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 demands Navalny’s immediate release

Jan 17 2021

On January 17, 2021, Putin’s agents arrested Alexey Navalny as he returned to Russia from Germany where he was treated for a near-deadly poisoning perpetrated by state-directed assassins.

Navalny’s illegal arrest constitutes kidnapping. He is kept incommunicado from his lawyer and family at an unknown location and his life is in danger.

Free Russia Foundation demands his immediate release and an international investigation of crimes committed against him by Putin’s government.

The European Court of Human Rights Recognizes Complaints on Violations in “Ukraine v. Russia” as Admissible

Jan 14 2021

On January 14, 2021, the European Court of Human Rights published its decision on the case “Ukraine v. Russia”. The Grand Chamber of the Court has recognized complaints No. 20958/14 and No. 38334/18 as partially admissible for consideration on the merits. The decision will be followed by a judgment at a later date.

The case concerns the consideration of a violation of the European Convention on Human Rights related to Russia’s systematic administrative practices in Crimea. 

The admissibility of the case is based on the fact that, since 2014, the Russian Federation has exercised effective control over the territory of Crimea, and, accordingly, is fully responsible for compliance with the norms of the European Convention on Human Rights in Crimea. The Court now needs to determine the specific circumstances of the case and establish the facts regarding violations of Articles of the Convention during two periods: from February 27, 2014 to March 18, 2014 (the period of the Russian invasion); and from March 18, 2014 onward (the period during which the Russian Federation has exercised effective control over Crimea).

The Court has established that prima facie it has sufficient evidence of systematic administrative practice concerning the following circumstances:

  • forced rendition and the lack of an effective investigation into such a practice under Article 2; 
  • cruel treatment and unlawful detention under Articles 3 and 5; 
  • extending application of Russian law into Crimea with the result that, as of  February 27, 2014, the courts in Crimea could not be considered to have been “established by law” as defined by Article 6; 
  • automatic imposition of Russian citizenship and unreasonable searches of private dwellings under Article 8; 
  • harassment and intimidation of religious leaders not conforming to the Russian Orthodox faith, arbitrary raids of places of worship and confiscation of religious property under Article 9;
  • suppression of non-Russian media under Article 10; 
  • prohibition of public gatherings and manifestations of support, as well as intimidation and arbitrary detention of organizers of demonstrations under Article 11; 
  • expropriation without compensation of property from civilians and private enterprises under Article 1 of Protocol No. 1;
  • suppression of the Ukrainian language in schools and harassment of Ukrainian-speaking children under Article 2 of Protocol No. 1; 6 
  • restricting freedom of movement between Crimea and mainland Ukraine, resulting from the de facto transformation (by Russia) of the administrative delimitation into a border (between Russia and Ukraine) under Article 2 of Protocol No. 4; and, 
  • discriminating against Crimean Tatars under Article 14, taken in conjunction with Articles 8, 9, 10 and 11 of the Convention and with Article 2 of Protocol No. 4 to the Convention.

Cases between states are the rarest category considered by the ECHR. Almost all cases considered in Strasbourg concern individuals or organizations and involve illegal actions or inaction of the states’ parties to the Convention. However, Art. 33 of this Convention provides that “any High Contracting Party may refer to the Court the question of any alleged violation of the provisions of the Convention and its Protocols by another High Contracting Party.” In the entire history of the ECHR since 1953, there have been only 27 such cases. Two of them are joint cases against Russia, both of which concern the Russian Federation’s aggression on the territory of its neighboring states, Georgia and Ukraine.

New Year’s Blessings to All

Dec 30 2020

While 2020 gave us unprecedented challenges, it created transformative changes in the way we work and communicate. The hours of Zoom calls seemingly brought us all closer together as we got a glimpse into each other’s makeshift home offices along with interruption by kids and the family pets. Remote work also made us appreciate human interactions, in-person events and trips much more!

As 2020 comes to an end, we want to especially thank our supporters who continued to believe in our mission and the value of our hard work, and we hope the coming year brings all of us progress and growth for democracy throughout the world. We’d also like to thank our partners and staff in the U.S. and abroad, and we know how hard everyone has worked under difficult world changes to achieve so many of our objectives this year.

We send our best wishes to all who have stayed in the fight for democratic reforms and for the values of basic human rights. We look forward to a new year with the hope of many positive changes to come.

– Natalia Arno and the Free Russia Foundation team.

International Criminal Court Asks for Full Probe Into Russia’s Invasion of Ukraine

Dec 14 2020

On December 11, 2020, Prosecutor of the International Criminal Court (ICC) Fatou Bensouda, issued a statement on the preliminary examination of the situation in Ukraine by the ICC Office of the Prosecutor.

According to the findings of the examination, the situation in Ukraine meets the statutory criteria to launch an investigation. The preliminary examination of the situation in Ukraine was opened on 24 April 2014.

Specifically, and without prejudice to any other crimes which may be identified during the course of an investigation, Office of the Prosecutor has concluded that there is a reasonable basis at this time to believe that a broad range of conduct constituting war crimes and crimes against humanity within the jurisdiction of the Court have been committed in the context of the situation in Ukraine.

These findings will be spelled out in more detail in the annual Report on Preliminary Examination Activities issued by the Office and include three broad clusters of victimization:

1.     crimes committed in the context of the conduct of hostilities;

2.     crimes committed during detentions;

3.     crimes committed in Crimea.

These crimes, committed by the different parties to the conflict, were sufficiently grave to warrant investigation by Office of the Prosecutor, both in quantitative and qualitative terms.

Having examined the information available, the Prosecutor concluded that the competent authorities in Ukraine and/or in the Russian Federation are either inactive in relation to the alleged perpetrators, or do not have access to them.

The next step will be to request authorization from the Judges of the Pre-Trial Chamber of the Court to open investigations.

The Prosecutor urges the international community, including the governments of Ukraine and Russia, to cooperate. This will determine how justice will be served both on domestic and the international level.

We remind you that on September 21, 2020, Free Russia Foundation sent a special Communication to the Prosecutor of the International Criminal Court (the Hague, the Netherlands) asking to bring Crimean and Russian authorities to justice for international crimes committed during the Russian occupation of Crimea.

Comment by Scott Martin (Global Rights Compliance LLP):

As Prosecutor Fatou Bensouda reaches the end of her tenure as Chief Prosecutor of the International Criminal Court, she announced yesterday that a reasonable basis existed to believe that a broad range of conduct constituting war crimes and crimes against humanity had been committed in relation to the situation in Ukraine. One of the most consequential preliminary examinations in the court’s short history, the Prosecutor will now request authorization from the ICC Pre-Trial Chamber to open a full investigation into the situation.

Anticipating that the Prosecutor’s request will be granted, the ICC Prosecutor’s office will be investigating the second group of alleged war crimes and crimes against humanity perpetrated by the Russian Federation (the situation in Georgia being the other). This would make Russia the only country in the world facing two separate investigations at the ICC for crimes under its jurisdiction.

Call for Submissions – The Kremlin’s Influence Quarterly vol. 3

Oct 26 2020

The Free Russia Foundation invites submissions to The Kremlins Influence Quarterly, a journal that explores and analyzes manifestations of the malign influence of Putin’s Russia in Europe.

We understand malign influence in the European context as a specific type of influence that directly or indirectly subverts and undermines European values and democratic institutions. We follow the Treaty on European Union in understanding European values that are the following: human dignity, freedom, democracy, equality, the rule of law, and respect for human rights. Democratic institutions are guardians of European values, and among them we highlight representative political parties; free and fair elections; an impartial justice system; free, independent and pluralistic media; and civil society.

Your contribution to The Kremlins Influence Quarterly would focus on one European country from the EU, Eastern Partnership or Western Balkans, and on one particular area where you want to explore Russian malign influence: politics, diplomacy, military domain, business, media, civil society, academia, religion, crime, or law.

Each chapter in The Kremlins Influence Quarterly should be around 5 thousand words including footnotes. The Free Russia Foundation offers an honorarium for contributions accepted for publication in the journal.

If you are interested in submitting a chapter, please send us a brief description of your chapter and its title (250 words) to the following e-mail address: info@4freerussia.org. Please put The Kremlin’s Influence Quarterly as a subject line of your message.