August 8, 2022

1. The Master and his Fairytale

2. A hawkish memory

3. Here it was, and now it isn’t...

4. The President’s word is above the law

5. Putin’s home city cannot stay aside

6. Financial engineering

7. Annexation: Step by step

8. Mosaic

The Master and his Fairytale

On August 6, at the Locarno Film Festival, Alexander Sokurov’s Fairytale premiere was held. The director stressed that Fairytale will be his last movie. Its main characters are Stalin, Hitler, Mussolini, and Churchill, who meet in hell. Sokurov used shots from documentary newsreels and texts of their actual speeches to portray these characters.

In the first scene of Fairytale, Stalin rises from his coffin: His arms and legs are tired of laying around, and he has no intention of dying. Nearby, Jesus is laying and moaning—he always has pain but no strength to get up. The dictator is alive, awake, and full of plans, like his comrades in the afterlife, like Hitler, Mussolini, and Churchill.

The Locarno Festival was part of my life. Here I began, I presented my first film, The Lonely Voice of Man, and I may be showing my last movie. Why my last? Life is not infinite, and the forces are not unlimited. Our country is going through a challenging period. It is possible that filmmakers like me will not be able to continue working. If your homeland doesn’t want you, you must keep silent. I don’t have second or third citizenship, and I will live in Russia—as long as I live.

Our film is called Fairytale. A fairy tale is a phantom pain of man and humanity. What Solzhenitsyn, Marquez, and other significant artists did. I hate propaganda, this modern form of image manipulation. I do not exist in the field of ideology but the field of dramatic art. We need to understand, and this is the main thing, how the creepy Luciferian element is born in man. And in an ordinary person. There are no great people in politics; they are all very typical.

A hawkish memory

Fourteen years ago, on August 8, 2008, Russia invaded Georgia. The invasion plan was prepared by the Russian General Staff in 2006-2007 and approved, at the time, by the then-President, Vladimir Putin. The Russian army had to wait for a pretext in August 2008. Dmitry Medvedev, who had taken the presidency in the Kremlin three months earlier, had to give the invasion order. According to the Russian military, he did it only after he had received “a kick in his ass from Vladimir Vladimirovich.”

Today Dmitry Medvedev has taken the position of Russia’s leading hawk. Today he is trying to rewrite history, bringing the logic of decisions made eight years ago into line with the modern interpretation of relations between Russia and the West.

- Are the Georgian aggression of 2008 and the Ukrainian conflict linked in the same chain? Is it all part of the same geopolitical process initiated by the West?

- No doubt about it. It is a single process and a shared intent against Russia. It consists of the West’s desire, especially the United States and other Anglo-Saxon countries, to destabilize the situation in Russia. How? Through our neighbors in the immediate vicinity of Russia’s borders. The Americans cynically trained the Georgian armed forces and invested much money in this process. They sent a large number of instructors who mobilized the Georgian army. They pumped them full of weapons. They just pushed the crazy freak Saakashvili to unleash aggression against the civilian population of South Ossetia and the Russian peacekeepers...

And now they continue to exercise with Ukraine on the fate they absolutely do not care about. The goal is the same—to destroy Russia. This is the root cause of that extremely aggressive, Russophobic geopolitical process that the West initiated.

Our response is tough but carefully considered. Russia is conducting a special military operation in Ukraine and is seeking peace on our terms. Exactly on our terms, we should say that explicitly. And not on those that our former “partners” in the international community, who crave Russia’s military defeat, are trying to impose on us. We have our own national interests, and we will ensure them by all means available.

Here it was, and now it isn’t...

President Putin signed a decree which deprived residents of “unfriendly countries” of the right to dispose of their shares in Russian companies and banks.

It is prohibited to carry out transactions (operations) entailing directly and (or) indirectly the establishment, change, termination, or encumbrance of rights of ownership, use and (or) disposal of securities of Russian legal entities... provided that these... [assets] belong to foreign persons associated with [unfriendly] states...

The government and the Bank of Russia shall prepare the list of banks and companies subject to the ban within 10 days. The decree stipulates that it should include companies with licenses for medium and large deposits of natural resources, companies that produce equipment for the fuel and energy complex and provide services for maintenance and repair of such equipment, which are producers and suppliers of heat and (or) electricity, and oil refineries. At the same time, Vladimir Putin reserved the right to give individual approvals that remove the established restrictions.

The primary purpose of this decree is that the Kremlin could control who, and on what terms, will purchase shares from foreign investors who have decided to stop their activities and leave Russia. According to the Kremlin, this process is chaotic today, and often, random people (e.g., company managers), who the authorities have not yet subjugated, become the owners of the assets.

A side effect of this decree would be that any deals with Russian assets, if they are made outside of Russia or with the assets of companies registered outside of Russia but that own holdings in Russia. would become illegal.

The President’s word is above the law

President Putin signed a decree granting sanctioned banks the right to freeze foreign currency assets of Russian companies and individual entrepreneurs denominated in the currencies of the countries that imposed the sanctions.

At the same time, this decree removes some of the restrictions imposed on Russian banks and companies related to fulfilling their obligations under Eurobonds. After the Bank of Russia takes the necessary decisions, if the Russian issuer receives the government’s permission to repay its obligations, holders of Eurobonds will be able to receive the payments due to them in ruble accounts, which will be opened for them in Russian banks. The decree also specifies that the conversion of rubles into foreign currencies and transferring these sums to accounts outside Russia will be carried out without restrictions and additional permission.

Like most of Putin’s “military-economic decrees,” this document is not under Russian law, but hardly any Russian companies have a chance of winning a court case against the President. Undoubtedly, the first part of the decree allows banks hit by sanctions to shift their burden to their customers. The second part allows those Russian banks and companies that can service their obligations to avoid lawsuits from non-resident bondholders.

Putin’s home city cannot stay aside

St. Petersburg has joined the Russian regions where regional authorities have taken control of the formation of volunteer units for the war in Ukraine. According to an announcement published in the social network VK, three volunteer units are being formed in the city—Kronstadt, Neva, and Pavlovsk—and “only residents of St. Petersburg” can sign up.

According to the Kommersant newspaper, volunteer recruitment is taking place in at least 20 regions of Russia, based on a public-private partnership: Veterans’ organizations publish ads and organize recruitment centers, regional authorities seek sources of starter bonuses, and the federal government, represented by the Ministry of Defense, signs contracts with volunteers for several months.

Financial engineering

Gazprombank, Russia’s third-largest bank, was the first to admit that the current crisis has hit it hard: The Ministry of Finance bought a new issue of preferred shares of this bank worth 50 billion rubles ($833 million). There are two points in this decision that catch my attention.

First, the amount of state support: At the beginning of the year, the bank’s capital was about 860 billion rubles ($11.5 billion at the exchange rate of the time). Later publication of reports was stopped by order of the Bank of Russia—i.e., as a result of the issue of the new shares, the bank could increase it by no more than 6%. A sharp build-up of client funds could only dictate the need for an urgent increase in the bank’s capital. After Western sanctions were imposed against the two largest Russian banks (Sberbank and VTB), Gazprombank became the largest of those banks that can freely make settlements in major world currencies. Assuming that the most significant Russian exporters could transfer their accounts to this bank is natural in such a situation. Therefore, one should not be surprised if the government will increase GPB’s capital again (or several times) soon.

Second, the Russian government consciously wants to preserve the current management structure of the bank, in which Gazprom and companies under the direct or indirect management of Bank Rossiya, owned by one of Putin’s closest friends and associates, Yury Kovalchuk, and not to be confused with the Bank of Russia), have a majority vote. There is no doubt that Gazprom could find 50 billion rubles to support the bank in which it is the largest shareholder. But in this case, the company would have become the controlling shareholder of the bank, which could have entailed additional risks for both the bank and the company. On the other hand, this is the third time since 2014 that the government has bought Gazprombank’s preferred shares. These shares do not confer management rights, including the right to vote at shareholders’ meetings. 

If the government bought voting shares in Gazprombank every time, it would be the largest shareholder today, owning more than 40% of the shares (including those owned by VEB).

Annexation: Step by step

The Russian Interior Ministry has announced that it has started taking part in the annexation of the occupied Ukrainian territories. Registration and examination centers of the Russian State Automobile Inspectorate started operating in Kherson Region on August 6 and in the Russian-controlled Zaporizhzhya Region on August 8.

Residents of the occupied territories with Russian passports can register cars. Those who do not have Russian passports will be issued temporary registration documents and license plates without specifying the country. At the same time, drivers who will be able to present a Russian passport will be issued Russian driving licenses. Other drivers will be given temporary driver’s licenses.

It is not hard to foresee that the Russian military will soon begin confiscating cars whose drivers have not obtained Russian licenses and/or continue driving in vehicles with Ukrainian license plates.

Mosaic

The volume of trading in Chinese yuan on the Moscow Stock Exchange in July was 32 times higher than in January-February; transactions in Chinese currency accounted for slightly less than 15% of the total foreign exchange trading volume.

Russian Interior Ministry officers detained Vitaliy Yefimenko, the first deputy head of the pro-Russian Novaya Kakhovka city administration. According to investigators, he was a member of an armed gang that attacked local businessmen.

Russian Deputy Minister of Agriculture Oksana Lut held a meeting with regional agricultural authorities and said that the Russian authorities were discussing new counter-sanctions: Introducing a ban on the import of seeds from “unfriendly countries.” This idea appears very doubtful if we look at it from the point of view of real business: 97% of sugar beet seeds are imported from abroad; sunflower seeds, up to 77%; corn, up to 50%; potatoes, about 30%. Russian seed farms cannot replace imported seeds within 2-3 years. But from the political point of view, this idea looks very patriotic and fits in with the import substitution strategy that Vladimir Putin likes so much.

Kaspersky Lab, a Russian computer security market leader, reported that in early 2022, a Chinese-language cybergroup (linked to the TA428 group) attacked state and defense institutions in Russia, as well as Eastern Europe and Afghanistan, several times. In all, the investigation revealed attacks on more than a dozen organizations. In several cases, the attackers completely took over the IT infrastructure of enterprises. Kaspersky Lab experts believe the attackers were attempting cyberespionage.