June 20, 2022
Being calm
…and optimistic
Bold ally
China stays aside
Enemies have become more hostile
Unexpected escalation
… turning into a threat
A parade of optimism
Risky approach?
More oil, less gas
There are action and an action
How precious it is to be close to him
Provocative action
Well paid annexation
Being calm
My primary impression of Vladimir Putin’s speech at the economic forum in St. Petersburg was his inner calm and confidence. The nervousness evident in many of his public speeches disappeared. The main reason for this calmness was Putin’s conviction that the Russian economy had coped with the pressure created by Western sanctions after the invasion of Ukraine by Russian troops.
The calculation was clear: To crush the Russian economy with a rush, destroy business chains, force the withdrawal of Western companies from the Russian market, freeze domestic assets—to hit industry, finance, and the standard of living of the Russian people.
It didn’t work. Obviously, it did not work... We are gradually normalizing the economic situation. First, we stabilized financial markets, the banking system, and the trade network. Then we started flooding the economy with liquidity and working capital to keep businesses and companies stable, jobs, and jobs.
Gloomy forecasts about the prospects of the Russian economy, which sounded at the beginning of spring, did not come true. At the same time, it is clear why this propaganda campaign was hyped, where all these spells about the dollar at 200 rubles and about the collapse of our economy as a whole—all this was and is a tool of information warfare, a factor of psychological impact on the Russian society, on the domestic business community.
Life has refuted such predictions...
…and optimistic
On this basis, Putin has built an optimistic forecast of the future for the Russian economy.
The sanctions have set many complex tasks for the country. Some enterprises continue to have problems with components. A whole range of technological solutions has become unavailable to our companies. Logistics have been disrupted.
But, on the other hand, all this opens new opportunities for us... All this is an incentive to build an economy with full, not partial, technological, manufacturing, human, scientific potential, and sovereignty.
And declared six principles of economic policy for the coming years:
Openness. Russia will never follow the path of self-isolation and autarky... We are expanding and will continue to expand cooperation with all interested in this who want to work with us.
Reliance on entrepreneurial freedoms... we will continue to reduce the administrative burden [on business].
Responsible and balanced macroeconomic policy.
Social justice. Development must lead to a reduction of inequality, not to its aggravation, as in some other countries.
Advanced infrastructure development, including modernization of the housing and utilities systems.
Achieving absolute technological sovereignty, creating an economic development system that does not depend on foreign institutions for critical components.
Almost all of the above principles sound appealing and do not cause complaints. The question is whether Putin and his government are capable of implementing them. In his speech, the Russian President once again demanded that state agencies “keep everything under control, but do not prevent them [entrepreneurs] from working... reconsider the grounds for placing entrepreneurs in custody and for extending preliminary investigations... end the practice [of stopping operations or closing businesses during investigations].” But these appeals have been heard regularly for the past 10 years and have not led to change.
The most significant doubts are caused by the feasibility of the task of technological self-sufficiency and technological sovereignty, about which the Russian President spoke.
We need to build all spheres of life on a qualitatively new technological level and, at the same time, to be not just users of someone else’s solutions but to have technological keys to create goods and services for the next generations... we need to be one step ahead, create our competitive technologies, goods, and services, which can become new world standards... we need to possess all critical technologies to set up our own production of any products in a short time if necessary.
Since the end of the 19th century, Russia has been an importer of technological solutions, buying them from developed countries or copying them. How the Russian economy could make such a leap, being isolated from international cooperation, Vladimir Putin did not answer. However, it is his responsibility to set the goals, while the task of the government and heads of state-owned companies is to convince him that these goals have been achieved.
The most striking reaction of the forum participants to the speech of the Russian President was that many of them started to leave the hall long before the end of the session. This has never happened before in the history of the forum.
Bold ally
The forum in St. Petersburg is called international. Traditionally, it is attended by leaders of foreign countries and the heads of major global companies. This time, the forum’s only political participant was the President of Kazakhstan, Kassym-Jomart Tokayev, who seemed to be forced to “pay” in this way for Vladimir Putin’s services in the suppression of the coup attempt in early January. However, Tokayev’s commitment ended there. He publicly denied Putin’s support for the war in Ukraine and declared that Kazakhstan has no intention of recognizing the independence of the self-proclaimed states in eastern Ukraine.
We do not recognize Taiwan, Kosovo, South Ossetia, or Abkhazia. And, in all likelihood, this principle will be applied to the quasi-state territories, which, in our opinion, are Luhansk and Donetsk.
The President of Kazakhstan did not neglect the opportunity to invite Russian business into his country, which may help escape the sanctions restrictions while noting that the policy of retaliatory measures, which the Russian President is so fond of, is wrong.
Instead of counter-sanctions, which are unlikely to be productive, a more active—I would say proactive—and flexible trade policy with broad coverage of Asian and Middle Eastern markets should have been pursued. Kazakhstan could play a valuable role here as a kind of a buffer market...
Kazakhstan and Russia can take industrial cooperation to a qualitatively new level. We have a particular plan, a program for industrial collaboration in the new conditions. Investors from Russia will be provided with industrial sites with the appropriate infrastructure and a favorable investment climate. In principle, this is already being done.
China stays aside
The representation of China at this forum was minimal: Not only were there no high-ranking officials among the participants, but also no heads of well-known Chinese companies, which once again speaks of the caution with which China will cooperate with Russia in an era of sanctions.
Chinese President Xi Jinping addressed the session, at which Vladimir Putin was speaking, with a recorded video. The leitmotif of his address was support for globalization and international cooperation. (Without introduction, Xi’s address had no coupling to Forum or Russia; it could be addressed to many other events - IMHO).
...The world is entering a new period of turbulence and transformation. There is a negative trend of anti-globalization, a growing gap between the South and the North, and a weakening of the drivers of development cooperation that could plunge the unevenly recovering world economy into a deep recession and pose unprecedented challenges to the implementation of the UN 2030 Agenda for Sustainable Development.
It is crucial to seize opportunities, defy challenges, advance the Global Development Initiative’s implementation, and build a beautiful future of peace and prosperity.
Genuine multilateralism should be pursued, each country’s development choices should be respected and supported according to its realities, an open global economy should be fostered, andeconomic globalization should be promoted.
Although Xi said we should “abandon the practice of disengagement and disruption of supplies, unilateral sanctions, and maximum pressure,” he did not express any support for Russian aggression against Ukraine. He did not promise to support Vladimir Putin in gaining technological sovereignty.
Enemies have become more hostile
At the end of May, the Levada-Center conducted a poll about Russians’ attitudes toward other countries and perceptions of other countries’ attitudes toward Russia. I cannot say that the results came as a great surprise to me, but I would like to draw attention to a few points.
The TOP-5 most “friendly countries” plus two of the most amazing cases
The perception of the United States as a hostile country, which has been above 60% since 2014, has become commonplace. But it is interesting to note that Russians’ attitudes toward the U.S. have improved consistently in recent years: From 31 in January 2015 to 103 in November 2021, three months before the invasion of Ukraine. In May, this figure fell to 39. Thus, we see, on the one hand, the effectiveness of the current Kremlin propaganda; on the other, we know the perception of the United States as a dream country.
Support for Ukraine (or rather, the way it is presented by Kremlin propaganda) was a decisive factor that changed the perception of many Russians of the attitude of other countries toward Russia. The proportion perceiving Britain as a hostile country rose from 28% in 2021 to 49%; Poland, from 21% to 41%; Germany, from 16% to 37%; France and Canada, from 4% and 6% to 13% and 12%, respectively. At the same time, the share of those who perceive Ukraine as a hostile country decreased from 40% to 31%.
The TOP-5 most “hostile countries” plus two of the most amazing cases
The deterioration of Russians’ attitudes toward Western countries should not surprise me. But I was greatly surprised by the lack of qualitative difference in the mindset of different age groups: Except for the position of the youngest respondents (the age of 18-24) toward Sweden and Finland (whose attitude has worsened after the decision of these countries to join NATO), the opposing position dominates everywhere.
Unexpected escalation
The decision of LTG Cargo company operating within the framework of Lithuanian railroads to stop the transit of cargoes transported by rail from Russia to the Kaliningrad region threatens to become an occasion for an increase of tension in relations between Russia and the West.
The ban went into effect on the night of June 17 to 18. The company referred to the norms of the European Union sanctions package, adopted on March 15, which imposed restrictions on Russian steel and other ferrous metal products under contracts entered into before June 17. According to that decision, their transportation through the territory of the European Union is not allowed. The same ban will take effect on July 10 for cement, alcohol, and other products; August 10 for coal and other solid minerals; and December 5 for Russian oil.
…turning into a threat
On Monday morning, Russian presidential spokesman Dmitry Peskov showed frank confusion when journalists tried to find out the Kremlin’s position.
...The situation is more than serious... it requires profound analysis before any measures and decisions are formulated... Now there is undoubtedly a need to gather points of view from various departments. There will be inter-departmental events on this issue to work out a unified position.
By lunchtime, the Kremlin realized its silence was no longer an option and resorted to its usual threatening tactics. The Russian Foreign Ministry issued a statement that said:
The head of the diplomatic mission [of Lithuania in Moscow] expressed strong protest in connection with the prohibition imposed by Vilnius without prior notice to the Russian side on the railroad transit of an extensive range of goods through the territory of Lithuania to the Kaliningrad region. We demanded the immediate cancellation of these restrictions. We pointed out that we regard the provocative measures of the Lithuanian side... as openly hostile.
...if shortly cargo transit between the Kaliningrad region and the rest of the Russian Federation through Lithuania is not restored in full, then Russia reserves the right to act to protect its national interests.
It seems that the prohibition of rail transit came as a surprise even to the government of Lithuania: The Deputy Minister of Foreign Affairs, Mantas Adomėnas, stated that “we are now waiting for explanations from the European Commission regarding the applicability of the European sanctions regime to commercial transit to Kaliningrad.
A parade of optimism
After Vladimir Putin said at the forum in St. Petersburg that the Russian economy had withstood the sanctions, Russian economic bloc officials began to radiate optimism in rapid succession.
Economy Minister Maxim Reshetnikov said, “Over the last month, on the contrary, there has been a wave of improvement in estimates, forecasts... We are also preparing to refine the forecast for the better.”
Presidential aide Maxim Oreshkin said that according to his estimates, the economic downturn this year will not exceed 5%, and he spoke emotionally about the experts who predicted more severe problems:
Sometimes I get the feeling that some people want to harm the country—to say that everything is a disaster, we are closing down and leaving—or, in fact, these people do not believe in their own country and their strength.
First Deputy Prime Minister Andrei Belousov wrapped up the discussion by saying, “...the estimate that the Ministry of Economic Development has given for this year—roundly minus 8%—is, I would say, the maximum in terms of the depth of the recession... according to the estimates and the processes now unfolding in the economy, I think that the decline will be less—somewhere in the range of 3% to 5%.”
The Russian Finance Ministry could not avoid the optimistic parade and planned a minimum deficit in the draft budget for the next three years: 1.1%, 0.9%, and 0.8% of GDP in 2023-2025, respectively. According to the Ministry’s estimate, this year's budget deficit will not exceed 1.2% of GDP.
Risky approach?
Ukraine has changed the nature of its relations with Russia in a significant way. It has announced the introduction of a visa regime for citizens of that country as of July 1. President Vladimir Zelensky has made this announcement.
On the one hand, this decision regarding the country that started an aggressive war is quite understandable and justified. On the other hand, it can give additional trump cards to the Kremlin to continue the hybrid war. According to various estimates, between 3 million and 4 million Ukrainians are working in Russia who came under a visa-free regime. Suppose Russia introduces a visa-free regime as well. In that case, it will deprive Ukrainians working in Russia of earnings (at best for the few months it takes to get visas) and make the economic situation in Ukraine much worse—remittances of wages from Russia constituted $1 bln/year in the recent five years (2% of Ukrainian annual goods exports ).
More oil, less gas
Italian oil and gas company Eni reported that it receives 50% to 65% of its requested gas volume daily from Russia.
According to the General Administration of Customs of China, Russian oil exports to China rose to a record 8.42 million tons in May. Russian companies sold about 1.98 million barrels daily to China in May, up 55% from May last year.
There are action and an action
Boris Akunin has been one of Russia’s most famous writers for the past 25 years, having published several dozen novels and novellas with a combined circulation of more than 32 million. Akunin openly opposes the military operation in Ukraine.
The Moscow bookstore Molodaya Gvardiya (less than 2 km from the Kremlin) withdrew his books from sale. In response, publisher Zakharov removed ALL its books from the store, issuing the following statement:
We want to inform our readers and partners that the Molodaya Gvardiya bookstore has decided not to wait for the order/directive/mandate from above to remove from the shelves the books of their beloved Boris Akunin, and as an act of goodwill, has taken this decision, which is bold in every sense. We also decided to keep up and, along with the books of the author mentioned above, taken from them all the other books we published. So to disappear is to disappear. So in the Molodaya Gvardiya in Polyanka, our books will never be again. Not even if the sun comes up. The doctor said: “To the morgue,” then to the morgue.
How precious it is to be close to him
Alexei Navalny’s organization, FBK, and the online publication Project have released a large-scale investigation into the head of Gazprom, Alexei Miller. According to the study, during his time at Gazprom, Miller (and his closest relatives) became the owner of dozens of real estate properties worth over 43 billion rubles ($780 mln at today’s exchange rate) and a significant shareholder in the company that is the general contractor for all of Gazprom’s major construction projects.