Vladimir Putin was officially sworn into office as Russia’s President for the third time on May 7, 2012. Putin aims to maintain the support that he received from poorer and more rural parts of the country with a majority population of state employees and the elderly, while reducing opposition in Moscow. The new President faces the necessity of fulfilling his campaign promises to lift government spending by billions of dollars a year. According to Putin, increased social spending is needed to raise the quality of life via improvements in education, healthcare, defense, and other crucial areas of the national economy. Putin has also emphasized the stability and well-being of Russian citizens as a major priority of the new government.
The new President plans not only to raise wages for doctors and teachers, but also to expand bonus payments to mothers to encourage raising a third child. Expanding baby benefits will account for around $4.6 billion a year. At the last budgetary planning meeting for 2013-2015 in April, Putin also mentioned allocating 14.7 billion rubles ($484 million) for salary increases for the employees of the Interior Ministry, Armed Forces personnel and the Federal Fire Service. An additional 2.5 billion rubles will go to fund research and scientific projects. At the last Cabinet meeting in April Putin announced that government spending increases would be limited up to 1.5% of GDP per year only. Indeed, calculations by Sberbank confirmed that implementation of the new President’s ideas would require increasing funding by 1.2% of annual GDP, and would equal 1.3 trillion rubles ($51 billion) by the end of 2018.
This September, Russia will play host for the Asia-Pacific Economic Cooperation (APEC) Summit for the first time. At the venue, which will be staged on Russky Island near Vladivostok, 85% of preparation work has been completed and inspected. In the run-up to the September meetings, discussions have already been launched. On January 30, the First APEC Senior Officials’ Meeting began and will run through February 19 in Moscow. Russia’s Deputy Foreign Minister Igor Morgulov.is chairing the first in a series of meetings.
President Medvedev has outlined Russia’s agenda for the APEC Sumitt in his article “Integrate to grow, Innovate to Prosper.” While the major outcomes of APEC 2011 Leaders Declaration were strengthening of regional economy, promoting effective market-driven innovation policy, enhancing enterprises participation in global production chains, trade and investment in environmental goods and services, this year Russia decided to go even further and add focus on food security, reliable supply chains through transport infrastructure investment, fighting terrorism, and military-political stability. According to U.S. Secretary Timothy Geithner, Russia’s agenda for the September summit has gained the support of the US side. China, Thailand, and Indonesia, which will take over APEC rotating chair in 2013, are also largely supportive of Russia’s programs.
After multiple rounds of talks and continuous resistance with Russia, Ukraine’s Prime Minister Mykola Azarov officially admitted on January 20 at a press conference in Kyiv that he did not exclude the possibility to join the Customs Union. However, the Chairman of the National Security Committee of the Verkhovna Rada, Anatoly Hrytsenko, admitted that neither the opposition nor most civilians approve of joining the Customs Union. According to Hrytsenko, Ukraine would go too far by joining the Customs Union and allow Russia into its most strategic and vulnerable economic sectors, such as energy.
Accession to the Customs Union has not been on the agenda of Ukraine until recently, when Russia refused to limit its gas imports. Although President Medvedev has clearly claimed that Ukraine will not join the Customs Union in a special 3+1 format, Azarov is not ruling out the possibility of joining while figuring out the pros and cons first. President Yanukovych also replied that Ukraine would prefer to see how the union works in practice, and how relations would be structured within the customs bloc when its members join the World Trade Organization. Kazakhstan is planning on the accession to the WTO in 2013.
Although Russia is not imposing any deadlines, it has extended lower gas prices for Kazakhstan and Belarus in a move to convince Ukraine to make commitments and join the Customs Union. While selling a stake in the Ukrainian pipeline network to Russia could be a condition for lowering prices, Ukraine’s national interests would be highly jeopardised. Looking for alternative strategies might be seen as a way around this offer. For example, Norway has already offered Ukraine its own gas, but Norway could not guarantee cheap transit. Ukraine has boosted the use of coal at its thermal power plants for heating instead of gas in order to save about 6 billion cubic meters of gas per year. At the same time, Ukrainian gas monopoly Naftohaz has increased imports of gas from Russia while recently struggling to cut it down.
customs union · Gas · Russia · Ukraine
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Nur Otan Wins Kazakhstan’s Parliamentary Elections. What Comes Next?
No comments · Posted by Alena in Uncategorized
Kazakhstan’s leading political party, and the party of President Nazarbayev, Nur Otan, won the parliamentary elections on January 15 with 81% of the vote. Although international observers from the Organization for Security and Cooperation in Europe (OSCE) largely criticized the election for its ‘undemocratic’ nature and a high voter turnout, monitors from the Commonwealth of Independent States (CIS) recognized the victory as fair.
Nur Otan’s political monopoly was broken by the pro-business party Akzhol and the Communist People’s Party of Kazakhstan (KNPK) joining the parliament for the first time. Akzhol polled 7.5% and the KNPK 7.2%. However, with Nur Otan retaining its parliamentary majority, Kazakhstan’s economic priorities and direction are likely to remain the same.
Despite a small number of demonstrations that urged a boycott of the elections, the party is still viewed by many as the best guarantor of political and economic stability, something that has set Kazakhstan apart from its neighbors.
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Russian Commentators Weigh in on New U.S. Ambassador
2 Comments · Posted by Eric in Uncategorized
While U.S.-Russia relations strain amidst continuing elections protests in Moscow, St. Petersburg, and other cities, the State Department swore in Michael McFaul as the new U.S. Ambassador to the Russian Federation. McFaul replaces John Beyrle as the first non-career diplomat to become Ambassador to Moscow in three decades.
McFaul is known as an outspoken yet diplomatic critic of Russia’s authoritarianism and specialist on democracy and Russian elections. Under the Obama Administration, he was the Special Assistant to the President and Senior Director of Russian and Eurasian Affairs on the National Security Council, and he has become best known in the recent past as the architect of the U.S.-Russia “Reset” strategy.
McFaul’s swearing in came in mid-December after Senator Mark Kirk (R-IL) lifted his hold on the process. Kirk initially blocked McFaul’s nomination over concern that, with McFaul as Ambassador, the White House might share missile defense information with Russia without congressional approval. Kirk lifted his hold, however, after receiving a letter of reassurance from the administration and after new language was added to the defense authorization bill, requiring the administration to inform congress of its plans to share sensitive information with Russia 60 days in advance.
Ambassador · elections · McFaul · reset · Russia
Shop till you drop.
As the Internet becomes accessible to more Russians (see recent blog post), barriers for e-commerce —from convincing potential customers of the validity of online purchases to ensuring their delivery of these purchases—are diminishing.
e-commerce · internet · Russia · technology
The December 4, 2011, Russian Duma elections demonstrated that the Internet is playing an increasingly important role in Russia. According to media reports, protests that spread after the elections were led by Russia’s youth, who had organized themselves on the Internet. The protesters had spread their messages through video-sharing and microblogging sites such as YouTube and Twitter and social media networks like Facebook. The Internet during the past several months has also shown its potential to propel previously little-known individuals into positions of prominence; there was a sudden leap in the number of mentions of prominent anti-corruption blogger Aleksey Navalny in the Russian news media as his online movement spilled out onto Russia’s streets.
While events such as Moldova’s Twitter “revolution” and the Arab Spring have led pundits to ask if the Internet in many developing nations is truly free or only nominally so, key members of Russia’s government have maintained for over a decade that the Russian Internet is indeed free. According to CNN, in 1999, four days before becoming president, then-Prime Minister Vladimir Putin held a conference with Russia’s leading Internet entrepreneurs and promised to allow Internet freedom and to not resort to “Chinese or Vietnamese models” of censorship. Putin has largely stuck to this belief, and in his annual televised call-in show on December 16, 2011 he reiterated that “restriction of online freedoms is technologically complicated, politically wrong, and is not needed in Russia.” Security Council Secretary Nikolai Patrushev, who headed the Federal Security Service (FSB) during Putin’s first two presidential terms, seconded this sentiment in a recent interview, noting that, “attempts to stop people from communicating are in principle counterproductive and even amoral.”
Left to be relatively free and expand on its own, the Internet in Russia is now increasing in penetration more quickly in Russia than in any country in Europe, and social media usage is growing faster in Russia than in any other country in the world. Internet penetration is currently around 42 percent (59.7 million users), and while this may not seem like much now, it marks a sixfold increase over 2002, and the number is expected to double in the next few years. On top of that, the whole of the Russian Internet (RuNET) itself is expanding, having added over 84,000 domain names in the last month alone and currently totaling approximately 4.5 million across the .ru and .рф domains.
With the December 8 Working Party recommendation of Russia’s admission to the World Trade Organization (WTO) and the WTO Ministerial Conference’s approval on December 16, there is finally a light at the end of this seventeen-year long tunnel. Russia’s WTO accession process has progressed rapidly in the past few months. The EU and Russia announced on October 21 that they had settled all outstanding bilateral differences hindering accession.
October 24 saw Russia’s last-minute acceptance of the Information Technology Agreement (ITA) in which the country agreed to eliminate tariffs on high-tech goods covered by the ITA. This was a relief to many U.S. high-tech companies who were concerned that import tariffs would not be eliminated. In addition, on November 8, the U.S. Trade Representative (USTR) finalized a substantive agreement with Russia regarding sanitary and phytosanitary standards. Russia and Georgia signed an agreement on November 10 for a third party to monitor trade through the disputed Abkhazia and South Ossetia regions, jumping a final and rather high hurdle to accession. Finally, on November 11, the Working Party approved the Working Party report in Geneva, as well as the goods and services schedules. The accession package was then referred to the Ministerial for final approval.
Now that Russia has been formally invited to join the WTO, it has six months to complete its domestic ratification procedures, which in Russia’s case will take the form of a Duma vote, and officially notify the Geneva Secretariat of its acceptance.
Intellectual Property · Jackson-Vanik · Russia · U.S.-Russia · WTO
Earlier this year, the Ministry of Economic Development predicted there would be no capital flight in 2011. By August, the ministry revised this to $40 billion and by November, it rose to $70 billion. The latest announcements suggest that capital flight for October amounted to $13 billion, bringing the year-to-date total to $62.3 billion with the Finance Ministry admitting that the government is “ready for the situation to worsen.” Deputy Minister Andrei Klepach believes net capital outflow is expected to continue in 2012.
Despite the increase in capital outflows these numbers show, there is a lack of consensus on the causes of capital flight and on the extent to which it is occurring. On October 26, Prime Minister Vladimir Putin announced that capital inflow would reach $100 billion this year, but actual figures suggest Putin’s figure is inflated at least sixfold. Putin’s number includes the funds entering Russia through foreign direct investment, which, as independent economists note, include “participation in share capital, reinvested income and other investments” (such as repaying loans). Thus the percentage of this that can be considered actual new investment is much lower than $100 billion. President Dmitry Medvedev voiced similarly optimistic opinions in a November 19 announcement that the country is becoming increasingly attractive to foreign investors and that more government spending is needed to speed up this process via “promotion of Russia’s economic successes.”
While the President and Prime Minister remain optimistic, the majority of observers concur that capital flight is occurring on a large scale, yet they fail to agree on its causes. Vladimir Tikhonov, chief economist at Otkritie Capital blames general global volatility for investors leaving the domestic stock market as investors search for safe havens. Russia’s low deposit rates and a weak ruble have not made it an attractive enough location for their assets. Tikhonov notes this is true for domestic exporters as well, as they increasingly deposit their currency gains abroad. While Putin demanded an end to this practice in his recent presidential nomination acceptance speech, it is unclear what measures will be put in place to disincentive storing capital abroad.
capital outflow · foreign investment · reform · Russia · WTO
In a much anticipated move, Kazakhstan has called for an election to remake the lower house of Parliament – The Majilis. This has been expected since last April’s presidential election when Nursultan Nazarbayev was re-elected with an overwhelming majority of votes. The Kazakhstan constitution stipulates that parliamentary elections cannot be conducted the same year as a presidential election. So, January is the first possible opportunity for this parliamentary election.
Publicly, the government cites the need to seat a new parliament ahead of a potential second financial crisis that many expect. A more provocative reason relates to the eminent Russian Federation parliamentary elections. Many expect the Russian election to result in some degree of success by “opposition” parties. In holding its parliamentary elections as quickly as possible, Kazakhstan is seeking to limit the potential spill over from the Russian elections.
