Democracy. Russia. CIS.

Archive for April, 2011

Russia 2012: Mr. Kudrin takes a (semi) stand.

Posted by democratist on April 23, 2011

23rd April 2011,

Some fascinating statements from Russian Finance Minister, Aleksey Kudrin at a meeting of the Board of the Russian Union of Industrialists and Entrepreneurs on 21st April. These have so far received limited coverage in the Russian press, but we have pieced them together from reports in Izvestia and elsewhere.

Kudrin said he considers any GDP growth below 3% as tantamount to stagnation, and 3% -4.5% as “minor, unsteady” growth, because at less than 4.5% growth companies would have no time to update their fixed assets.

He stated the Russian economy is currently growing at about 3% and that investment growth is currently 8% – compared with the 30% annual increase he believes is required for modernization.

While the price of oil has climbed about 30% so far this year to $124 per barrel (auguring a dramatic improvement of Russia’s fiscal situation) Kudrin believes that a further increase in oil prices will have a negative effect on the Russian economy through inflation, and that petrostate model of development “has failed.”

He explained that the government has prepared several hypothetical scenarios for the economy, which include various possible price levels for oil, but in all the scenarios, the growth rate remains the same. He stated,”This is confirmation of the unfortunate fact that the price of oil, which before the crisis was an impetus for growth, is no longer such.”

Kudrin’s position is rather telling when compared with Putin’s statement to the Duma the previous day. Putin stated growth would be 4.2% this year, and much of his speech seemed to consist of assurances to various sectors of society that the state would soon lavish spending on them.

The model reflected in Putin’s speech then could be characterised as “back to 2008.” It is dependent on a continued growth in oil prices (or at least a continuation of the current price), and the distribution of the resultant wealth throughout Russian society in a nation-wide divvying up of the spoils. Despite some lip-service to technocratic modernization, there is little prospect that this is going to take place, leading to both stagnation and a continued withering of Russian industry, not least the high-tech sector, including military innovation.

In this light Putin’s position appears shortsighted – and Kudrin is strongly aligning himself with a liberalising agenda, without (as yet) openly backing Medvedev.

Will he go that far? Or is this just political manoeuvring designed to have a moderating influence on Putin? Either way Kudrin is levering himself into a more influential position which will become more evident and important as we move towards Parliamentary and Presidential elections over the next few months.

Posted in Autocracy and Innovation, Democratization, Hydrocarbons, Liberalism, Russia 2012 Elections, Russian Economy, Russian Liberalization, Russian Politics | 3 Comments »

Democracy and Innovation: Mr Putin’s Very Very Large White Elephant.

Posted by democratist on April 21, 2011

21st April 2011,

Apart from its political implications, the most interesting thing about Prime Minister Putin’s speech to the Duma yesterday is what he said with regard the future of Russia’s five trillion rouble military innovation programme, and how this optimistic vision conflicts with the current state of the Russia defence sector as we see it.

Democratist was especially interested to hear Putin say that, while Russia will need to almost completely rearm and re-equip its armed forces over the next decade (implying that similar attempts over recent years have been less than successful), “I am absolutely convinced the modern weaponry for our army and navy can and must be supplied by the Russian defence industry. Obviously, certain technology and weapons types can, and probably should be purchased abroad. But we need to understand that nobody will sell us the most advanced and latest generation technology.”

As regular readers will know, since we set up shop almost a year ago, Democratist has considered Russia’s increasing national inability in the sphere of (especially military) technological innovation as one of the key motivating factors behind the Russia 2020 ”modernization” drive. While superficially novel, this desire for modernization reflects a historical preoccupation with the importance of military competition against comparatively advanced western nations, that runs throughout modern Russian and Soviet history at least as far back as Peter the Great, and which has provided the impetus for various spurts of attempted technological modernization.

However, elite and popular resistance to liberalisation combined with the expectation (and now realization) of a rise in hydrocarbon prices over the last few years have meant that genuine and deep systemic economic reform was always going to be something of a non-starter: From our perspective, the Medvedev liberalisation project always had more to do with encouraging (mostly state-partnered) foreign investment than the introduction of meaningful, economy-wide reform.

Subsequently we have argued that, in the general absence of a culture of innovation from within the domestic Russian public or private sectors, or from foreign investors, and with a continuing “brain-drain,” as many of Russia’s most talented young people leave to pursue careers abroad, the State would seek the innovation it has historically seen as essential in order for it to remain militarily competitive, through an enhanced reliance on espionage. This seems set to remain the case despite increased arms sales to Russia by European firms because, as Putin has effectively admitted the West remains fundamentally unwilling to sell the Russians their cleverer toys – lest they eventually find themselves on the wrong end of them.

However, even if (what is probably a much weakened) SVR or FSB still manage to come up with the goods in terms of stolen intellectual property, Democratist remains far from convinced by the Prime Minister’s claims that the (still largely Soviet-era, and extraordinarily corrupt) Russian defence sector will be able to supply the armed forces with modern weaponry in the numbers required any time soon.

In short, our prediction is that, without a sharp change of tack, the next decade will see a the technological gap between the Russian armed forces and those of the West widen, despite these proposed investments.

Posted in Autocracy and Innovation, Russian Corruption, Russian Economy, Russian Espionage, Russian Military | 3 Comments »

In the bag: Putin 2012.

Posted by democratist on April 20, 2011

20th April 2011,

Vladimir Putin’s constitutionally mandated speech to the Duma this morning once again provides additional evidence for our long-held view that the Russian 2012 Presidential elections will consist of an essentially contrived spot of “Putin Vs Medvedev” razzle-dazzle, designed both to keep the masses in check, and deepen the (not so far very successful) illusion of Russia’s “democratic turn” for the more gullible among potential foreign investors.

Although neither President nor Prime Minister has officially declared their candidacy, the language employed and themes covered by Putin this morning strongly imply a forthcoming announcement from the PM at some point over the next few weeks/months (Medvedev has already made similar noises).

In this regard, what was most interesting about today’s speech was Putin’s attempt to differentiate between his own “conservative” positions (stressing stability, social issues and sovereignty) and those of the “young reformer” Medvedev (liberalism, international co-operation, and modernization).

And yet, in reality there is little practical difference in terms of the policies that either candidate is likely to follow; both take their cue from the Russia 2020 policy document, first announced by Putin in February 2008 (i.e. just before Medvedev was elected). And in theory both seek to follow the ”innovation” scenario contained within it, which presupposes the development of a national innovation system, competitive human capital and regional development centers, and a comprehensive reform and investment programme.

So while Putin may have sought to present himself as a “conservative”, he also paid at least some lip service today the need to modernize Russia’s economy, improve the investment climate, fight corruption, increase labor efficiency, and indeed about the need for innovation.

Meanwhile if Medvedev were to gain a second term in office, he would almost certainly remain constrained in what he was able to achieve because of the influence of the PM, and those around him.

Whoever eventually wins, it has been evident for some months that the current system will remain in place – as well as the corruption and economic problems which are an integral part of it. However, with the recent rise in the oil price has come a renewed confidence for Putin and his backers (one of the implied messages of today’s speech was that the regime will soon have the cash to buy off any opposition within Russian society for the next few years). Subsequently, if Putin does decide to stand and the elections are not rigged to favour Medvedev (by no means impossible), he will almost certainly win.

Under these circumstances, “Putin Vs Medvedev” essentially heralds Vladimir Putin’s return to power next year, and on this basis Democratist now sees Putin returning to the Presidency in 2012.

Posted in Energy Politics, Russia 2012 Elections, Russian Politics | 6 Comments »

Going Postal: Press Freedom Under Fire In Kiev.

Posted by democratist on April 16, 2011

April 16th 2011,

Democratist has got wind of an emerging scandal in Kiev, which may provide some additional clues as to the current state of the country’s business and media environments, as well Ukraine’s ongoing struggle with high-level corruption.

Staff at the English language Kyiv Post went on strike yesterday following owner Mohammad Zahoor’s decision to fire editor Brian Bonner over publication of a rather tense interview with agriculture Minister Mykola Prysyazhnyuk which centered on the question of allegations of corruption in relation to Ukraine’s multi-billion dollar grain export business, and the possible involvement of Party of the Regions (PoR) lawmaker Yuriy Ivanyushchenko with a company that has received some rather favourable treatment in this regard. The staff are calling for Bonner’s reinstatement.

According to a note on the Post’s Facebook page, the dispute began on Friday morning, when after the paper had been sent for printing, Zahoor called Bonner to say that the Post would be shut down if it published the interview. After considering this request, Bonner refused and said he would not participate in the censorship of the paper.

Prysyazhnyuk gave the interview on 11th April, but subsequently had cause to reconsider his position, and apparently asked Zahoor to block publication.

Media freedom in Ukraine has come under increased pressure since last February, when Viktor Yanukovich (who famously lost the repeated second round of elections in 2004 after the “Orange Revolution”) was elected to the presidency. Human Rights Watch states that 2010 also saw increased pressure and attacks on human rights activists and in other areas.

Zahoor is probably the richest foreigner in Ukraine, with a net worth estimated at anywhere between $500 million and $1 billion. He made his money in the Donetsk steel business over the last two decades, after having initially studied in Ukraine as a metallurgy student in the 1970’s.

He is now chairman and owner of the ISTIL Group which, after selling up in 2008, went on an asset-buying spree, including the purchase of various properties in Kiev, and the Post in 2009 for a reported $1.1 million.

Revealing, Mr. Zahoor has already had somewhat strained dealings with the Ukrainian political class; after having given a speech praising President Leonid Kravchuk during the  1994 presidential campaign, he apparently came under pressure for several years when Kravchuk’s rival, Leonid Kuchma, came to power.


Posted in CIS Media, Ukraine | 4 Comments »

Bunga Bunga! Russia Today lends an old friend a hand.

Posted by democratist on April 15, 2011

15th April 2011,

A wonderfully bonkers piece of dezinformatsiya on RT this morning (“Silvio and I are closer together than ever” – Berlusconi’s Russian flame”), that seems to owe more to the News of the World, or Channel Four’s 1990’s comedy “documentary” Eurotrash than what one might normally expect of the average international news channel.

The main point of this “exclusive interview” with Berlusconi’s, “reported Russian flame” Raisa Skorkina is that, in Ms. Skorkina’s opinion, allegations that Berlusconi paid for sex with an underage prostitute (the trial began on April 6th, but was adjourned) must be false because he is “simply too attractive” to resort to such “desperate measures”.

Quotes from Ms Skorkina, fashionably attired in a pink suit and white bandage-like bandanna (which gives the unfortunate impression that she may have recently suffered a severe blow to the head) include the following gems;

“Silvio and I are closer together than ever. Earlier, we were together like this [holds hands to heart], but now are much, much closer together!” 

“I can’t even explain what I felt inside when I met him, he gave me goosebumps, when I saw him, because he’s a very handsome man. It was love at first sight. He’s such a gentleman. 100% percent man in every sense!” [covers face to hide girlish blushes].

“For me he’s always been like a “guardian angel”, as he puts it himself. In my heart, my feelings for him sparkle, and he knows it. This is going to stay for ever. You should understand that, even if I fall in love or marry, my husband might resent it, but Silvio will stay in my heart forever. [Smiles and licks lips] I’m going to cry now.”  

And who could be behind this clearly unfair “media campaign” against Il Cavaliere?

“It’s the communists! Of course it’s them, who else would benefit? They want to get rid of him as fast as possible, by any means…I don’t know, they might even bring something from the Moon and say that Berlusconi did something there.”

While the allegations against Berlusconi remain of the sublunary variety for the time being, we at Democratist have certainly also been moved to tears by Ms. Skorkina’s story of her “romance” with the Italian premier.

And it is surely entirely coincidental that Skorkina has been implicated as a central participant in the Berlusconi “harem” (and may have acted to procure other women), or that Berlusconi is known to be personally close to Vladimir Putin, or that wikileaked State Department cables describe Berlusconi as acting as a “mouthpiece” for Moscow in Europe over the past few years, and suggest that he may have been “profiting personally and handsomely” from secret deals with the Russian prime minister.

And doubtless, none of this could possibly have affected the decision of the “editorially independent” (although 100% state-owned) Russia Today to run this story.

Posted in Russia and the EU, Russia Propaganda, Russia Today, Russian Corruption, Russian Foreign Policy, wikileaks | Leave a Comment »

Nomenklatura has little interest in Russia’s WTO accession.

Posted by democratist on April 12, 2011

12th April 2011,

At the beginning of the year, Democratist commented on Russia’s chances of joining the WTO, following an agreement with the EU in December 2010 which had supposedly brought accession closer to reality.

At the time we said,

“…there remains a great deal of protectionist sentiment domestically within Russia. This is best exemplified by Putin’s own attempts last year to modernize domestic industry through a renewed emphasis on industrial policy (to be funded by raw materials rents). A lack of cash seems to have put paid to that strategy for the time being, but Democratist maintains that a rise in raw materials prices beyond a certain point will likely prompt a shift back towards protectionism.”

And lo and behold! With oil heading up towards the $125 per barrel mark, yesterday’s Vedmosti reports  on a recent spot of petulance from Vladimir Putin with regard to WTO (at a conference in Saint Petersburg last Friday). Apparently, “Russia is not going to meet the demands extended to WTO members before becoming a member itself…We are not going to observe anything of the sort as long as we are not members. Period.”

But as the paper ruefully notes, in relation to Russia’s (frequently diverted) path towards possible WTO membership over the last decade; “the government of Russia and Putin himself bear at least part of the blame for the state of affairs where Russia cannot make use of any WTO advantages. As happened on several occasions already, the moment Russia approached the coveted membership, Putin pulled off something unexpected that caused a delay or detour…All speculations on how Russia is kept out of the WTO are really a smoke-screen designed to conceal the lack of genuine interest in the membership. Russian businesses keep seeing the WTO as a threat. The Russian leadership has but a dim awareness of the advantages that go with the membership but know that at the very least it will require transparency of the kind Russia is not accustomed to. There is no powerful group of interests in Russia interested in the WTO membership.”

WTO membership, and the huge boost it would imply for liberalization, is not an option unless the nomenklatura decides it is serious about economic reform. But as long as the oil price remains high there is no incentive. Why risk “instability”, when you can just divvy up the spoils with your old chums from the KGB – with enough left over to keep the proles in line, until the next crisis?

It is this old guard whose opinions count, and which will still count after the Presidential elections, regardless of whether Putin or Medvedev “wins.”

Posted in Autocracy and Innovation, Elections, International Political Economy, Liberalism, Russia & the WTO, Russian Liberalization | Leave a Comment »

The FSB and the Web: Out innovated, yet again.

Posted by democratist on April 8, 2011

8th April 2011,
A great piece in today, brought to our attention by Miriam Elder.
It would appear, on the basis of a recent statement from the Ministry of Information that the Russian Security Service (FSB) is currently unable to effectively monitor communications on Gmail, Hotmail, Skype (and presumably other similarly protected sites) because the encryption built into these systems has become too sophisticated to allow for easy state snooping.
Apparently, the FSB now considers these services a threat to national security, and would like to have them banned (although this remains unlikely, for the moment).
If this story is true (rather than some kind of sneaky FSB bluff) it means that Russia’s Signals Intelligence (SIGINT) outfit, the “Service of Special Communications and Information” (part of the FSB since 2003) is unable to easily break into commercially available Western cryptography with the equipment currently at their disposal.
Our guess is that it almost certainly is true – and would help to explain (for example) the FSB’s repeated inability to prevent bomb attacks in Moscow over the last few years.
And if the FSB can’t crack the commercial stuff, what are the odds they can still break into the secure communications systems of Western governments and militaries on a regular basis (normally one of the principle tasks of such agencies)?
More fundamentally, this announcement yet again underscores that, while the Russian government is continuing to make a concerted attempt to drive innovation through increased funding, corruption – both within the government and the wider economy, is slowly degrading even those parts of the state which the regime has sought to privilege.
As we saw last June, the SVR has been penetrated (probably repeatedly) by the CIA in recent years, and has now resorted to using “super-spy” Anna Chapman as a domestic propaganda tool – replacing real success with a pale fictive copy. As for the military industrial complex, while weapons designers are still coming up with innovative ideas, the state of the defence industry is such that it is unable to reproduce these systems in the numbers required. In the wider high-tech sector, government policy to encourage growth through the creation of large state controlled agglomerates – especially in armaments, the nuclear industry and aerospace – has not been effective, and such industries continued to account for only about 3% of GDP in 2008.
Over the last few years then, Russia been unable to modernize, but it also now seems more handicapped than ever in its efforts to catch up with the West through espionage (a strategy employed, albeit at unsustainable cost during the final phase of the cold war – and which continues today), or to convert stolen, or new ideas into usable weapons or products in significant quantities.
In terms of the internet specifically, the state appears to be using amateur “patriotic hackers” to carry out DDoS attacks on opposition websites such as LiveJournal, because they dare not attack them directly under current political circumstances. But while LiveJournal in particular may be open to greater direct pressure in the future (a fact Russian bloggers might want to consider), this recent statement implies a deeper, a more serious technical malaise at the FSB than has been so far publicly apparent.
The Russian state is becoming increasingly out-innovated in terms of its ability to compete with the West, to monitor its citizen’s communications, and to control the information to which they have access. Structural international pressure on Russia to reform is still somewhat limited for the time being, but seems likely to grow more intense over time.

Posted in Autocracy and Innovation, Russian Economy, Russian Espionage | 3 Comments »