Russia needs to embrace a new growth model, complemented by more diversification, higher investment, and a more efficient use of resources, to raise its growth potential, says the IMF in its regular assessment of the Russian economy.
Russia faces a growth challenge. The years preceding the global financial crisis saw rapid increases in per capita income, declines in unemployment, strengthened fiscal and external buffers, and considerable improvements in institutional frameworks. However, after a swift post-crisis rebound, growth has begun to slow and medium-term prospects are increasingly dampened—the previous model of high growth on the back of rising oil prices and utilization of spare capacity cannot be replicated.
These considerations provided the backdrop to the IMF’s latest annual review of the Russian economy, also known as the Article IV report. “Achieving higher sustainable growth is clearly possible,” says Antonio Spilimbergo, the IMF’s mission chief for Russia, “but that would require a new growth model, relying on a more diversified economic structure, strengthened institutions, and structural reforms.”
Growth slowdown
The IMF economists project growth in Russia to slow to 1½ percent in 2013—down from 3½ percent seen last year, and even higher rates earlier. Weak investment, industrial production, and external demand account for much of the observed slowdown.
A pickup to 3 percent is expected in 2014, with growth remaining in that range over the medium term in the staff baseline scenario.
Despite this slowdown, however, there appears to be little slack in the economy: inflation—though declining—is projected to remain above the central bank target; unemployment remains close to historic lows; and available measures indicate high utilization of existing capacity.
Fiscal rule
In this environment, policy stimulus may not pay much dividend. “Expansionary monetary and fiscal policies can certainly provide some temporary support,” said Spilimbergo, “but this may come at the expense of generating policy uncertainty and may not provide a long-lasting boost.”
Fiscal stimulus measures may jeopardize the credibility of the new fiscal rule that links expenditure to oil revenues. In fact, IMF economists advise that the rule should be strengthened to save more of the exhaustible oil income and rebuild the fiscal buffers that served Russia well in the last crisis.
Monetary policy has been appropriately focused on securing low and stable inflation, said the IMF economists. Welcome moves toward putting in place a rigorous inflation-targeting framework and allowing increased exchange rate flexibility should continue, given their roles in providing firm anchors for inflation expectations and absorbing external shocks, respectively, reducing uncertainty and volatility.
Boost growth
The IMF report notes that the Russian authorities broadly agree with the structural agenda set out to restart Russia’s growth engine over the medium term; an ambitious set of reforms could deliver this desired outcome.
Going forward, the Russian economy will have to rely on a more efficient use of resources and higher investment, rather than increasing oil prices. This calls for measures to boost productivity and improve the investment climate, governance, and transparency.
The financial sector remains a lynchpin of the growth agenda, intermediating available resources to productive ends. In their report, the IMF economists recommend that in order to level the playing field and encourage competition, the role of the state in dominant banks should be reduced. Further, improvements in corporate governance and consolidation of the fragmented banking system would encourage a more efficient allocation of investment capital that could provide the needed boost to the Russian economy.
Tax changes
The obvious comparative advantage that Russia has in the energy sector should be exploited. Changes in the tax regime—as well as improvements in property rights protection and access to distribution infrastructure—would help attract foreign technical expertise and nimble domestic players, underpinning Russia’s natural source of growth.
The report also notes the importance of further improving the efficiency of public expenditure. Stronger implementation of the government’s privatization agenda and pension reform can support better public finances and catalyze growth by facilitating better labor force participation and private sector involvement.
More generally, implementation of commitments already made in Russia’s WTO accession, as well as items being discussed for joining the Organization for Economic Cooperation and Development, provide important means for advancing this structural agenda to unleash Russia’s growth potential.
New opportunities
The current economic environment not only poses a challenge to policymakers, but also provides a timely opportunity for reform. Improvements in the macroeconomic policy framework in recent years placed Russia in a strong position in a global environment buffeted by crises. A focused reform agenda would further strengthen this armor, while delivering higher growth—and better living standards for its population—for years to come.
Most Russians are not happy with the present political system. Russia is Putin’s lollipop, but Putin demands more than a lollipop, no matter how big his lollipop is. Putin’s lollipop is the largest country on Earth. Putin’s dream is a free trade zone from Lisbon to Vladivostok without internal borders. No more tariffs! No more visas!
Many faux pas have ridiculed Putin, such as horse-riding bare-chested, judo championing, shooting a tiger with a tranquilizer, flying in a light aircraft alongside migrating cranes, confusing pussy riot with pus riot, and mistaking the white ribbons worn by protesters for condoms. Putin's spin doctors are clearly failing as they present him as a czar without any substance. He seriously needs rebranding. Russians like to joke, and the jokes about Putin have become nasty.
Putinland does not agree with Occident on many issues, because Putinlandian intelligence has proof that most of the revolts are incited by Occident. It does not make any sense that Occident incites the fire and then screams to stop the fire!
Welcome to Putinland, where the president and premier swap jobs at will, where the constitution is an empty shell and all power rests with Vladimir Putin. The deal between Putin and Medvedev is a farce that will eventually transform Putinland to Putanaland! The proud Russian nation is now a czardom. Russian democracy is gone with the wind.
The intransigence of Vladimir Putin, who is showing no sign of ceding to protesters’ demands, might be just the impetus Putinland’s civil society needs to spur it into existence. The organizers of Putinland’s protests have gone to great lengths to avoid violence. Anticorruption bloggers appeal to Putinland’s liberal intelligentsia and might be able to channel rising nationalism in a constructive direction.
The electoral game Putin is playing is castling in chess – a saint and a czar swapping places, in order to shore up the defense. There might be defense at the heart of the strategy, but Putin's ruling party, United Putinland, is still the only game in Moscow. Vladimir Putin is the most powerful man in the world. His success is all the more venerable when one considers that Putin is leader of a country of nearly 150 million people and at the helm of the one of the world's
most important economies.
Putin has become increasingly authoritarian. Despite numerous commitments under international law, the government has tightened controls on political life, civil society, and the media. Disruption of political opposition's activities, restricting access to state-controlled TV, human right violations, such as the beating of demonstrators who support the Russian constitution, murder of journalists and anti-corruption activists, disappearance and torture, abuse of the legal system for monetary and political gain, all illustrate this negative trend.
Moscow's Kremlin, a fortress of red walls and high battlements, has been a symbol of strict hierarchy and absolute power since the Middle Ages. Czars and General Secretaries ruled from here - followed, after the collapse of the Soviet Union, by presidents whom the Russian constitution endowed with even greater powers than the American president.
Putin and his men proudly declare that they have returned Putinland to strength. In truth, they have hijacked it. Putinland's constitution is little more than an empty shell that does a poor job of concealing the neofeudal regime of Czar Putin.
Putin is increasingly trying to intimidate ordinary Russians into abandoning protests against him to keep his grip on power. Putin resorts to political repression to try to reassert his authority after two years of protests. Such efforts are destined to fail and Putin is pushing Russia into an era of economic and political stagnation comparable to the rule of late Soviet leader Leonid Brezhnev. Opposition to the current regime is growing and will continue to grow. The risks for the regime are constantly increasing.
A certain tightening of the screws is undoubtedly going on. We see an expansion of old repressive practices, the creation of new ones and the preparation of a legal base in case there is a need to sharply curb civil rights and freedoms.
What is new in Putin's third term as president, is the tactic of trying to scare people into not protesting. There is a clear widening of repressions against protesters who are not the most well-known opposition figures. Most likely the authorities want to scare common citizens, deter them from taking part in protests.
Several opposition leaders face criminal charges over their business activities, for allegedly plotting mass disorder, or for crimes they deny committing. Since Putin's new term began, parliament has also passed a series of laws that are intended to stifle dissent.
The reasons for protests are obvious. The effectiveness of this form of governance is constantly falling, and the costs of it are becoming more and more evident to society. Corruption, the slow pace and poor quality of economic growth, the restricted social mobility for young people, simple tiredness with the same old face in charge - all this is causing clear irritation.
Opposition activists facing charges should choose between admitting guilt, in the hope of more lenient sentencing, and trying to prove their innocence in Russian courts often criticized for political servility. But fighting one's case is a natural and inevitable stage of the protest.
Once a powerful oil tycoon and Russia's wealthiest man, Mikhail Khodorkovsky ran foul of the Kremlin after funding opposition groups and condemning high level corruption. He remains in gulag on politically motivated charges of tax fraud and theft.
Bill Browder's tax attorney Sergei Magnitsky was tortured to death in the notorious Matrosskaya Tishina gulag. Magnitsky died in gulag awaiting trial on fabricated charges of tax evasion and tax fraud. He was gulaged after he accused Russokleptocrats of a sophisticated swindle to obtain a $230 million tax rebate from the Russian treasury. Magnitsky died after he was denied medical care and beaten by the guards. However, those involved have not been punished, but have remained in power, and some have even been decorated or promoted!
The case has turned a spotlight on Putin’s harassment of businesses and investors. Putin has thrown over 200,000 businesspeople in jail. Browder had a Damascene conversion, becoming a human rights crusader in addition to a hedge fund manager. USA and EU impose harsh sanctions against Russia, forbidding those officials responsible for Magnitsky's death from entering Occident, and freezing their bank accounts.
Faced with a simmering, underground opposition, Putin expanded the powers of Putinland’s Federal Security Service (FSB). The security services issue individuals of whom they are suspicious with official warnings, inviting them to precautionary talks with the FSB to prevent the possibility of the citizen committing a criminal act against the country's security in the future. Refusing or failing to attend these precautionary talks lead to a fine of two thousand euros and detention for twenty days.
There is a big difference between the Soviet era and today's Putinland. The Soviet state spread the atmosphere of fear to prevent emergence of politics and people's participation in it. Today, the key for the state authorities is to make sure people are not interested in politics. A person who doesn't care about politics or the situation with human rights in Putinland may live a comfortable life without ever encountering an FSB officer. What suffers the most is democracy in Putinland; the Kremlin is interested in stability, not democracy.
Igor Sechin, a former Soviet military interpreter, is the leader of the siloviki clan of nationalist, exmilitary and security service officers fighting to maintain a big state role in the Putinlandian economy. Sechin is now overseeing Putinland's vast energy and metals sectors, the world's biggest, and oligarchs snap to attention in his presence.
Putinland cultivates ties with terrorist organizations Hamas and Hezbollah and provides military and diplomatic support for rogue states such as Syria, North Korea, and Venezuela. Putinland is in non-compliance with the Chemical Weapons Convention and the Biological Weapons Convention. The Strategic Posture Commission asserts Putinland is no longer in compliance with its Presidential Nuclear Initiatives commitments. Moscow's tactical nuclear weapons arsenal is
four times larger than that of the U.S.
Putin's bear seems now to be a very different animal. The snarling statist bear with a statist head has been replaced by a lovable bear, and while it may not be ready now to roll over and have its belly tickled, Russia will not take a bite out of its rivals. Uncle Sam (US) and Uncle Ken (UK) now like to pet this bear!
In order to modernize Putinland's economy and industry, Putinland needs cooperation partners from abroad, and those modernization partners are to be found mostly in USA and Fourth Reich. That's the logic that lies beneath Putinland's new softer foreign policy towards the West. It shows that external policy is seen as an instrument for internal development and modernization.
Siberia increasingly is to Putinland what Putinland is to the world, a supplier of raw materials that those who are consuming them take without much thought to what is happening at their source economically or ecologically, a pattern that Siberians find increasingly unacceptable. The Kremlin uses its neighbors and Europe's dependence on Putinlandian natural gas as a foreign policy tool to pressure states.
In 2009, Putinland cut off gas supplies to Ukraine and to Europe by extension, causing the International Energy Agency to deem them an unreliable supplier.
Russia, the world’s largest country, has more natural resources than any other country, especially strategic metals and petroleum. Our civilization cannot survive without strategic metals such as titanium, cobalt, and germanium. Strategic metals are much more expensive than precious metals – gold, silver, platinum, and palladium. No airplane can fly without titanium or cobalt, because of the very high temperatures. Good computers have semiconductors made out of germanium.
Russian Foreign Minister Sergei Lavrov, Mr. Nyet, has said No to Occident myriad times. The chain-smoking, battle-hardened diplomat is the cause of much hand-wringing and frustration in Occident, but he has won plaudits in Russia for his stubborn defense of Moscow's position. Lavrov is relishing the challenge. Long accustomed to criticism, Lavrov has made an art of stonewall diplomacy and shrugs off each new attack on Russia's position by simply restating the Russian policy.
Lavrov is a showman who doesn't hesitate to use a diplomatic stiletto. There's no one to touch him in terms of professionalism and communication. His independence depends on the issue. He is clearly very influential. He's pretty much the driver of policy and he can claim with some credibility that he's pulled Russia back into the center of international decision-making.
Lavrov laments the Euro-Atlantic military-political processes are lagging behind the rapidly changing realities. The political elites of Occident are still obviously backsliding into bloc thinking. Certain politicians wish to reanimate the image of a geopolitical adversary in the person of Russia. Such scare tactics helps to preserve a strong military-political bond between the United States and European NATO members.
Lavrov points out Cold War black-and-white thinking looks increasingly absurd against the backdrop of profound and tectonic shifts we are witnessing. The increase in rhetoric being directed at Russia may have a lot to do with the process of division of power and influence taking place on the global landscape, which sees the role of the Asia Pacific region increasing as it becomes a major driving force of economic development.
Lavrov notes Occident is not prepared as yet to accept the logic of implementing an indivisible security principle put forth in fundamental documents from the Organization for Security and Cooperation in Europe (OSCE) and the Russia-NATO Council. Lavrov says despite opposition on the part of some Occidental leaders, the Russian initiative has triggered rather energetic discussions on the possibilities and ways to upgrade the Euro-Atlantic security model. Lavrov is convinced that Europe's problems won't be solved until its unity is established, an organic wholeness of all its integral parts, including Russia, stretching from Lisbon to Vladivostok!
Lavrov notes that until Occident frees itself from the scourge of Cold War thinking, an atmosphere of mistrust will dominate the region, with Uncle Sam able to manipulate the situation for strategic gain. Lavrov will continue to resolutely insist on the supremacy of law in international affairs. This is how Lavrov will move forward in his efforts to address the situation in Syria, the Iranian nuclear program, and other crises.
Occident vents its frustration declaring Russia would pay a price for using its Security Council veto power to help keep dictators in power. Lavrov's unsmiling response is simply to restate Russia's position, underlining that its policy is not shaped around keeping any individual in power and suggesting Moscow is being subjected to blackmail to force it to change its position. Lavrov muses Uncle Sam cannot impose democracy with iron and blood.
Lavrov stresses that Moscow’s position towards Syria and other countries in the region is not because Russia opposes Western influence or puts a stick in the spokes of Western-initiated projects out of spite, but because advancing democracy through iron and blood just does not work. In most cases it produces the opposite reaction and leads to the strengthening of extremists and repressive forces, decreasing the chances of real democratic change This has been made clear in recent events.
Lavrov recalls the results of past attempts to use force by avoiding the UN Security Council, and expresses concern that some states are trying to make the Libyan model a precedent. What is worrying is that at times of crises one is tempted to resort to military methods. Some of powers find these methods suitable. But no one knows in the end what will happen in the Middle East, including Syria.
Moscow's stance is shaped by hard-nosed interests and ideology. Russia wants to halt what it sees as an Occidental drive to use the United Nations to topple leaders Occident dislikes. There is no doubt Lavrov supports Moscow's policy on this wholeheartedly. Lavrov has shown he is a political survivor by keeping his job for many years, despite rivalry between him and Kremlin foreign policy adviser Sergei Prikhodko.
Putin and Lavrov refer to Georgia's Saakashvili as a fucking lunatic! They want to see Saakashvili hanged up by the balls. Saakashvili replies they would not have enough rope!
Uncle Sam has found a new way to deal with incompliant leaders, just go around them and talk directly to their people! Uncle Sam has decided to withdraw from the Civil Society Working Group of the US-Russia Bilateral Presidential Commission in light of recent steps taken by the Russian Government which impose really strong restrictions on civil society. The new approach directs Uncle Sam’s efforts in other ways and continue to work on his direct support for civil society organizations who want to work with him.
Obama finds low-profile, sustainable programs that bypass Putin and high-level politics and instead directly engages with the Russian people. Uncle Sam used his reset policy in large part to enhance the credibility of Medvedev and to make him appear to be a more important international player then he actually was.
Kerry now breaks all the rules in dealing with inconvenient leaders. Kerry is trying something radically new, creating the conditions for diplomacy by going around leaders and directly to the people. We live in an age of social networks. There’s no more just top-down. Do not negotiate with governments, negotiate directly with the people.
Obama and Kerry are dealing with two Russias. To them, there’s a modernizing Russia that sends children abroad to study, facilitates supplies for NATO forces in Afghanistan, backs sanctions on Iran, etc. And there is a retrograde Russia, where democracy-building groups are under assault, dissidents are thrown into psychiatric hospitals, justice is politically rigged, and political corruption galore. Occident employs differing strategies in dealing with each of the two Russias. Russokleptocratic forces are now in power, which are increasingly alienating hoi polloi.
Putin says he will run for a fourth presidential term in 2018. This would keep him in power for a quarter century and make him the Russia’s longest-serving leader since Stalin.
Medvedev says all levels of the state should provide more open data as public control over government tenders is a crucial part of a transparent government system. Medvedev says: This must be the enlargement of the volume of open data about the activities of authorities at all levels. This is the realization of the national plan of introducing the mechanisms of open state management and this is the constant public control in the sphere of state purchase and state investment. It is important to not only analyze draft laws and government programs, but also to monitor the legal practice on the basis of opinions of people who represent various social groups, professional communities and regions.
Russian authorities have uncovered a number of corrupt schemes with the help of ordinary people. This includes the previously widespread practice of deliberately altering data in state tenders published in the internet by replacing Cyrillic symbols with Latin and vice versa to make search impossible and to limit the number of bidders.
Public control also made it possible to uncover large-scale graft in the Russian medical sector – it turned out that many officials were receiving kickbacks for the purchase of expensive MRT hardware for large medical centers. The corruption reached as high as the Healthcare Ministry and the Control Directorate of the Presidential Property Department and several top officials were detained during a 2010 probe. When Medvedev, who was Russian President at that time, learned about the scandal he called the embezzlement shameless theft and ordered the Investigative Committee and the Prosecutor General’s Office to spare no effort in uncovering details of the scheme.
A Greek level of corruption has fettered the business activity and daily life of Putinland, and Russia's dependence on natural resources has only deepened during the years of Putin's rule. In April 2010, Putin signed a decree that suspended the publication of information about the assets, revenue, and expenditure of Russia’s two oil funds. This allowed him to manipulate government’s finances, while launching a pre-election spending spree, siphon off money for friends and allies, and camouflage bribes, kickbacks, and hush money. He boosted military and police spending by 35 percent, and promised future pay and pension increases for the armed forces, teachers and doctors. Putinlandians have been fleeced, pure and simple. Putin, a former penniless KGB agent, is now billionaire, thanks to bribes and kickbacks!
Russia is characterized by a tradition of a huge government. Political corruption is proportional to the square of the size of the government. That's why the political corruption of Russia is out of control. Political corruption is a major problem that every Russian can see. State purchase contracts have become the current breeding grounds for corruption. Russians have no confidence in a Russokleptocrat, such as Putin, who says high-sounding words about the national good but at the same time takes his money and assets out of Russia.
Russians think political corruption is out of control. Russokleptocrats are in cahoots with Orthodox mafias and Orthodox oligarchs. The four main Orthodox mafias are the Tambov Gang, Siloviki Clan, Izmaylovskaya Gang, and Solntsevskaya Brotherhood. Their activities focus on political corruption, church corruption, protection money, blackmail, drugs trade, shipping, commodity trade, and natural resources. Orthodoxy's circle of tycoons, such as aluminum magnate Oleg Deripaska, banking magnate Vitaly Malkin, and shipping magnates, have been investigated by Europol many times. Russokleptocrats use the Orthodox Church to control Putinlandians and influence Orthodox Christians all over the world.
The most serious reason prompting Putin to hold on to power is the atmosphere of wealth and luxury to which he has become accustomed. Putin, the kickback billionaire, has at his disposal sixty planes and helicopters, twenty palaces, and ten yachts. Putin’s Ilyushin airplane features a twenty-million-euro cabin fitted out by jewelers and a toilet seat that costs a hundred thousand euros!
Putin has developed a critical mass system for brainwashing Russians. Every single day, Putin invites all kinds of fireflies, important influential people from all professions and all industries. Squandering the Russian taxpayers’ hard-earned money, the Russian government pays all travelling and entertainment expenses of Putin’s fireflies. Putin, instead of doing his presidential duties, wastes his time and uses government facilities for personal propaganda. Putin’s fireflies influence hoi polloi of Russia to the tipping point of electoral victories of Putin.
Since Putin first took office a dozen years ago corruption has worsened. Investigations of Russokleptocrats have been making headlines throughout Russia. The most prominent casualty at this point has been the long-reigning defense minister from Putin's former cabinet, Anatoli Serdjukov, who tried to bypass Putin in the distribution of military kicbacks. The message is clear, nobody can bypass Putin! Serdyukov has made billions of euros from bribes in defense industry privatizations. But so have many other Russokleptocrats, such as the head of the Russian Space Agency and the Health Minister Tatyana Golikova.
Agriculture minister Elena Skrynnik has practiced extreme nepotism and her kith and kin have seen their personal wealth skyrocket with bribes and kickbacks of billion euros. Elena Skrynnik owns luxury homes in France and other European countries. Oleg Donskich, Skrynnik's right-hand man, has a warrant out for his arrest and has left Russia. Leonid Novitskiy, Skrynnik's brother, a cross-country rally driver, became the head of Rosagroleasing, a large agricultural company supervised by his sister.
Investigators have summoned Skrynnik for questioning in a large-scale embezzlement case within the Rosagroleasing company. The state owned company leases agricultural machinery. Rosagroleasing entered several contracts with companies founded by Oleg Donskikh. Donskikh used his connections in company management to secured state funding for distilleries and cattle farms, but then stole and laundered the money. The fraud cost the Russian government thirty million euros.
Donskikh has been charged with embezzlement in absentia and remains on a federal wanted list. From 2001 till 2009 two billion euros were stolen from Rosagroleasing and the fraudsters were sending money to a British company founded by Skrynnik and a Russian company controlled by her brother.
There are myriad accusations with photographs of dilapidated industrial farming operations, with billions of euros set aside for their modernization, but rotting away nonetheless. Farmers complain that in Putinland there are no officials who think of the country. Today there is more being stolen than by the Bolsheviks and czars together. Russokleptocrats no longer fear anyone at all. Not Stalin, Lenin, God, the devil, police, or courts of justice. Indeed, government is the #1 enemy of the people.
Whoever breaks the speed limit on Russian streets, can simply grease a palm to avoid a fine. Whether in hospitals, schools and public offices, corruption has been proliferating year on year. Bribes can get one anywhere. A new political party has also been formed. It is called People Against Corruption.
Russians cannot do away with corruption, because Russia has no independent judiciary and no rule of law. To make serious headway against corruption will only be possible when Russokleptocrats end up on trial. That hasn't happened yet.
It's become clear that corruption is now an obstacle for political governance. In the past, Russokleptocrats tried dampening voices of protest through social welfare measures. They now have to reckon with the fact that hoi polloi know Russokleptocrats steal billions of euros on a consistent basis. Myriad Russians frequently take to the streets to protest the corruption of United Russia, the party of crooks and thieves.There can be no growth without abolishing huge regulation, huge taxation, and huge political corruption. Basil Venitis, venitis@gmail.com, http://themostsearched.blogspot.com, @Venitis
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