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VOLUME 71, NUMBER 50
FEATURED NEWS STORIES
‘Normandy Four’ Meet in Paris
Union State Integration Plans Derailed
THE RUSSIAN FEDERATION
State and Law
HSE Student Yegor Zhukov Gets Suspended Sentence for ‘Calls to Extremism’ During Summer Rallies
NGNIX Sued by Former Owner Rambler After Making Deal With US Firm
Dmitriyev: Russian Economy Grew Slower Than Expected in 2019, but 2020 Looks Promising
At Defense Industry Meeting, Putin Signals Readiness To Renew Arms Talks With the West
Sinitsyn: Russia Can Choose to Address WADA Sanctions or Continue Self-Righteous Isolation
Kolesnikov: Late Mayor Yury Luzhkov Embodied Moscow State Capitalism
OTHER POST-SOVIET STATES
Panfilova: Turkmenistan Stagnating Under Corrupt Leadership
Golts: Russia, NATO Need Each Other to Survive
Semyonov: Libya Could Become Battleground for Russian, Turkish PMCs
Preobrazhensky: Botched Russian Intelligence Ops to Blame for EU’s Souring Relations With Russia
Author: Ivan Rodin, Olga Solovyova, Mikhail Sergeyev, Gennady Petrov and Tatyana Ivzhenko
PRESS CONFERENCE RESEMBLES LOTTERY SHOW
By Ivan Rodin, Olga Solovyova, Mikhail Sergeyev, Gennady Petrov and Tatyana Ivzhenko. Nezavisimaya gazeta, Dec. 20, 2019, p. 1. Condensed text:
This year’s edition of Vladimir Putin’s year-end press conference – his 15th – has confirmed that as always, the event’s primary purpose is to serve as a kind of therapy session for the Russian people. In this sense, the president’s big press conferences are increasingly starting to resemble his Direct Line [annual call-in] shows, which are also done in a Q&A format, except people get to ask questions directly. . . .
Glimpses into the future transfer of power.
Putin was asked about his take on discussions about the need and possibility of amending the Constitution. The question came from the state-owned news agency RIA Novosti, so you don’t have to be a conspiracy theorist to connect the dots and figure out that the subject was suggested [to the media] beforehand as a recommended topic. This is further confirmed by the fact that the question consisted of two parts: not only about amending the Constitution, but also about making changes to Russia’s political system. In other words, Putin was asked to share his vision on the much-debated issue of the transfer of power.
The president’s answer, however, was laconic and fairly evasive. First, he repeated his favorite line about the Constitution being a living document, which should grow and develop along with the nation. “Yet I don’t think we should change the Constitution – I mean, rewrite it entirely – especially because there are some fundamental things enshrined in the current version that we have yet to fully implement. I’m referring to the first chapter. Personally, I think it’s off limits,” Putin said. This probably means that we shouldn’t expect a major overhaul of the Basic Law.
The president said he was aware of certain discussions among politicians and experts – for example, about redistributing some powers from the government to the parliament. Putin even mentioned the possibility of “making some adjustments to the scope of presidential powers.” On the other hand, he emphasized that any such changes would only be possible after a public discussion, and that all the proposed changes had to be thoroughly and carefully considered. This indicates that most likely, we shouldn’t expect any changes to the Constitution in the near future. Even Putin’s remark that he is not against removing the word “consecutive” from the clause setting a two-term presidential limit, which was initially perceived as breaking news, turned out to be old news after all.
For example, Putin said basically the same thing back in April 2012, after he was elected president but before his inauguration – i.e., while he was still prime minister. Putin said at the time it “made sense” to leave the words “two terms” but remove the adjective “consecutive.” This time, the president said that “perhaps we could remove this word.”
Curiously, Putin said that the idea to amend the Constitution came entirely from parliamentary parties, which, according to the president, are eager to play a greater role. Yet we should point out that it was State Duma speaker Vyacheslav Volodin who has been the key proponent of this debate [see Vol. 71, No. 28‑29, pp. 3‑7], not opposition parties.
Federation Communist Party leader Gennady Zyuganov, A Just Russia leader
Sergei Mironov and Liberal Democratic Party of Russia leader Vladimir
Zhirinovsky were all excited about the president’s tentative proposal. United
Russia’s reaction, on the other hand, was somewhat reserved. Sergei Neverov,
the party’s faction leader in the State Duma, emphasized first and foremost
that Putin has rejected the idea of rewriting the Constitution. Senator Andrei
Klishas practically nipped the debate in the bud, saying there was no need to
remove the word “consecutive” from the text as long as the Constitutional Court
offers a proper interpretation of what it means in this context.
The president’s answers to other questions during the Dec. 19 press conference offered additional glimpses into the future transfer of power. For example, Putin was happy to answer questions about Russia’s relations with Belarus. It was obvious that he closely followed all the developments in the protracted talks on deeper integration within the Union State [of Belarus and Russia]. Granted, some of the arguments he used in responding to President Aleksandr Lukashenko – for example, his remarks about gas and oil prices – sounded somewhat obsolete. The Belarussian leader has moved on to more relevant things: For example, he is wondering how the two countries’ integrated economy will operate if [Belarussian and Russian] companies in this common territory have to purchase basic fuel at different prices.
On the other hand, Putin finally outlined the political terms for Belarus in public – and he did not mince words. For example, economic integration means not only having common tax and monetary authorities, but also certain supranational bodies adopting laws that would be binding for both countries. This could mean that the Kremlin will use unification with Belarus as a way to [keep Putin in power]. No wonder Putin completely ignored a reporter’s question, perhaps a joking one, about how the transfer of power would happen, who would end up in charge and whether Putin wants to head up a BelaRussia in 2024. . . .
Author: Fyodor Lukyanov
THE HEGEMON AT A CROSSROADS
By Fyodor Lukyanov, research professor at the National Research University Higher School of Economics. Rossiiskaya gazeta, Sept. 20, 2019, p. 8. Complete text:
US National Security Adviser John Bolton lost his job just before his possible shining hour. Bolton’s fervent desire (apart from his intense hostility toward nuclear arms control) was to do away with the ayatollah regime in Iran. As a matter of fact, his aggressive activism in this respect was one of the main reasons for his dismissal: [US President Donald] Trump was spooked by the prospect of being drawn into a spiral of military preparations. Right now, Bolton must be confident that his dismissal triggered the subsequent events. As far as the hawks in Washington are concerned, Tehran perceives any sort of indecisiveness as an invitation to even greater pressure.
The attack on Saudi Aramco’s [oil] facilities, which disrupted half the largest oil producing country’s [processing] capacity, is an unprecedented event. This incident is a landmark in a series of events that have been unfolding in the region for a long time. Reaction to it will reveal the real lineup of forces.
Yemen’s Shiite rebels, who claimed responsibility for the attack and threatened to carry out retaliatory strikes on the UAE and seize parts of Saudi territory, are brave guys, of course. However, the scale of the attack is clearly beyond their capability, so the general interest in the Houthis’ Iranian sponsors is understandable, to say the least. Regardless of the mechanics of this particular act, what is going on in the Middle East reflects a sharp rise in Tehran’s influence, which puts Saudi Arabia, the US, Israel and several other countries in a difficult situation.
The US has no one to blame. Washington’s policy over the past two decades has objectively helped Iran strengthen and emerge as the most powerful regional force. From ousting Iraqi leader Saddam Hussein to pursuing an incoherent and ill-advised policy toward Syria and Yemen, it seems as if the US has been deliberately destroying or weakening regional counterweights to Iran’s influence. The resulting situation is extremely unpleasant for the US administration. A threat to global oil supplies is a serious matter, [and] a country that is laying claim to global hegemony simply cannot afford to ignore it.
But what is to be done? A campaign against Iran is impossible for several reasons. First, no one can predict how it would proceed or what it would lead to. In any case, this operation must be far greater and therefore more dangerous than anything the Americans have done since the cold war, including [in] Iraq. Second, Trump is inherently against any military actions; they are not his forte. What’s more, the overwhelming part of his core electorate fervently supports the original slogan, “No more senseless wars!” Meanwhile, a [US presidential] election campaign is already in full swing.
If it is really necessary to punish an upstart, the US president would prefer to use [his country’s] regional rivals as a cat’s paw. However, that brings up other problems. Saudi Arabia has amply demonstrated its military and strategic prowess in Yemen. The kingdom has gotten seriously bogged down in a neighboring country with no prospects for either achieving a result or pulling out. It is simply impossible to imagine Riyadh clashing with an immeasurably more powerful rival; nor would the kingdom risk such a step. Israel is far more effective, but an Iranian-Israeli collision would create such a maelstrom in the Middle East and in the entire Muslim world that the consequences would outweigh any [positive] result. So Washington’s regional allies are actually hoping that the US will do most of the heavy lifting to curb Tehran’s ambitions.
The significance of the situation extends far beyond regional boundaries. Iran’s rise is a challenge to the US as a country laying claim to global domination. Iran is not the US’s global rival that is challenging America’s superiority as a whole – that role is being increasingly played by China. However, unless Washington demonstrates its ability to rein in a player that wants to dominate a key part of the world, then its global position will also weaken, not strengthen. At the same time, if an attempt to check Tehran leads to an even more serious crisis in the region (and everyone understands that this is quite possible), then the US’s influence will shrink even faster. It’s almost a zugzwang.
Trump has already indicated that he is willing to repeat the North Korea trick with Iran – i.e., to abruptly move from dire threats to dialogue. However, in the case of Iran, that is much more difficult to do. First, the extent of Iran’s demonization is incomparable even to North Korea’s. Israel is a factor here, but above all, it has to do with the memory of the late 1970s, when Islamic revolutionaries dealt an unprecedented blow to the US’s prestige (the seizure of the [US] Embassy [in Tehran] and the subsequent events). Second, last year, Trump successfully scrapped a product of the titanic efforts of diplomats in many countries, including the US and Iran – namely, the Joint Comprehensive Plan of Action, which brought Tehran’s nuclear program under control. So there is not much trust in the US president’s negotiating skills per se.
Indeed, this is quite a historic moment. Although the issue is seemingly regional, a response to it is of global importance. In this context, an interesting factor here is the role of Russia, which is generally acknowledged as a major player in Middle East politics, and the opportunities that the current situation creates for Moscow. But that is a topic for another commentary.
Author: Vladimir Frolov
MACRON IS ‘OURS’ – BUT DOES RUSSIA NEED HIM?By Vladimir Frolov. The Moscow Times, Nov. 14, 2019
In a sort of bizarre political relay race, French President Emmanuel Macron has taken the baton from [Russian] President Vladimir Putin and President Donald Trump to become the main destabilizing force in Europe and the destroyer of the Western world order.
Last week, Macron gave an interview to the British weekly The Economist that had experts all aflutter over his remark that we are currently experiencing the brain death of NATO.
According to famed French political scientist Bruno Tertrais, this marks an escalation in the rhetoric of the French leader, who told a close circle of associates two weeks ago that NATO will cease to exist in five years. What’s more, even as NATO prepares to celebrate the 70th anniversary of its founding at a summit in London on Dec. 3-4, Macron publicly voiced doubts as to the effectiveness of the security guarantees found in Art. 5 of the North Atlantic Treaty, saying he doesn’t know what Art. 5 will mean tomorrow.
And one week before that, Macron vetoed the European Council’s decision to start negotiations with Albania and Northern Macedonia on joining the EU, singlehandedly putting a halt to the process of EU expansion that had continued unabated for the past 25 years. Macron’s interview with The Economist, along with his keynote address at a meeting of French ambassadors, provides the fullest picture of his strategic vision for the geopolitical roles of Europe, France and, oddly enough, Russia, in the modern world.
Agent of change.
Macron focused on Europe’s need to achieve geopolitical autonomy in the face of deepening global competition with the US and China, and the growing strength of authoritarian powers in the European neighborhood – i.e., Russia and Turkey.
Macron has a keen sense of the shifts occurring in the global geopolitical landscape. He wants to lead the changes happening in Europe by disrupting the status quo and acting as an agent of change to ensure France’s leadership amidst new conditions.
For the French president, the main shift is the US’s strategic return to isolationist and mercantilist policies of national populism – a trend that began under Barack Obama, peaked under Donald Trump and that Macron expects will continue no matter who is elected president in 2020.
He speaks with a certain admiration for Trump and Putin as leaders who pursue only the national interests of the countries in their region without advancing a global agenda for all of humanity. [Macron] would like to do the same on behalf of Europe. He cites the turmoil surrounding Brexit and the political stagnation in Germany to justify his intellectual claim to EU leadership. This return to Gaullism applies not only to France, but also to the entire EU. However, it remains unclear whether other EU countries are willing to pay for it.
Russian observers, meanwhile, are struck by how closely Macron’s views on European security and world order coincide with those that Putin has espoused ever since his speech at the Munich Security Conference in February 2007 [see Vol. 59, No. 7, p. 6].
Macron as Putin.
Macron shares many of Putin’s views concerning US policy in Europe and the Middle East. Like Putin, he blames Europe’s migration problem on the misguided US policy of regime change during the “Arab Spring.”
Macron shows solidarity with Putin’s feeling of being offended by Western actions after the end of the cold war. The French president argues that NATO was created to counter the threat posed by the Warsaw Pact, despite the fact that the former was established in 1949 and the latter only took shape in 1955. He stated that NATO continues to view the containment of Russia as its primary strategic objective and has expanded right up to Russia’s borders, leaving that country without a security zone and violating the terms of the deal reached in 1990. And, he said, “when NATO got as far as Ukraine, Putin decided to stop that expansion.”*
*[Sic; Macron said: “They tried to go as far as Ukraine, and he wanted to put a stop to it.” – Trans.]
Macron also said that Putin considers the EU a vassal of the US and sees EU expansion as a Trojan horse for NATO’s expansion. The French leader is essentially parroting Putin’s words, which is perhaps the result of his confidential conversations with the Russian president in St. Petersburg in May 2018 and at Fort de Brégançon in August 2019 [see Vol. 71, No. 34, pp. 3‑7], and leaves no doubt that he believes this view is justified and worthy of consideration.
The French leader essentially recognized Russia’s right to veto the West’s actions in a zone of privileged interests in the post-Soviet space, thereby denying the post-Soviet states the right to their own political identities.
This is like a dream come true for Russia’s foreign policy efforts of the past five years. If Putin were still working in foreign intelligence, he could have unhesitatingly written a report after Macron’s recent comments, claiming success in “communicating ideas to the French president that were advantageous to Russia – understandings that then became the foundation of that country’s foreign policy strategy.”
Macron’s call for “strengthening Europe’s strategic autonomy” and overcoming its security dependence on the US also plays into Russia’s long-term interests. Moscow has been trying to decouple Europe from the US ever since the cold war. Now, Trump’s mercantilist policies are making it a reality. Trump is essentially telling Europe, “You must pay us more to ensure your security, including by buying everything American-made.” Macron says that France did not sign up for this. He is looking to step in if Washington voluntarily abdicates its role as the provider of European security.
Macron emphasized that Europe cannot achieve economic or technological sovereignty without first achieving military sovereignty. He also sees NATO as playing no role whatsoever in the issues of greatest importance to France: the Middle East, the terrorist threat in Africa, and migration flows in the Mediterranean. In effect, Macron proposes replacing the US as Europe’s security guarantor against Russia with Russia as the guarantor of Europe’s security against threats from the south.
Moscow is not yet sold.
Of course, Macron’s thoughts about Russia’s geopolitical choice and his analysis of Russian policy are somewhat naïve. It is an oversimplification to conclude, as Macron does, that Russia could not be an independent center of power in the long-term due to its excessive military spending and the growing number of conflicts in which Moscow would have to become involved. In reality, Russia has a very diverse range of opportunities: It avoids excessive obligations and, since 2016, its military spending in real terms has fallen to the acceptable level of less than 3% of gross domestic product.
It is apparently difficult for Macron to imagine that Russia’s ruling elite see rapprochement with Europe as a greater threat to their ability to retain power than an unspoken and unequal alliance with China. Macron sees Moscow’s current anti-European, conservative discourse as a necessary reaction without understanding its usefulness for the ruling elite. Emphasizing Russia’s European character enables Macron to semantically avoid the taint of colonial discourse characteristic of other Western leaders, but it gives him no influence over Russian politics.
Russia would in theory benefit from playing along with Macron and working with him to squeeze the US out of Europe, strengthening Europe as a center of power independent of the US, and strengthening Europe’s military and technological sovereignty from the US and China.
Three things stand in the way, however. First, the Kremlin is skeptical of Macron himself, whom it views as a political lightweight who cannot back up his eloquent words with actions. Second, Russia believes it stands to gain more from the EU’s further weakening or even disintegration (which eliminates a strategic threat) than from the stronger EU sought by Macron. And third, there is a new consideration: China. Macron and others would present any rapprochement between Russia and Europe as Moscow’s cunning ruse to withdraw from its alliance with Beijing. That could put Russia in an uncomfortable position with its strategic neighbor.
Moscow will also exercise restraint in its dealings with Macron in the knowledge that his ideas will most likely find no support from other European allies, primarily Germany and the East European countries, despite Macron’s claims that he is working with [Hungarian Prime Minister] Viktor Orban. German Chancellor Angela Merkel has already stated that she does not agree with Macron’s broad generalizations about the brain death of NATO.
Of course, Macron is ours, but is that enough for Russia’s policies to triumph in Europe?
Author: Aisel Gereikhanova
SERVE, DON’T RULE
By Aisel Gereikhanova. Rossiiskaya gazeta, Nov. 25, 2019, p. 1. Condensed text:
. . . United Russia delegates convened in Moscow on Saturday [Nov. 23] for the party’s 19th congress. Decision-makers who are shaping our country’s future gathered at the VDNKh [Exhibition of Economic Achievements]. There were about 2,000 participants, including the speakers of the upper and lower chambers of parliament, government ministers, governors, State Duma deputies and Federation Council senators, as well as heads of the party’s local branches. President Vladimir Putin and Prime Minister Dmitry Medvedev, the party’s leader, headlined the event. In their speeches, they outlined new ideas and guidelines for the party.
“Being a ruling party is not about ruling. It’s about serving. It means the party should serve the people of Russia,” Vladimir Putin told the audience. “To serve in this way is to secure the future of our people, our children, those already born and those who are yet to be born in Russian families,” the president added.
The president said that engaging in a direct dialogue with the people should be the party’s priority. “You should identify problems and address them proactively. Don’t wait for the next Direct Line [i.e., the Russian president’s annual call-in show – Trans.]. See if you can resolve the issue on your own,” Putin told party activists. The president said the party should be aware of all the local problems: the decrepit condition of local hospitals, the shortage of schools, forcing children to attend classes in multiple shifts – “sometimes, like, five shifts a day.” “If local officials are not aware of the problem, keep pestering them, tormenting them until they deal with it,” the president said.
According to Putin, the fact that United Russia is a ruling party does not mean that it is associated with every government official. “The party is a powerful nationwide political movement. It doesn’t have to agree with every action and every opinion of every government official, no matter how high their position is, even if they claim to be a member of the party and use every opportunity to emphasize how close they are to the party,” Putin said.
The most important thing for the party is to be close to the people, to know the ins and outs of what people want, what they need and what problems they are encountering – and respond immediately, helping, explaining and protecting, the president said. “That is the only way you can maintain your leading position,” Putin told United Russia members.
After the plenary session, an RG reporter approached several delegates, asking them what they personally saw as the central message in the president’s speech. “To pester and torment officials,” nearly all of them responded.
The president reminded the audience that their common goal was to achieve a breakthrough in Russia’s development. He asked United Russia to focus on achieving tangible results on all the national projects, “so people become aware of positive changes in their lives.” “Results that benefit people, not just words or empty promises without any substance – this should be the party’s main argument in upcoming campaigns at all levels, from local elections to the State Duma vote,” Vladimir Putin said.
The upcoming elections will be extremely important, because they must ensure continuity in Russia’s development. That is why “the party’s number one objective and the focus of all of its activities” should be to rally the nation around Russia’s long-term development strategy, the president emphasized. He said people are expecting the party to work in an engaged and creative manner. “If there are any shortcomings, don’t let anybody paper them over or sweep them under the rug,” Putin asked the audience.
In order to keep up with the rapid changes, the party should also change from within, he said.
People of high moral caliber should be the face of United Russia, not someone who would easily betray their country, Putin said. “The loudmouths and opportunists who jumped on the ruling party’s bandwagon will betray the party and the country as soon as the situation changes, and we have seen this many times in our history, including in recent years,” the president said. The party, Putin said, should demonstrate that it provides effective social mobility for the people who genuinely want to serve their country.
United Russia never shirks responsibility when it comes to making tough decisions that the country needs, the president reminded the audience. Such decisions won’t make you popular in the short term. They won’t help you win the election. Yet in the long run they are absolutely necessary “for the country, for its security, for stability, for people’s lives,” Putin said.
United Russia leader Prime Minister Dmitry Medvedev outlined specific goals for the party in his speech. He asked party members to thoroughly prepare for the 2021 Duma elections.
“We are entering a truly important period. In 2020, we’ll have the single day of voting, and this will be the last large-scale campaign before the Duma elections. Our goal, as always, is to win these elections. It must be a fair, sweeping and absolute victory,” Medvedev said in his speech.
“We should spend the next year preparing for the Duma campaign, so United Russia enters the election season in peak form,” Medvedev said. This means the party should critically review its past experience and open up to new ideas, new faces and new methods. The party “should be practically invulnerable to political opponents” and at the same time open to any person in need of support.
United Russia must learn to respond to aggressive and often dirty attacks by opponents. “We don’t use dirty methods ourselves, but this doesn’t mean that we should let others use them against us. We should know how to respond, how to fight back,” Medvedev emphasized.
The party’s platform should be updated in line with recommendations from voters. “Essentially, voters should become coauthors of our new platform. It should be a people’s platform,” the United Russia leader said. Medvedev said he himself will head the commission tasked with preparing the party’s new platform.
United Russia’s ultimate goal, Medvedev said, remains largely the same – namely, to improve the welfare of the Russian people. One of the key objectives is to boost incomes.
Also, Medvedev sharply criticized United Russia members running as independents. He said if someone is ashamed of being associated with United Russia, they should leave the party. “I think that United Russia candidates should be proud of being party members,” Medvedev said. Otherwise, they should “make room for those who believe in the party.”
The party leader warned party members that those who violate ethical norms will face tough punishment. “They may even be expelled from the party,” he said. “If someone is mistreated by a United Russia member who does something unethical, unfair or disrespectful, which occasionally happens, unfortunately, they can file a complaint with our ethics commission. They can do it in person or remotely,” Medvedev said.
At the congress, United Russia made some personnel changes and restructured some of its leading bodies.
For example, the party’s general council established six working groups to work on specific tasks: personnel policy, national projects, civil society, youth initiatives and facilitating interaction with the party. The party will also set up a human rights center to protect people’s interests and rights. “We shouldn’t stay away from these issues because opposition parties often hijack this agenda. We should get on it,” Medvedev said.
Also, the congress overhauled the party’s two leadership bodies: the supreme council and the general council. More than a third of the general council are new members. General council secretary Andrei Turchak got two new deputies: Duma Deputy Aleksandr Khinshtein and Leningrad Province Deputy Governor Sergei Perminov.
It was also announced at the congress that the party’s central executive committee will function as a planning office, and when the campaign kicks off, it will be converted into campaign headquarters. Andrei Turchak will personally oversee this work.
Dealing with problems, shortcomings and mistakes of the executive branch may be one of the most effective and promising kinds of work in United Russia for the next few years, says Konstantin Kostin, head of the Civil Society Development Foundation.
“This means the party should change its communications model. It should become aware of problems before the media or any local groups find out about them. It should demand that problems be resolved immediately,” the expert said. According to Kostin, United Russia should not defend all government decisions. “After all, the executive branch does its thing, whereas United Russia members are political representatives of the people. It is the political wing of Putin’s majority,” he explained.
Author: Yulia Starostina, Ivan Tkachov, Olga Ageyeva
A NEW SUBCOMMISSION TO FOSTER ECONOMIC GROWTH. (By Yulia Starostina, Ivan Tkachov and Olga Ageyeva. RBC Daily, Nov. 20, 2019, pp. 2, 3. Complete text:)
Structural reforms “critically necessary” to make Russia’s economy grow faster than the global average – at least 3% a year starting in 2021 – have been designed by the Economic Development Ministry (EDM) and approved by the cabinet. The government commission for economic development will oversee their implementation. In addition, the ministry has proposed forming a new entity to provide hands-on control on a day-to-day basis. The proposal was presented in a letter from Economic Development Minister Maksim Oreshkin to First Deputy Prime Minister and Finance Minister Anton Siluanov, who is the head of the economic development commission. RBC has obtained a copy of the letter; its authenticity has been verified by a federal government official.
Oreshkin proposes to set up a subcommission for economic growth and structural reforms. Oreshkin is expected to chair the subcommission, the federal government official told RBC. (The press office of the EDM has declined to comment on the matter.) The subcommission will monitor the implementation of structural reforms (including disagreements within the government on this issue), formulate proposals on further measures and review the situation in the economy.
Main vectors of structural reforms.
Maksim Oreshkin proposed to hold the first meeting of the subcommission in mid-December and then to meet on a monthly basis. At the first meeting, the minister wants to approve key areas of structural reforms.
The subcommission’s activities, as planned by the EDM (RBC has obtained a copy of the plan), can be divided into six areas:
• improving the investment climate and stimulating investment
• enhancing the efficiency of the labor market
• promoting competition
• fostering technological progress and innovation
• developing the financial sector (including programs for retirement savings accounts, the mortgage market, etc.)
• expanding the market for Russian goods and services
According to the EDM, the subcommission should focus on “coordinating the government policy for managing aggregate demand.” Earlier, Oreshkin complained that final demand was weak, and that the economy would be at least 1 trillion rubles short in aggregate demand in 2019. Managing aggregate demand would require coordination between the government’s economic policy and the Russian Central Bank’s monetary policy, the federal government official explained. When discussing the role of the Central Bank, Oreshkin said that essentially its only goal should be to keep aggregate demand at a level that corresponds to the targeted inflation rate of 4%.
The EDM expects the economy to adopt the “investment-driven growth model,” the plan says. In order to increase the share of investment in gross domestic product to 25% (currently, it is approximately 21%), the ministry wants to improve the investment climate, thus incentivizing the private sector to invest in new projects. It also wants to increase the household savings rate and make government spending more investment-oriented, both at the federal and regional levels. Savings should be converted to long-term investments. Currently, according to the Central Bank, the savings rate in Russia is about 9%. It has somewhat increased since the beginning of this year but remains lower than the average levels for 2015-2017.
For example, the EDM plans to offer financial support to regions that offer tax incentives to investors. Oreshkin explained earlier that regional authorities are often reluctant to offer benefits to companies investing in fixed assets because such investments are deducted from the corporate tax these companies pay to the regional budget, and governors hate to lose such a steady source of revenue. This is why the federal government should compensate for such losses. According to Deloitte, as of Nov. 12, 27 provinces had decided to offer investment deductions, but in reality such benefits were only provided in a handful of cases.
The share of investment spending should increase to 6% of general spending for the federal budget and 15% for regional budgets. Investment spending includes both construction costs and government subsidies for construction projects. In 2019, these made up about 4.5% of federal spending (approximately 850 billion rubles).
Both mechanisms – providing federal subsidies to regions that offer incentives to investors, and increasing the share of investment spending – should be ready by early December.
Increased investment alone is not enough to accelerate growth, says Valery Mironov, deputy director of the Development Center at the Higher School of Economics. Companies have amassed a lot of money on their balance sheets. In 2018, the net profit of Russian companies grew by 46.6%, while investments in fixed capital grew by a mere 4.3%. The main reason companies are reluctant to invest their reserves is low domestic demand, uncertain economic situation and high taxes, polls by Rosstat [Federal Statistics Service] indicate. In processing industries, factories are operating at 65% of their full capacity on average. “It doesn’t make sense to invest more money, purchase new equipment and launch new production lines when the old ones are not being used to full capacity,” Mironov says. The expert believes that in addition to the proposed measures, it is necessary to stimulate demand by reducing the interest rate – carefully yet consistently. At the same time, the government should be more active (and even more careful) in investing the reserves it has accumulated in the National Welfare Fund.
Russia’s workforce continues to shrink. In the third quarter, it dropped to 75.6 million people, which is a million less than last year. This is due to demographic challenges: The birth rate is falling, mortality is rising and the population keeps getting older.
Given this labor shortage, the EDM proposes to further reduce unemployment (the target is 3.6% by 2024), primarily by fighting structural unemployment in 20 regions with the lowest employment rates. This can be done by offering “social contracts” to people, supporting up-and-coming entrepreneurs and providing job retraining opportunities.
The ministry plans to increase the number of skilled professionals by facilitating the process of obtaining Russian citizenship for international students graduating from Russian schools. By next spring, the Finance Ministry and the Labor Ministry will prepare a bill reducing the income tax for nonresident aliens from 30% to 13%.
According to the ministry, another opportunity for stimulating the economy is to engage women with preschool-age children. The plan is to raise the percentage of working mothers in this category from 66.5% in 2019 to 68.5% in 2024. To achieve this goal, the government plans to offer women on maternity or child care leave (for children up to three years old) the opportunity to retrain or enroll in continuing education; in the regions, [plans call for] expanding availability of day care.
Yet experts believe that it is not enough to simply further reduce unemployment: The unemployment rate is at an all-time low. In order to truly improve productivity and welfare, the government should increase the employment rate for high-productivity jobs, says Vladimir Gimpelson, director of the Center for Labor Studies. The EDM’s plans do not explain how companies will create new jobs and get rid of obsolete ones, given Russia’s dysfunctional institutions, economic uncertainty, investment risks and falling consumer demand. “You can do all these things, but they are unlikely to change the situation on the labor market significantly. Given the current employment rate, it would be virtually impossible to increase employment for high-productivity jobs,” the expert warns.
Reducing state presence in the economy.
The plan also calls for reducing the government’s share in the economy. As estimated by the Center for Strategic Planning and the Russian President’s Academy of National Economy and Public Administration (RANEPA), the share of the government sector in Russia’s GDP reached 47% in 2019. The ministry proposed reducing this indicator by one percent annually, bringing it down to 42% by 2024. This goal does not look very ambitious, but considering how the government sector has grown in recent years, even reversing this trend would be a success.
Government institutions should be banned from directly or indirectly buying stock in companies operating in competitive markets, said Aleksei Vedev, head of the structural research laboratory at RANEPA. “We are witnessing a dangerous trend where government corporations buy majority stakes in successful private businesses,” he said. Another extremely difficult question is how to interest investors in the privatization of government companies. “Instead of selling large stakes, the government should sell smaller parcels on the exchange, so minority shareholders, those with savings and ideally even direct foreign investors could all be part of this process,” Vedev says.
By early 2020, Russia should adopt a law banning state-owned companies from operating in competitive sectors; and by 2021 – a law that would allow the Central Bank to sell stock in banks that have been restored to fiscal health. According to the plan, [stock could be sold] by various means, such as a bidding process with additional requirements for investors, a direct sale to one investor, or a public offering on the stock exchange.
Author: Pavel Panov and Roza Almakunova
By Pavel Panov and Roza Almakunova. Izvestia, Dec. 6, 2019, p. 2. Condensed text:
The Russian economy is stable, while real incomes are going to grow by 0.2%-0.3% by the end of 2019, the Russian prime minister stated in his traditional year-end press conference dedicated to the government’s work over the past year. . . .
The interview lasted two hours. During that time, [Medvedev] managed to answer questions not only about the Russian economy, but also about the situation with health care, garbage reform, Russian sports and Russian citizens’ every-day problems. He also touched on the usual topics – Ukraine and relations with the West.
Most of the questions the prime minister fielded concerned the current and future state of the Russian economy. [He] discussed infrastructure projects, unemployment, boosting Russians’ real incomes and the effect of sanctions on foreign trade. According to Dmitry Medvedev, overall, the outgoing year proved fairly stable for the Russian economy. Gross domestic product is expected to grow at 1.3%-1.5% [annually]. There is growth, albeit insignificant, the prime minister said. Dmitry Medvedev called the inflation rate for 2019 the lowest in the country’s history – 3.8%. He also called the unemployment situation favorable; this year, [the unemployment rate] was at 4.6%-4.7%. By comparison, the prime minister cited other leading countries, where the average unemployment rate is 8%-10% – “that’s millions of people,” he stressed. The government will continue its efforts to boost real disposable incomes and Russians’ overall prosperity, he assured everyone.
Dmitry Medvedev admitted that in some cases, implementing the national projects and achieving national goals was off to a slower start than expected. In 2020, it is necessary to take past mistakes into account and ensure sustainable economic growth, he said.
“According to a well-known decree of the president [the so-called May decrees; see Vol. 70, No. 18‑19, pp. 3‑6 – Trans.] and the national [development] goals, we need to grow at the rate of the global economy, which is about 3% a year. That is quite achievable,” the prime minister said.
According to [Medvedev], the budget surplus, which this year will constitute 1.8% of GDP, creates a solid rainy day fund and allows for optimism about the future.
He stated that in the next few years, about 1 trillion rubles from the National Welfare Fund will be earmarked for economic development; [he added] that the decision to “break open the piggy bank” was not an easy one. Those funds will go toward investment projects, but they must be used proportionally: 20% [of funds] will come from the state and 80% from investments. Dmitry Medvedev also touched on the need to implement administrative and legislative reforms, reduce barriers to businesses and improve the business climate in Russia.
According to Andrei Margolin, deputy dean of the Russian President’s Academy of National Economy and Public Administration, in light of the [anti-Russian] sanctions that are not going anywhere in the foreseeable future, Russia needs to rely on domestic resources. The country has plenty of resources to ensure steady economic growth, he believes.
The indicators listed by the prime minister are real figures that are the result of the current situation in the country and the world, Andrei Margolin added. People are more concerned about economic development in the coming year and how effective the current measures to boost GDP turn out to be, the expert concluded.
Using National Welfare Fund assets to stimulate the economy is generally the right approach, believes Andrei Polbin, an expert with the Gaidar Institute for Economic Policy. He stressed that economic reforms must be carried out in the leading industries – namely, in information technology and infrastructure, but not in raw materials sector.
[The prime minister] also discussed the high-profile domestic violence bill, which is currently being actively discussed at all levels [see the article under Human Rights, below]. Under the current version of the document, the assailant may be prohibited from contacting the victim for more than 30 days, as well as forced from the home that they shared with the victim. However, opinions on the bill’s contents were divided, and it will be sent back for revision. REN TV asked the prime minister what changes need to be made to the current bill and whether its adoption makes sense.
“I will be honest with you: I don’t yet have a conclusive position on this bill,” said Dmitry Medvedev. “But I think that in the 21st century, the saying ‘If he beats you, he loves you’ no longer cuts it.” . . .
In just a few days, the World Antidoping Agency’s executive committee will meet in Lausanne, where it will decide not only the fate of Russian Olympic athletes but of teams at various levels. This concerns an investigation by WADA experts into data manipulation at a Moscow [antidoping] laboratory [see Vol. 71, No. 48, pp. 14‑15, and p. 15]. A recommendation has been issued to bar Russia from all world sports events for four years. In addition, Russia may be barred from applying to host international competitions during that time.
Despite the difficult situation, Dmitry Medvedev assured everyone that regardless of what the WADA executive committee decides, Russian sports officials will fight for clean athletes’ right to participate in key international competitions. . . .
Dmitry Medvedev was also asked about the summer protests in Moscow. The last protest took place on Aug. 31. According to official estimates, it drew 750 people.
You cannot solve problems through protests, the prime minister believes. He said that right now, all the [criminal] cases against the participants of the Moscow protests need to be thoroughly investigated.
“This is not arbitrary justice, it’s very specific,” Dmitry Medvedev stressed.
In his opinion, actions like those taken by the “yellow vests” in France never result in anything good, only in the “merciless and senseless,” which is what riots have always been like in Russia, according to [Aleksandr Pushkin, author of “The Captain’s Daughter,” which Medvedev quoted – Trans.].
The prime minister was also asked about the future of the Russian Internet, relations with Ukraine and integration with Belarus. YouTube will not be blocked in Russia, the head of government promised. As for the law on the sovereign Internet [see Vol. 71, No. 15, p. 11], according to Medvedev, its goal is not to prohibit something but to ensure that Russia is not cut off from the Web.
Dmitry Medvedev assured everyone that integration with Belarus is proceeding according to plan. As for Minsk’s concern about its sovereignty, [such concerns] are groundless, because any integration implies surrendering part of a state’s sovereignty to a surpanational body.
According to the prime minister, when it comes to Ukraine, “the story is much more sad and complicated.” However, current Ukrainian leader Vladimir Zelensky clearly “wants to reach an agreement on key development issues for his country.” Here, everything depends on whether he has enough strength and political courage. . . .