Tuesday, February 26, 2013

Why Putin Emulates North Korea

19 February 2013 | Issue 5071

Klipping The Moscow Times

As I have written before, U.S. and Russian diplomats have little to say to one another these days. The problem is that PresidentVladimir Putinsincerely believes that Washington organized the mass protests in Moscow in late 2011 and early 2012 to carry out an Orange-like revolution. That conviction makes U.S.-Russian dialogue virtually impossible. After all, how can Putin cooperate on a serious level with a U.S. administration that he believes is planning his overthrow?
Last week, for example, newly appointed U.S. Secretary of State John Kerry was unable to reach Foreign MinisterSergei Lavrovfor days when he needed to discuss an important matter: the nuclear test that North Korea had just conducted, which caused nervous jitters all across the world. Yet Lavrov found plenty of time to talk to Chinese Foreign Minister Yang Jiechi.
Even though the Foreign Ministry condemned North Korea for its nuclear test, the Kremlin's own position on nuclear weapons is not much different. Coincidentally, North Korea conducted its nuclear test at the same moment that U.S. Assistant Secretary of State Rose Gottemoeller was presenting her Russian counterparts with Washington's new proposal for further reductions in both strategic and nonstrategic nuclear weapons.
Based on a report prepared jointly by the Pentagon, State Department and CIA, the White House proposed reducing the number of deployed strategic nuclear warheads to 1,000-1,100 from the current limit of 1,550 set by the New START treaty. U.S. strategists believe that this lower number is sufficient to provide a reliable nuclear deterrent for several reasons. First, Washington has also dropped Syria and Iraq from its list of possible targets for a nuclear attack as it is now fairly certain that neither country possesses nuclear weapons. Second, since the number of Russia's nuclear weapons has steadily decreased over the past 20 years because of attrition, the U.S. needs fewer warheads to target Russian missile silos. Third, the administration of U.S. President Barack Obama is keen on saving billions of dollars on military spending. If Washington's proposed reductions in nuclear weapons were made, the U.S. could retire 300 land-based, strategic missiles at an annual savings of $720 million and forego construction of two nuclear submarines at a savings of $16 billion.
U.S. officials believe that these proposals should be attractive for Moscow. After all, U.S. reductions would only narrow the advantage that Washington has over Moscow in terms of strategic nuclear forces, both in quality and quantity. While the U.S. is in the process of reducing its number of deployed strategic arsenal to reach the New START limit of 1,550 warheads, Russia hasn't had to make any cuts for the simple reason that its number of warheads — 1,492 — was below the START limit even before the treaty was signed. As defense minister,Anatoly Serdyukovreported to the State Duma in 2010 that Russia would be able to reach 1,550 warheads only in 2018 and will reach the New START's permitted number of delivery vehicles, 700, no sooner than 2028.
The U.S. is clearly interested in saving billions of dollars by further reducing its nuclear arsenal, but the Kremlin has little interest in cost-cutting if it believes it will negatively affect its Russia's nuclear deterrent. This may explain why Lavrov reacted coldly to U.S. Vice President Joseph Biden's proposal in Munich several weeks ago to further reduce each side's nuclear arsenal.
Washington's nuclear-reduction proposal is clearly a huge gift to Russia on silver platter, yet it is all but certain that the Kremlin will ignore it. The problem is that Russian leaders see nuclear weapons as more than just a security guarantee through the threat of mutually assured destruction. The Kremlin and military brass realize that Russia's huge nuclear arsenal is the only remaining symbol of its superpower status, a trump card that they will protect at all costs. This is the main reason Moscow is opposed to cutting any further than the New START limits. Trying to convince Russia to reduce its nonstrategic nuclear weapons will be an even harder sell.
Thus, Moscow's approach is remarkably similar to that of Pyongyang. North Korean leader Kim Jong-un, who represents the third generation of the country's despots, has condemned his people to famine so that the country can become a nuclear power. Just like the Kremlin leadership, Pyongyang officials see nuclear weapons as a genie from Aladdin's lamp that is capable of magically solving all their problems. North Korean officials believe that the world will be obliged to feed and clothe North Koreans and cater to the leader's every whim in the hope that North Korea doesn't do something foolish with its nuclear weapons. In other words, North Korea employs nuclear blackmail on the world, yet by and large this trick has worked for Pyongyang.
Up until now, the same approach has never worked for Russia because nobody believed that Putin is as reckless as the North Korean leadership. But over the past year, the Duma has adopted irrational, provocative anti-U.S. laws under Putin's sponsorship. This raises two serious questions: Is Putin trying to emulate Kim Jong-un and his father, Kim Jong-il, and how far is Putin willing to take his reckless policy?

Alexander Golts is deputy editor of the online newspaper Yezhednevny Zhurnal.

Latvia's Rocky Path to the Euro

21 February 2013 | Issue 5073

ByKonstantin Sonin

Klipping The Moscow Times

Latvia's president signed a decree on Feb. 15 announcing that as of next year the national currency would cease to exist and that the country would join the euro zone.
As a rule, countries join a monetary union because the currency to which they gain access is more reliable than their own. On the other hand, when a country enters a monetary union or ties the exchange rate of its own currency to that of a foreign currency, it also gives up some of its sovereignty because it can no longer conduct an independent monetary policy. Why? Because if the exchange rate is fixed, the country's central bank cannot print as much money as it wants, but only the quantity required to maintain the exchange rate of the national currency at a fixed level.
Latvia's choice to join the euro zone has come at a very high price. During the global financial crisis, its unemployment rate jumped from 6.2 percent in 2008 to 20.4 percent in 2009. The country's currency, the lats, was already tied to the euro at that point, but had Latvian monetary authorities been free to devalue it, the effects of the crisis would not have been so disastrous.
With an expensive lats, companies were forced to lay off large numbers of employees. Had the government devalued the lats, employee salaries would have been lower and many jobs would have been saved — but the commitment to join the euro zone prohibited such a move. (This course was supported by Scandinavian banks, among others, because they would have been forced to announce significant losses otherwise.)
The government took the heroic step of implementing "internal devaluation" by deliberately lowering the salaries of state employees, thereby enabling it to lay off fewer workers. Voters even supported that policy during elections. However, those measures provided only minimal assistance to the economy because salaries in the private sector remained at their former levels and overall unemployment remained high. More rapid emigration was another consequence of the crisis, with tens of thousands of people choosing to leave the country.
Given the firm position of the government and the heroic resolve of the Latvian people, it was unpleasant to see euro supporters unwilling to admit what a high price it was costing the country to join the euro zone. Even the International Monetary Fund, the main source of high-quality macroeconomic analysts for countries such as Latvia, carefully tried to suggest in its reports that the jump in unemployment was not a result of the "course toward the euro." But talks given by leading macroeconomists Paul Krugman and Olivier Blanchard, along with a thorough analysis of the data, forced even the IMF to acknowledge in its January 2013 report that the euro had played a role in Latvia's economic struggles.
At the peak of the crisis, the Latvian government resorted to the draconian measure of arresting an economist for claiming publicly that the lats would soon be devalued. However, judging by the fact that such a shameful incident was not repeated, the lesson has been learned: Crises, sharp increases in unemployment and rapid devaluations cannot be the result of the actions — much less the words — of economists. They can only result when leaders pay too little attention to what economists are telling them.

Konstantin Sonin is a professor at the New Economic School in Moscow and a columnist for Vedomosti.

Russian Superiority Remains Alive and Well

27 February 2013 | Issue 5077

ByMaria Yulikova

Klipping The Moscow Times

When I chose to concentrate on U.S. literature at the Russian State University for the Humanities back in the 1990s, some of my classmates joked that I wanted to study U.S. culture because there was nearly nothing else to study.
This notion of Russian superiority remains alive and has manifested itself in a recent surge of anti-Americanism.
Top politicians have been criticizing the U.S. for months in connection with child adoptions, and the furor has grown after it emerged last week that Maxim Kuzmin, a 3-year-old adopted Russian boy, died under unclear circumstances in Texas last month.
Using a human tragedy, the death of a little boy, adds to the ugliness of this anti-Americanism, which has included the expulsion of USAID from Russia, bans on the adoption of Russian children by U.S. families and the importation of U.S. meat, and withdrawal from an agreement on cooperation on law enforcement and drug control. The Kremlin, bristling since the start of anti-Kremlin street protests in late 2011, which it has linked to the U.S., blames the U.S. for a spike in tensions for its passage of the Magnitsky Act, which blacklists Russians suspected of human rights violations. For its part, the U.S. withdrew from the Civil Society Working Group of the U.S.-Russia Bilateral Presidential Commission.
But anti-Americanism lives far beyond Russia. Only 43 percent of the Chinese population shares a favorable view of the U.S., while 52 percent of Russians have similar feelings, according to a 2012 survey by the Washington-based Pew Research Center. The Levada Center said even fewer Russians liked the U.S., 46 percent.
U.S. popularity drops even further in Muslim countries like Pakistan, where three in four people view the U.S. as an enemy, according to Pew research.
Meanwhile, 62 percent of Russians view China positively, and China is becoming more popular than the U.S. in the Middle East as well.
As in China, this sense of Russian pride stems from the perceived threat of losing a unique Russian lifestyle, mentality and cultural heritage, along with the government's political agenda.
The U.S. also shoulders some blame, starting perhaps with the 2008-09 financial crisis, which initiated on its shores and went on to buffet the global economy.
But it's the little things that count, too. Consider this: Shanghai International Studies University, Beijing Foreign Studies University and a number of other Chinese schools have centers for American cultural studies, while neither the Moscow State Institute for International Affairs, Moscow State Linguistic University nor any other major Russian school has developed separate departments or centers for studying U.S. culture and history. Students at major Russian schools study American history and literature mostly in English-language or "Europe and America" study programs.
At the same time, international broadcaster CNN broadcasts in two languages besides English but has no regular programming on U.S. history and culture. Russian television channel RT, which airs in three languages and has a Russian-language service online, provides a daily show and regular documentaries about Russia. China's international broadcaster CCTV has services in 12 languages, airing three to four shows about China daily and another one to two programs on Asia.
These are just some of the factors that, together with the lingering memory of the Cold War, makes it easy for the Kremlin to convince the public that "American" is a dirty word.

Maria Yulikova is a Boston-based freelance journalist.

The Global Currency War Heats Up in Moscow

13 February 2013 | Issue 5067

ByMartin Gilman

Klipping The Moscow Times

Among the finance ministers and сentral bank governors converging on Moscow at the end of this week, at least some will really wish they could been elsewhere. This has little to do with the fact that Moscow has been pummeled by its heaviest snowfall in a century. Rather, the representatives of the countries that are threatening war, whatever else they may call it, would prefer not to have to confront the likely victims of their aggression.
Of course, no one, for now, is conjuring a fighting war — or even necessarily a trade war. The immediate issue is what the Brazilian finance minister called a "currency war" back in September 2010, and it has sharply intensified since last summer.
Any casual observer in Moscow will have noticed a sharp appreciation of the ruble. Against the dollar, the ruble has appreciated more than 9 percent since mid-July, and against the yen, the ruble has risen an impressive 30 percent.
Certainly these currency movements, if sustained, would make U.S. goods and services — and especially Japanese cars and electronics — more attractive to Russian consumers and importers, and Russian output would face greater price competition in the home market as well as abroad. Since the ruble rate to the euro has been more or less stable since the summer, it means that both the European and Russian central banks share a common concern that their respective currencies have rapidly lost international competitiveness.
Especially for Russians, the recent strengthening of the ruble is all the more curious because, unlike the eurozone, Russia had an inflation rate last year of 6.6 percent. It even accelerated to 7.1 percent in January, although the Central Bank expects it to decline soon. High inflation relative to that of trading partners normally causes an exchange rate to weaken.
Exchange rates in market economies are driven by a multitude of factors, including growth prospects, risk perceptions, interest rates, inflation and confidence, among others. But grumbling about currency movements turns into indignation when there is a perception that the exchange rate is being intentionally manipulated by a country to gain competitive advantage for its exporters and secure more jobs for its workers. Just witness the acrimonious debate in recent years between the U.S. and China concerning Washington's accusations about currency manipulation by Beijing.
The rates for the world's major currencies are determined by markets, unlike Venezuela's pegged currency, which was reportedly devalued 32 percent Friday and is still considered overvalued relative to the black market rate. Brazil, China and India resort to currency controls to insulate their economies from capital flows, whereas Russia, like the advanced economies, has a completely open capital account.
So the rising rhetoric about a new battle in the currency war stems from the presumably unintended consequences of expansionary policies of the advanced economies to address a chronic persistence of lackluster economic growth and stagnant labor markets. A sense of frustration has no doubt pushed central banks into a new zeal for bold monetary experiments to revive their moribund economies. The Keynesian resort to increased government spending has been tried since the 2008 financial crisis. Perhaps it helped blunt the downturn, but stagnating revenue and weak growth has meant continuing deficits, which have translated into an increasing concern about public debt.
The Federal Reserve, Bank of England and Bank of Japan proclaim that their policy of near-zero interest rates and newfound enthusiasm for balance sheet expansion have nothing to do with an intention to depreciate their currencies. But their policies conveniently have the effect of inundating the foreign exchange markets with dollars, pounds and yen, therefore altering the balance between supply and demand — and hence the exchange rates.
Recent exchange rate movements seem to reflect, to some extent, a concern by the markets about excess supply of some currencies relative to demand. It is no coincidence that a weakening of the U.S. dollar occurred as the Federal Reserve announced in September a new policy of unlimited quantitative easing until the unemployment rate drops.
Japan, though, is the most visible example. Its new government is determined to have the Bank of Japan open the monetary spigots to revive the Japanese economy. Not surprisingly, the yen has plummeted, precisely according to the script.
Russia has to be concerned by this development, and not just in its role as Group of 20 host and president this year. Its longer-term strategy to diversify the economy away from oil and gas could be compromised if it is faced with a ruble that strengthens relative to its main trading partners. Of course, South Korea and China are more directly threatened by yen depreciation and are therefore likely to be among the first countries to take measures to maintain competitiveness. Many export-dependent economies may see little choice but to join this game of musical chairs.
Citing Japan's reckless call for monetary expansion and yen depreciation, Alexei Ulyukayev, the first deputy chairman of the Central Bank, said last month that the world was on the verge of a currency war that would be inefficient and self-defeating. That holds true for all forms of protectionism. In the event of a currency war, everyone will suffer in the end as each country tries to leapfrog others in a fruitless and costly effort to maintain employment.
Even the European Central Bank, which has its own preoccupations with internal competitiveness issues, cannot ignore the consequences of a strengthening euro relative to other major currencies. European automakers and other manufacturers have been lobbying their governments about what they deem unfair competition. Apparently, politicians have gotten the message, as French President Francois Hollande made clear in his speech last week in Strasbourg. European Central Bank President Mario Draghi tried to forestall criticism of a strong euro by talking down the currency, but how long before he, too, will turn to an even more innovative monetary policy?
This is the backdrop for the meeting of finance ministers and central bank governors of G20 countries Friday and Saturday, with Russia hosting the cantankerous group under its mandate as G20 president for this year. While its formal agenda focuses on some important long-term issues in preparation for September's summit in St. Petersburg, the one issue that will be on everyone's mind will be sidestepped. And a dangerous game of musical chairs will continue.

Martin Gilman, a former senior representative of the International Monetary Fund in Russia, is a professor at the Higher School of Economics.

How Russia Mismanaged the Financial Crisis

27 February 2013 | Issue 5077

ByAnders Aslund

Klipping The Moscow Times

One of the least understood aspects of Russia's economic policy is how badly the government managed the global financial crisis.
The country had the biggest fiscal stimulus of all G20 countries, of no less than 10 percent of GDP, as the budget balance swung from a surplus of 4 percent of GDP in 2008 to a deficit of 6 percent of GDP in 2009.
This was a sensible Keynesian stimulus, but the outcome was meager. Russia had the biggest output fall of all G20 countries, of no less than 7.8 percent, marking the most inefficient anti-crisis policy in the G20. The main reason was that the government bailed out inefficient state corporations and billionaires.
Russia's policy choice was not inevitable. During the financial crash in 1998, the government had many fewer options but acted much more effectively. That crash functioned as a catharsis, allowing the economy to expand 7 percent a year for a full decade, the highest growth Russia has ever recorded.
The secret lay in the government's cleansing of the economy by cutting harmful subsidies, which had kept inefficient enterprises afloat. The economy opened up for competition from new entrepreneurs. The main cause of the 1998 crisis was a persistently large budget deficit that mainly went toward the financing of huge enterprise subsidies, which the World Bank has assessed at 16 percent of GDP. Without foreign financing, the government had no choice but to eliminate these benefits to the old elites. From 1997 to 2000, the country slashed public expenditures by no less than 14 percent of GDP.
As a result, accidental owners of privatized enterprises, usually old state managers, realized that their enterprises could become worthless. Many sold fast to budding young entrepreneurs, who turned the old enterprises around. The leveling of the playing field allowed many new entrepreneurs to enter the market. The number of enterprises rose soundly until 2009 — and with them, competition.
In 2008, by contrast, the government had ample funds, but it used the money so inefficiently that in all likelihood it would have been better not to spend it.
Two excellent young Russian economists, Yulia Davydova of the London School of Economics and Vladimir Sokolov of the Higher School of Economics, wrote an as-yet unpublished study of the corporate bailouts in 2009. They did a proper econometric study of 481 strategic state-owned firms, of which 79 received state support. The government must be lauded for making all the underlying statistics public.
The outcome of the government's assistance could hardly have been worse.
Davydova and Sokolov's first conclusion is that enterprises that had low profitability and quickly increased their debts before the crisis were likelier to receive government assistance during the crisis. In other words, the government poured money into the companies that had been the worst managed before the crisis. An explanation of this selection, the study says, is "that firms chosen by the government for bailout were significantly larger than no-recipients within the same industry." In 1998, such state enterprises were forced into bankruptcy and their assets were taken over by more capable private entrepreneurs.
The authors' second conclusion is that "average productivity … declined among the treated firms, while it grew among the control firms in the post-bailout period." In short, "firms that received government assistance performed worse than matched firms that did not receive such assistance." Not only did the government spend money on the worst enterprises, but its assistance also further aggravated their performance.
This study deals only with state corporations, but the government pursued the same policy toward the private sector. The government channeled $50 billion in bailout money through a state bank, VEB. In total, $100 billion from the National Reserve Fund was spent from February 2009 until May 2010. The biggest support, however, was $200 billion in international currency reserves that was expended on a gradual devaluation from November 2008 until January 2009, which effectively allowed all the wealthy and well-connected to "speculate" against the state to their benefit.
In similar fashion, as the successful crisis management of 1998 granted Russia a decade of growth, the flawed bailout of 2009 may lead to a decade of low growth. After many years of persistent growth, the number of enterprises started declining in 2010, and this decline seems likely to continue. So far, the improvements in the business environment have been marginal, and increasingly businesspeople talk about glass ceilings blocking their advancement.
A dominant current feature of the economy is that state corporations with access to state financing are purchasing large private companies.Rosneft's purchase of TNK-BP stands out as the sign of this time: a poorly managed state corporation buying one of the world's most efficient and profitable large oil companies at great cost and harm to the nation's finances.
Deputy Prime MinisterArkady Dvorkovichhas said that half of GDP now originates in the public sector. Just look around. Wherever you look, you see the bright signs of big state corporations likeGazprom, Rosneft,Sberbankand VTB. Meanwhile, large billionaire-controlled companies are buying smaller private firms. The concentration of ownership is noticeable, as is the dwindling competition.
In September 2008, Prime MinisterVladimir Putinspoke of Russia as a safe haven in the global financial crisis. He missed Russia's dependence on oil prices and the corporations' large credits from foreign banks, since the dominant state banks had indulged in activities other than financing large domestic companies. Even so, Russia should have done better economically, given that the oil price has been persistently high since the crisis. The halving of the growth rate to 3 to 4 percent after the crisis is a stark contrast to China and India.
Admittedly, Russia's economic growth looks good in comparison with that of the neighboring eurozone, and its macroeconomic policy remains stellar. But with a deteriorating economic structure and reforms kept to a minimum, economic growth is not likely to rise but to gradually decline, even if oil prices stay as high as at present.
Russia has two great assets that now drive growth: splendid human capital, which remains underutilized, and increasing international integration, not least because of its recent accession to the World Trade Organization. But if private corporations do not find room to establish themselves, develop and invest, growth will remain impeded.

Anders Aslund is a senior fellow at the Peterson Institute for International Economics in Washington.

Lavrov Lambastes EU Over Visa Fairness

25 February 2013 | Issue 5076

ByIvan Nechepurenko

Klipping The Moscow Times

Ivan Sekretarev / AP

Lavrov, top, speaking with Moualem during their meeting in Moscow.

Foreign MinisterSergei Lavrovon Monday accused the European Union of employing a double standard when it agreed to allow nondiplomatic Ukrainian officials to enter member states without a visa. “A Ukrainian bureaucrat is no different from a Russian one,” he told students at Moscow’s Diplomatic Academy.
Russian and Ukrainian diplomats are permitted to enter the EU without a visa. But while Ukrainian service passport bearers, which can be rank-and-file ministerial officials, are also allowed visa-free entry, their Russian counterparts aren’t. Russia will not tolerate this “discriminatory approach,” Lavrov told the assembly.
The same day, the EU presented Georgia with a set of benchmarks to meet in order to establish a visa-free regime. Last week, Lavrov and his EU counterpart, Catherine Ashton, recognized that such a regime between Russia and the EU would not be possible before the 2014 Winter Olympics in Sochi.
“The EU approaches countries on a case-by-case basis and does not compare them,” EU delegation spokesman Soren Liborius told The Moscow Times on Monday. Ukraine’s case is different because it unilaterally lifted visa requirements for all citizens of the EU.
According to Liborius, the service passport issue is “the only obstacle” that prevents Russia and the EU from concluding an amended visa facilitation agreement and will be even “broader than the one that was signed with Ukraine, as it includes more categories of people.”
Ukraine concluded an amended visa facilitation agreement with the EU in July 2012, which introduced enhanced visa-obtaining procedures for such categories as journalists and representatives of civil society organizations, among others.
Unlike Russia, Ukraine is a member of the Eastern Partnership with the EU, which is meant to institutionalize Europe’s relations with several Eastern European countries, including Ukraine, Belarus and Georgia.
Negotiations on visa facilitation are separate from talks on abolishing visas altogether, but both Russia and the EU see the former as a way to bolster the latter’s process. The EU and Russia are currently implementing the “common steps toward visa-free short-term travel” program, which will provide the sides with the necessary environment to start negotiations on abolishing visas altogether.
In September 2012, a Russia-U.S. visa facilitation agreement came into force allowing both Russians and Americans to obtain three-year multiple-entry visas. Unlike with the EU, Russia has not insisted on waiving visas for its government officials while negotiating with the U.S.
On March 21, about 15 members of the European Commission headed by President Jose Manuel Barroso are scheduled to visit Moscow to conduct comprehensive negotiations on a wide array of issues. According to Liborius, there is a “great chance” that the visa facilitation agreement will be one of them.

Tuesday, February 19, 2013

U.S. Is Russia's Best Friend

19 February 2013 | Issue 5072

ByGrigory Yavlinsky

Klipping The Moscow Times

U.S. President Barack Obama took his second oath of office on Jan. 20. The following Sunday, also in Washington, Metropolitan Tikhon was enthroned as the primate of the Orthodox Church in America.
A second major phenomenon largely overlooked by the media is that 1 million Orthodox Americans affirm the importance of upholding their faith in that multicultural "melting pot" — even though most speak English and were not raised according to traditional Russian customs. Although many American Orthodox believers are not Russians or Europeans, and some are not even direct descendents of Russian and European immigrants, they often had an even stronger personal connection to the Russian emigres and anti-Bolsheviks of the 18th and 19th centuries and responded more passionately when the Russian Orthodox Church was driven partly underground.
Against the backdrop of these two factors, we should take another look at the deeper significance of U.S. relations with Europe and Russia — and not at the shifting winds of political trends that often determine the outlook of provincial-minded Russian officials.
First, we should be aware that the U.S. does have many shortcomings. Even though many U.S. citizens have European roots and might naturally be expected to feel close ties to their forebears across the Atlantic, Americans most decidedly do not consider themselves Europeans. They refuse to let go of their right to carry arms — even assault weapons. They have a peculiar and very formal justice system. Many states have the death penalty.
Traditionally, Americans (like Russians to some extent) do not like to compromise. They are not so much imperialists as they are deeply provincial: They hold an overly high opinion of their own rules and principles. At times, they seem to think that the whole world is an extension of the U.S., so they are genuinely surprised when somebody does not want to live according to their standards. This often leads to serious and dangerous misunderstandings. At the same time, they are wealthy and truly effective in many spheres of activity. That is why it is difficult to befriend the U.S. while maintaining independence and the right to say "no."
But, then, who said it should be easy? Is it easy to get along with Russia — heir to the Soviet empire and often unhappy not only with itself but with its neighbors as well?
In fact, Russia and the U.S. are linked by special historical, cultural and political ties and are united by many common interests. Emigres from old Russia were probably among the top five largest groups that helped settle and are still influencing the United States today.
The Russian Empire had an excellent relationship with the U.S. Washington never took a confrontational stance toward the Russian Empire and even acted as a counterbalance to several European states. Russia supported America's freedom-loving spirit, which it combined with conservatism and its ability to incorporate and improve upon fresh and dynamic ideas. It is impossible to imagine the U.S. without its Russian immigrants. In the 18th and 19th centuries they were present at Fort Ross and Alaska. There was German the Monk and St. Innocent of Alaska (later Metropolitan of Moscow and all Russia). And after 1917, the U.S. was enriched by Russians seeking a safe haven from persecution. Sergei Rachmaninoff composed his outstanding music there, Igor Sikorsky created the helicopter, Vladimir Zworykin invented the television, and Wassily Leontief formulated his unique economic theory. More recently, Russian emigres such as ballet dancer Mikhail Baryshnikov and Google co-founder Sergey Brin have made major contributions in their respective fields.
The U.S. twice helped Russia in wartime. As a result of the October Revolution, Russia withdrew from its alliance with the U.S. and suffered severe consequences. Although U.S. involvement in World War II was by itself not enough to topple Nazi Germany, without that help, the Soviet Union would have paid a far higher price for victory — a fact that should be firmly acknowledged. The U.S. gave shelter to many persecuted people from Russia, but also committed an unforgivably horrible act by repatriating many Russians, dooming them to suffer or die in Stalin's labor camps. Over the past 20 years, the Russian economy has been largely built with the aid of U.S. technology and know-how, a lack of access to which would have had disastrous consequences for this country.
Russia must halt its shameful anti-Americanism and stop earning Herostratus-like fame (as well as money, most likely held in dollars) through trivial and dangerous provocations and conspiracy theories. If the U.S. can be faulted for anything, it is only that Washington sometimes pays too little attention to Russia. But then, is the U.S. responsible for solving Russia's problems?
Of all the powers in today's world, the U.S. best answers Russia's need for a strong ally capable of making and fulfilling treaty obligations, more than China, India, Pakistan or Saudi Arabia. The mutual understanding built up between Russia and the U.S. is a far more significant factor in world politics than the surrogate peripheral structures that Moscow is member to now. Those might serve well enough for propaganda purposes, but the Moscow leadership understands perfectly well how limited in scope and duration such alliances can be.
Russia should firmly defend its interests — but only when they actually exist. It should not artificially invent them at every step in order to "stick it to Washington" and "teach those Yankees a lesson," only punishing itself in the end. Russia should not swagger and goad others. Such behavior does not befit the leaders of a major power, at least not if they want their children to see Russia's heyday in their lifetime.
Hopefully, the U.S., with all its diversity, will not forget its roots and will ensure a significant place in this century's history by winning not only recognition of its might, but genuine esteem for its character.

Grigory Yavlinsky is a founder of the Yabloko party. This comment appeared in Vedomosti.

Why Putin Emulates North Korea

19 February 2013 | Issue 5071

ByAlexander Golts

Klipping The Moscow Times

Alexander Golts is deputy editor of the online newspaper Yezhednevny Zhurnal.

Foreign Ministry: Russia Condemns North Korea's Nuclear Test

13 February 2013 | Issue 5067

The Moscow Times

Klipping The Moscow Times

Russia condemned the latest nuclear test by North Korea and considers it a violation of UN Security Council resolutions, a source in the Foreign Ministry told Interfax on Tuesday.
North Korea announced Tuesday that it had conducted an underground nuclear test in the northeast of the country, and the announcement was independently confirmed by international monitoring agencies.
Experts and South Korean officials said the power of the explosion — the biggest one yet — was between six and seven kilotons, reports said.
"We condemn these actions by North Korea and consider them, together with the earlier launch of a ballistic missile carrying a satellite, a violation of the respective UN Security Council's resolutions," a Foreign Ministry official told Interfax.
Pyongyang withdrew from the Nuclear Non-Proliferation Treaty in 2003. The subsequent six-party talks involving Russia, China, North Korea, South Korea, the U.S. and Japan ended in failure in 2009 as North Korea activated its nuclear and missile development programs.
Following the successful launch of a satellite-carrying ballistic missile by North Korea on Dec. 12, the UN Security Council unanimously adopted a resolution condemning the missile launches and expanding sanctions against North Korea.
North Korea has pledged to continue developing nuclear weapons and missile technology.

Moscow Opposes New North Korea Economic Sanctions, Gatilov Says

19 February 2013 | Issue 5072

Reuters

Klipping The Moscow Times

The government opposes new economic sanctions on North Korea but would be ready to back measures to limit nuclear proliferation, Deputy Foreign Minister Gennady Gatilov said Tuesday.
Pyongyang was widely condemned last week after its third nuclear test since 2006, defying United Nations resolutions and putting the country closer to a workable long-range nuclear missile.
"Any additional measures of pressure on North Korea should be aimed exclusively at the sphere of non-proliferation of nuclear arms and rocket launches," Gatilov told a news conference.
"We are against measures that would affect normal trade and economic relations with North Korea. We understand our Chinese colleagues have similar views."
Moscow, a veto-wielding permanent member of the UN Security Council, has urged North Korea to abandon its nuclear arms program and return to talks with world powers on disarmament.
Gatilov also said Tuesday that Russia would not support calls to refer suspected war criminals in Syria to the International Criminal Court for prosecution.
United Nations investigators said Syrian leaders, who they had identified as suspected war criminals, should face the ICC.
Gatilov said this was "not the path we should follow … at this stage it would be untimely and unconstructive."

Monday, February 18, 2013

Europe Is Moving Eastward

22 October 2012 | Issue 4997

ByDominique Moisi

Klipping The Moscow Times

Madrid and Warsaw recently looked very similar: Both were the sites of massive demonstrations. But the crowds gathered at Europe's western and eastern extremities had very different agendas in mind.
In Spain, citizens were united by economic and social despair. They took to the streets to express their rejection of a European Union-imposed austerity policy that they believe is leading them into an abyss. They want jobs and the dignity and salaries that go with them. The indignation of some had a clear anti-capitalist and anti-globalization tone.
In the Polish capital, Catholic and conservative parties, together with the Solidarity trade union, inspired by a reactionary Christian radio network, Radio Maria, gathered for political and cultural, rather than economic, reasons. In the name of the defense of media freedom, they were denouncing a government that they found too "centrist" and insufficiently "Polish."
Ten years ago, then-U.S. Defense Secretary Donald Rumsfeld famously distinguished between "Old" and "New" Europe on the basis of their attitudes toward the U.S. and the war in Iraq. New Europe (at least its governments), understanding the need to exercise power, was from Mars, whereas Old Europe (with the main exception of Britain), having decayed into a culture of weakness, was from Venus.
The differences between the demonstrations in Madrid and Warsaw suggest that the distinction between Old and New Europe remains valid, though not in the way that Rumsfeld meant. The moods in the two countries, as well as their perceptions of Europe and their role in it, contrast starkly.
Poland, which is not yet part of the eurozone, sees no alternative to the EU. The country has fully reconciled itself with America's strategic shift away from the European continent, even though Poles are as obsessively fearful of Russia as ever. And can one blame them, given that Russia seems more nostalgic for its imperial tradition than ever? But given the political evolution of Ukraine, not to mention Belarus, Poland can no longer dream of an eastern future. Poland's only way is west — but the European west more than the American one.
Poland is benefiting from economic growth and prosperity in Germany. Reconciliation between the two countries has been one of their greatest achievements, and Poland may, for the first time in its history, be in the right place — close to Berlin — at the right time.
By contrast, Spain increasingly regards Europe more as a problem than as a solution. It is not so much that its people want to leave the eurozone. Rather, the country wants to remain itself, that is, to maintain a lifestyle that is largely the product of climate.
For Poles, the EU is still a tool for modernization, whereas Spaniards increasingly consider it synonymous with an attack on their dignity, if not on their essence. How can one unite member countries with such different emotional calendars? Spaniards are offended when they are compared to Greeks; Poles are shocked when they are compared with Spaniards. Yet not long ago, after the fall of Franco, Poles looked with envy at Spain.
Here I am reminded of a conversation with Polish statesman Bronislaw Geremek in 1978, when we shared an office in Washington. For him, Poland and Spain had long had a somewhat parallel history. Both were unable to integrate modernity into their institutions, and both had fallen into decline after a brilliant historical period between the late 15th and early 18th centuries. Poland had even disappeared from the map of Europe.
Democracy returned to Spain in 1975, and the country soon recovered its place within Europe, just when Poland seemed trapped in its tragic history. But 11 years after my conversation with Geremek, communism collapsed in Poland, and in 2004 the country's "return" to Europe was complete.
Today's Poles do not believe that Europe has cheated them. Nearly everywhere, you can see tangible signs of the EU's support: a bridge here, a school there. In Spain, by contrast, disillusion with the union has replaced the early enthusiasm of the "movida" period. Whether that remains true will most likely determine the future of Europe.

Dominique Moisi is the founder of the French Institute of International Affair) and a professor at the Institut d'études politiques de Paris (Sciences Po). © Project Syndicate

2013 Offers Russia Window for Reform

14 December 2012 | Issue 5035

Deloitte CIS

Klipping The Moscow Times

David Owen

Managing Partner
Deloitte CIS

In 2013 we will see the consequences of major decisions Russia made this year: the re-election of PresidentVladimir Putin, the country's accession to the World Trade Organization after 18 years of negotiations and a commitment to significantly improve Russia's position in the World Bank's Ease of Doing Business Index.
With the promise of economic and political stability, gradual reform and increasing trade, these all hold grounds for optimism. The bigger risk is that a serious economic downturn in the rest of the world holds Russia back.

Reform

While it disappointed many who were hoping for a change of the guard, Putin's return to the Kremlin last May is seen by many others as supporting a stable political and economic environment.
A key test will be whether Putin uses his fresh mandate to take on Russia's perennial problem: corruption.
At the International Economic Forum in St. Petersburg in June, Putin highlighted corruption as Russia's most significant economic problem. Its removal, he said, would provide enough money to solve all of Russia's economic issues.
A renewed crackdown on corruption uncovered at government departments and state-controlled companies helped to boost Russia 10 places in Transparency International's Corruption Perceptions Index just last week. But it will need to do much more to rise above its lowly place of 133 out of 174 countries.
While it will take time to convince skeptical investors who have seen many false dawns, momentum in the right direction could bring a change in sentiment and would encourage local companies themselves to invest in boosting their own transparency.
Russia's assumption of the presidency of the G20 for the first time will also keep the spotlight on the Kremlin and should encourage reform. Putin has highlighted trust and transparency in markets as a key point on the agenda when the G20 gathers in St. Petersburg in September, 2013.

WTO

Reform will be essential if Russia wants to reap the rewards of its other momentous decision in 2012: joining the WTO after 18 years of negotiations.
A World Bank study forecast that WTO entry could add 3.3 percent annually to Russia's gross domestic product in the short term and 11 percent in the longer term. But it will have to work hard to deliver these benefits, especially in the near term.
The government has warned of short-term damage to manufacturers and agriculture as import barriers fall, risking a backlash that could slow the reforms needed to make the most of membership.
Membership should, however, open services sectors like banking and telecoms to foreign investment, helping to reduce the economy's dependence on energy and resources exports.

Global Crisis

Regardless of developments at home, what happens to Russia in 2013 will be heavily dependent on global trends.
2013 is set to be a crunch year for the European Union, Russia's largest trading partner. With Europe struggling, Russia will push to boost exports to Asia, and hope the new leadership in China, its second-largest export market, can address any continuing slowdown in growth.
As always, the key to Russia's economic and political stability is the oil price. Many traders are forecasting relative price stability next year as risks of supply disruption in the Middle East combine with monetary policies in the West to prevent a significant fall. In the longer term, Russia will again depend on global growth to keep oil prices high.
2013 will have everything — the opportunity for Russia to show the world it is serious about reform, the prospect of economic conditions holding firm –or not. The one thing to be sure of is that it will not be dull!

How Russia Can Lead the G20

29 January 2013 | Issue 5056

ByJingdong HuaandJanamitra Devan

Klipping The Moscow Times

Russia is taking the helm of the Group of 20, and with that honor comes a unique opportunity: to lead the international community toward sustainable, inclusive growth and shared prosperity in 2013.
The Russian government has pledged to focus its G20 presidency on practical solutions to stimulate growth and jobs, manage government debt and regulate the financial sector. Russia could lead in advocating yet another significant G20 priority: strengthening local capital markets.
Deep and efficient local capital markets contribute to global financial stability. They are the foundations for long-term economic growth. They provide resilience against volatility in capital flows and reduce dependency on foreign debt. They offer investment alternatives for social security funds, pension funds, insurance companies and other institutional investors that provide safety nets.
Local capital markets provide access to local-currency finance, which is essential for financing infrastructure and housing, sectors that underpin economic growth and long-term development. This enables small and medium-size enterprises to borrow in their own currencies, protecting them from foreign-exchange risk so they can grow and create jobs.
Without strong domestic capital markets and access to local-currency finance, the private sector cannot thrive. A thriving private sector is necessary to give people the opportunity they crave most: to improve their lives.
Russia wants to become an international financial center, and it recognizes that strong, deep domestic capital markets are needed to achieve that role. This year, the country implemented a number of reforms to strengthen its domestic capital markets and increase the participation of foreign investors. The Central Bank is putting in place measures to facilitate monetary flows and enhance market liquidity. The securities supervisor approved reforms that better support cross-border transactions and better protect international investors. In parallel, as it looks to boost its ranking in the IFC/World Bank "Doing Business" report, Russia is working to improve its investment climate and stimulate growth. All these reforms leave Russia well-positioned to lead the G20 agenda on developing domestic capital markets.
International financial institutions such as the International Finance Corporation and the World Bank can be valuable partners to countries as they seek to strengthen their domestic capital markets. For example, just last month the IFC issued its first Russian-ruble-denominated bond in the domestic markets. IFC's ruble bond is innovative because it offers inflation-protected returns to investors. The bond should encourage greater investor participation and pave the way for future inflation-linked issuances in the Russian market.
The World Bank's recent report on Russia's capital market recommends various reforms that will support market development, such as creating more benchmark government bonds, reducing the cost of private issuance and improving securities distribution networks to increase participation by small and medium-size enterprises and small investors.
International financial institutions can also help increase the availability of local-currency finance to the private sector. In Russia, the IFC has invested more than 40 billion rubles ($1.33 billion) since 2005 to support important sectors such as small and medium-size enterprises, health care and infrastructure. To meet the growing demand for long-term local-currency finance in the country, part of the proceeds from IFC's debut ruble bond will be invested in the domestic private sector.
Developing local capital markets is a long-term task. Countries must implement sound macroeconomic policies, achieve price stability and realize fiscal prudence. Local regulatory and legal obstacles must be overcome. There is an urgent need for reforms in capital markets, such as the introduction of primary dealer systems, which allow firms to act as market makers of government securities. Also needed are regulations that encourage market-making in government and corporate bonds, repo facilities that help finance dealer inventories of securities, and derivatives and hedging instruments for market and credit risks.
IFC, the World Bank and other international financial institutions are helping countries overcome some of these challenges, and Russia can use its influence in the G20 and similar forums to make a compelling case for encouraging domestic capital markets to thrive.
As the impact of the global financial crisis continues to spread and as large developing economies experience slower growth rates, the need to support development of local capital markets takes on a new urgency. At the G20 meeting in Seoul in 2010, world leaders asked international financial institutions to strengthen local capital markets and domestic-currency borrowing.
Under France's leadership, the IFC and the World Bank worked with others to create the G20 Action Plan for Local Currency Bond Markets. Collaborative efforts among international finance institutions continue today, and Russia is well-positioned to provide further impetus to their efforts. Through its leadership, it can make a unique contribution to ensuring long-term growth and stability.

Jingdong Hua is vice president and treasurer of the Washington-based International Finance Corporation, a member of the World Bank Group. Janamitra Devan is vice president of financial and private sector development at the International Finance Corporation and World Bank. This comment appeared in Vedomosti.

G20 Representative Wants Global Economic Balance

23 January 2013 | Issue 5052

Reuter

Klipping The Moscow Times

Russia wants to calm a "currency war" that has flared between the developed and emerging worlds and threatens to dominate Moscow's annual presidency of the Group of 20 forum.
Urging a "positive rebalancing" of the global economy, Russia's G20 coordinator said in an interview that weaker exchange rates in advanced economies trying to escape a debt trap may be justified as part of broader efforts to kick-start growth.
"It's a tradeoff," Ksenia Yudayeva said in advance of a gathering of G20 finance ministers and central bankers in Moscow on Feb. 15 and 16.
Leaders of the G20, which accounts for 90 percent of the world economy and two-thirds of its people, found themselves thrust into crisis-management mode when they first met in the aftermath of the 2008 financial crash.
A summit in London the following year created a massive financial backstop to keep indebted countries afloat.
Now, as Russia takes the G20 helm, the worst appears to have passed. Yet frictions persist.
The new Japanese government's drive to reflate its ailing economy has sparked fears of a renewed currency race to the bottom that would hurt exporters like China or Russia and debase their vast foreign exchange reserves.
A senior Russian central banker, Alexei Ulyukayev, has accused Tokyo of monetary protectionism, joining criticism led by Brazil of competitive devaluations and monetary stimulus orchestrated by developed nations.
Yudayeva, a U.S.-educated former chief economist at Russia's top bank,Sberbank, struck a more conciliatory tone. She said countries generating external surpluses should diversify away from traditional reserve currencies.
"Growth in the United States and Europe is very important for the world," said the Kremlin adviser, appointed by PresidentVladimir Putinas Russia's G20 "sherpa" last August.
"We may have a stagnating United States with debt at its current value, or a growing United States with slightly depreciated debt," she said. "That's a tradeoff that we need to think about and address."
Russia has laid out a supply-side agenda for its G20 presidency focusing on investment, job creation, innovation and infrastructure that some say fails to address a chronic lack of demand in the global economy.
Yudayeva, 42, pushed back against those suggestions, noting that in addition to efforts to ease the debt burden of struggling states in the periphery of the euro zone, like Greece, crucial labor market reforms had also been implemented.
"We will not jump-start growth without investment," she said.
"When people speak about imbalances, we can discuss them. But they can only be balanced in the long-run through investment.
"We'd like to reach positive rebalancing, which should be through growth and structural changes in the global economy."
Putin hosts the annual G20 summit in St. Petersburg in September, and Yudayeva said she hoped that leaders would commit to "binding but realistic" goals to reduce debts over time.
Moscow is ready for its leadership role, she said.
"Russia, when it was the Soviet Union, was a part of the 'G2' in a sense," Yudayeva said. "So it's used to thinking kind of big."