Growth unlikely in the weak Russian economy

Mar 07 2018

On Tuesday, March 6, the Atlantic Council, a Washington-based think-tank, organized a panel discussion on the state of the Russian economy. Panelists discussed sanctions, a perceived brain drain and the absence of meaningful reforms in President Putin’s recent annual address.

The experts speaking at Tuesday’s event included:

Dr. Sergey Aleksashenko, a Senior Fellow, Global Economy and Development, Brookings Institution and Free Russia Foundation expert

Dr. Anders Åslund, a Senior Fellow, Eurasia Center, Atlantic Council

Ms. Elizaveta Osetinskaya, Fellow, Investigative Reporting Program, Graduate School of Journalism, University of California, Berkeley; Founder, The Bell

The discussion began with an overview of the state of the Russian economy by Aleksashenko, who outlined the short and long-term factors that are predicted to limit economic growth to the 1.5-2 percent range over the coming six-year political horizon. The Russian Central Bank has successfully curbed inflation, but in order to do this, it has had to raise interest rates to very high levels, making credit very expensive for businesses and thus leading to weaker growth.

Meanwhile, the Ministry of Finance is seeking to rein in its budget deficit – despite very low national debt – while not raising taxes, as promised by Putin. This is expected to lead to spending cuts, lower investment, frozen wages and pensions, and lower living standards.

In the banking sector, a crisis among banks has prompted the state to take over, with nine out of Russia’s 10 biggest banks currently in state ownership. This means banks “will sooner rely on political motivations rather than economic”, said Aleksashenko .

In addition to these macroeconomic factors, Aleksashenko said stagnation is the result of a poor investment climate depicted by the poor protection of property rights, a lack of rule of law and the clampdown on free media. Thus, businesses are not inclined to invest and this is something that neither the Ministry of Finance nor the central bank can solve.

“This is a political agenda that is in the hands of the president”, said Aleksashenko, adding that supporting rule of law would lead to Putin’s party losing its majority in the parliament. “I don’t foresee him making any progress in the next six years,” he said.

Aleksashenko also mentioned sanctions and demographics as long-term factors of weak growth. The former could lead to a growing technology gap between Russia and the West and the latter – with a shrinking labor force and an increasing number of pensioners – will add pressure on the pension system and the budget, further reducing investment.

The war over living standards

Commenting on Putin’s recent annual address to the Russian parliament, Aslund of the Atlantic Council noted that the words – reforms, sanctions, and Ukraine – were all missing from the speech. “What Putin told us is that he is not going to do reforms whatsoever for his next six-year term”, said Aslund.

Aslund outlined a number of factors harming the Russian economy: Putin’s control of the state, the FSB and the court system, cronyism and the use of state corporations for “personal benefit”.

He pointed to the $26 billion fortune amassed by Gennady Timchenko, Arkady and Boris Rotenberg and Yuri Kovalchuk. Aslund estimated that $40-50 billion leaves Russia annually and Russian individuals keep between $800 billion and $1.3 trillion abroad.

“As long as Russia doesn’t have property rights, about 4-5% of GDP leaves the country each year”, said Aslund. And there is little incentive for Putin and the elites to ensure property rights in Russia if they have property rights abroad, he said, adding that large sums of money are being kept in luxury properties in Miami, New York, and London.

Meanwhile, Aslund said, war has become a distraction for citizens suffering from the declining living standards in Russia. “Russia cannot afford serious wars”, said Aslund, adding that in the era of hybrid wars, there is less need for direct military expenditures. The panelists agreed that if Putin had to choose between military spending and higher living standards, he would choose the first.

On the bright side, Osetinskaya of UC Berkeley said that the technology sector has developed rapidly and despite some negative trends, there is a growing number of entrepreneurs who open small and medium-sized businesses. However, there is also a large brain drain, with many educated people leaving Russia due to a lack of opportunities. “The government and the state don’t address their needs”, said Osetinskaya.

Another trend is that small and medium-sized businesses have sought investment opportunities abroad, whereas the oligarchs’ fortunes are flowing back into Russia due to the sanctions, said Osetinskaya.

by Valeria Jegisman

The experts speaking at Tuesday’s event included:

Dr. Sergey Aleksashenko, a Senior Fellow, Global Economy and Development, Brookings Institution and Free Russia Foundation expert

Dr. Anders Åslund, a Senior Fellow, Eurasia Center, Atlantic Council

Ms. Elizaveta Osetinskaya, Fellow, Investigative Reporting Program, Graduate School of Journalism, University of California, Berkeley; Founder, The Bell

The discussion began with an overview of the state of the Russian economy by Aleksashenko, who outlined the short and long-term factors that are predicted to limit economic growth to the 1.5-2 percent range over the coming six-year political horizon. The Russian Central Bank has successfully curbed inflation, but in order to do this, it has had to raise interest rates to very high levels, making credit very expensive for businesses and thus leading to weaker growth.

Meanwhile, the Ministry of Finance is seeking to rein in its budget deficit – despite very low national debt – while not raising taxes, as promised by Putin. This is expected to lead to spending cuts, lower investment, frozen wages and pensions, and lower living standards.

In the banking sector, a crisis among banks has prompted the state to take over, with nine out of Russia’s 10 biggest banks currently in state ownership. This means banks “will sooner rely on political motivations rather than economic”, said Aleksashenko .

In addition to these macroeconomic factors, Aleksashenko said stagnation is the result of a poor investment climate depicted by the poor protection of property rights, a lack of rule of law and the clampdown on free media. Thus, businesses are not inclined to invest and this is something that neither the Ministry of Finance nor the central bank can solve.

“This is a political agenda that is in the hands of the president”, said Aleksashenko, adding that supporting rule of law would lead to Putin’s party losing its majority in the parliament. “I don’t foresee him making any progress in the next six years,” he said.

Aleksashenko also mentioned sanctions and demographics as long-term factors of weak growth. The former could lead to a growing technology gap between Russia and the West and the latter – with a shrinking labor force and an increasing number of pensioners – will add pressure on the pension system and the budget, further reducing investment.

The war over living standards

Commenting on Putin’s recent annual address to the Russian parliament, Aslund of the Atlantic Council noted that the words – reforms, sanctions, and Ukraine – were all missing from the speech. “What Putin told us is that he is not going to do reforms whatsoever for his next six-year term”, said Aslund.

Aslund outlined a number of factors harming the Russian economy: Putin’s control of the state, the FSB and the court system, cronyism and the use of state corporations for “personal benefit”.

He pointed to the $26 billion fortune amassed by Gennady Timchenko, Arkady and Boris Rotenberg and Yuri Kovalchuk. Aslund estimated that $40-50 billion leaves Russia annually and Russian individuals keep between $800 billion and $1.3 trillion abroad.

“As long as Russia doesn’t have property rights, about 4-5% of GDP leaves the country each year”, said Aslund. And there is little incentive for Putin and the elites to ensure property rights in Russia if they have property rights abroad, he said, adding that large sums of money are being kept in luxury properties in Miami, New York, and London.

Meanwhile, Aslund said, war has become a distraction for citizens suffering from the declining living standards in Russia. “Russia cannot afford serious wars”, said Aslund, adding that in the era of hybrid wars, there is less need for direct military expenditures. The panelists agreed that if Putin had to choose between military spending and higher living standards, he would choose the first.

On the bright side, Osetinskaya of UC Berkeley said that the technology sector has developed rapidly and despite some negative trends, there is a growing number of entrepreneurs who open small and medium-sized businesses. However, there is also a large brain drain, with many educated people leaving Russia due to a lack of opportunities. “The government and the state don’t address their needs”, said Osetinskaya.

Another trend is that small and medium-sized businesses have sought investment opportunities abroad, whereas the oligarchs’ fortunes are flowing back into Russia due to the sanctions, said Osetinskaya.

by Valeria Jegisman

Free Russia Foundation’s Press Release on Submission of Article 15 Communication to the International Criminal Court

Oct 06 2020

On 21 September 2020, the Free Russia Foundation submitted a Communication to the International Criminal Court Prosecutor’s Office (in The Hague, Netherlands) seeking accountability for Crimean and Russian authorities concerning international crimes perpetrated during Russia’s illegal occupation of Crimea. The Communication was prepared in cooperation with Global Rights Compliance and Center for Civil Liberties and is based on a focused inquiry conducted over the past year. In our inquiry, we documented crimes as part of a systematic, planned attack by the Russian state against civilians and groups in Crimea in order to discourage them from opposing the illegal occupation of Crimea and to force their departure from the peninsula. Crimes against civilians included unlawful arrests, beatings, torture, enforced disappearances, and other inhumane acts causing severe mental and/or physical pain. In particular, the crimes targeted the Crimean Tatars, a native ethnic group who had only recently returned to their homeland, having previously been forcefully and brutally displaced by the Soviet Union in 1944.

One of the principal coercive acts was the illegal detention and concomitant violence before, during, and after the imprisonment of political prisoners. Most of those detained were arrested by Russian and Crimean authorities on terrorism charges, but it was their legal, pro-Ukrainian advocacy that led to their imprisonment. In addition, trials of those arbitrarily detained were conducted in wholesale disregard of their fair trial rights. For example, some of those illegally imprisoned were denied a speedy trial, access to independent lawyers, and the opportunity to defend themselves against their arrest in a courtroom.

In order to force those illegally detained to confess to crimes they did not commit, Russian and Crimean authorities also perpetrated acts of torture and cruel or degrading treatment, the levying of additional charges against them, even more inhumane prison conditions, denial of communications with their families and threats made against them, enforced disappearances, and even, in at least one case, a mock execution.

Other inhumane acts include “punitive psychiatry” and the denial of adequate prison conditions, including the following: (i) feeding people inedible food or, at times, no food at all; (ii) facing severe overcrowding in prisons; (iii) denial of regular water supply; (iv) threats of assault against them by prison cellmates; and (v) adding pork to food – prohibited for observant Muslims. Further, medical attention was systematically inadequate or denied for many individuals.

Concerning acts of torture, it was perpetrated by different Russian authorities, including the FSB. Allegations include the use of electric shocks in an effort to get an accused to confess. One was beaten in the head, kidneys, arms and legs with an iron pipe. With another, fingers were broken. Still another endured spinal bruises and having a plastic bag placed over his head to the point of unconsciousness. Further, threats of sexual violence against a detained man were made. Murder as well. Hands were broken, teeth were knocked out in still another.

Trials were largely held behind closed doors for illegitimate reasons, and many of the witnesses were secret not only to the public but also to the Accused. Further, credible allegations exist that, at times, there were FSB or other agents in the room, silently instructing witnesses what to say and how the judges should rule. This adds credence to words, according to the Kyiv Post, heard by Arsen Dzhepparov from a senior FSB lieutenant who stated “I will prove by all possible – and impossible – means that [an Accused is] guilty – even if he isn’t guilty”.

Concerning the crime of persecution, nearly all of these deprivations of fundamental rights were carried out with discriminatory intent. Specifically, these groups were targeted due to their political view – namely, by peacefully opposing the illegal occupation of their country. Some were targeted on ethnic grounds or religious grounds on the basis of their Crimean Tatar background.

War crimes, another group of crimes punished at the ICC, were also perpetrated in addition to or in the alternative to the crimes against humanity. This includes the crime of torture, outrages against personal dignity, unlawful confinement, wilfully depriving protected persons of the rights of a fair and regular trial, and the transfer of the occupying power of parts of its population into the territory it occupies or the deportation of all or parts of the population of the occupied territory within or outside this territory.

All these crimes had the ultimate objective of the criminal enterprise – the removal of pro-Ukrainian elements out of Crimea and the annexation of Crimea into the Russian Federation without opposition, including the installation of pro-Russian elements, which include the emigration of more than 70,000 Russians, the illegal imposition of Russian law in the occupied territory, forcing Russian nationality on many Crimeans, and the appropriation of public property.

Ultimately, we hope that all the information gathered by the ICC in the context of its preliminary investigation will lead the ICC to investigate mid- to high-level Russian and Crimean officials on this basis. The international community expects responsible global leadership that follows the rule of law and expects it – no matter the situation – to be respected, especially from a state that is a permanent member of the UN Security Council. When this fails to happen, the international community must demand accountability. We hope that an investigation can be opened and responsible officials of the Russian Federation will be investigated. After an investigation that conforms to international best practices, responsible persons should be charged with the systematic perpetration of international crimes.

Novichok Use Implicates Putin’s Government in Navalny’s Poisoning

Sep 02 2020

Today, the German government has announced that Russian pro-democracy leader Alexey Navalny was poisoned by Novichok. Novichok is a deadly nerve agent developed by the Soviet government chemical weapons program and used on several occasions by the Russian government to kill its critics in the recent years.

To restate the obvious, Novichok is a poison that can only be accessed with the authority of the Kremlin. Therefore, today’s announcement by German officials  directly implicates the Kremlin and Putin in the high-profile assassination attempt on Navalny.

The choice of Novichok was not just a means  to silence Mr. Navalny, but a loud, brazen and menacing message sent by Putin to the world: dare to criticize me, and you may lose your life.

The announcement by the German government of its intent to formally notify the Organization for the Prohibition of Chemical Weapons (‘OPCW’) of the use of Novichok against Navalny is a meek bureaucratic half-measure that fails to acknowledge the extraordinary threat to human life posed by Putin’s regime everywhere. Taken together with Angela Merkel’s promise earlier this week to help Putin finish his Nord Stream 2 pipeline despite an international outcry amounts to condoning the poisoning and normalizing it into a new modus operandi where Putin’s murders go unpunished. Free Russia Foundation urges the leaders of the EU, its Member States and the U.S. Government to take an urgent and drastic action to punish the perpetrators of this heinous crime not only to serve justice, but to establish a powerful deterrent against new attacks by Putin’s regime globally.

Free Russia Foundation Statement on Kremlin’s Interference in Elections in Georgia

Aug 26 2020

We are deeply concerned with information recently distributed by the well-respected authoritative source Center “Dossier.” According to “Dossier,” the Kremlin is using Russian political expert Sergey Mikheev and consulting company “Politsecrets” to manipulate Georgian society, distribute disinformation and anti-democratic narratives, undermine Georgia’s Western aspirations, and interfere in free and fair elections in Georgia scheduled for October 2020.

More

Free Russia Foundation Calls for Investigation into Alexey Navalny’s Poisoning

Aug 20 2020

Free Russia Foundation is gravely concerned about the life and safety of Alexey Navalny. More

Civic Solidarity Platform Appeal with Regard to the Recent Events in Belarus

Aug 12 2020

INTERNATIONAL COMMUNITY SHOULD REACT IMMEDIATELY AND STRONGLY TO RIGGED PRESIDENTIAL ELECTIONS AND MASSIVE VIOLENCE OF SECURITY FORCES AGAINST PEACEFUL PROTESTORS IN BELARUS More