Russia, but Russian investors do not aspire to invest in the country as they believe the business climate is too poor.
• On the Central Bank’s effectiveness: Guriev questions its current policies, despite the successful recent rescues of Otkritie and B&N Bank. He also recalled that during the collapse of the ruble rate in December 2014 Otkritie helped Rosneft conduct an $11 billion bond deal in violation of banking standards, which the Central Bank ignored.
• On the growing populist movement in Europe: Guriev’s view is that this movement is directly related to the worsening of the economic situation and the growth of unemployment—his research shows that people vote more actively for populists when they think that migrants are an economic problem, rather than a cultural one.
• On the alleged EU crisis: Guriev argues that, on the contrary, the European economy is growing, the unemployment rate is decreasing, and there is discussion of further European integration.

New Times, Сергей Гуриев: “Россия продолжает нести потери от изоляции”, Наталья Фролова, 8 октября 2017 г.

2. Vedomosti: The Growth Is Not Real

• Igor Nikolaev, an economist and the director of the Institute of Strategic Analysis at FBK Grant Thornton, one of Russia’s leading national audit and consulting groups, writes that while official statistics point to a growing economy, there is no ground yet for optimistic economic forecasts.
• In Q1 2017, GDP growth was 0.5 percent higher than in Q2 2016. By the second quarter this year, it was up to 2.5%. Top officials continue to quote these statistics, and President Putin has said that the Russian economy is “gaining momentum.”
• Nikolayev notes that before judging the durability and sustainability of economic growth, one should determine what type of growth this is.
• According to the Russian Federal State Statistics Service (Rosstat), wholesale trade is the weightiest contribution to economic growth (followed by motor vehicle repair, mining, and regional information and communication activities). However, in Rosstat’s monthly information bulletin, wholesale trade is absent.
• Wholesale trade is the resale (without modification) of new and secondhand goods. Although no new goods appear, with each resale there is added value. This new value makes a new contribution to total GDP.
• Therefore, although wholesale trade contributed to GDP growth the most in Q2 2017, it cannot be called quality growth. Nevertheless, the Ministry of Economic Development continues to make optimistic forecasts, even claiming that GDP will grow up to 2.3% by 2020.
• Nikolaev concludes that the main problem with this growth is its unstable nature. Given the instability of the economic situation in Russia, potential threats to the stability of the ruble are likely related to the high volatility in wholesale trade. This is confirmed especially by the monthly dynamics of its turnover. When the nature of economic growth works this way, it’s hard to call it reliable.

Ведомости, А рост-то ненастоящий, Игорь Николаев, 9 октября 2017 г.

3. RBC: Test Contracts: What the Saudi King Brought From Russia 

• Leonid Isayev, expert on the Middle East and Senior Lecturer at the Higher School of Economics, details last week’s long-awaited visit of King Salman of Saudi Arabia to Moscow.
• Isayev argues that while this was the first appearance of a Saudi monarch in Russia, the significance of the visit ends here. The limits of Russian-Saudi cooperation are defined by the countries’ fundamental divergence on many political issues, as well as economic ties that have developed over the decades in opposite directions.
• The point of the visit was pragmatic, not ideological: Riyadh wants to play an important role in the postwar stability of Syria, and for that negotiations with Moscow and the procurement of Russian weapons are needed.
• Another key issue is Salman’s son, who became the heir to the throne in June 2017, but whose transition to power requires foreign policy victories, e.g. an important agreement with Russia.
• The trip does not entail any fundamental changes in stance either by Moscow or Riyadh. However much the Saudis want it, Russia does not intend to curtail its cooperation with Iran; the Kremlin also continues to view Assad as a legitimate president. However, Russia’s relationships with these countries mean that Saudi Arabia has to have a dialogue with Moscow.
• Isayev points out that situational cooperation between Russia and Saudi Arabia on the Syrian issue is entirely possible. Moscow values the role of the kingdom in the preparation of the Cairo accords in Eastern Ghouta; Riyadh hopes to continue to play a key role in forming the opposition delegation at the Geneva talks over Syria. It also expects loyalty from Moscow on the Yemen issue.
• Moscow is also interested in strengthening the financial, economic and military-industrial components of bilateral relations. The parties agreed to create a $1 billion investment energy fund, and another in the hi-tech area.
• Additionally, Rosoboronexport and a Saudi military production company signed a contract licensing the production of automatic Kalashnikov AK-103s on Saudi soil. The contract is modest compared with the Saudi-American transaction in May, but up until now there had been no Saudi-Russian agreement on military technologies to begin with.
• In conclusion, Isayev notes that Riyadh is not interested in Russian weapons per se or in rearming its army with them. It’s more of a political issue to prevent the sale of Russian weapons to Iran. 

РБК, Пробные контракты: с чем уехал из России король Саудовской Аравии, Леонид Исаев, 9 октября 2017 г.

4. Republic gets political advice from Alfa Group co-founder Mikhail Fridman

• Evgeny Karasyuk, editor of Republic, covers Mikhail Fridman’s talk at the Atlanta Russian business forum in Moscow last week. Fridman is the co-founder of Alfa Group, one of Russia's largest privately owned investment groups. The talk was moderated by Nikolai Uskov, editor-in-chief of Russian Forbes.  
• Fridman spoke, albeit with little inspiration, about his early business experience in Alfa Group, but refused to give advice, repeatedly stressing that there are no universal formulas to success.
• Fridman, who made his fortune in the 90s, also said that he did not want to touch on politics, but Uskov finally asked about the relationship between his business and the state, curious, as many in the audience were, as to why the Kremlin has not attacked such a huge conglomerate.
• After sidestepping the question, Fridman eventually spoke about Alfa Group’s strange relationship to the Russian authorities, using an analogy that he seemed to think had been successful in the Western press. In Africa, he said, there are many dangerous predatory animals—lions, leopards, etc.—but one of the most dangerous for humans is the hippopotamus. The hippopotamus is a herbivore, but if you get in the way between it and the water, it will immediately attack you.
• The Russian authorities, he argued, behave in a very similar way. The main thing here is not to get between the authorities and the “water.” Fridman explained that Alfa Group has never tried to get state contracts, state owners, or state shareholders.
• Fridman also said he has never met with Putin one-on-one. The company has not funded political parties on any side or sought to enter the inner circle of politics as a precautionary measure, even if that meant they would be without state help.  

Republic, Михаил Фридман: «Главное, добежать и сказать, что тебя уже практически убили», Евгений Карасюк, 7 октября 2017 г.

5. Republiс: Power Over Esthetics: Lessons For the Intelligentsia in the Serebrennikov Case

• Vladimir Pastukhov, political scientist and research fellow at University College London, argues that the Serebrennikov case is not as senseless as it may seem. Theater director Kirill Serebrennikov has always been loyal to the authorities, but his arrest doesn’t set his case apart from those of Khodorkovsky, Magnitsky, or Navalny.
• Pastukhov outlines three possible reasons for this arrest.
• 1) Some observers believe that Serebrennikov circumvented “the rules of the game” and that his arrest could be a warning of the risks of such behavior. But even if Serebrennikov followed all the rules, his fate would not change because his case is a classic example of the legal arbitrariness of the Putin era.
• Perhaps even better than all previous political prosecutions, it demonstrates that accusations of embezzlement have become an instrument of political repression.
• While “enemies of the state” under Stalin were forced to confess to crimes they did not commit, legality was strictly observed. Under Putin, the very fabric of law is actively being destroyed. So the Serebrennikov case should not be judged on the legal plane.
• 2) Others believe the criminal prosecution and arbitrariness are related to Serebrennikov’s political views.
• While the theater community defended him, Serebrennikov was still criticized for his former proximity to power.
• Thus, the question was raised as to whether the creative intelligentsia can cooperate with the Russian authorities. Between the Russian government and the Russian intelligentsia there is a deep inner connection—it is unfair to describe their relationship in terms of hostility and betrayal. The authorities constantly breed the Russian intelligentsia, support it, and then destroy it.
• Within this logic, the persecution of Serebrennikov is seen as mystical retribution for an unacceptable compromise with the Kremlin, as if the director made a deal with the devil.
• 3) From Pastukhov’s point of view, the main and almost meaningless lesson that the Russian intelligentsia can learn from the Serebrennikov case is that the loss of political freedom will sooner or later lead to the loss of aesthetic and creative liberty.
• Since the annexation of Crimea, it is not enough to be politically loyal; it is also necessary to fit into the aesthetic preferences of the authorities. Serebrennikov didn’t change, the authorities did.
• Pastukhov concludes that only those who can compel themselves to love the authorities can get along with them. The reckless creative freedom of the two post-communist decades is coming to an end, whereupon the Serebrennikov case is not special, merely the beginning of a new era.

Republic, Власть над эстетикой. Какие уроки может извлечь интеллигенция из дела Серебренникова, Владимир Пастухов, 9 октября 2017 г.