Johnson's Russia List
20 December 2012
A World Security Institute Project
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Your source for news and analysis since 1996n0

"We don't see things as they are, but as we are"

In this issue
1. Interfax: Putin defines himself as democrat demanding order, observation of laws.
2. ITAR-TASS: Putin favours direct elections of governors, in republics people to decide.
3. ITAR-TASS: Putin backs Duma's ban on US adoptions as response to US Magnitsky Act.
4. New York Times: Putin Evasive on Support of U.S. Adoption Ban.
5. News conference of Vladimir Putin. (partial transcript)
6. www.russiatoday,com: Ban on US adoptions is 'adequate reaction' - Putin.
7. Moscow News: Putin: Protesters should not be sent to prison.
8. Interfax: Corruption customary for Russia but must be fought resolutely - Putin.
9. Moscow Times: Putin Pictured in Hell on The Economist Cover.
10. Moscow News: Church estimates for Orthodox believers halved ­ poll.
11. BBC Monitoring: Russian PM urges improving lives of orphans at home, rather than looking abroad. (Medvedev)
12. Russia Beyond the Headlines: Russia ready for New Year. Inspired by the old saying, "The way you see the New Year in is the way you will live it," Russians are prepared to splurge during the holiday season.
13. Moscow Times/BBC Monitoring: What the Papers Say, Dec. 20, 2012.
14. Valdai Discussion Club: Mikhail Dmitriev, Changes in political sentiments of Russian citizens after the Presidential elections.
15. The Economist: Russia's opposition. Smaller and colder. The anti-Putin protesters are coming under rising pressure.
16. Russian investigators to probe Lithuania's role in Moscow riots.
17. RIA Novosti: Russian Opposition Activist Sent to Siberia. (Leonid Razvozzhayev)
18. Reuters: Russian tycoon Khodorkovsky to walk free in 2014.
19. Kommersant: Students Protest Against Closure of Their "Inefficient" University.
20. International Herald Tribune: Putin Under Fire From International Rights Groups.
21. The Lawyer: Social media, Russian style.
22. Business New Europe: Ben Aris, OUTLOOK 2013: Confused picture for Russia (Part 1).
23. Moscow Times: James Beadle, The Maturing of a Market. The Russian government is good at talking the talk about modernizing its capitalist state, but it needs to start walking the walk.
24. Moscow Times: Boris Kagarlitsky, Between Gaidar and Keynes. Looking at the hordes of shoppers besieging Moscow stores this holiday season, a person might wonder why there has been so much talk of a crisis.
25. Moscow Times: Top 10 Russian Internet Companies in 2012.
26. Reuters: Russia's Klondike? Not yet. (re eastern Siberia)
27. Katya Soldak, Venture Capital, Russian Style.
28. Moscow Times letter: No Shadows On This Think Tank. (re Carnegie Moscow Center)
29. RIA Novosti: Fyodor Lukyanov, To Govern, Not to Act.
30. Moscow Times: Tough Talks Expected At EU-Russia Summit.
31. AFP: Russia negotiates union with ex-Soviet states.
32. Vedomosti: STRIKE UZBEKISTAN. CIS CSTO summit took place in Moscow. Uzbekistan quit the organization.
33. Rossiyskaya Gazeta: Moscow Daily: CIS Countries Will Remain Russia's 'Main Foreign Policy Priority'
34. Interfax: Peskov blames Clinton for lack of understanding of processes in FSU.
35. RIA Novosti: Putin Likens Libya Now to Syria in Event of Invasion.
36. Christian Science Monitor: Fred Weir, What's behind Russia's bill banning US adoptions?
37. Interfax: Adoption of Russian children by foreigners 'a disgrace' - ombudsman.
38. The American Interest: David Kramer and Lilia Shevtsova, What the Magnitsky Act Means. If implemented properly, it could mean the restoration of a normative dimension to Western policy on Russia.
39. Project Syndicate: Deana Arsenian, Russia's Foreign Friends.
40. Komsomolskaya Pravda: Alexey Pankin, The Litvinenko case -- a Blair family business?
Putin defines himself as democrat demanding order, observation of laws

MOSCOW. Dec 20 (Interfax) - President Vladimir Putin disagrees with the claims that he has built an authoritarian system in Russia.

"I think we have ensured stability as a mandatory condition of development. I think this is extremely important. Yet I cannot call this system authoritarian; I cannot agree with this thesis," he told a grand press conference on Thursday.

A reporter asked Putin if "the strict and rather authoritarian regime" the president had built was viable and whether it hampered national development.

"Somehow, we get the impression that democracy means Trotskyism, anarchy. This is wrong. Bakunin was a wonderful man, a very smart man, but we need neither anarchy nor Trotskyism," the president stressed.

Anarchy of the 1990s discredited democracy and market economy. "People started to fear that," he added.

"I think that order, discipline and compliance with the letter of the law do not contradict democratic forms of government," Putin emphasized.
Putin favours direct elections of governors, in republics people to decide

MOSCOW, December 20 (Itar-Tass) ­­ President Vladimir Putin on Thursday reiterated he favoured direct gubernatorial elections in most regions.

The federal law on direct elections came into force in July, and the first elections were held on October 14, this year.

"Personally I am for direct elections," the president said at the news conference. But in national republics, people must "themselves take optimal decisions" on the election procedure, he believes.

"The Russian society came to direct elections long ago. It is right when people themselves elect leaders." It means they are responsible for the results of their work, Putin said.

But recently leaders in national republics of the Russian Federation raised the issue, since other nationalities which are minorities in the republics are concerned that they cannot elect their representatives.

The president cited the example of the dramatic events of the elections in Karachai-Cherkessia. People from national republics concerned over such unfavourable developments themselves raised the issue, the president said.

Putin also cited the positive example of the Republic of Dagestan, where, in his words, the system existed for many years when a representative of one ethnic group was president, a representative of another was head of government and a third headed the parliament, and then they changed the posts.

Pple must not be deprived of the right to directly elect heads of regions, but people in national republics must have the right to take optimal decisions that would not lead to national conflicts, Putin noted.

Gubernatorial elections were held on October 14, for the first time in the past eight years. As a result of the elections, all the current governors remained in office for the next five years. Elections of various levels were held in 77 Russian regions that day.
Putin backs Duma's ban on US adoptions as response to US Magnitsky Act
By Itar-Tass World Service writer Lyudmila Alexandrova

MOSCOW, December 19 (Itar-Tass) ­­ Russian President Vladimir Putin on Thursday began his major news conference with the most topical event of the day ­ the State Duma's decision, made on Wednesday, to adopt in the second reading a bill in retaliation against the United States' Magnitsky Act. Alongside other counter-measures the bill contains a ban on the adoptions of Russian children by US citizens. The president described that decision, which drew protests from many Russian citizens and criticism from some government members as "emotional but adequate." On the eve of the news conference many analysts were speculating that the president would take a more moderate stance on this controversial issue than the legislators.

"I do understand that this is a very emotional response from the State Duma, but I believe that it is adequate," Putin said. Once again he pointed to human rights problems in the United States, which existed at a time when the US authorities accused the Russian authorities of violating the rights of Russians. He said that even when crimes against children were committed in the United States, the American justice system did not let Russian representatives monitor the investigation.

Asked if he would sign the anti-Magnitsky Act bill into law, Putin said that he had not the text yet, but supported the legislators' position by and large. "Before I decide whether to sign it into law or not I must take a look at the text," he said.

Putin said he agreed with Prime Minister Dmitry Medvedev the adoptions of children by Russian families should be expanded. "I believe that Medvedev's proposal is absolutely correct ­ giving more support for the Russian families that adopt Russian children."

The president offered his comments on the Magnitsky Act ­ its adoption "spoils Russian-US relations and pulls them back into the past."

"This act is certainly unfriendly towards the Russian Federation," he said. In his opinion, in focus there are not Russian officials, of course. "One anti-Soviet act has been replaced by another, anti-Russian one."

"They just cannot do away without that. They are trying to stay in the past. This is very bad. It spoils our relations," he said.

Putin said he regarded himself as a bad Christian, because he believed that turning the other cheek was utterly wrong. He said he preferred to fight back in such situations, including those in international relations. "If we have been given a slap, we should retaliate. Otherwise will continue to be slapped on and on," Putin said.

He rated the performance of the government led by his predecessor, Dmitry Medvedev, as satisfactory. "I am happy with the prime minister's and the government's job by and large," he said.

At the same time he voiced some latent criticism of the Cabinet. "It should work smoothly as a team, as a united team, otherwise there will be no result. The people must be aware of that," he remarked.

"It is necessary to ensure the people in the government should stay aware we are colleagues. There should be no difference between what the country was told about the top priority and medium term tasks in the economy and in the social sphere in the course of the presidential election campaign and between what the government has been doing," Putin said.

Asked about dismissals of government ministers he said that "not many of them have been dismissed," adding that "three ministers have been reprimanded. At the same time he kept quiet about the most scandalous dismissal from the government ­ that of the defense minister, Anatoly Serdyukov.

However, Putin was asked a separate question about the affair. He promised that all major corruption rows would be investigated properly and that the investigation and trial would be impartial to the maximum extent.

"Nobody will be under a veil of protection," he promised.

At the same time Putin called for waiting for the court's ruling in that case before rating Serdyukov's activity.

"True, there were doubts about the correctness of his behavior and the decisions he made. But whether something has been stolen or not stolen is to be decided by a court of law."

"Serdyukov was reforming the Armed Forces in the right direction. The question is about the outward manifestations, about his attitude to people. That's a different matter," Putin said.

Putin disagreed that over the years of his rule he had built an authoritarian regime in Russia. "I believe that we have ensured stability as a mandatory condition for the country's development," he said. "I would not call that an authoritarian regime. I disagree with that."

As the brightest confirmation of his statement Putin recalled his decision to retreat into the background after two presidential terms in 2008. "Had I really considered a totalitarian regime as the most preferable one, I would have changed the Constitution," Putin said. "Then it could be done quite easily."

Putin believes that during his presence at the high posts in the country no systemic mistakes were made. "Possibly, there were some mistakes, but saying that they were systemic mistakes, mistakes that I would like to correct by all means would be wrong. I can tell you quite sincerely I would say so outright now, if it were otherwise," he explained.

The president was asked about the arrests of oppositional politicians, accused of staging mass protests during demonstrations in Moscow's Bolotnaya square on May 6. "I do not think that for participation in a protest demonstration, even if the demonstration were held in violation of the law, people should be sent to jail," Putin said, adding that the use of violence against law enforcement personnel was impermissible.

Putin emphatically dismissed speculations about his influence on the court that tried Mikhail Khodorkovsky. Also, he denied there were some personal or political motives involved. "I had no means of influence, and I did not influence the activity of law enforcement or judicial bodies in any way. I stayed away from that affair," Putin said.

"You have a wrong idea of the way out judicial system works," he told a journalist, who speculated that the court had reduced Khodorkovsky's prison term because the president's attitude to the case had changed. "Certain legal amendments were made. Apparently, those amendments were a reason enough for the court to make those decisions," Putin said.

As far as the Khodorkovsky affair is concerned, "there is no personal persecution involved," Putin said. He voiced the certainty that "in keeping with the law, if everything is normal, Mikhail Borisovich will be set free, and I wish him good health."

Putin's press-conference was devoted mostly to domestic affairs, but a number of international problems were touched upon.

Asked about relations with Georgia, Putin said that Russia did see what he described as "positive signals from the new Georgian authorities," and really wished an improvement of those relations, but had no idea of how to go about that business in view of the two countries' different attitude to the problem of South Ossetia and Abkhazia.

Russia is unable to revise its decision to recognize the independence of Abkhazia and South Ossetia, he said. "President Mikhail Saakashvili has led the situation into a stalemate, and I have no idea of how to get out of it," Putin said. "Russia is unable to change its decision to recognize the independence of South Ossetia and Abkhazia. That's an axiom. And Georgia is reluctant to recognize their independent status."

The question was raised about Russia's attitude to Syria.

"We are not concerned over the future of the Assad regime in Syria, change there is a vital need," Putin said. Russia is concerned over what happens next in Syria. "We do not want to see the Opposition, should it rise to power, crack down on the existing authorities, which would take the Opposition's place," he explained, adding that Russia was for a solution that would bring the lasting civil war in Syria to an end. "First, they are to come to terms as to how they should co-exist, and only then change the existing state of affairs, and not the other way round ­ to disband and ruin everything first, and then decide," Putin said.

Asked about the resetting of relations with the United States Putin replied he was very curious what was to be reset, because the term had been invented in Washington. "In principle we had a normal, good relationship. They got worse somewhat when it turned out that we had a divergence of views on Iraq. That's where the problems started," Putin said.

He mentioned the deployment of the US missile defense system as another problem in bilateral relations. "The creation of such systems would annul our nuclear missile potential," Putin said. He confirmed that the Russian authorities would have to respond to the European missile defense somehow, if no agreement with the NATO partners were achieved.

However, despite the outstanding problems Russia does not see the United States as a foe. "We are not enemies. We've got to be patient and look for compromises," Putin said.
New York Times
December 20, 2012
Putin Evasive on Support of U.S. Adoption Ban

MOSCOW ­ At a much-anticipated news conference on Thursday, President Vladimir V. Putin skirted the question of whether he would support a ban on adoptions of Russian children by American citizens, which was approved by Russian parliamentarians but requires his signature to become law.

Mr. Putin said he would have to read the text of the amendment before making a final decision, and noted that most American adoptive parents are "honest and decent people."

However, he lashed out angrily at American officials, saying they had allowed child abuse to go unpunished and blocked Russia's efforts to monitor adjudication of such cases.

"This is about the attitude of American officials in situations involving the violation of children's rights," he said, after a Russian journalist criticized the proposed ban. "Do you consider this normal? You like this? What are you, a sadomasochist? There is no need to humiliate the country! We do not forbid adoption by foreigners in general. There are other countries besides the United States."

Mr. Putin criticized a law signed by President Obama last week that seeks to punish Russian citizens who are accused of violating human rights and which served as the spur for the proposed adoption ban. He said the American initiative had been put forward by officials reluctant to part with cold-war-era prejudices.

"They just cannot do without it," he said. "They are trying to stay in the past. This is very bad, and it poisons our relations."

He went on to question Americans' moral authority to challenge Russia's human rights record. The American law, the so-called Magnitsky Act, is named for Sergei L. Magnitsky, a Russian lawyer who was arrested after trying to expose a huge government tax fraud and later died in prison, in 2009.

"What are our partners in the United States worried about? About human rights in our prisons?" Mr. Putin said. "But they themselves have many problems. They hold people in their prisons for years before they accused of any crime. They have legalized torture inside their own country. They would have eaten us alive a long time ago if we had something similar in our country!"

If Mr. Putin allows the adoption bill to go forward, it will be the most forceful anti-American action of his new term, undoing a bilateral agreement on international adoptions that was ratified just this year and crushing the aspirations of thousands of Americans hoping to adopt Russian orphans. In an unusual split within the government, senior officials had spoken out against the ban, including some, like the foreign minister, Sergey V. Lavrov, who are harsh critics of United States policy.

The bill still faces two more legislative votes, and even before he decides to sign or veto it, Mr. Putin is likely to have huge sway over the bill's final form when it emerges from Parliament.

The State Department said it would not speculate about what the final bill might look like but a spokeswoman, Victoria Nuland, took note of prior cooperation.

"We have worked hard with Russia to address past problems through our new adoption agreement, which the Duma has approved," Ms. Nuland said. "Each year, thousands of children find loving, nurturing homes through intercountry adoptions, and the lives of thousands of American families have been enriched by welcoming Russian orphans into their homes." Russian officials, including Mr. Putin, have promised a forceful response to the Magnitsky Act, which requires the administration to assemble a list of Russian citizens accused of abusing human rights, including officials involved in Mr. Magnitsky's case, and to bar them from traveling to the United States and from owning real estate or other assets there.

But they have struggled to find a response that seems reciprocal and proportional, turning to the idea of punishing Americans linked to adjudication of abuse cases involving children adopted from Russia. The Russian bill was initially written to impose sanctions on American judges believed to have treated such cases leniently. It was named after Dmitri Yakovlev, a toddler who died of heatstroke in Virginia in July 2008 after his adoptive father left him in a car for nine hours.

Mr. Putin did not give a precise timeline for his decision. Experts on international adoption said uncertainty could prove nearly as damaging as a ban because it would discourage potential adoptive parents from considering children in Russia out of fear that they would invest time, money and emotion only to find their plans blocked by a policy change.
December 20, 2012
News conference of Vladimir Putin
[Fuller Russian transcript and video here]

Vladimir Putin's news conference took place at the World Trade Centre on Krasnopresnenskaya Embankment.

Over 1,000 Russian and 200 foreign journalists were accredited to cover the news conference.

Channel One, Rossiya-1 and Rossiya-24 TV channels and Radio Mayak, Vesti FM and Radio Rossii radio stations broadcasted the event.
* * *
PRESIDENT OF RUSSIA VLADIMIR PUTIN: Good afternoon, ladies and gentlemen,

I am very pleased that the media has shown such interest in today's event. Greetings to all of you. I know that there are many journalists from the Russian regions here. I will try to answer your questions as far as possible and tell you my perception of the outgoing year's results. (Can everyone hear me all right?) As usual, I will begin by citing some figures. They are widely known but I have the most recent data, so I think that you will find it interesting.

To start with, the main indicators of economic development, the growth of GDP (gross domestic product) ­ I have the data for January-October 2012 ­ 3.7%. This is slightly lower than last year, when we had 4.3% growth, but I want to point out that amid the recession in the Eurozone, slowing economic growth in the United States and even some scaling down in China, I consider this a good result overall.

What were the causes of the slowdown this year? I've already mentioned the first reason, the general slowdown in global economic growth and even a recession in the Eurozone, one of the leading global centres. The second reason is our domestic problem, which is primarily concerned with crop failure. Last year the grain harvest was 90 million tonnes, and this year it was just over 74 million. This had an impact on inflation to some extent, which I will talk about a little later, and slowed down the pace of economic growth in the 3rd and 4th quarter. But, I repeat, I think overall this is a satisfactory result.

As for inflation, I am sure you know that last year it was the lowest in 20 years. This is an achievement we are very proud of because we tried to suppress inflation for a long time. Now we have seen the result of our efforts. This year (as of December 17), inflation rose slightly and was 6.3%, but as you can see, the figure is very similar to last year's.

Industrial growth was 4.7% last year and 2.7% this year, which is almost half. Naturally, we cannot be happy about that. However, the fact that investment in fixed assets has not fallen, and has even shown slight growth, gives us reason to feel optimistic. Last year the figure was 8.3% and this year it is 8.4%. At the same time, the growth was much higher in the manufacturing sector, 4.4%, which is particularly gratifying. I hope that this is also the result of the Russian Government's constructive policy.

Now on social issues. In 2011 the average monthly salary was 23,369 rubles, and in November of this year it was 27,607 rubles [$900]. Last year's growth was 2.8%, and this year it was 8.8%. This is a good indicator.

Another socioeconomic indicator that is very important for our country and for any other market economy is the unemployment rate and the situation in the labour market. Based on ILO calculation methods, the unemployment rate last year was 6.6% in Russia. In fact, we started the year with 6.6 % as well but by November of 2012 it fell to 5.3-5.4%. This is an excellent result and one of the best indicators in the developed economies around the world. The number of officially registered unemployed is 1%.

Real disposable incomes increased by 0.8% last year and by 4% this year. We know what is behind this growth. It is due to a sharp increase in the incomes of servicemen, internal troops and pay rises in the Interior Ministry. This is due to a 60% increase in pensions. I will speak about the planned pension increases later. The social sector wages have also posted growth. This applies to school teachers and university professors. I am sure we'll come back to this issue. There has also been a clear growth in healthcare professionals' salaries. Taken together, this is what has produced this result. I think it is a good result. The growth of 4% is a decent indicator.

As of October 2012, the retirement monthly pension has been raised to 9,810 rubles [$300] from 8,876 rubles. The social pension has also grown, but, unfortunately, it remains quite low: it was 5,200, and has been increased to 5,942, but bear in mind that this is the social pension.

Finally, let us look at the maternity capital. I remember there used to be a lot of questions about whether we were going to raise it. I want to reiterate: we are going to raise it and we will continue raising it. If last year the maternity capital was 365,698 rubles [$12,000], at present it is 387,640 rubles, and on January 1, 2013 it will be increased to 408,961 rubles.

To return to the economy, the banking system capitalisation is growing. What is particularly gratifying, there has been an increase in people's deposits in our banks and our financial institutions, which grew by 19.6% year on year. In absolute figures, this amounts to 13.1 trillion rubles.

We have a trade surplus. Last year it was 198.2 billion and in January to October of this year it amounted to 164.6 billion. I think the figure for the year will not be any lower than for 2011. Bear in mind that the figures I am citing are preliminary and will be finalised in the 1st quarter of 2013.

We have been able to achieve these results not only due to the favourable global  economic factors, which were certainly in place, but also through the Government's purposeful actions. First, Russia joined the WTO. Second, we signed the free trade zone agreement in the CIS. Third, the Customs Union and the Common Economic Space with Belarus and Kazakhstan were established. I have already talked about this at the news conference yesterday.

Trade with these countries grew by 10% ­ that is not bad at all. Most importantly, and I want to reiterate this in front of this large audience, we have a very good structure of trade with the Customs Union countries. Machinery and equipment make up 20% of all goods traded. That is very good, because machinery and equipment make up only 2% in our trade with the rest of the world ­ this is the average figure for all three Customs Union states. This suggests that we are very comfortable and the right partners for each other.

National debt remains at very low level, a little over 10%, of which the external debt makes up only 2.5%, there is little change here. We have one of the best positions of all developed economies according to this indicator.

The Central Bank's international reserves have grown from $498.6 billion last year to $527.3 billion, this figure is for December 7. The reserve fund has also increased substantially: from $25.2 billion to $61.4 billion today. The National Welfare Fund has remained almost the same: it amounted to $86.8 billion last year and is 87.5 now.

I want to point out the stability of state finances despite the existing problems, of which we have many and I am sure we will discuss them later.

The Government made a very important decision this year to adopt the budget rule, that is, a cutoff of federal revenues and their use in current expenditure only up to the level of the price of a barrel of oil. For 2013, this level is $91 per barrel. Incidentally, this is a rather strict rule. The second part of the budget rule is that we agreed that we would not spend the money from the reserve funds until we achieve a certain level of savings in these funds. As a result, the budget is quite tight but feasible, and this together with an increase in the reserves ­ the Central Bank's reserves and the Government reserves ­ suggests that we have a balanced and meticulous financial and economic policy.

We are particularly proud of the birth rate indicator, the best in the past 20 years, as well as a low mortality rate, also the lowest in 20 years. This suggests that people have begun to plan their lives in a different way, expanding family planning horizons. This suggests that despite all the problems, of which we have more than enough, there is a sense of confidence in the country's future as a result of our efforts. I have cited the income growth and welfare figures. I think this has had a positive effect in addition to the special measures to boost the birth rate and positive demographic processes.

Apart from the maternity capital, which I talked about earlier, we have a comprehensive programme for the support of women who decide to have the second and subsequent children. Starting next year, in the 1st quarter, the Government will launch a programme for the support of families with three and more children. In the 50 regions of the Russian Federation where the demographic indictors have been negative for several years (the north-west of the country, parts of the Volga areas and the Far East), families will receive an additional monthly allowance amounting to the subsistence minimum for children.

That is all I wanted to say in the beginning and will end my monologue now. I am sure that you have a lot of questions, or you would not have come here. Let's start our direct conversation.


VLADIMIR PUTIN: Mr Peskov will help us to warm up at the start. To find our bearings, and then we will move on to direct communication.

DMITRY PESKOV: I know someone of you by name, but not all of you, so please introduce yourselves, state your city and media outlet.

Go ahead, please.

QUESTION: Ksenia Sokolova, Snob magazine.

In response to US Congress passing the Magnitsky Act, the State Duma adopted restrictive measures against US nationals who want to adopt Russian orphans. Do you think this is an adequate response? Does it not bother you that the most destitute and helpless children become a tool in a political conflict?

VLADIMIR PUTIN: First of all, you have just said that this is a response to the so-called Magnitsky Act. Let me tell you briefly what I think about it. I have already spoken about it, but let me just outline my attitude to this case.

This is undoubtedly an unfriendly act towards the Russian Federation. What is at issue here is not just officials who are not allowed to open bank accounts or own real estate. I mentioned this in my Address to the Federal Assembly recently. We also believe that Russian state officials, especially high-ranking politicians should keep their money in Russian banks. Incidentally, there are many banks in Russia with one hundred percent foreign capital, and there can be no doubt as to their efficiency and reliability. If such a bank has an office in Russia or in Vienna, or in some other capital makes no difference; what is important is that it is an international financial institution. Hold it here, please.

As for real estate, I have also spoken about this. If our colleagues abroad can help us identify those who violate laws, we will be grateful to them and can even give them a prize for their efforts. However, the issue here has nothing to do with officials. It's a matter of one anti-Soviet, anti-Russian law being replaced with another. They can't seem to do without it. They keep trying to stay in the past. This is very bad, and has a negative impact on our relations.

As for the issue you have mentioned, the adoption of Russian children by foreigners, as far as I know, public opinion polls show that the overwhelming majority of Russians do not support the adoption of Russian children by foreign nationals. We must do it ourselves. We must support the adoption of abandoned children or orphans.

In this regard, I fully support Mr Medvedev's proposal. We should promote this work in our country, remove bureaucratic barriers and give even more support to the families that adopt children.

Now for the American side. It's not about specific people, US citizens who have adopted our children. We know that tragedies happen but the vast majority of people who adopt Russian children take good care of them and are good, decent people. The State Duma's response was not to that but to the US authorities' position. What is their position? It is a fact that when a crime is committed against an adopted Russian child, the American justice system often does not react at all and releases the people who have clearly committed a criminal offense against a child, of any criminal responsibility. But that's not all. Russian representatives are denied any access, even as observers, in these legal processes.

We recently signed an agreement between the US State Department and the Russian Foreign Ministry on the actions Russian representatives can take in such crises or conflicts. What happens in practice? In practice, it turns out that according to US legislation, states have jurisdiction over such cases. And when our representatives try to fulfil their obligations under the agreement, they say, 'This is not a federal case, it's a state case, and you do not have any agreements with the individual states. Go to the State Department and sort it out with them because you signed an agreement with them'. But the federal government refers them to the states. So what is the point of this agreement? Russian representatives are not even granted access as observers, much less as participants in the case.

What concerns do our partners in the United States and their lawmakers voice? They talk about human rights in Russian prisons and places of detention. That is all well and good, but they also have plenty of problems in that area.

I have already talked about this: Abu Ghraib, Guantanamo, where people are kept jailed for years without being charged. It is incomprehensible. Not only are those prisoners detained without charge, they walk around shackled, like in the Middle Ages. They legalised torture in their own country.

Can you imagine if we had anything like this here? They would have eaten us alive a long time ago. It would have been a worldwide scandal. But in their country everything is quiet. They have promised many times that they would close down Guantanamo, but it's still there. The prison is open to this day. We don't know, maybe they are still using torture there. These so-called secret CIA prisons. Who has been punished for that? And they still point out our problems. Well, thank you, we are aware of them. But it is outrageous to use this as a pretext to adopt anti-Russian laws, when our side has done nothing to warrant such a response.

I understand that the State Duma's response is emotional but I think it is adequate.

To be continued.
December 20, 2012
Ban on US adoptions is 'adequate reaction' - Putin

In response to the first question at his annual international press conference in Moscow, Vladimir Putin said he was in favor of banning the adoption of Russian children by US citizens.

The question dealt with legislation that seeks to prohibit the adoption of Russian orphans by US citizens.

The bill, part of a package of measures drafted by Russian lawmakers in retaliation to the US Magnitsky Act, was approved this week by the Lower House in the second reading.

Putin answered that the Magnitsky Act should be prioritized as it is a deliberately unfriendly piece of legislation aimed at Russia (The act is named after lawyer Sergey Magnitsky, who died in pre-trial detention in Moscow in the course of a massive tax fraud investigation. In addition to banning individuals who US officials believe were involved in the death from visiting the US, it also freezes their US-held assets).

The United States "replaced one anti-Russian law with another," and this indicates that our foreign partners are living in the past and intend to maintain relations "rooted in a standoff between two systems," the Russian leader stated.

Speaking on the proposed adoption ban (named in honor of Dima Yakovlev, a Russian boy who died as a result of being left inside of a car on a hot day by his adoptive American parents), Putin said that to his knowledge the majority of Russians disapprove of foreign adoptions. He added that he fully agreed with Prime Minister Medvedev who said that Russia should develop its own adoption system.

The President told his audience that the amendment is not against adoptions per se, but rather a response to the US judicial system that regularly denies Russian diplomats from monitoring the wellbeing of Russian children adopted by US citizens. Putin called this practice "a humiliation," saying that no one should have to tolerate such an attitude.

Meanwhile, Putin called the response from the State Duma "very emotional," but still adequate.

However, as reporters continued to push Putin on the adoption issue, the Russian leader admitted that he has not yet examined all the details of the Dima Yakovlev bill. However, Putin assured his listeners that he would study the Russian-US adoption agreement before moving to sign the bill into law.

But when the reporters continued to press on the Magnitsky Act, Putin said U.S. lawmakers would have needed another piece of anti-Russian legislation without it.

"This is how we see it: American lawmakers sort of showed everyone who is the real master of the house so that we don't get relaxed," the Russian leader said at the Q&A session. "Had there been no Magnitsky, they would have found another pretext."

"This saddens us," Putin added.

Speaking on the subject of the interstate adoption agreement, Putin noted that if either Russia or the United States intends to revoke it they should provide a year's warning.

When reporters pressed for the President's personal reaction to the Duma's move to ban adoptions, Putin repeated that he understood the position of Russian MPs and disagreed with those who criticized him as a politician who "heeds a decision passed by a democratically elected parliament."

He explained that laws that are handed down from the parliament must not manage the fates of individuals, but regulate the rules of behavior, and the adoptions ban is an attempt to influence the behavior of America.

On Russia-US relations

Providing his perspectives on Russia-US relations, Putin said the two countries"are not foes and need to find compromises to solve complicated problems."

However, the Russian leader admitted that things "got relatively worse" between Moscow and Washington lately for several reasons.

First, the countries shared different views on the situation involving Iraq, which the United States attacked after accusing it of harboring weapons of mass destruction.

"They (the Americans) said: 'I came, I saw, I conquered.' Well, Saddam [Hussein] was executed, but the country is falling apart," Putin observed. "(Since the beginning of the US military offensive) there have probably been more victims than during the entire reign of the Hussein regime," he noted.

The measures that the US took in Iraq were "doubtful, to say the least," he added.

Another problem in the Russian-American relationship involves the deployment of the US-sponsored missile defense shield in Europe.

"We've repeatedly said that we view the development of this system as a threat, and if we don't respond, it could lead to the elimination of [Russia's] nuclear-missile potential," Putin stated.

As a result, the President continued, the regional strategic balance ­ which has thus far spared humanity from large-scale military conflicts since WWII ­ would be upset.

The Russian leader also disagreed with the term "reset" that has been applied to relations between the two former Cold War enemies after it was first suggested by American side.

"What should be reset? We have good, normal relations," he stated.

'I know when the apocalypse will come'

On a humorous note, a correspondent from the Russian web tabloid LifeNews ventured to ask the President if he is aware that there are quite a few anecdotes about him.

"Your assistants probably told you," the reporter said.

"No, they are scared to tell," Putin replied, without missing a beat.

The reporter relayed the following joke to the President: "With December 21, 2012 just around the corner, the President's critics say: 'Putin promises too much. Therefore, he must know for sure when the world will end.'"

The date picked for his media conference ­ one day before rumored 'doomsday' ­ was also the subject of ironic comments.

"I know when the end of the world will come," Putin stated. "In about 4.5 billion years," adding that the sun's life is expected to end by then and the "reactor will turn off." But before that, the sun will become a white dwarf, the President observed.

In any case, "the end of the world," does not scare Russia's leader.

"What to be afraid of if that is inevitable," he asked rhetorically.

No authoritarianism, but stability

One journalist remarked that Putin has created a "rather rigid regime of personal power" and asked the President if he considered such a system viable.

Putin answered that he cannot call Russia's present system of government "authoritarian," and supported his statement by reminding the packed hall of international journalists that he stepped into the Prime Minister position after two presidential terms.

The President said the media must understand that he had an opportunity to change the constitution and remain president for a third term if he wanted to ­ especially since his supporters held the constitutional majority of parliamentary seats.

"I left for the second position in order to assure the succession of power and respect of the Constitution," he noted.

The Russian leader then provided some food for thought on the subject of democracy.

"For some reason we have this impression that democracy is the same thing as Trotskyism or anarchy," he commented. "I hold that order and discipline do not contradict the democratic forms of state."

Decision on South Ossetia, Abkhazia independence irreversible

Speaking on the subject of Moscow-Tbilisi relations, Putin blamed Georgian President Mikhail Saakashvili for bringing the situation to a deadlock.

"To be honest, I'm not quite sure how to get out of it," he admitted. "But we would really like to normalize relations with Georgia."

On the question of Russia recognizing the sovereignty of South Ossetia and Abkhazia, Putin emphasized that the decision is "irreversible." Nevertheless, the Georgian leadership refuses to recognize the independence of the two republics as it accuses Russia of "occupying" their territory.

Relations between Moscow and Tbilisi hit rock bottom after a five-day military conflict in August 2008 that began when Georgia opened a full-scale military offensive against South Ossetia, where Russian peacekeepers were stationed. The Russian military intervened under the CIS peacekeeping agreement, forcing Saakashvili to abandon his plans for seizing the territories.

Today, Moscow welcomes positive signals coming from Georgia after a shift of power following the parliamentary elections in the former Soviet republic, Putin said.

One of those "still very restrained, but positive" moves was the decision by the new Georgian Prime Minister Bidzina Ivanishvili to introduce a post of Special Representative for Relations with Russia.

Earlier in November, former Ambassador to Moscow Zurab Abashidze was assigned to the post.

"Moscow responded the same way," Putin said, referring to a recent meeting in Geneva between Abashidze and Russia's Deputy Foreign Minister Grigory Karasin. The two diplomats agreed to look for ways to improve Moscow-Tbilisi relations.

About 1,200 Russian and foreign journalists have been accredited to the Russian President's press conference, which has become a major annual media event. This year there was a break in tradition and the event took place not in the Kremlin, but in the Moscow Center of International Trade.

The Q&A press conference was broadcast live on all federal major TV channels and lasted for 4 hours and 30 minutes.
 [return to Contents]
Moscow News
December 20, 2012
Putin: Protesters should not be sent to prison
By David Burghardt

Russian President Vladimir Putin said he does not believe that those who participate in mass protests should be sent to prison, but added that anyone who resists police authority should be punished.

"I don't think that participation in a mass protest, even if it was held in breach of law, that [people] should be sent to prison," Putin said during his annual "meet the press" event aired live on national television.

Putin added that he believes that "striking law enforcement members is inadmissable." Putin said he holds this position not only as the head of state, but also as an individual who has basic education in law.

The Russian president reminded the large group of journalists that any type of resistance to police or even an attempt to show force against them in the US legal system is met with extremely harsh reprecussions.

"If we allowed anyone to [show force against police authorities], regardless of their political views, we would destroy the the legal system of the country," Putin said.
 [return to Contents]
Corruption customary for Russia but must be fought resolutely - Putin

MOSCOW. Dec 20 (Interfax) - Corruption is customary for Russia but the government still has to combat it, President Vladimir Putin told a Thursday press conference.

"Speaking of the anti-corruption fight; this is one of our problems and a customary one," he said.

Putin told reporters a historical anecdote: Peter the Great ordered Prosecutor General Pavel Yaguzhinsky to execute thieves and the latter asked, "All-merciful Sire, do you want to lose all your subjects?"

"As you can see, theft is kind of a tradition here," Putin said. But corruption is directly related to economic development. "Every emerging market is infected with this virus this way or another," he observed.

"Our fight should be constant and insistent," Putin stressed, adding that irreversible punishment must be the main principle.

About 800 people were tried for corruptive practices last year, Putin said. "A large part of them are people with a high status: either officials or deputies or law enforcement officers," he said.

Putin also disagreed with the opinion that Russia did not have independent courts. "I do not agree with the thesis that we have no independent judiciary," he said.

"That is nonsense and total absurdity. We have a stable judiciary and it is developing, we also have good traditions of law schools and legal practice. Really, we should not put ashes on our head or beat ourselves with chains," Putin said.
Moscow Times
December 20, 2012
Putin Pictured in Hell on The Economist Cover
The cartoon's accompanying article, which is presented as a travel guide, says the quickest way to hell is by constantly committing major sins without giving in to feelings of remorse.

President Vladimir Putin was pictured in hell on the cover of The Economist's last issue for 2012, floating along in a fiery river with Syrian President Bashar Assad, Iranian President Mahmoud Ahmadinejad, North Korean leader Kim Jong-un and the euro under the heading "A rough guide to Hell."

The issue, set to hit newsstands Dec. 22, also shows U.S. President Barack Obama and German Chancellor Angela Merkel in the cartoon, with the former speeding along toward Putin in a motorboat and the latter looking sad as she sits on railway tracks above the River Styx.

The devil is pictured watching over the whole chaotic scene with a copy of The Economist in his hands.

The cartoon's accompanying article, which is presented as a travel guide, says the quickest way to hell is by constantly committing major sins without giving in to feelings of remorse.

The Economist ranked Russia 102nd out of 162 countries in its democracy rating back in 2006, during Putin's second term as president, concluding that elections were carried out under strict government control, press freedom was limited, and civil liberties were only partially observed.

At the time, the magazine predicted that Russia's democratic credentials would only get worse.
Moscow News
December 19, 2012
Church estimates for Orthodox believers halved ­ poll
By Alina Lobzina

The number of Russian Christians came under scrutiny after polls registered dwindling ranks of the faithful.

The most surprising finding was that only 41 percent of all Russians say they are members of the Russian Orthodox Church, according to a poll carried out by Sreda, a research service. This number is twice less than the estimated of 80 percent based on the figure stated in a study by an influential independent pollster, Levada Center, back in 2009.

The polling organization also revealed the result of its investigation in believers of the Russian population earlier this week, lowering the number of Orthodox by 6 percent in comparison with the survey from three years ago.

The second biggest group in Levada's poll was atheists. According to Sreda, the number of people who said they believed in god but belonged to no religion, all together 25 percent, was the second largest, and atheists, who make 10 percent of all the country's population, came third.

Estimates for the number of Muslims, made by both pollsters, were very close.

Levada has put it at 7 percent, which is nearly twice as much as the figure published in its 2009 research. Sreda'e estimate was 0.5 percent less. 
BBC Monitoring
Russian PM urges improving lives of orphans at home, rather than looking abroad
Rossiya 24
December 19, 2012

Russian Prime Minister Dmitriy Medvedev has called for channelling united efforts to improving the life of orphans in Russia, instead of relying on foreign help to this end. He shared this call at an expanded meeting of One Russia (United Russia)'s general and supreme councils when speaking about the proposal to outlaw the adoption of Russian kids by US parents. His speech was shown live on state-owned rolling news channel Rossiya 24 on 19 December.

Medvedev said: "There is currently fierce debate about the adoption of orphans. And this is not about inter-state disputes, I would like to state this plainly. And this is not about our personal positions - I could say a lot on this, but I won't, I'll refrain from doing so. I have said this at some point, when speaking to President (Barack) Obama. But I would like to say is that the crucial thing here is something else entirely. All of us - I stress, all of us - both officials and civil society, including public movements and parties, are responsible for the state of affairs, for the situation with orphans in our country. Precisely us, and not some foreigners.

"Foreign adoption is a consequence of the poor attention that the state and society pay to orphans. This is the main reason. This is, if you like, a consequence of our indifference. This is sad, but we need to talk about this plainly. We have a lot of orphans, if we compare ourselves to other developed economies. This is the reason why they are taken into adoptive families abroad. But where are we in all this? All of us need to come together to defeat this problem - I stress, all of us. At the end of the day, our society is sufficiently well-off at this stage. The state has the means to deal with this, and our people are also ready to adopt and help these children.

"But this is not just about adoption. Life in orphanages, in specialized children's homes has to be different. We all go to such places, we know how it all looks. It's decent in some places and absolutely horrible in others. This cannot be a wretched existence, it must be a comfortable one at the very least. Even with understanding of the fact these are often very sick kids in very difficult situations. I have a proposal: let's prepare a party project on this issue. At the end of the day, this is an issue of the maturity of our civil society, its charitableness - this word should not be forgotten - as well as the state's readiness to establish conditions to resolve this issue".
Russia Beyond the Headlines
December 20, 2012
Russia ready for New Year
Inspired by the old saying, "The way you see the New Year in is the way you will live it," Russians are prepared to splurge during the holiday season.
By Evgeny Basmanov

Russian city streets, shopping malls and businesses are aglow with decorated fir trees, lights and tinsel, reminding the locals once again that the long New Year's break is coming.

The official New Year holiday break in Russia will last from Dec. 30 to Jan. 8 this year, a week and a half of mid-winter bliss and the envy of citizens of many Western countries, where only Christmas Day and New Year's Day are federal holidays.

Also, unlike in many Western nations, in Russia it's New Year rather than Christmas that's the main winter holiday. This tradition is rooted in the Soviet past, when religious holidays were phased out and substituted with secular ones. In moving the focuse from Christmas to New Year, the customs of decorating a tree, celebrating a special day with family and exchanging gifts was just moved to a different date.
"Although I consider myself a religious person, New Year was always far more important for me than Christmas," said Irina Popova, director of a small ad agency in Moscow. "You can't have the feast, the gifts, the holiday atmosphere, the champagne and the smell of tangerines without the chimes of the Kremlin clock at midnight."

Popova seems to be one of the few Russians who have prepared for the holiday in advance: "I hate the rush at the stores, the long lines and all that bustle, so I prefer to buy everything before the crowds come, or do it online." This last option is not yet widespread ­ the share of online shopping in Russia is still only 5 percent ­ but lines in stores grow exponentially, especially during the peak period from Dec. 15-24.

According to a survey by Deloitte, this year Russians will spend 8.6 percent more on the New Year holidays than in 2011. Experts suggest that this is because they have stronger confidence in their future than they did last year; half of the survey respondents view the economic situation in Russia as stable.

On average, Russians spend $500 on celebrating the winter holidays ­ 35 percent less than in Europe, where the average is $770. But given the 120 percent difference in per-capita GDP between the EU and Russia, this figure looks far more impressive.

Russian shoppers are prepared to splurge for the holidays, and not just on gifts and food. It is becoming increasingly popular to go on vacation for the New Year break.

Slightly more than half of those who spend their holiday abroad chase the sun. Many Russians head to Egypt, where tour packages start at $400 for the week. Ski holidays are also popular, although the price for this type of vacation is substantially higher. Vadim Nesmeyanov, the 30-year-old founder of an I.T. start-up, is among those leaving snow to find more snow.

"My family has been going to Chamonix for about three years now. There were only four of us in the beginning, but now our group has grown to 12 people, and we need to find a chalet that is big enough. If you book early enough, the cost of flights and accomodation shouldn't be too high ­ around €1,500 ($2,000) for 10 days," Nesmeyanov said, adding, "Plus, traveling to Europe during the holiday sale season is an excellent opportunity for shopping; I can buy a new iPhone."

According to the Deloitte poll, a new smartphone is one of the  most desired gifts this New Year. Forty percent of respondents would like a new phone; fifty-six percent said they would be happy with cash. However, most poll respondents said they planned to give cosmetics (42 percent) and candy (38 percent) as presents. Inexpensive household appliances like slow cookers and juicers are also in demand.

Russians don't like to go out on New Year's Eve; more than 80 percent prefer to entertain guests at home or visit friends in their homes. But not everybody can share in the bliss or afford to forget about work: More than 11 percent of Russians work through the holidays.
Moscow Times/BBC Monitoring
What the Papers Say, Dec. 20, 2012


1. Kirill Melnikov et al. article headlined "Government Releases Liquefied Gas" says that the Russian government has backed an initiative put forward by the independent gas manufacturer Novatek to cancel the Russian gas giant Gazprom's monopoly on natural gas exports; pp 1, 9 (1,020 words).

2. Maxim Ivanov factual report headlined "Acts Are Stubborn Things" says that the State Duma has approved the controversial bill banning U.S. citizens from adopting Russian children as a response to the U.S. Magnitsky Act; pp 1-2 (991 words).

3. Yelena Kiseleva article headlined "On Chinese Banks of Amur" says that Russia's largest state arms exporter Rosoboronexport has signed a framework contract with China to jointly design and build four Russia's latest non-nuclear submarines Amur-1650 for the Chinese Navy; pp 1, 9 (942 words).

4. Anna Solodovnikova and Kirill Sarkhanyants article headlined "Transneft to Pass Exam on Norms of Eastern Siberia-Pacific Ocean [Oil Pipeline]" says that the EU wants the Russian oil pipeline operator Transneft to report on its investment program because Europe fears that the launch of the second part of the Eastern Siberia-Pacific Ocean oil pipeline, via which oil will be delivered to Asia, may cause interruptions in oil supplies to European countries; pp 1, 11 (585 words).

5. Natalya Bashlykova article headlined "Most Citizens Did Not Listen to Vladimir Putin" says that according to a public opinion poll conducted by the All-Russia Public Opinion Research Centre (VTsIOM), about 30 percent of Russian people watched the live broadcast of President Vladimir Putin's address to the Federal Assembly, but one in two Russians ignored the address. Some 42 percent of those polled are skeptical about the implementation of the address; p 2 (452 words).

6. Maxim Ivanov and Taisia Bekbulatova article headlined "Ban on Officials' Foreign Accounts to Be Given Fast-Track Approval" says that the State Duma may approve in the first reading a bill banning Russian officials from having bank deposits abroad by the end of the year; p 2 (451 words).

7. Irina Nagornykh article headlined "Dmitry Medvedev Contributes Personal Project to United Russia's Money Box" looks at a meeting of United Russia's leadership to discuss party projects to implement Putin's parliamentary address. Party chairman Dmitry Medvedev suggested assisting Russian families in adopting orphans, among other things; p 2 (611 words).

8. Nikolai Sergeyev article headlined "Measure of Appointment Chosen for Judges" says that new heads of the Russian Council of Judges and the Higher Judges Qualification Board have been elected; p 4 (462 words).

9. Natalya Korchenkova article headlined "Authors of Constitution Not Happy About Result" says that the Boris Yeltsin Presidential Center has discussed prospects for amending the Russian Constitution and concluded that amendments to the constitution should, first of all, restrict the president's "superpowers"; p 4 (620 words).

10. Irina Alexanderova et al. article headlined "Kirov Region Governor Ready to Become Elected" says that Kirov region Governor Nikita Belykh has expressed willingness to run for a second term in office; p 4 (607 words).

11. Vsevolod Inyutin and Grigory Tumanov article headlined "'Good Camps' Threaten Opposition" says that the flats of five opposition activists in Voronezh have been searched as part of the probe into the May 6 riots in Moscow. The activists took part in the summer seminars called Good Camps, at which Left Front leader Sergei Udaltsov made speeches. Investigators think that Udaltsov could prepare militants for a coup at these seminars; p 5 (402 words).

12. Oleg Rubnikovich article headlined "Yekaterina Smetanova's Successor Not Released" says that the Moscow City Court has refused to change a measure of restraint for one of the key suspects in the Defense Ministry's property fraud case. The man will be kept in custody until Dec. 24; p 6 (646 words).

13. Kirill Belyaninov article headlined "Hillary Clinton to Be Brought to Account for Ambassador's Death" says that an independent expert commission has blamed the leadership of the U.S. State Department for the death of U.S. embassy officials in Libya on Sept. 11. The Republicans insist that Secretary of State Hillary Clinton should deliver a report on the issue to the Congress; p 7 (515 words).

14. Galina Dudina article headlined "Britain Moves Away From Continent" says that U.K. politicians have increasingly begun to speak about quitting the EU. Not only Europe, but also the U.S.A. are concerned about the issue; p 7 (471 words).

15. Yelena Chernenko article headlined "Engineers Estimated at $700,000" says that Syrian militants have demanded a $700,000 ransom for the kidnapped Russian and Italian citizens; p 7 (396 words).

16. Andrey Kolesnikov report headlined "Vladimir Putin Sets Tasks for Allies in Eurasian Economic Community" gives an account of the meetings of the Collective Security Treaty Organization (CSTO) and the Eurasian Economic Community (EurAsEC) in Moscow; p 7 (474 words).

17. Olga Mordyushenko article headlined "Novatek Does Not Reach Cyprus's Shelf" says that the independent gas manufacturer Novatek has been denied access to the development of the shelf of the Cyprus; p 11 (423 words).

Nezavisimaya Gazeta

1. Alexandra Samarina and Ivan Rodin article headlined "Division of Power in Russian Way" says that the State Duma has passed in the second reading a bill banning U.S. citizens from adopting Russian children. The president's press secretary commented on the issue by saying that it is the deputies' stance, which makes it possible to speak about a new strategy by the Kremlin, which positions the parliament as an independent centre of power; pp 1, 3 (1,312 words).

2. Vladimir Mukhin article headlined "Expensive Defenders of Fatherland" says that by the end of the year, the Federation Council is to approve and Putin is to sign a bill on the setting-up of the mobilization reserve of servicemen who are to be called up in case of emergency; pp 1-2 (890 words).

3. Tatyana Ivzhenko article headlined "Tyahnybok May Defeat Yanukovych" says that the European Parliament is concerned about increased popularity of Ukraine's far-right party Freedom. Experts do not rule out that party leader Oleh Tyahnybok may win the presidential election in 2015; pp 1, 6 (1,023 words).

4. Igor Naumov article headlined "Aqua Culture Imparted to Single-Industry Towns" looks at a meeting of the Russian Union of Industrialists and Entrepreneurs, dedicated to the implementation of federal and regional programs to save single-industry towns; pp 1, 4 (694 words).

5. Alexei Gorbachev article headlined "Lithuanian Trace in 'Bolotnaya Case'" says that seminars to prepare an "orange revolution" in Russia were held in Lithuania for Russian opposition activists last summer. The Investigative Committee will carry out a probe on the issue; pp 1-2 (597 words).

6. Sergei Kulikov and Mikhail Sergeyev article headlined "Rosagrolizing Tries to Sort Out Skrynnik's Heritage" looks at the financial situation in the Rosagrolizing company and says that the new management of the company blames former Agriculture Minister Yelena Skrynnik for its heavy debts; pp 1-2 (769 words).

7. Editorial headlined "Shagreen Leather on Backbone of Protest" says that failure of the Dec. 15 protest rally in Moscow has shown that the opposition's radical protest tactic is flimsy. The opposition turns out to be a prisoner of sentiments of a small group of radically-minded people, on which it cannot rely. However, it does not admit the wrong nature of the chosen tactic, preferring to complain about Russian society being passive and indifferent; p 2 (479 words).

8. Alexei Gorbachev article headlined "Opposition Activists Tested" features comments by opposition activists from Voronezh, who have been questioned and whose flats have been searched as part of the probe into the 6 May riots in Moscow; p 3 (616 words).

9. Sergei Kiselev article headlined "Fisher's Knot of Russian Space" looks at the situation in the Russian space sector; p 5 (1,593 words).

10. Yury Simonyan interview with Zurab Abashidze, Georgia's special representative for relations with Russia, headlined "Tbilisi Does Not Have Illusions About Moscow", who speaks about the Russia-Georgia recent meeting in Geneva and prospects for the development of bilateral relations; p 5 (1,003 words).

11. Anton Khodasevich article headlined "Virtuoso of political bargaining" focuses on Belarusian President Alexander Lukashenko's meeting with Putin in Moscow; p 6 (631 words).

12. Svetlana Gamova article headlined "Transdnestr Repubic Becomes Badly Dependent on Gas" says that the Dniester region owes $4 billion for Russian gas supplies. The debt is de facto being formed by Russian enterprises, but, at the same time, it is Russian taxpayers who cover the holes in the region's budget through humanitarian aid, the article says; p 6 (732 words).

13. Nikolai Surkov article headlined "Department of State's Mistakes Kill Ambassador in Libya" says that according to an independent commission that investigated the circumstances of the Sept. 11 attack on the U.S. embassy in Benghazi, during which the US ambassador to Libya was killed, "systemic errors" in the work of the U.S. State Department were the main cause of the incident; p 7 (559 words).

14. Yury Panyev article headlined "Obama to Leave Americans Without Guns" says that following the shooting in Newtown, U.S. President Barack Obama has suggested reinstating the ban on possessing and carrying weapons. A relevant bill will be debated in the U.S. Senate on Jan. 3; p 7 (574 words).


1. Yelizaveta Sergina and Natalya Bianova article headlined "Yandex Shares Money" says that Sberbank has bought a controlling stake in the company Yandex.Dengi, specializing on electronic payments; pp 1, 11 (600 words).

2. Mikhail Overchenko article headlined "Greece Jumps" says that Standard and Poor's has raised Greece's sovereign credit rating to B-minus; p 1 (400 words).

3. Irina Novikova and Maxim Glikin article headlined "Deputy's Conscience" says that most State Duma deputies have backed the controversial bill banning U.S. people from adopting Russian children and features a political expert's comment on the issue; pp 1-2 (750 words).

4. Editorial headlined "Duma of 3rd World" says that State Duma deputies have backed the controversial bill banning U.S. citizens from adopting Russian orphans because they have been insulted by the U.S. Magnitsky Act, under which they will no longer be considered as the elite abroad; pp 1, 4 (600 words).

5. Maxim Glikin et al. report "Prompting Putin" says that ministries and agencies have been asked to prepare answers to the questions that Putin will be asked during his annual news conference today. This is normal practice, the presidential administration says; p 2 (700 words).

6. Bela Lyauv interview with Rashid Temrezov, head of Karachayevo-Cherkessia; p 6 (3,000 words).

7. Igor Tsukanov report "Helping Roskomnadzor" says that the Russian companies MTS, VimpelCom, MegaFon and the association ROTSIT may set up a non-commercial organization to be in charge of a list of banned websites instead of the Federal Service for Supervision in Telecommunications, Information Technology and Mass Communications; p 11 (600 words).


1. Oleg Vorobyov article headlined "Dvorkovich and Deputies Do Not Entrust Rubbish Billions to Chemezov" says that the Russian government has rejected Rostekhnologii state corporation head Sergei Chemezov's initiative to set up a special state fund to manage all recycling on the basis of the union of self-regulating organizations; pp 1, 3 (1,034 words).

2. Maria Kunle and Maria Kiseleva article headlined "They Want to Make Rosimushchestvo Mega-Regulator of State Property" says that the Audit Chamber has suggested giving the full control over the state property to the Federal Agency for the Management of Federal Property; pp 1, 4 (449 words).

3. Igor Agapov article headlined "Government Takes Side of Minority Shareholders in Case on Rostelecom Options" says that the Economic Development Ministry has recognized as wrong the decision of the Rostelecom board of directors to give all its members a right to participate in the company's option programs; pp 1, 4 (585 words).

4. Mikhail Popov article headlined "Former Policemen From Kushchevskaya Gets Asylum in Turkey" says that a Krasnodar region policeman, charged with bribe-taking, has fled to Turkey and received political asylum there. He believes that he has fallen victim to lawlessness and the criminal case against him has been framed-up; pp 1, 4 (654 words).

5. Anna Lyalyakina and Alexandra Yermakova article headlined "Officials to Be Deprived of Mercedes Cars and Swiss Cheese" says that a list of goods that will be prohibited from being bought for state and municipal needs if they are not produced in Russia, Belarus and Kazakhstan, has been made up; pp 1, 4 (811 words).

6. Dmitry Runkevich report "Law on Believers' Feelings to Be Made More Lenient at Kremlin's Request" says that some definitions used in the law will be specified; pp 1, 4 (600 words).

7. Igor Agapov report "Communications Ministry and Supreme Court Block Websites on Methods" says that the Communications Ministry and the Supreme Court will work out recommendations for judges as regards the way to make decisions on restricted access to internet resources; pp 1, 3 (600 words).

8. Dmitry Runkevich article headlined "Adoption Agencies Prepare for Closure in Russia" says that several U.S. adoption agencies have decided to close down their Russian offices after the State Duma approved the controversial bill in response to the U.S. Magnitsky Act; p 2 (511 words).

9. Alena Sivkova article headlined "Federation Council Sets Up Commission for Cybersecurity" says that the Federation Council will set up a special commission for developing information society; p 2 (436 words).

10. Vladimir Gusev article headlined "President's Human Rights Council Split Over Orphans" says that the president's human rights council has divided into two groups: the supporters and the opponents of the controversial bill banning US people from adopting Russian children; p 3 (554 words).

11. Konstantin Volkov article headlined "Woman Heads South Korea for First Time" looks at the newly-elected South Korean president; p 5 (546 words).

12. Oleg Shevtsov interview with the Syrian opposition's ambassador to France, headlined "'If You Do Not Want Fly-Free Zone, Give Normal Arms,'" who speaks about the current situation in Syria and steps that Russia should take to maintain good relations with Syria; p 5 (1,109 words).

13. Anna Akhmadyeva article headlined "Novaya Gazeta to Launch Internet TV" says that the newspaper Novaya Gazeta plans to launch an online TV on its official website in 2013; p 7 (568 words).

14. Boris Mezhuyev article headlined "Birth of 'Dangerous' Class" comments from the political point of view on the protest staged by students of the Russian State University of Trade and Economic (RGTEU) in Moscow against the closure of the university as part of the government's initiative to close "ineffective" higher education institutions; p 9 (833 words).

15. Lev Lyubimov article headlined "On 'Moan Across Great Russia'" focuses on Putin's parliamentary address; p 9 (791 words).

16. Igor Karaulov article headlined "Crisis Named After Dima Yakovlev" criticizes the State Duma for approving the controversial bill in response to the U.S. Magnitsky Act and says that not only society, but also a number of ministers, which is an extraordinary phenomenon, have condemned the State Duma for this; p 9 (715 words).

Rossiiskaya Gazeta

1. Tatyana Zykova interview with Industry and Trade Minister Denis Manturov, headlined "Well-Forgotten Old Things", who speaks about the resumption of a state program to recycle old cars; pp 1, 5 (715 words).

2. Tamara Shkel article headlined "Children Protection Day" says that the State Duma has approved the controversial bill banning U.S. people from adopting Russian children; pp 1, 8 (422 words).

3. Kira Latukhina report headlined "Without Patterns" focuses on the meetings of the Collective Security Treaty Organization (CSTO) and the Eurasian Economic Community (EurAsEC) in Moscow; p 2 (441 words).

4. Vladimir Kuzmin article headlined "To Work for Country" describes a joint meeting of the United Russia party's supreme and general councils, at which Dmitry Medvedev has set tasks for the party for 2013; p 3 (1,073 words).

5. Maxim Makarychev report "Worse Than Dog" says that the U.S.A. is living according to double standards in relation to those who torture children; p 8 (800 words).

6. Oleg Kiryanov article headlined "They Preferred Woman" says that for the first time ever, a woman has been elected the president in South Korea; p 8 (455 words).

RBK Daily

1. Natalya Starostina and Vitaly Petlevoy article headlined "Sberbank.Yandex.Dengi" says that Sberbank has acquired the controlling stake in the company Yandex.Dengi, specializing on online trading business; p 1 (400 words).

2. Alexander Litoi article headlined "Retribution for Targamadze" says that the Russian opposition is losing trust in opposition activists Leonid Razvozzhayev and Konstantin Lebedev, charged with preparing a coup in Russia, and suspects them of manipulating Georgian sponsors; pp 1, 3 (500 words).

3. Ivan Petrov article headlined "Arrest in 'Home Way'" says that the State Duma has considered a bill regulating the terms of home arrest, which should not exceed 18 months. The bill will make it possible to release Yevgenia Vasilyeva, a key suspect in the Defense Ministry's property fraud case, by 2014; p 3 (500 words).

4. Polina Stroganova article headlined "Debts as Gift" says that talks between Gazprom and Kyrgyzstan on the purchase of the Kyrgyz gas transportation company Kyrgyzgaz for one dollar in exchange for Gazprom's forgiving Kyrgyzstan's debts may finish today; p 6 (300 words).

5. Svetlana Makunina article headlined "Kids for Europe" says that after banning U.S. citizens from adopting Russian orphans, Russian deputies will try to increase the number of adoptive parents from Italy and France; p 2 (400 words).

6. Katerina Kitayeva article headlined "1 1/2 Billion for Broadcasting" says that 1.5 billion rubles allocated by Prime Minister Dmitry Medvedev for the needs of the Russian public TV will be enough only for the first half of the year of broadcasting; p 8 (400 words).

Komsomolskaya Pravda

1. Yevgeny Lukyanitsa article headlined "Berezovsky to Be Probed in Connection With Litvinenko's Death?" says that Russian State Duma Deputy Andrei Lugovoi has accused tycoon Boris Berezovsky of financing the activities of Russian refugees in the U.K.; p 3 (300 words).

2. Vladimir Vorsobin interview with Russian children rights' ombudsman Pavel Astakhov on the bill banning U.S. citizens from adopting Russian orphans; p 5 (1,000 words).

3. Viktor Baranets article headlined "Russian General to Head CSTO" comments on a new appointment of Alexander Studenikin as head of the CSTO; p 8 (200 words).

Krasnaya Zvezda

1. Interview with Northern Fleet commander Vice-Adm Vladimir Korolev headlined "Russia's Northern Shield" on combat training results for 2012 and plans for the first six months of 2013; pp 1-2 (1,800 words)

2. Alexander Alexandrov article headlined "Time to Join Efforts" sums up outcomes of the Collective Security Treaty Organization summit that was held in Moscow on Dec. 19; pp 1, 3 (800 words).
Valdai Discussion Club
December 20, 2012
Changes in political sentiments of Russian citizens after the Presidential elections
By Mikhail Dmitriev
Mikhail Dmitriev is President of the Center for Strategic Research.
Excerpts from the report of the Experts of the Center for Strategic Research to the Committee of Civic Initiatives.

The new round of CSR's research testifies to fast and profound changes occurring in the political conscience of the Russian people. These changes confirm that the continuing decline in the trust in the authorities is due to fundamental reasons. It is linked to the increased alienation of the population from the authorities as well as to the demand to renew the authorities as the population can see no real opportunities to achieve this goal.

Deteriorated attitude to Vladimir Putin is expressed not only in an extremely irritated response to his PR campaigns and political rhetoric but also in the fact that in the absence of new positive results his past political merits get quickly forgotten.

The victory in the presidential election held in an environment of descending trend of trust was achieved at the cost of giving rise to exaggerated and inexecutable expectations from the new presidency. The impossibility to implement them has to be paid for now with accelerated fall in trust and further distancing of the people from the authorities.

This frustration extends throughout the whole political arena. There is a perceptible deterioration in the attitude to Dmitry Medvedev, the United Russia as well as to all political parties and political leaders including those of the opposition, and to the electoral system.

The psychological tests have shown that the authorities are perceived antagonistically ­ as something strong but pursuing personal advantages, acting aggressively, and posing a source of increased danger. At the level of subconscious the respondents consider their relations with the authorities as alienated, distanced and hostile. In the projective psychological tests the respondents describe them as relations typical of wildlife between the predators with which the authorities are associated, and their victims with which the people are associated.

The interference of the Russian Orthodox Church with politics does not only impede the reduction of tensions between the authorities and society but also brings forth new sources of confrontation. According to the projective psychological tests, in respect of its attitude to the Russian Orthodox Church Russian society is split into two unequal antagonistic groups ­ with an express positive attitude (a majority), and with an acutely negative attitude (a significant minority).

In their perception of the actual policy of the authorities the respondents lay the emphasis on negative aspects. The key items in the negative list score far more votes than the positive list items.

The subconscious image of ideal authorities is extremely different from the reality. Ideal relationships between the people and the authorities are characterized by togetherness, mutual respect and cooperation, which however are based on the people's submission to the authorities. However, the respondents find it difficult to name potential national leaders who are promising in their opinion, and only have a vague idea about the possible action programme of such leaders.

A similar survey conducted among teenagers shows that a new generation is growing in Russia, and with different political mindsets: focus on the competence of the authorities, reduced distance between the authorities and the people, and a demand for horizontal and not vertical systems of interrelations. This generation will join universities on the eve of the next presidential election, and will be able to exercise certain influence on the course of political events.

Psychological testing has shown that a vast majority of the population suffers from a depressive state that we would identify as «learned helplessness syndrome». The population makes an increasingly more conscientious and rigorous demand for the renewal of the federal, regional and local authorities but is not ready to actively influence the political life neither through participation in the elections, nor through conscientious search of other solutions.

The results of pilot survey of the Daghestani community members revealed major differences in the psychological state of the Russian and Daghestani peoples. The learned helplessness syndrome turned out to be a typical of the Daghestanis, they are characterized by a proactive attitude towards the authorities, and they are subconsciously ready to confront the authorities. These differences correspond quite well to the differences between the electoral campaigns held in October. Unlike in the regions with predominantly Russian population, the results of voting in North Ossetia, Daghestan and Karachaevo-Cherkessia on October 14 were much less unambiguous than before. Opposition leaders and movements took shape there, and they are capable of offering resistance to the candidates of the authorities at elections, and attract a considerable portion of votes to their side.

The elections including the single voting date of October 14, have shown that the population is very sensitive to the defiant lack of prospects to renew the authorities through the election. In their turn, the awareness of lack of prospects and frustrated hopes for a voluntary change of political leaders result in swift increase of the legitimacy of protest-revolutionary scenarios to renew the authorities. For the first time throughout the whole history of our sociological observations, the scenario of renewing the authorities by protest and revolution was discussed in detail and unfailingly keenly by all of the focus-groups at the initiative of their participants.

Given the sheer political impassiveness of the overwhelming part of population in Russia, the implementation of the protest-revolutionary scenario is not viable under current conditions. However, its rising legitimacy in society increases sensitivity to the potential triggers of mass protests. The new wave of the economic crisis could become one of such triggers.
The Economist
December 22, 2012
Russia's opposition
Smaller and colder
The anti-Putin protesters are coming under rising pressure

MOSCOW - THE Solovetsky stone stands in a small park opposite the headquarters of the Federal Security Service in Lubyanka Square. It was brought to Moscow in 1990 from a Stalin-era prison camp as a memorial to victims of Soviet repression. On December 15th some 2,000 people gathered around the stone for an anti-government protest called by opposition leaders, including Alexei Navalny, their biggest star, and Sergei Udaltsov, a fiery far-left activist. The demonstration did not have the official sanction of Moscow's mayor, making it technically illegal.

That, along with the biting cold and a sense of frustration that marked the anniversary of the 2011 protests, meant the crowd was smaller than before. The protesters laid flowers on the Solovetsky stone and stood on the snowy square until they were forcibly squeezed out by riot police. Around 60 people were detained, though most were later released.

The protest was the first since the formation of an opposition co-ordinating council, a 45-strong body elected by online voting in October. The council was meant to make the opposition more coherent and transparent. Yet only 80,000 people voted in the online election. And the council has not made negotiations with city hall any smoother. Many members decided not to join the protest. Plenty are not paying their monthly $165 dues. Perhaps that is just democracy: messy, roundabout and not always efficient. But if it hopes to coalesce into a force capable of acting as a political opponent to the Kremlin, the council must show more tangible success soon.

Without a galvanising event like the fraudulent Duma election in December 2011, it is hard to pull people onto the streets. The opposition may do better with more tangible projects, including building a political party. Boris Akunin, a detective novelist who emerged as the protest movement's moral conscience in 2011, deplores the idea of the Putin system collapsing overnight. He argues against a "peaceful revolution", suggesting that a new civil society should seek incremental gains. He pleads for patience from supporters.

The state, however, may not be so patient. President Vladimir Putin speaks of dialogue only with unnamed "civilised" political forces that struggle for their demands "within the law". Those who fall outside this category­for example, by staging an unsanctioned protest in front of the Lubyanka­face increasing pressure.

In the past week alone Mr Navalny, who has already been charged in connection with a separate fraud case, has faced two new criminal investigations. The first involves his brother in an alleged scheme to embezzle money through a mail-shipping company; the second centres on the sale of a distillery. His parents have also been questioned. Mr Navalny says the new cases are a "bright signal" to himself and others that "even if you think you're brave enough to sit in prison, it's not just you any more." The strange new charges seem designed to show both the state's capriciousness and its omnipotence.

Russia's New Year holidays stretch into mid-January. In 2012 both the opposition and the state took an extended break. Mr Navalny and his family went to Mexico. In 2013 he won't be going anywhere: his criminal charges stop him from crossing Moscow's city limits.
December 20, 2012
Russian investigators to probe Lithuania's role in Moscow riots
Russia's Investigative Committee intends to examine reports the Russian oppositions received training in so-called 'orange revolution' tactics at a special camp in Lithuania, a newspaper report claims.

Nezavisimaya Gazeta daily quoted a source in the country's top law enforcement agency as saying that the committee based their suspicions on the Anatomy of Protest documentary aired on the Russian television in early October. The film's theory was that the Russian opposition received funding from abroad, especially that which organised a protest rally in Moscow in May that ended in violence.

Among other things, the film featured a video from a summer camp in Lithuania where Russian citizens from various regions of the country could listen to lectures on ways of seizing power. So called colored revolutions in countries like Georgia and Ukraine were studied as models at these seminars. The events took place in 2012.

The film also included a hidden camera record of Sergey Udaltsov, leader of the Russian Leftist Front movement discussing plans to start unrest and financial issues with Georgian MP Givi Targamadze.

Almost immediately after the documentary's broadcast, the Investigative Committee started a criminal case against Sergey Udaltsov and two other young opposition activists ­ Leonid Razvozzhayev and Konstantin Lebedev. All three are charged with organizing mass unrest. Udaltsov is currently under a travel ban and the other two suspects have been put in pre-trial custody.

Nezavisimaya Gazeta writes that about 150 Russian citizens took part in the Lithuanian seminars. The newspaper found one participant who, on condition of anonymity, said the studies were a part of a larger cooperation program launched by the European Union for the Russian opposition. The Lithuanian program included one-week studies organized in a small hotel near Vilnius and apart from training in non-violent protest the participants were lectured on monitors' role in elections. Other studies covered basic PR techniques, like choosing slogans that would ensure universal support.

The opposition rally held in Moscow on May 6, before Vladimir Putin's presidential inauguration, resulted in street clashes. The march was dissolved and about a dozen people were detained and charged with attacking policemen and causing mass unrest, both on the day of event and later, on the basis of photo and video records.
Russian Opposition Activist Sent to Siberia
MOSCOW, December 20 (RIA Novosti) ­ Russian opposition activist Leonid Razvozzhayev has been transferred to a facility in the east Siberian city of Angarsk in connection with a probe into an armed robbery that took place in 1997, his lawyer said on Thursday.

"Razvozzhayev has been transferred from Moscow to Angarsk as part of a criminal case against him over charges of robbery," lawyer Dmitry Agranovsky told RAPSI news agency.

The Russian opposition activist, who already faces up to ten years over allegations that he conspired to organize mass disorder, was hit with these additional charges in November when investigators charged him with robbing an Angarsk businessman of 500 fur hats and video cameras.

Razvozzhayev denies these charges and claims they were dismissed 15 years ago over lack of evidence. The lawyer had earlier pointed out that the statute of limitations has already expired, and says he plans to appeal.

Last week, Moscow's Basmanny district court ruled that Razvozzhayev should remain in jail until April 1, while the charge that he was involved in plotting mass riots is investigated.

In October, Razvozzhayev was charged with plotting to destabilize Russia in a bid to overthrow President Vladimir Putin. The charges were based on grainy, low-quality footage aired by the pro-Kremlin television channel NTV.

The jailed Russian opposition activist is also facing charges of illegally crossing Russia's border with Ukraine to evade prosecution.

His case made international headlines in October after he told human rights workers that "masked men" had abducted him while he sought UN political asylum status in Kiev. He said his abductors had threatened to kill him and his two children if he did not confess to being involved in the plot and incriminate his "co-conspirators."

Russia's Investigative Committee said Razvozzhayev had been in "his right mind" when he signed the confession, but Razvozzhayev later retracted it.
Russian tycoon Khodorkovsky to walk free in 2014
By Alexei Anishchuk and Alissa de Carbonnel

MOSCOW, Dec 20 (Reuters) - A Russian court reduced former oil tycoon Mikhail Khodorkovsky's jail sentence for embezzlement by two years on Thursday, clearing the way for one of Vladimir Putin's fiercest critics to walk free in October 2014.

Khodorkovsky, once Russia's richest man, is serving a 13-year sentence near the Arctic circle on charges of multi-million dollar tax evasion and money laundering. It was not immediately clear if Thursday's ruling could be overturned on appeal.

His Yukos oil company was broken up and sold off, mainly into state hands, after his arrest in 2003. Khodorkovsky, who is now 49, had appeared to defy calls by the president for rich businessmen, or oligarchs, not to get involved in politics.

Putin once dismissed Khodorkovsky's case by saying thieves must sit in jail. But asked about the ruling on Thursday, he said he bore no grudge against him and said he had not played any role in the court's decision.

"As for Mikhail Borisovich (Khodorkovsky), there was no personal persecution ... This is a purely an economic crime. The court took its decision," Putin told his annual news conference.

"As regards my opinion that a thief must sit in jail, who is against that? Should he walk the streets?," he said.

Khodorkovsky's jailing during Putin's first spell as president from 2000 until 2008 was widely criticised abroad. Kremlin critics regard the two men as political prisoners but the Kremlin denies this.

Opposition leaders have said in the past that the Kremlin would allow Khodorkovsky's release only when certain that he was no longer a political threat to Putin.

Putin says the judiciary is independent, but Khodorkovsky's imprisonment was interpreted by the former KGB spy's opponents as a warning to wealthy tycoons to stay out of politics. It was also seen as the beginning of a Kremlin drive to increase state control over lucrative oil investments.

Khodorkovsky's website said he could be released in October 2014 after serving 11 years of his 13-year sentence. Under the ruling, his business partner Platon Lebedev would also be released early, in July 2014, it said.

The two men have waged court battles for years against their sentences, both in Russia and in the European Court of Human Rights. In the latest appeal, their lawyers based their cases on changes to Russian criminal law.

Defence lawyer Vadim Klyuvgant welcomed the ruling as "a little human relief" in comments published on Khodorkovsky's website, but said it was deliberately timed to coincide with Putin's nationally televised annual news conference.

Khodorkovsky is one of the tycoons who made huge fortunes following the collapse of the Soviet Union in 1991. He says he has been prosecuted over business practises that were both legal and widely used.

Lebedev and Khodorkovsky have hoped repeatedly to secure early release but their hopes have been dashed on each previous occasion.

Lebedev's defence lawyers had earlier persuaded a court to reduce his prison term by three years and four months, but a higher court struck down the ruling.

The lower court then cut Lebedev's term by three years, only for the higher court to reject that decision too.

December 20, 2012
Students Protest Against Closure of Their "Inefficient" University

Students at the Russian State University of Trade and Economics have organized a sit-in to protest against a government plan to shut down their university, which was included in a "list of inefficient colleges." The Russian Students' Union anticipates similar protests across the country.

The Ministry of Education and Science, which ordered the controversial evaluation of universities, agreed to talk with the protesters on Wednesday, promising to pass on the students' demands to Minister Dmitry Livanov. The protesters plan to continue their sit-in until the evaluation results are invalidated.

Of the 502 universities evaluated on the basis of their students' average score upon admission, proportion of foreign students, available educational infrastructure and so on, 136 were deemed "inefficient." Some have been given a chance to improve while others will either be shut down or merged with other universities.

Sergei Baburin, Rector of the Trade and Economics University, published a letter accusing the ministry of manipulating the evaluation results. The student council supported the rector and announced a sit-in, occupying a lecture hall at night after lectures end at 6 p.m.

Leftist opposition leader Sergei Udaltsov and other activists visited the students, but student leaders have explicitly dissociated themselves from politics.

Deputy Education Minister Alexander Klimov, who was responsible for the evaluation, said the ministry was not going to revise the results. "We used the records sent to us by the university and signed by its rector. The results, according to those records, were exceptionally low even by national standards, let alone for Moscow," he said.

The ministry is not going to compromise with the protesters or with students of other inefficient universities. "This happens with all kinds of modernization initiatives. People immediately begin screaming for things to be left alone. But we used the same criteria on all universities, and gave them equal opportunities," he said, adding that the blacklisted universities must submit their development plans by December 22, something the Trade and Economics University has not done yet.

"If I were their manager, I would have used my time more productively to work out a detailed program. The students would much rather get down to revising for their exams," Klimov concluded. In any case, they will be given the opportunity to complete their degrees, and their tuition fees will not change even if their university merges with another university.

Baburin said they have sent a development plan to the ministry. "We are expanding our branch network and cooperating with foreign universities. This list is an insult to the entire academic community," he added.

Although rectors criticized the ministry's initiative, they have now dissociated themselves from Baburin. "Most conflicts have been settled through consultations with working groups," said Olga Kashirina, head of the Russian Rectors' Union.

Student Union leader Artyom Khromov anticipates similar protests across Russia. He believes the Education Ministry should meet with students of all blacklisted universities to explain what is going to happen.
International Herald Tribune
December 20, 2012
Putin Under Fire From International Rights Groups

LONDON - An alliance of international human rights and citizen action groups has accused Vladimir V. Putin of cracking down on Russia's civil society since he returned to office as president in May.

Eight organizations, including Human Rights Watch, Amnesty, and the corruption watchdog Transparency International, urged the European Union to raise their concerns at a summit meeting with the Russians this week.

They cited current and pending legislation that they said called into question Russia's relationship with fellow European states and with the European Court of Human Rights.

"Since Putin's return to the presidency in May, Russia's Parliament has adopted a series of laws that imposed new restrictions on public assemblies and raised financial sanctions for violations to the level of criminal fines, re-criminalized libel, and imposed new restrictions on Internet content," according to Human Rights Watch.

The rights groups said that new laws branded nonprofit groups that received money from abroad "foreign agents," while a new, broader definition of treason could potentially criminalize human rights and political activism.

Fines of up to $32,000 against those taking part in protests deemed illegal had had a "chilling effect on the right to peaceful assembly." Other new measures threatened to control the Internet and curb free speech, according to the rights groups.

And a proposed law aimed at anyone "promoting" homosexuality to people under 18 was condemned as homophobic by Human Rights Watch.

Looking to the regular summit meeting of Russia and the European Union opening in Brussels on Thursday, Hugh Williamson, the Human Rights Watch director for Europe said, "The E.U. should convey a clear sense of alarm at the crackdown of the past six months on Russia's vibrant civil society.

"And the E.U. should press the Russian leadership to stop trying to choke off free speech and assembly and any sign of dissent."

The joint appeal comes as Washington and Moscow are embroiled in a controversy over a new U.S. law that would punish alleged Russian human rights abusers.

The law, signed by President Barack Obama last week, bars those accused of rights abuses from traveling to the United States and from owning real estate or other assets in the country.

As my colleagues David M. Herszenhorn and Andrew Roth wrote this week, "It infuriated Russian officials, including President Vladimir V. Putin, who pledged to retaliate." Russian lawmakers on Wednesday were considering a ban on adoptions of Russian children by American citizens.

How far the European Union can or will seek to go in reversing Russia's alleged bad behavior is a moot point. Friday's summit is expected to focus on economic issues rather than human rights.

European officials have nevertheless spoken out on Russia in terms not that different from the rights groups.

Catherine Ashton, the Union's foreign affairs chief, has said that since May, "we have been seeing less and less dialogue and openness on the side of the authorities, and rather more intolerance of any expression of dissenting views."

In a speech to the European Parliament in September, she said, "Instead of stronger safeguards for the exercise of fundamental rights and freedoms, we have seen a string of measures all chipping away at them."

International and domestic criticism has thrown at least some Russian officials on the defensive.

In a televised interview this month, Prime Minister Dmitri A. Medvedev, denied that the Kremlin had begun "tightening the screws" since Mr. Putin replaced him as president.

"I don't consider these laws reactionary," he said of the contentious legislation. "If they are wrong, if they hurt citizens' interests, then they have to be corrected. But that's not the case yet."
The Lawyer
Decemer 19, 2012
Social media, Russian style
By Heidi Smith and Anna Caddick
Heidi Smith is director of Russian Paralegals and Anna Caddick is a senior associate in the commercial litigation department at Olswang

Even taking a quick look at the Russian-language version of Twitter could be time well spent, say Heidi Smith and Anna Caddick

Russia and the CIS are brimming with information sources that English lawyers are currently ignoring. Odnoklassniki, Vkontakte and Moi Mir attract very high percentages of Russian online users while the Russian-language interfaces of Twitter and LinkedIn are gathering momentum. Russian-language social media channels can help lawyers identify a wealth of credible information to support litigation or due diligence exercises; ignoring such widely available real-time information is to ignore a potential goldmine.

Lawyers have a natural reluctance to turn to social media, both in the context of their own professional profiles and as an information source. In the UK and much of the western world, social media platforms are considered to be largely unregulated. Further, their users (the increasing crackdown on the Twitterarti aside) are thought to be somewhat immune to the laws of libel and contempt, thus reducing the reliability of this information.

In the UK, despite recent isolated cases of sub-standard investigative journalism well outed by Leveson, the credibility of a news item can usually be assessed by reference to its publisher. Editorial independence from government can also usually be assumed. However, moving beyond the boundaries of the EU towards the Russian-speaking regions, reliance on information sourced from traditional media channels cannot be assured and they must therefore be viewed in an entirely different light.

The reason for this is that state ownership of traditional media persists in many Russian-language republics, for example Pravda or Rossiskaya Gazeta. This often skews the editorial line in favour of individuals with allegiances to the government. At best only cautious reliance may be placed on traditional media outlets for information about government officials involved in transactions related to state assets or matters with a political slant, of which there are more than one might think. In addition, numerous restrictions on independent reporting exist in law and regulation. Threats of criminal prosecution, or worse, prevent even the most ardent chief editor from investigating issues such as corporate governance or the ultimate beneficial ownership of state-linked assets.

Social media channels can help to counter this information deficit by providing uncensored information in real time. Such channels in the Russian-speaking world are developing quickly and run in parallel to the more familiar English-language channels. Odnoklassniki, Vkontakte and Moi Mir are social networking sites that are as popular in the Russian-speaking republics as their English-language equivalents.

Professional journalists and opposition political figures, who are marginalised from writing in the state-subsidised media, have resorted to blogs and other online media forums to express their opinions and findings, since these channels remain beyond the reach of the state. The public and self-regulating nature means that misinformation is quickly corrected. The result is that the reliability of social media channels in some countries, including the Russian Federation, may be enhanced relative to their English-language equivalents.

Added to this, there is an inherent tendency to give fuller information, whether intentionally or not, on social networking sites than in more formal media outlets. For instance, purportedly independent experts might provide useful disclosures of connections to their ultimate client hitherto hidden.

In a recent project to find possible links between two Russian individuals involved in high-value litigation, Russian Paralegals found the link in their Russian-language Linkedin profiles, after having conducted an extensive search of public and official records. The individuals had reported to the same person in an obscure company decades previously. Examples such as these suggest that new media sources have a useful role.

It is becoming clear that lawyers ignore at their peril the lack of independence of traditional media outlets in Russian-speaking republics, and the availability of independent uncensored information in social media. The proliferation of Russian-language clients in the London legal system suggests that even a cursory look at the Russian-language version of Twitter may be time well spent.

Business New Europe
OUTLOOK 2013: Confused picture for Russia (Part 1)
December 22, 2012
Ben Aris in Moscow
[Charts here]


The world and Russia both passed through the trough of the global crisis in 2012, say investment banks in Moscow, and the question for 2013 is: if the upswing starts, how fast will it go? Going into 2013, the world should start to recover, which will lift the Russian economy over the course of the year, but the speed will depend heavily on what happens in the rest of the world.

Externally, analysts are expecting the US to successfully negotiate the fiscal cliff and the economy was already starting to grow close to long-term trend by the end of 2012, according to Goldman Sachs. Europe will take a little longer to recover as its problems are worse, but should reach long-term trend growth rates by the end of 2013 or the start of 2014, the bank said. However, even in Europe economic growth was starting to accelerate by the end of 2012. In the US, most of the problems are purely of a fiscal nature whereas in Europe there are deeper structural problems to overcome.

Russia will be one of the better performers amongst the BRICs and the pattern of growth should mirror 2012: the economy will start the year with growth of about 3% but accelerate in the second half, as the growth drivers of investment and low inflation kick in.

There is a wide disagreement amongst the observers over how strong in the second half will be, ranging from Goldman Sachs that says it will be strong and driven by investment, to Danske which believes it will be modest and driven by consumption.

There is a chance for surprises as the Krmelin has launched a comprehensive package of reforms and a high-profile anti-corruption campaign. However, most analysts are taking a wait-and-see posture to these. Of the reforms that the government has made, the most advanced and effective are all in the fiscal sphere. The Central Bank of Russia (CBR) has changed over to inflation targeting so the ruble is a de facto free floating currency now. Capital market reforms will kick in from January opening Russia up to investors from the rest of the world that most are expecting to translate into some $20bn of fresh inflows.

First quarter trough, second half acceleration

Russia always seems to have a game of two halves, but 2013 in keeping with the preceding one looks more likely than any of the preceding three years to have a strong second half.

There is no disagreement amongst analysts that the first part of 2013 will be difficult for Russia. The economy was already slowing sharply in the second half of 2012 and this sluggishness is expected to spill over into the start of 2013.

"We believe that economic growth will stabilize at 3% year-on-year in 2Q13 provided that key risks (economic deterioration in Europe and the fiscal cliff in the US) do no materialize. Therefore, Russia's economic expansion will stay ahead of developed countries and Eastern Europe, keeping pace with emerging markets such as South Africa, Brazil and Turkey," says Uralisb.

Uralsib's prediction of growth slowing to 2.5% in the first quarter of 2013 but then accelerating to 3.5% by the end of the year is pretty typical.

"Weak consumer demand will lead to a deceleration in industry to 2.5% year-on-year in 1Q13 (we expect industry to grow 2.8% year-on-year in 2013). While resource extraction and utilities will continue to grow 1-1.5% year-on-year in 2013-15, manufacturing will decelerate more significantly ­ to only 3.5-4% year-on-year from the current 4.5% year-on-year (in 9M12)," the bank said in its end of year summary.

The key factors behind a manufacturing slowdown (beyond weak demand) are a deceleration in corporate credit growth to 13-15% year-on-year in 2013-15 (from 17.7% year-on-year in October), lack of free production capacity, and deteriorating demographics.

"We believe that stable retail credit (20-25% per year) and real income (4-5% per year) growth will sustain retail trade growth of 5-6% year-on-year in 2013-15. In addition, stable credit and real income growth will support transport, communications, and banks," say analysts at Uralsib.

Goldman Sachs is an outlier in expectations for the second half of the year in that it expects growth to be much stronger at the end of the year thanks to the combination of higher than expected investment and low inflation ­ although both these numbers are being debated.

Political risk

The appearance of the protest movement in December 2011 caught the headlines, but over the last year the opposition has failed to capitalise on their strong start and protests have fizzled.

While the Russian population has become politically conscious for the first time in 20 years it is still not politically active or organised in any meaningful way. There is no unified political opposition, which has already fragmented. The attitude of the population is they want improvement and especially to be more involved in the political process, but they don't want to jeopardise the material gains of the last decade.

The upshot is a healthy pressure on the Kremlin to respond to popular demand, but the chances of political violence of some kind of "colour revolution" are small.


There is a perennial fear that oil prices will fall and wreck the Russian economy, and while almost everyone agrees that the long-term price of oil is likely to fall to about $80 this is still several years away.

The consensus forecast for oil is about $115, although Citi are predicting $95 and the Russian budget assumes a price of $91 for oil.

However, Goldman Sachs is arguing that Russia is becoming less sensitive to the oil prices thanks to the number of new projects online or close to readiness. If there was some 5m barrels a day of recoverable oil available to tap in 2007, says Goldman Sachs, then now the number is closer to 20m barrels a day. While the supply market is still tight, the supply curve is already a lot flatter than it used to be which is adding some stability to the prices. A drop to $80 or below that some analysts have predicted looks increasingly unlikely and if the fall is to come it is unlikely to arrive before 2016, says Goldman Sachs.

"We think the oil market has peaked in 2012," says Clement of Goldman. "It is inevitable that prices will go down but this is not likely to happen before 2016. As the supply curve is flatter the prices will remain stable or may even rise in the short term."

Indeed, oil sector's share of the budget has been falling: in 2012 it was 51% but this is expected to fall to 40% in 2013, simply because of the growth of the rest of the economy ­ services and retail already account of over 50% of GDP and this will continue on the back of diversification driven by consumption.

Deficit days

The government forecasts a deficit of RUB521bn for 2013 but will actually run a flat budget once the contributions to the oil reserve fund are netted out.

This deficit will be financed with a planned RUB448bn on the domestic market and another $6bn on the external market ­ both modest goals, as well as RUB387bn from privatisation, which is less certain.

The domestic borrowing target in particular looks very modest and several analysts expect that Russia will borrow nothing abroad and raise up to RUB1 trillion from the domestic markets (in which foreign investors can participate from 2013).

But with shrinking surpluses the state is clearly on the hunt for revenues. Putin has ruled out tax hikes, leaving other revenue-raising options that will have both positive and negative consequences. On the upside is a new focus on reducing graft, encouraging small business, and increasing both productivity and efficiency. On the downside, it looks like the Kremlin will cut contributions to the state pension fund and is also playing with tariffs to create more cash.

2013 budget for austerity

The 2013 budget is going to be tighter with cuts in real spending in many areas, although the contentious heavy spending on military spending will start in 2013. The Duma approved a federal budget for 2013 with a slight deficit at the end of November.

The budget calculations, based on the economy ministry's 2013 forecast, assume a rise of 3.7% in GDP, a drop in the average price of a barrel of Urals oil to $97 (the budget breakeven price of oil in 2012 was $108) and inflation at end-2013 at 5.5%.

Public sector revenues next year are projected to grow 7­8% in nominal terms. Accounting for inflation, real growth would be around 2%. Revenues should decline slightly to less than 38% of GDP. Spending will increase about 10%, rising to more than 38% of GDP (a level still below pre-crisis levels). The public sector budget deficit is expected to come in at around 0.5% of GDP.

"We are expecting a tight budget in 2013. There was a small surplus in 2012 of 0.3% on spending equivalent of 20.5% of GDP. In 2013 the budget will be flat and a slight reduction in spending in real terms," says Clement of GS. "It could be drag on growth, but it depends on what they do with the oil money and the reserve fund."

The Ministry of finance has been pushing to reduce the cut off level after which oil money is freed to be spent by the govt after the reserve fund reaches 5% of GDP not the current 7% and he has already said that RUB100bn will be taken from the fund to invest into infrastructure projects. Just how this will play out is not clear yet.

Revenues & spending

Federal budget revenues next year are expected to be nearly the same as this year, while growth in expenditures will slow to a couple of percent. The lower spending growth reflects the fact that transfers to regional budgets are being cut, although a third of the federal budget spending will still consist of transfers to regions and contributions to social funds. Hikes in federal budget other spending are intended to keep pace with inflation.

Defence is the fastest growing category of federal budget spending, rising 15% in 2013 and nearly 20% a year in 2014 and 2015. Defence constitutes about a tenth of all public spending and over 3.5% of GDP. Actual defence spending exceeds the budget figure, and the Stockholm International Peace Research Institute (SIPRI) puts it at about 4% of GDP in 2011. Defence spending in 2011­2020 will be boosted by a massive upgrade in hardware and weaponry. While annual spending on armaments, equipment and facilities are not published, they are estimated to constitute about half of defence spending last year and this year.

Regional and municipal budget revenues are expected to rise over 10% next year on higher revenues from key taxes and despite cuts in transfers from the federal budget. Some observers see current regional and municipal budget estimates as very optimistic. Regional and municipal spending growth will accelerate to 13% next year due to factors such as public sector wage hikes promised by president Putin.

Revenues of social funds (Pension Fund, Social Security Fund and Health Insurance Fund), nearly 45% of which comes out of the federal budget, will rise over 10% next year. Rapid expenditure growth will continue (at 13%), reflecting increases in pension and other social spending. Social spending will remain at over a third of public sector spending, and correspond to about 13% of GDP.

Fiscal rule reduces risks to government finances

The government has introduced a "fiscal rule" which means that instead of guessing the price of oil for the next year, they average the price of oil over the last few years and use that in the budget calculations. For 2013 the price comes out at $91 per barrel, whereas most analysts predict prices well over $100.

The idea is to make the budget less vulnerable to swings in the oil price by using a long-term average. In the good years the extra revenue will be squirreled away in a reserve fund, which can be tapped in the bad years and so smooth out spending plans over the long term.

For 2013 this means that the state has imposed a measure of austerity on itself. The crisis saw oil prices fall so the average used in the budget is less than is expected on the market in 2013 hence the government has had to cut spending, which will slow growth.

"In real terms, the budget expenditure is projected to decline 2.3% in 2013: this is mainly due to lower expenditure in health care (down 14.0%), the national economy (down 9.8%), media (down 10.1%), social policy (down 4.8%) and education (down 3.0%), despite the increased expenditure on national security (up 8.7%), transfers to regional and municipal budgets (up 7.1%) and for state organizations (up 3.1%). We believe that austerity will firmly lock Russia's economy in the so-called "inertial scenario" characterized by 3% growth and significant resource dependence," say analysts at Uralsib.


Much of the growth of 2012 was due to strong consumption that was in turn fuelled by a borrowing binge with growth in consumer lending running at over 40% mom. However, as 2012 came to an end both retail sales and consumer borrowing were slowing and will continue this trend in 2013, although consumer borrowing is expected to stay high and over 30%.

However, retail sales were growing much more slowly than consumer borrowing at 7% to 8%, and following in lock step the growth in pensions and wages.

Given Russian unemployment is down to 20-year lows it would be expected that wages would start to rise quickly, but that didn't happen. It seems that a pall of gloom has settled over the population who are happy for what they have and are not pushing fro more, as a similar trend was seen in imports, which have also failed to increase with the rise in incomes or economic growth.

This may change in 2013 if confidence returns quickly and brings that "feel good factor" of a boom, but given 2013 is expected to be a transition year out of the crisis years no one is expecting this, so wages increases will continue to be modest and hold back retail turnover.

The factor that is most likely to affect retail is inflation, as this is expected to fall back towards its core rate of between 4.5% and 5.5%, which is a de facto increase income most of which will be spent by the public. Most of the inflation fall is expected in the second half the year after the harvest starts coming in, which is expected to be good at this point.

Inflation & overnight rates

Russia had a disappointing inflation performance in 2012 mainly due to a poor harvest; the CBR missed its 5-6% target and inflation came in at 6.8%.

However, prices rises were already starting to slow by the end of the year and in 2013 inflation is expected to trend down to core inflation levels of 4.5-5.5%.

More pertinent is what the CBR will do to overnight rates in 2013. The central bank hiked rates by 25 basis points in September, which main economists, worried about the effect on slowing growth, thought was a mistake. But the move was significant as it showed what the CBR's priorities were:

1. inflation was running above the CBR target range;
2. stop commercial banks financing the consumer lending boom using repos;
3. core inflation looked like it might start rising;
4. but the CBR was most concerned to establish its reputation as an inflation fighter.

Inflation has slowed and the OFZ curve flattened in November and December by 250 basis points, plus the repos stabilised so the CBR looks to have achieved all it set out to do and set itself up for 2013.

Economists are now convinced that the tightening cycle is over and given the conflicting pressures on the currency in 2013 like a better than 2012 harvest, but hikes in tariffs and investment spending on balance the CBR is expected to leave rates where they are at 8.25%.

Balance of Payments & imports

There has been a lot of talk about the falling currency account, but while it will shrink over time Russia is still running a healthy surplus of $195bn in 2012, and will continue to do so in 2013.

One of the factors holding the balance of payments up is the slow growth of imports, which will also be slower in 2013 as inflation slows down.

At the same time there are the first signs of import substitution starting to kick in. This is most obvious in the automotive sector where the new investment deal struck with the major manufactures will lead to a ten-fold increase in domestic production over the next five years. Car sales in 2012 were at the same level as car sales in 2008 however, the volume of car imports are down by 38% this year on the level of imports in 2008.

Russia is still a very long way from meaningful import substitution, however a lot of direct investment and FDI is aimed at products in the consumer sector and this will be a ongoing trend going forward.

Capital flight

Capital outflow has been much in the press but it is largely a red herring. Some $85bn left Russia in 2011 and $60bn is expected to leave in both 2012 and 2013, but about half of this money is mere accounting as opposed to the $30bn-40bn of "real" outflows.

Roughly a quarter of Russia's capital flight is actually profits earned by Russian companies abroad that are reinvested into their foreign assets. Another quarter has been money lent by Russian subsidiaries of foreign banks to their parents at home. And another big chunk is debt payments made by Russian companies to foreign creditors.

"The point with the currency capital flight is the same amount of money was leaving in 2007," says Clement. "But then more foreign money was arriving so the net flows were zero. What has changed is not that Russians are taking money off shore but that foreigners have stopped bringing it onshore."

Capital flight will only become a real economic problem if the currency account surplus shrinks too much; then it will become necessary to raise money from aboard to fill the gap.


Russian fixed investment slumped in the second half of 2012 and even turned negative in November. However, investment fell in all the BRIC markets and by comparison Russia suffered less than the others.

Despite a strong start to the year (16.6% year-on-year in 1Q12), capital investment decelerated sharply in second half of 2012. In September 2012 investment growth moved to negative territory (minus 1.3% year-on-year) for the first time since the start of 2011, when a contraction followed the sharp increase in social security tax rate. What happens to investment in 2013 will be a key factor in how the year turns out and views diverge. Goldman Sachs is expecting a significant increase in investment whereas Danske Bank says that there will be little change.

At bne we think the chances for an significant increase in fixed investment in 2013 are good for several reasons. First is the state will start investing again. In the middle of 2012 the Kremlin was clearly panicked by the prospect of a meltdown in Europe and started hoarding cash. By the same rational many companies also put investment plans on hold until the situation in Europe was clearer.

As 2013 dawns it seems the worse has been avoided in Europe and so these plans can be restarted. The Kremlin was in the middle of a big investments programme into infrastructure and the comments from ministers at the end of 2012 all indicated that hundreds of millions of dollars are being earmarked for these projects.

At the same time FDI is slowly increasing as European and international companies become increasingly aware of the size of the Russian consumer market. In 2011 and 2012 there was already a wave of big food processing multinationals moving into Russia ­ PepsiCo's $3bn purchase of dairy company Wimm-Bill-Dann started the trend off ­ but since then companies coming into Russia are slowly moving more towards the production and manufacturing middle of the industrial scale.

Still, Russia's companies will need a pick up in growth to be able to finance this investment: capital investment decelerated due to a contraction in corporate revenues and capital outflows and about 60% of capital investment is still financed by corporations themselves.

As 2012 came to an end there were early signs that investment was already rising on the back of a recovering global economy. Construction and cement production were rising; the PMI manufacturing index over the last three months of the year was up to 52.6 -- well ahead of the 50 'no change' level; and container and trail cargo were both growing in the mid teens. As 2012 was such a nervous year many of the investment projects that were delayed could start being put in place in 2013, which will add to the impetus.

At the end of 2012 capital investment was running at just under 20% of GDP, however, economist say it needs to get up to about 30% of GDP to produce long-term sustainable growth. As corporates remain reluctant to financing this investment it is currently down to the government to come up with the money, which it is doing: the state has launched a massive investment programme into infrastructure which it is hoped will bring "multiplier" effects to economic growth and encourage companies to increase their investment. However, in this area of economic activity it is still very much the government that is taking the lead.

"Russia needs to substantially increase the share of investment in GDP (to 28-30%) to improve its infrastructure, which will require about $200bn in extra capital investment per year. A sharp increase in investment can be achieved only if capital outflows, which we estimate at $75-80bn in 2012 and $50- 60bn in 2013, are replaced with capital inflows. At the same time the share of FDI to Russia remains insignificant ­ according to the balance of payments data, Russia's non-bank sector received $47bn (2.5% of GDP) in FDI in 2011, and we estimate it at $45-50bn in 2012," say analysts at Uralsib.
Moscow Times
December 20, 2012
The Maturing of a Market
The Russian government is good at talking the talk about modernizing its capitalist state, but it needs to start walking the walk.
By James Beadle
James Beadle, who has 12 years experience dealing with the Russian market, is a senior investment adviser at Societe Generale Private Banking, Monaco.

This has been an odd year for investors. The market has ultimately managed healthy gains, and bonds have performed well. But even so, old Russia hands are probably disappointed. After so many years of astounding out-performance, both up and down, 2012 stands out as the year in which the Russian equity market reached adulthood. No more adrenaline rushes as the MICEX turned 20 and promptly entered corporate matrimony with the younger, but more future-oriented, RTS. What will happen next in this exciting epic of economic evolution?

Russia has put its go-go teenage years behind it. Annualized index volatility has slumped to 19 percent, the lowest on record, and 2012 returns will ultimately disappoint many accustomed to fast and easy money. Investors need to accept that a new level of maturity will be required to negotiate the market's challenging third decade of existence. There is good news though. The Russian financial sector is on course to mature into a respectable and productive young adult, efficiently intermediating between investors and companies with a wide range of interests. Despite some impressive developments in 2012, the high and rising equity risk premium tells us that there is plenty more exciting work ahead.

Technically, the RTS and the MICEX finalized their merger in 2011, but the integration took place only this year, culminating in the upcoming adjustment of the MICEX Index to include the same 50 names as the RTS. At last, Russia will have real volume trading in an index that is investable and reflects more than just the biggest blue chips. The formation of a central depository was an equally important event. But the infrastructure development of greatest importance is surely the subsequent opening of the ruble debt market to international investors. By early 2013, global investors will have easy access to a diverse array of locally traded ruble bonds. This development will bring immediate benefits to corporations, Russia's capital account and the global investor community. It may also rapidly have the knock-on affect of improving corporate governance and regulation. Managers should quickly notice that the best-behaved companies borrow at the best rates.

Elsewhere, the government won accolades for the decision to reinstate budget constraints against fiscal largesse, talked tough on corruption, implemented impressive dividend policies and defined ambitious modernization plans with clear milestones to allow independent monitoring of progress. The Central Bank also rose to the occasion, pursuing the path to inflation-targeting and playing a considerable role in one of the ruble's most stable years to date. The country's top billionaires, too, contributed, with concerted efforts to resolve several long-standing conflicts. Not least, the end of the TNK-BP saga lifts a substantial blight overshadowing the whole equity market, and the signs are good that Norilsk Nickel will pursue a clear and profit-oriented strategy going forward. Let's also not forget that Russia finally joined the World Trade Organization in late August.

If all appears to be well and good, why is the equity risk premium rising, and why is Russia's discount to its peers so high? The answer to both these questions can be found in the difficult transition from communist superpower to modern capitalist state. The government is talking the talk, but next year more than ever it will need to walk the walk.

At the top of the list, countries need a fair, independent judicial system to enjoy low costs of capital and sustainable global capital in flows. What's more, one-party systems always make investors nervous about long-term projects.

But perhaps the most urgent item on the list is the need for a cogent macroeconomic policy. It doesn't only define the path forward, it is also essential for consolidating the progress already achieved. The government has correctly acknowledged that the old economic model is broken. Despite the probability of healthy global growth in 2013, Russia runs the risk of missing the party. Commodities prices are unlikely to rise like they did in the pre-crisis era, and Russia remains a resource-dependent economy. Slower retail sector expansion this year, coupled with soaring household borrowing, should raise concerns. Next year's growth will come from investment or nothing.

It is true that for the time being, the government can provide the capital that the private sector is so nervous about deploying, especially as returns on investment appear to be declining while risk lingers at an elevated level. But this is not a sustainable solution. First, the state sector is already far too large and is struggling to shrink itself. Second, the government is notoriously bad at economically efficient capital allocation. Third, the state simply lacks the funds to keep funding huge projects year after year. Government projects might get the ball rolling, but for Russia to resume healthy growth it is going to need to meet its qualitative development milestones. That will require the bureaucratic elite to do more than just talk the talk.

Russia's financial market is growing up fast before our eyes. But 2013 will determine whether it becomes an organized and responsible member of the global economic community, or whether at this sensitive young age it becomes easily distracted and runs off the rails. We all have a responsibility to play our part in stewarding it to a successful middle age.
Moscow Times
December 20, 2012
Between Gaidar and Keynes
Looking at the hordes of shoppers besieging Moscow stores this holiday season, a person might wonder why there has been so much talk of a crisis.
By Boris Kagarlitsky
Boris Kagarlitsky is the director of the Institute of Globalization Studies.

Looking at the hordes of shoppers besieging Moscow stores this holiday season, a person might wonder why there has been so much talk of a crisis. According to the State Statistics Service, nominal salaries in a number of sectors have risen by almost 10 times since 2000. Of course, this should be adjusted for inflation. In a recent report, the Institute for Global Research and Social Movements found that the dollar depreciated against gold by more than 300 percent over that period, and the ruble fell in relation to the dollar. Yet the result is still impressive: Real incomes in some sectors have almost doubled over the past 12 years.

Salaries have grown not only in the raw materials industry, but also in such public sector fields as medicine and education. But a certain imbalance results when income growth in some sectors outstrips growth in others. For example, from 2000 to 2010, salaries in the raw materials industry were almost double those in manufacturing. Similarly, indicators for "average salaries" do not reflect the fact that in each individual sector there is a disproportionately wide gap between salaries at the top and bottom of the pay scale.

The growth of nominal salaries in Russia from 2000 to 2010 has fundamentally changed the situation in the economy, increasing both the importance of the domestic market and people's connection with it. This, in turn, has led to a major debate over which course the country should pursue in its economic policy.

Yet the neo-liberal faction in the government considers this growth a signal that it can begin shifting some of the more financially burdensome social obligations left from the Soviet system of universal state funding over to the private sector. But their more moderate opponents argue that drastic changes to social services will destabilize the political situation in the country and spark mass protests.

While most Russians are categorically opposed to neoliberal economic policies, the government has gone back and forth between Keynesian and neoliberal measures since the beginning of the global crisis. Frightened by mass protests that erupted a year ago, the authorities took a sharp turn toward the left in early 2012 by increasing social spending and delaying the next set of market reforms. But the protesters' waning influence emboldened the authorities to adopt a more liberal course in the second half of the year. Recent steps to commercialize social services are eating away at the additional income Russians are earning, resulting in reduced demand in other sectors.

Those measures also triggered a new wave of protests in the provinces. Unlike earlier rallies in the major cities, the people attending those demonstrations were not united by a common set of demands or by calls for the leadership to resign.

You would think that the economic achievements of the past decade would have led to an easing of tensions, but in reality it has led to a heated debate over government policy in the social sphere. If leaders want to tone down the conflict, they must take steps to correct the imbalance between the lowest paid professions and occupations and those at the top.

Unfortunately, the implementation of such a plan would require a greater state regulation of the economy and serious changes to the country's political system. Whichever side wins in the struggle to determine Russia's economic course, politics will play a central role in its implementation.
Moscow Times
December 20, 2012
Top 10 Russian Internet Companies in 2012
By Yakov Sadchikov
Yakov Sadchikov is the founder of Quintura, a visual search engine.

Russia's online population has exceeded 60 million people, making it the largest Internet market in Europe. In 2012, the fastest-growing Internet companies in Russia come from online travel, cloud computing, social and advertising businesses.

Facing fierce competition from global brands, Russian Web companies were able to emerge as market leaders due to their focus on local user needs, the Western background of their management teams and the thorough technical education of their software engineers. Here are the top web companies in Russia in 2012.

Leading Russian online hotel reservations agency won the National Geographic Traveler Awards 2012 as the best Internet service. Backed by $15 million in venture capital from VTB Capital and Mangrove Capital Partners, offers the largest selection of hotels online in Russia. is headed by founder and CEO Marina Kolesnik.


Platform-as-a-service provider Jelastic has attracted web-hosting customers around the world with its Java-based offering. Funded by Alexander Galitsky's Almaz Capital and Serguei Beloussov's Runa Capital, Jelastic is a perfect example of how to build a global software business out of Russia, Ukraine and the U.S.A.


With venture capital funding of $25 million from Atomico and Phenomen, Onetwotrip grew to sell more than 10,000 airline tickets per day 1 1/2 years from launch. Headed by founder and CEO Peter Kutis, Onetwotrip attracts online users to its Web service by an easy-to-use Web interface and flexible affiliate program.

Funded by Prostor Capital and Runa Capital, has signed up more than 40 percent of secondary schools in Russia to its online school service. Launched in 2009, Dnevnik is based out of one of Russia's leading tech hubs, St. Petersburg. Headed by CEO Gabriel Levi, the service enters markets outside of Russia.

Tinkoff Digital

Founded in 2012, Tinkoff Digital aims to challenge advertising market leaders with the Real-Time Bidding (RTB) and Big Data technologies. Launched by serial Russian entrepreneur Oleg Tinkoff and marketing executive Anna Znamenskaya, Tinkoff Digital is backed by Goldman Sachs.

Hopes & Fears

Published by former journalists from the Russian edition of Forbes magazine, is about entrepreneurs in Russia. Headed by editor-in-chief Nickolay Kononov, Hopes & Fears is a real storyteller for Russia's Internet generation looking to start their own businesses. The online journal was launched in 2012 by Look At Me, one of the top Web magazines in Russia.

Grishin Robotics

Founded by Dmitry Grishin, CEO of Group, Grishin Robotics is focused on investing in technologies related to personal robotics. It also supports a robotics news and analytics aggregation service.


The mobile-only business accelerator and venture investor IMI.VC is headed by Igor Matsanyuk who previously sold his online gaming business to Group. The portfolio of IMI.VC includes mobile game publisher Game Insight, interactive book platform NARR8, photo-sharing app WeHeartPics and startup incubator Farminers.


Founded by Alexander Agapitov in Perm, Xsolla has moved to Los Angeles to operate its global in-game payment optimization service. Xsolla develops monetization tools for massive multiplayer, casual, social and mobile games.


Based in St. Petersburg, Topface offers online and mobile social dating based on your popularity ratings. First launched in April 2011, Topface reached more than 45 million registered users, most of whom comes from outside of Russia. Topface is headed by founder and CEO Dmitry Filatov.
Russia's Klondike? Not yet
By Clara Ferreira-Marques

BODAIBO, Russia, Dec 20 (Reuters) - It looks like any one of remote eastern Siberia's low-lying, peat-coloured hills: only the thin trenches that scar Sukhoi Log hint at the work of generations of geologists to measure the riches beneath.

This bleak expanse, uninviting against a steel grey sky, is probably the world's largest virgin gold deposit, with mineral wealth to rival the world's largest, at Grasberg in Indonesia.

Yet it has remained untapped for half a century, held back by its remoteness, state restrictions and, in recent years, a lack of interest on the part of a Moscow government riding the wave of energy profits and holding out for higher gold prices.

"(The government) would love more gold, but they have no time to think about these issues at the top level," said Sergei Guriev, rector of the New Economic School in Moscow.

"At the lower level, people are happy with the status quo."

Soviet geologists surveyed Sukhoi Log intensively in the 1970s yet little came of it. But now the Russian government has stirred long-dormant interest, suggesting it might invite bids to mine the gold. While such talk has come and gone in the past - and no details of any tender have been given - there is new debate on how, and at what cost, the ore might be exploited.

Beyond the future of Sukhoi Log itself, the outcome could be a litmus test for Moscow's willingness to embrace changes some have been lobbying for in the mining sector - whether lifting a bar to foreigners' involvement in strategic assets or simply showing any appetite at all for turning earth into bullion.

For all the gold fever of pioneers who claimed Russia's wild east for the tsars in the 19th century, Sukhoi Log - the name means Dry Gully - remains a symbol of a more recent lack of drive to mine the riches beneath the world's biggest country.

Analysts say the latest study on that single deposit indicates it could produce 1.6-1.9 million ounces of gold a year over three or four decades - worth an annual $3 billion or so at today's gold price near $1,700 per ounce. Initial development costs are forecast at upwards of $2.5 billion.

There are traces of Soviet ambitions in this distant corner of Siberia, 1,000 km northeast of Irkutsk: half-built bridges are scattered along the cratered road out of the gold rush town of Bodaibo, concrete pillars sticking out among the fir trees.

Nearby, a handful of five-storey apartment blocks, the start of a miners' colony, stand forlorn in the taiga, close to where, in 1912, soldiers shot dozens of striking gold miners from the Lena river fields in a massacre that helped foment revolution.

In Bodaibo, few expect a new rush to develop Sukhoi Log.

"For now, it is worth more in the ground," says Alexander Tuluptsov, a senior engineer at GV Gold, a private firm that is mining the neighbouring Golets Vysochaishy deposit. A local man whose wife's father was among the geologists who first charted Sukhoi Log, he does not expect to see it worked in his lifetime.

There is little pressure locally for work to start. Gold prices are riding high, bringing jobs and money to the sparse population. In Bodaibo, home to about 15,000, shiny SUVs are testimony to work at other mines and along historic riverbed deposits of the Lena basin. So too are prices in shops, where basic produce can cost three times what it does in even Moscow.

Irkutsk Region is bigger than France but has less than 2.5 million people. Anyone wanting to mine Sukhoi Log would probably have to fly in workers from further afield.

Speaking in London, where his mining firm is listed, Vitaly Nesis, U.S.-trained chief executive of Polymetal, said the Kremlin sees no haste in doing anything with the deposit:

"It is an asset that is a natural hedge against global inflation. Why does the government need to turn a real asset into a pile of dollars or euros that could be inflated away?"

However, Russia's leadership should foster more probing digs across its territory: "What the government should do," he said, "Is promote investment in exploration to find new assets."

Yet that, too, has lagged in Russia. Exploration alone could bring development to its farthest reaches - metalled roads, modern airports, rail, power, not to mention training and jobs.

But, say mining entrepreneurs, encouraging pioneering, small outfits and attracting foreign prospectors will need an overhaul of red tape and changes to laws, notably limits on foreigners' rights to exploit any big, new seams they discover.

Lou Naumovski, who runs the Moscow office of Canadian mining firm Kinross, estimated more investment in exploration could bring the Russian economy an additional $1.6 billion a year - but only if the government improves the regulatory framework:

Prospectors "take huge risks for high returns", he said. "If you have so many barriers, it simply doesn't work.

"You need huge political courage to say 'we need to really work to diversify, even within natural resources'."


Russia has gold deposits second only to South Africa and major deposits of copper, coal, diamonds, nickel, palladium and much else. But it has remained underdeveloped and underexplored since the collapse of the Soviet Union, as the state has focused on profiting from oil and gas reserves that account for 70 percent of Russia's exports. Where in Canada, say, an average of $178 was spent on exploration per 100 square kilometres of its vast territory in the last five years, Russians spent just $28.

"In other countries, there is a lot more interest in developing their mining industry," said Nikolai Zelenski, chief executive of Nord Gold, one of the few Russian mining companies to operate beyond the former Soviet Union.

He compared his own country unfavourably with Burkina Faso: "It is not a very rich country in mineral resources," he said. "But since 2005 they have built six mines, and I am not sure that many more mines have been built in Russia since then."

Foreign-owned miners have been the engine of development in much of the emerging world but have had little success in Russia, with the notable exception of Kinross. The world's biggest producer, Barrick Gold, pulled out this year.

Most have preferred to tap resources elsewhere - even in countries as challenging as the Democratic Republic of Congo - than tackle Russia's climate, restrictions and red tape.

However, easy pickings are running out in Africa, which may push miners to look again at Russia, while Moscow's leaders may also see more reason to encourage them; official figures suggest Russia's viable reserves may run out in 15 to 30 years. And a lower oil price may spur the Kremlin to exploit other resources.

Mark Bristow, chief executive at London-listed Randgold Resources, said his Africa-focused firm could look east in five or 10 years - "Russia's incredibly important" - and he expected Moscow in time to pay more attention to encouraging gold production - "I think it will eventually matter," he said.


There is already a range of companies ready to expand.

Unlike other sectors in Russia, gold mining has not become dominated by the fabulously rich and politically influential "oligarchs" who took over other industries privatised in the 1990s. Arguably, there were few existing gold assets to grab.

"Whatever we did, we did from scratch. That is what is special about gold mining," said German Pikhoya, chief executive of Polyus Gold, Russia's largest producer, which has spent billions in exploration and works on the fringes of Sukhoi Log. It is seen as a top contender to develop the deposit.

Russia is not without success in gold mining, even in areas where nature is at its toughest. Operators have tackled complex projects, building operations like Polyus's Olimpiada mine or Polymetal's Amursk processing hub for complex, refractory ore or Kinross's Kupol mine in hostile, Arctic Chukotka.

Some 30 km (20 miles) from the swelling outline of Sukhoi Log, tapping a satellite deposit, GV Gold has gone from start-up to mid-ranking producer in just over a decade. It aims to produce 5.2 tonnes (some 167,200 ounces) of gold this year, has fund manager BlackRock as an investor and ambitions to list its shares. It could reap the benefits of development at Sukhoi Log.

Its director for corporate development, Maxim Gorlachev, stressed GV Gold would not over-reach itself in talking about potentially the world's biggest deposit, but it was willing to take advantage of opportunities if the conditions were right:

"We understand our place in the food chain," he said. "But if there was an opportunity to participate, we would evaluate. And if cost-efficient for us, why not?"

Getting conditions right for investment in gold exploration may take some time yet, however. There is no sign the government will move soon to lift a limit on foreign ownership of strategic assets; legislation scheduled for this year has not appeared.

Russia has overtaken South Africa as South African output has slowed and it is now the world's fourth largest producer of gold, according to data from Thomson Reuters GFMS. With Sukhoi Log, Russia could rival top producer China. But its exploration - key to securing a future for Russian gold mining - still lags.

Legislation is not the only problem. Lack of labour and skilled contractors in remote Siberia is another, as is funding, especially tough at the moment. Poor infrastructure is a barrier too. Bodaibo's airstrip, for example, is served by only small, ageing turboprops. And they cannot land in heavy rain.

Some mining firms adopt a go-it-alone strategy, building infrastructure themselves rather than rely on local officials. But without a clear political signal in Moscow that it wants to develop Sukhoi Log, none is rushing to build the new highways, airport and water and power plants a major deposit requires.

"Is there going to be a gold rush in the next five years?" asked Kinross's Naumovski. "I would like to believe there will.

"But not unless the government undertakes those reforms that we and other mining companies are recommending."
December 19, 2012
Venture Capital, Russian Style
By Katya Soldak, Contributor
I am a NYC-based multimedia journalist

Russia's scientific community may have experienced a "brain drain" over the past twenty years but the fundamentals of the famous soviet science are still in place, and Putin's government is revitalizing science-based industry. Betting on nanotechnology, companies can potentially generate substantial returns. Enter Rusnano, a venture capital fund with plans to become a player in the global capital market.

Created by the Russian government, Rusnano places its capital in companies that occupy the niche of nanotechnology. The firm has invested $6.3 billion in over 100 firms at home and outside of Russia ­ including the US ­ and overall manages about $10 billion in funds. After five years of operation, Rusnano has decided to attract private investors by offering equity to the tune of 10% of its shares.

Among large emerging economies ­ Brazil, Russia, India, China, and South Africa ­ Russia is still somewhat underexplored and investors remain cautious. However, interest is growing and opportunities are there, especially with the Russian government's willingness to spend money.

Venture capital is a new territory for this post-Soviet country, with the government being the main strategic investor in tech, life sciences and innovation. The government backs technical incubators, innovative entrepreneurship, and tries to boost various industries and shift Russia's economy away from its traditional focus of oil and energy.

"You can't simply jump over the abyss, you need to transition smoothly," Oleg Kiselev, Rusnano's Deputy CEO, said in an interview with Forbes. "This private placement is to attract investors to manage on the board level." He said that by 2015 the ratio of private investments versus government funding will be larger, eventually growing to over 50 percent. Ideally, the company would go public, but this ambition is still far in the future.

"We don't need just the money," Kiselev said. "We need knowledge, qualifications, mutual interests."

Making Science Profitable

Despite the fact that after the collapse of the Soviet Union many scientists and technologists left the country seeking opportunities abroad, Russia still remains strong in scientific education and human potential. The country's infrastructure, while in need of a makeover, is well developed. Combine this with entrepreneurial spirit, unique research projects and new technologies and you have a breeding ground for potentially profitable companies.

The government's role in managing the fund is noticeable-although there are no federal ministers on the company's Board of Directors, there are a number of top executives of state-backed companies, former governmental officials, with only one independent director, billionaire Michael Prokhorov. All main decisions, including the 10% private placement, have to be run by the Board and by the Russian Ministry of Economics.

When Rusnano was formed in 2007 there were few large investors in the life sciences and biotech sectors. A handful of small business that dealt with nanotechnology ­ the main criteria for investment candidates ­ applied for funding and, after thorough vetting and long negotiations, received much needed investments.

For instance, when three years ago vacuum coating equipment maker, ESTO-Vacuum, realized that in order to survive in the market it needed to expand, it sought capital from Rusnano. In 2009 it received funds and in two years went from making under $2mln in 2010 to $10 mln in projected earnings for 2012. "With Rusnano we received not just financing, we also got into the right environment, met other successful projects, expanded our regular market," said Danil Chelapkin, the CEO of ESTO Vacuum.

"We often have to defend Rusnano," said Igor Pivovarov, the CEO of HemaCore, a company that specializes in thrombodynamics and has developed a test to diagnose blood coagulation disorders. Rusnano has committed to investing $22 mln of total funds, of which HemaCore has received $19mln.

Pivovarov explained that people in Russia are suspicious when a company's new beginnings come from state-based financing.  "I work with many funds," Pivovarov said. "Rusnano has tried to do everything right, it's the only firm that used the best western standards." Having the government as the main investor brings certain perks, such as connections and being part of a federal strategy, and in some cases the influence to change outdated laws.

Even today, in 2012, the presence of the Soviet past is very powerful everywhere-in the exterior of the buildings where companies now set up shop, in the leftovers of old research labs, in bureaucratic language, and in the antiquated and reserved style of some managers. At the same time, the transition is going at full speed-companies become more transparent, they hire western management and specialists from around the world, embrace an entrepreneurial spirit and shoot for the stars in their effort to make science profitable and elevate homegrown businesses into global companies.

About a year ago, Rusnano started earning dividends from some of its portfolio companies, at the same time making three exits from partner companies. The firm has been transformed from a government structure into a commercial enterprise ­ into a joint stock company ­ where the government owns 100% of shares.

Navigating the market

Dmitry Lesenkov, the managing director of Rusnano, has been with the firm since 2008. He described it then as a start up. "At first, it was a government corporation. Confusing, it was not clear who to be friends with," Lesenkov said. "Now we are a joint stock company, with a potential IPO in the future. Like a growing child who knows where he's going."

A few milestones turned Rusnano from being Putin's pet project into a legitimate player in a larger game. The recent $760 mln partnership with American venture capital firm, Domain Associates, is one of them.

Brian Dovey, a partner of Domain Associates, who broached the idea of a partnership, said he was very impressed with Rusnano's CEO, Anatoly Chubais.  Both, Rusnano and Domain agreed to contribute $330 mln to finance about 20 health care firms. Part of the deal is to incorporate a "Russian angle", meaning to market and manufacture products in Russia.

Among the projects that seem to contribute towards Rusnano's credibility in the international market are Selecta Rus and Bind Rus, two subsidiaries of Boston-based research labs founded by Robert Langer, an American pioneer of new technologies. Bind Rus develops targeted nanomedicine for treating cancer. Selecta is developing synthetically engineered vaccines and immunotherapies with nicotine vaccine among its lead products. Both companies are building four research facilities in Khimki, an area just outside of Moscow, replicating the labs of their partners in Boston.

Robert Rosen, General Director of Selecta RUS, said that Boston Enterprise needs Rusnano because the Russian firm is nano-focused and has the money, while Russia's government is committed to redeveloping research and medical technologies. "With all the so-called brain drain, the area of polymer chemistry remains strong," he added. Both Selecta and Bind each received $25 mln in investments and have won tenders from the Russian ministry, receiving more support.

While boosting the nanotechnolgy industry in Russia, Rusnano continues exploring partnerships with the outside world: Virgin Group, owned by British businessman Richard Branson, created a $200 mln fund to finance energy efficiency projects in Russia.

Risk and Rewards

The world's emerging economies attract a lot of interest from international investors, with their rapid growth and big potential. For companies that are expanding internationally, doing business in all of those countries can pay huge potential dividends. "But there is a certain style, the diplomacy that needs to go with each of those countries", said Bennedict Willis, the senior floor director for Albert Fried & Company, a financial services firm in New York Stock Exchange.

The idea of creating government venture capital funds to spur innovation is not new-governments of European countries, North America, China and other countries are no strangers to such strategies.  "I don't know of any country that's been able to accomplish (a diversification of its economy) without using the government as the tool to propagate that system," Willis said.

"Bureaucratic processes are longer than in private companies," Kiselev said. At the same time, being tied to the government comes with substantial benefits. It gives access to large companies like Gazprom, Russia's railroad, government contracts, and Rusnano's companies could potentially use connections to broker good distribution deals.

Such benefits also present a certain risk. "The question is how is the government going to be maintained and sustained," said Willis. "We've seen the change from Mr. Putin to one of his nominees back to Mr. Putin." According to Willis, for investors the concern is the future evolution of the Russian government and the impact it will have on businesses and possible change of contracts.

"From the American perspective, we don't necessarily believe (Russia) is as open and honest a partner as some of the other economies in the world." But it's still a significant economy, Willis added.

When Domain Associates decided to do business with Russians, it took some time to get to know each other and develop the necessary trust and understanding. The contract was in negotiation for over two years until both parties finally felt like their interests were legally protected. Dovey said he was not overly concerned about the risks often mentioned when working with Russia, such as the government taking his investment away. "It's only about $400 mln. That's a small amount to be dishonest," he said. "If you pick somebody as a partner, I'd rather pick the government." Dovey said that there is always a risk: "If you are afraid of stuff like that, don't leave Philadelphia."

Willis thinks that it is possible for a Russian venture capital firm, fully funded by the government, to get about 50% of private capital. "Do I think this can happen? Absolutely," he said, but it requires rebranding. "People with this firm are going to take a very close look, in terms of how they'd be able to sell to the outside world."

Rusnano is aware of the importance of maintaining a good record and tries to operate the western way-adopting western business style, networks, and creating partnerships.

"We would like to overcome the attitude towards us, and our attitude towards Americans," Kiselev said. But the change, he said, is not possible only on Rusnano's level, it eventually would be the result of various interactions between people.

Dovey, of Domain Associates, sees Russia as an interesting ­ and potentially lucrative ­ market, growing rapidly. "People would say: 'Oh my god, you are doing something in Russia,'" he said. "You really need to upgrade yourself. Things are overheated in China, and Russia is under-discovered."

"I don't think doing business with Russia is as risky as with China," Willis added, "In China it's riskier."

Reporting in Russia for this article was made possible by Rusnano and the Open Innovations Forum in Moscow
Moscow Times
December 20, 2012
No Shadows On This Think Tank
In response to "Rise and Fall of Russia's Economic Think Tanks," a comment by Anders Aslund on Dec. 19.


I was disappointed to see this comment written by my former Carnegie colleague. The author writes, "Carnegie Moscow Center has closed its economic program and domestic politics program, remaining a mere shadow of its former self."

This is far from the truth. The center's Domestic Politics Program is alive and well. Long chaired by analyst Nikolai Petrov, it will soon be directed by Maria Lipman, one of the most respected commentators of the Russian social and political scene. The center's economics program is equally strong.

For four years in a row since 2009, the Carnegie Moscow Center has been named the best think tank in Central and Eastern Europe and the former Soviet Union. Last year, we received the MacArthur Award for Creative and Effective Institutions.

At the same time, we always try to improve our operating methods. This involves updating our programs and prioritizing the next-generation scholars. Like Alice in Wonderland, we need to run just to remain in one place. But in Russia, we need to run twice as fast.

Dmitry Trenin, Director, Carnegie Moscow Center

RIA Novosti
December 20, 2012
To Govern, Not to Act
By Fyodor Lukyanov
Fyodor Lukyanov is Editor-in-Chief of the Russia in Global Affairs journal ­ the most authoritative source of expertise on Russian foreign policy and global developments.

Political power was the focus of 2012. Three of the world's most powerful countries underwent a change in government. Vladimir Putin returned to power in Russia, Barack Obama was reelected in the United States, and Xi Jinping was chosen as China's next leader. Mohammed Morsi became the first democratically elected president of Egypt, but it is still unclear whether he has acquired real power. Hopes for regime change in Syria have not been borne out by events ­ as of December 2012, Bashar al-Assad remains in power, though many have long predicted that his days are numbered.

Events taking place around the world have one thing in common ­ the key players' emotions are running high. The election campaign in America revealed unprecedented polarization in society. Debates on matters of war have arguably become routine in the United States. Should there be an invasion of Syria? Does it make sense to bomb Iran? What sized force should stay behind in Afghanistan after the troop drawdown? What scale should the military presence in the Pacific be?

For all its incredible might, the United States is still trying to adapt to the chaotic developments underway in the world, just like countries that have never had the tools of global power at their disposal.

The overarching theme in President Putin's rhetoric and actions is how to protect Russia from the threats mounting on all sides. Attempts to shore up domestic stability are increasingly running up against the realization that this is almost impossible without external stability. Meanwhile, this latter depends on a host of factors beyond Moscow's control. The Russian government can only try to minimize risk, which it is doing to the best of its abilities.

China has always seemed to be making consistent progress on its chosen course, despite the various storms raging around it. But this year the first cracks appeared in the monolith. The run-up to the transfer of power to the next generation of Communist Party leaders was accompanied by a tense ideological struggle, enhanced state control, and managed outbursts of nationalism (against Japan).

As China continues its rapid ascent and takes on a larger role in global affairs, the less it is able to keep a low profile. The attention China is attracting from all sides is growing, and so too is the desire to restrain it and guard against it as a potential rival.

Cairo is a political center of the Arab world, and the trajectory of the entire region depends on what kind of government takes root there. Morsi's victory is the logical continuation of the revolution that began on Tahrir Square. The military's swift, peaceful exit from the political arena came as a pleasant surprise. Everyone expected them to try to remain the real source of power in Egypt.

That said, by December, apprehensions were already growing that the generals were simply waiting for the new government to provoke popular discontent and accusations of "trampled ideals."

Egypt could be a model for Islamist movements across the Middle East. The Muslim Brotherhood will either prove that they can be a responsible force promoting national development and meeting the nation's needs, or it will become apparent that their ideological and religious values do not necessarily translate into effective governance.

Syria has become the main seat of tension in international affairs, where many of the world's starkest dividing lines intersect. There is the religious clash between Shiites and Sunnis, as well as geopolitical struggles at the regional level (Saudi Arabia and its allies against Iran) and at the global level (Russia and China against the West).

There is also a clash of ideologies, democratization versus authoritarian stability, and the conceptual contradiction between sides that both believe they are on "the right side of history."

Finally, there is a strange and unusually strong mixture of ideals, a sincere desire for change, fanaticism, malice and hypocrisy.

The web of contradictions in Syria is emblematic of the chaos plaguing global political consciousness. The more complex the processes at work ­ the greater the desire to squeeze them into a simple frame. Moscow's position on Syria may be subject to different interpretations, and some may chalk it up to commercial interests. But what is happening in Syria has its own, deeper, underlying causes that will not go away if Russia gives up on Assad and he loses power.

Many believe it is absurd that the West has sided with the very same groups that are the target of its anti-terror crusade, but tunnel vision is leading it further down this road.

Since time immemorial, it has been the duty of government to make decisions, especially difficult ones. This has not changed in the 21st century, but the circumstances in which governments exercise their power have deteriorated.

In the past, political processes followed some kind of rationale; there was a mode of conduct based on clear criteria that could be evaluated. In this permeable and interconnected globalized world, different aspects of power ­ military, political, economic and cultural ­ are acting simultaneously but they are not all moving in the same direction. The resulting force originates via a complex process, and has an impact that it is practically impossible to predict.

It is not surprising that politics is increasingly reduced to merely reacting to situations as they arise. Action is fraught with more risk than inaction. The sign of our times is the phenomenon of governments that want to abstain from any big moves as a matter of principle, preferring instead to patch up what it can and maintain the status quo.

Today's Russia is gradually turning from a country without an ideology into the global harbinger of conservatism, with its principle of non-interference being one of the clearest examples of this. That said, Europe, where politicians dare not mention the need for structural changes to the EU, instead preferring to patch holes, has also lost its capacity for innovation and will have to change.

What we are witnessing is the will to power toward no particular end. This is something new in global politics.
Moscow Times
December 20, 2012
Tough Talks Expected At EU-Russia Summit
By Nikolaus von Twickel

President Vladimir Putin will meet with European Union leaders in Brussels on Friday for a pre-Christmas summit, but the mood will hardly be festive.

Disputes involving visas, trade and energy have cast a shadow over EU-Russia relations in recent months, giving both sides tough issues to discuss. More broadly, the Europeans are expected to voice concern about the Kremlin's crackdown on dissent, while Moscow's stance toward Europe is cooling following its recent foreign-policy emphasis on Eurasia.

"I have no high expectations of this summit," said George Sch pflin, a member of the European Parliament from Hungary's conservative Fidesz party.

Schopflin said feelings among Brussels officials toward Moscow had definitely cooled over the past months.

"There is considerable unease about human rights," he said by telephone.

In a highly critical motion passed last week, the European Parliament demanded that Russia end "politically motivated persecutions, arrests and detentions" among opposition members.

The resolution also cites an October motion in which deputies called for sanctions against human rights violators analogous to the U.S. Magnitsky Act, and it calls for the immediate release of members of the Pussy Riot punk band.

Elmar Brok, the head of the European Parliament's foreign relations committee, said after talks with Duma deputies in Moscow on Wednesday that the resolution could be used to slap visa bans on Russian officials implicated in human rights violations, Interfax reported.

Brok told the Moscow Times he thinks Russian lawmakers suffer from paranoia. "They talk more about Pussy Riot than we do," he said.

He added that EU leaders should appear united at the summit.

"I hope that no selfish interests will interfere," he said.

Moscow's EU ambassador, Vladimir Chizhov, has said that human rights issues should not be raised at the summit. Speaking to reporters in Brussels earlier this week, Chizhov said it was better to leave that issue to specialist institutions like the EU's new human rights representative, Stavros Lambrinidis, Interfax reported.

However, it is unlikely that EU President Herman van Rompuy and commission Chairman Manuel Barroso will heed this advice. Rights groups have called on them to raise the issue forcefully.

"The EU should convey a clear sense of alarm at the crackdown of the past six months on Russia's vibrant civil society," Human Rights Watch said in a statement this week.

Even without human rights, the atmosphere promises to be difficult, given the host of disagreements between both sides.

Moscow has been furious with the EU commission's decision to investigate allegations that Gazprom abused its dominant position in eastern European gas markets. The government has also criticized the EU's so-called third energy package, a set of regulations seeking to liberalize gas markets by forcing companies to split production and retail operations from their transmission networks.

The EU is Russia's biggest trading partner and a major buyer of its energy. Russia buys mainly cars and consumer goods from its western neighbors, including 10 percent of EU farm exports.

While Russia joined the World Trade Organization this year, EU officials have criticized Moscow's latest decisions to slap a recycling fee on imported cars and bans on live animals as counter to the organization's rules.

Maxim Medvedkov, Moscow's point man on the WTO, has retorted that the EU is violating WTO rules with its third energy package, anti-dumping measures and restrictions on the transit of Russian goods.

Finally, visa issues loom large on the agenda, but nobody expects any breakthrough Friday.

While talks on  have not been suspended, no talks have been held since fall 2011.

It is more likely that Putin will focus on separate talks on abolishing visas altogether and reiterate Moscow's demands that visa-free travel be implemented before the Sochi Winter Olympics in February 2014.

However, Europeans have been adamant in rejecting "artificial time frames," insisting that a  "common steps" program that is currently being implemented between both sides does not include a deadline.
December 20, 2012
Russia negotiates union with ex-Soviet states

MOSCOW ­ Russia sought yesterday to expand its influence over former territories during integration talks that Washington has cast as a bid to "re-Sovietise" the region.

President Vladimir Putin met separately with the leaders of Belarus and Armenia before engaging the head of resource-rich Kazakhstan about ways to more closely bind the neighbours' economies.

He also attended a collective security meeting that resolved to create a Moscow-led air defence unit that would focus its activities on the regions surrounding war-torn Afghanistan.

Western attempts "to force other nations to accept their own standards can lead to the most serious circumstances," Putin said in a trademark swipe at the United States.

This is especially underscored by the "dramatic situation in North Africa and the Middle East," Putin said.

The former KGB spy once called the Soviet Union's demise one of the 20th century's great calamities and has sought to stamp Moscow's authority over its old holdings.

Two blocs have now emerged from Soviet ruins ­ a Customs Union with Belarus and Kazakhstan as well as an alliance called the Eurasian Economic Community that loosely groups seven other states.

Neither has functioned as smoothly as planned and fuller cooperation is running behind schedule.

The global economic slowdown that has particularly impacted this region has also left Russia ­ rich in oil but poor in terms of economic diversification ­ counting its pennies while running its various ex-Soviet clubs.

"There are issues that we still need to discuss in further detail," Putin told the Eurasian Economic Community meeting, saying more talks were needed on the "financial aspects" of how the organisation works.

The Kremlin is casting attempts to blur post-Soviet borders as only natural in a world beset by economic problems.

"Considering the current turbulence and unpredictability in the world of economics... (and) the whiff of crisis that is always around us, the only way to survive is by following the integration trend," said Putin spokesman Dmitry Peskov.

"So the processes taking shape in the post-Soviet landscape ­ to call this an attempt at Sovietisation is to show a near-complete misunderstanding of what is going on," he told the state news channel Vesti.

But Washington ­ keen to maintain its own ties with nations in Central Asia that host key pipelines and some of the world's biggest energy reserves ­ has been more than sceptical.

US Secretary of State Hillary Clinton infuriated Moscow by claiming that "there is an attempt to re-Sovietise the region."

"We know what the goal is and we are trying to figure out effective ways to slow down or prevent it," she said in Dublin before entering December 6 talks with her Russian counterpart Sergei Lavrov.

The unusually sharp comments came despite US efforts to win Moscow's backing for a solution to the 21-month conflict in Syria.

Yesterday's talks in Moscow had also been due to include Ukrainian President Viktor Yanukovych ­ a former backer of Putin who more recently tried to mend his nation's bridges with the European Union.

Yanukovych cancelled the trip without an explanation on Tuesday after reports emerged that he had been willing to sign his country up for Customs Union membership in exchange for cheaper Russian natural gas.

A Ukrainian government source later told the Interfax news agency that Kiev wanted to defend its economic interests without damaging its long-term hopes of EU integration.
December 20, 2012
CIS CSTO summit took place in Moscow. Uzbekistan quit the organization
Author: Polina Khimshiashvili

Summits of three international post-Soviet structures took place
in Moscow - CIS Collective Security Treaty Organization (CIS
CSTO), Eurasian Economic Community, and Eurasian Economic Council.
     The CIS CSTO summit was the longest of them all. Never
exactly an active or willing member, Uzbekistan suspended its
membership in the structure altogether. The CIS CSTO retained six
post-Soviet countries as members - Russia, Belarus, Kazakhstan,
Kyrgyzstan, Tajikistan, and Armenia.
     "Regrettably, it did certain damage to the image of the
organization," admitted Russian Representative to the CIS CSTO
Igor Lyakin-Frolov. "All I can say is that the door back remains
open. Membership is Tashkent's for the asking." President of
Belarus Alexander Lukashenko meanwhile said that certain terms of
the renewed membership had to be met... if it ever came to that.
"Uzbekistan will have to ratify all our decisions and agreements
first," said Lukashenko. When Tashkent returned to the CIS CSTO in
2006 after the suspension in 1999, it never bothered to ratify
guideline documents of the organization.
     CSTO presidents opted to strengthen the military component of
the organization. "The CIS CSTO is a military alliance, after
all," said Lyakin-Frolov. "It is only logical for it to be
thinking of the military component... considering the complicated
situation in the world in general and the fact that three member
states are located in Central Asia."
     Nikolai Bordyuzha was reconfirmed as CIS CSTO secretary
general for another (the fourth) three-year period. Alexander
Studenikin became chief of the united staff for the same period.
     Lukashenko suggested sending CIS CSTO peacekeepers to some UN
operation. "Why not? It will certainly demonstrate effectiveness
of the organization," said one of the members of the Belarussian
delegation. Another warned, "This is just a thought. No decisions
have been made."
     "There is no need for the CIS CSTO to send its peacekeeping
contingents anywhere to prove its worth," said Institute of CIS
Countries Assistant Director General Vladimir Zharikhin. "Safety
of its members from external aggression is the best proof."
     Presidents dwelt on the necessity of common approaches to
foreign political issues. President of Armenia Serj Sargsjan urged
his colleagues to condemn Azerbaijani aggressive rhetorics. Tajik
leader Emomali Rakhmon called for more active efforts in the
sphere of propaganda and ideology.
     * * *
     It was decided at the Eurasian Economic Community summit that
the organization would remain in business until 2015 and that its
secretariat would be reduced. Lukashenko said on more than one
occasion that he saw no reasons to finance the Eurasian Economic
Community... but Belarus decided at the summit to partially
restore the funding. The rest will be covered by Russia and
Moscow Daily: CIS Countries Will Remain Russia's 'Main Foreign Policy Priority'

Rossiyskaya Gazeta
December 17, 2012
Report by Ariadna Rokossovskaya and Viktor Feshchenko: "CIS First of All. Russia's New Foreign Policy Concept Has Been Drawn Up"

Russia's main foreign policy priority over the next few years will remain integration in the post-Soviet area. According to the media, a new "Russian Federation Foreign Policy Concept" has already been prepared in the Russian Foreign Ministry.

Against the background of the economic crisis and the "Arab spring" the document is designed to strengthen the positions of the Russian Federation, which is to play a stabilizing role in a changing world.

"I see no revolutionary changes compared with Russia's previously designated foreign policy priorities," Dmitriy Suslov, deputy director of the Center for Comprehensive European and International Studies at the CIS State University-Higher School of Economics, believes. "The post-Soviet area has been positioned as the Russian Federation's main foreign policy priority at least since the mid-nineties. Just such a hierarchy existed in all recent editions of the Russian Federation foreign policy concept and the national security concept. The CIS is in first place. The EU is in second place. There are differences of opinion with regard to the third place. If this document puts the United States in third place, this will be something new for Russian foreign policy."

"I regard it as correct that the post-Soviet area has been designated Russia's main foreign policy priority. Without achieving an alliance with our own neighbors, it will be hard for us to position ourselves in the world as a whole. We will not be going to Africa or Oceania to create integration associations," Sergey Mikheyev, director of the Center for Political Conditions, added.
Peskov blames Clinton for lack of understanding of processes in FSU

MOSCOW. Dec 19 (Interfax) - Russian presidential press secretary Dmitry Peskov thinks that the phrase of U.S. Secretary of State Hillary Clinton about re-Sovietizing CIS countries is an indication of her incompetence about the processes taking place in the region.

"To associate the natural processes that are maturing throughout the former Soviet Union with Sovietization is not to understand practically anything about what is happening in the former Soviet Union," he said in an interview with Russia 24 TV channel.

"In the world today, in conditions of the current turbulences in the world economy, the unpredictability in the world economy, the impossibility of making even mid-term forecasts, in a world in which the smell of crisis is around us constantly, the only viable tendency is the tendency to integration, the integration processes," Peskov said.

Earlier Clinton said: "There is a move to re-Sovietize the region. It's not going to be called that. It's going to be called a customs union; it will be called the Eurasian Union and all of that. But let's make no mistake about it. We know what the goal is and we are trying to figure out effective ways to slow it down or prevent it."
Putin Likens Libya Now to Syria in Event of Invasion
MOSCOW, December 20 (RIA Novosti) ­ Russian President Vladimir Putin reiterated his opposition to military intervention in Syria on Thursday, emotionally citing the volatile situation in Libya as a sign of what would likely happen as a result.

Libya "is disintegrating," Putin said at a major press conference in Moscow, pointing to the fractious groups that have been struggling for control of the country since longtime ruler Muammar Gaddafi was ousted with NATO's help last year.

And Russia, in turn, is trying to prevent "disintegration and unending civil war" in Syria, he said.

"Interethnic, inter-clan, inter-tribal conflicts are continuing [in Libya]. Moreover, it's come to a tragedy ­ the murder of a US ambassador. Was this the result of the work?" Putin said about foreign intervention in Libya.

"You've asked me about [my] mistakes, but wasn't this a mistake? And do you want us to go on constantly repeating these mistakes in other countries?" Putin told reporters.

Putin emphasized that Russia does not care about "the fate of the regime" of Syrian President Bashar al-Assad per se and understands that change is necessary, but negotiations should be the way to regime change, without armed intervention. Assad's regime has been locked in a bloody battle with an increasingly motley group of insurgents since March 2011.

"Agreements on the basis of a military victory are inappropriate here and cannot be effective," Putin said.

Russia has staunchly opposed all international efforts to crack down on Assad, including in the UN Security Council, saying they are biased in favor of the Syrian opposition.

When asked by a reporter whether Moscow's hardline stance on Syria could isolate Russia and undermine its position in the Middle East, Putin snapped: "Listen, my dear, did Russia's position in Libya not get weaker after the mess the interventionists made there?"

"Of course, we're interested in the Russian Federation's position in the region," Putin said, but added that Moscow does not have major interests in Syria. Russia keeps an aging naval supply base in the country, its last remaining overseas base.

Christian Science Monitor
December 19, 2012
What's behind Russia's bill banning US adoptions?
The bill had originally been a smaller, tit-for-tat response to US legislation, but the Russian Duma has expanded it into a much broader anti-American measure that even Putin may not approve.
By Fred Weir

Moscow - A Russian bill that had seemed initially like a tit-for-tat response to US legislation now looks to be exploding into broad legislation that bars almost any US citizen from engaging in non-business activity in Russia ­ including the adoption of Russian children.

Russia's State Duma on Wednesday passed a bill, in key second reading, that would ban all adoptions of Russian children by US citizens, order the closure of any politically-active nongovernmental organization with US funding, and block US passport-holders from working in any nonprofit group that authorities deem connected with politics. The bill passed the 450-seat Duma overwhelmingly, with just 15 deputies opposed.

The now radically-amended Dima Yakovlev bill, named after one of 19 Russian children who have died because of alleged negligence of his American adoptive parents in the past two decades, goes far beyond the originally-stated intent to respond to the US Senate's Magnitsky Act, signed into law by President Obama last week.

The initial bill, which passed first reading last Friday, would have levied economic and visa sanctions against US officials allegedly involved in human rights abuses against Russians. Among the categories of Americans to be hit in the original bill were adoptive parents who abused their Russian-born children and officials involved in the extradition and prosecution of Russian arms dealer Viktor Bout, who was sentenced to 25 years in prison by a New York court last year.

Experts say that might have been a straightforward symmetrical response to the Magnitsky Act, which targets Russian officials implicated in the 2009 prison death of whistle-blowing lawyer Sergei Magnitsky and other alleged individual human rights abusers.

But with the amendments loaded on this week, the bill that Duma deputies seem set to pass on third reading Friday ­ a prerequisite for it reaching the desk of President Vladimir Putin ­ casts a far wider net.

The Kremlin has not so far commented. But the proposed adoption ban has met with unexpected pushback from some Russian government departments. One of those is the Foreign Ministry, which has spent years negotiating a bilateral US-Russia adoption agreement that finally came into force last month.


The adoption ban "is not right, and I am sure that the State Duma will make the right decision in the end," Foreign Minister Sergei Lavrov told the official ITAR-Tass agency before the Duma voted. "International adoption as an institution has a full right to exist."

Others who've cautioned the Duma against making "emotional" decisions that might need to be corrected later include the speaker of the upper house of parliament, Valentina Matvienko, and education minister Dmitry Livanov.

Some analysts say the Duma is out in front of the Kremlin, in passing even more draconian laws than they are asked to, because deputies of the majority United Russia faction are still stung by the accusations of the protest movement that erupted at the time of Duma elections a year ago, claiming that the pro-Kremlin party won by fraud and voter coercion, and were therefore an illegitimate parliament.

"They are still offended by all the criticism, and the jibes that United Russia is 'the party of rogues and thieves'," says Alexei Mukhin, director of the independent Center for Political Information in Moscow.

"They were given the task to react to the Magnitsky Act, but they started adding all sorts of amendments onto it.... I think they are doing this just out of spite, to show the opposition that they have the power, and they can do what they want. It's very likely that Putin will play 'good cop' in the end, and remove some measures, like the adoption ban, when this lands on his desk," Mr. Mukhin says.


Other experts say that the long-running political opposition to foreign adoptions is a key plank in the program of emerging Russian nationalists, and that genuine support for this measure in the Duma shouldn't be underestimated.

Russia has officially suspended adoptions several times in the past few years, usually amid the media storm that results any time an adopted Russian child dies through abuse or negligence at the hands of American parents.

About 60,000 Russian children have been adopted by American families in the past two decades, of whom a confirmed 19 have died in circumstances of parental abuse or negligence. In one case that led to a tsunami of outrage in Russia, a 7-year-old Russian boy was put on a plane to Moscow by his adoptive mother with a "to whom it may concern" note pinned to his clothes saying he was too much trouble to look after.

There are about 650,000 registered orphans in Russia, but Russian law requires that only those who cannot be adopted domestically ­ usually for health reasons ­ may be made available for foreign adoption.

"If they go ahead and ban adoptions to the US, we'll have to close down," says Galina Sigayeva, a representative of New Hope Christian Services, a US adoption agency that's specialized in Russia for almost 20 years, and has been through all the past crises and managed to retain its accreditation amid ever-tightening restrictions.

"We have assisted in the adoption of 140 children to the US, and we have kept in touch with all of them and followed their lives in America. This is our duty. All of those children had health problems, and had been rejected for adoption by Russian citizens. So what kind of gloomy future do children like this face if the Duma closes down adoptions to the US?" Ms. Sigayeva says. 
Adoption of Russian children by foreigners 'a disgrace' - ombudsman

MOSCOW. Dec 19 (Interfax) - Russia's commissioner for children's rights has branded adoptions of Russian children by foreigners as "an absolutely obsolete and disgraceful practice."

"We mustn't expect foreign countries to solve our problems, we must try to improve the situation in our country. We must put an end to foreign adoptions and pull all our resources into support for large families and for disabled children, and for the earliest possible settlement of parentless children in families in Russia," Pavel Astakhov told Interfax on Wednesday.

Russia needs "a single state databank on potential adoptive parents," he said. "It must comprise all 108 million Russians who are physically fit. One should selected the best out of them, and groom and support them. There are 1,000 adults per one parentless child. Having such a tremendous potential, it's a shame to look to foreign countries."

Moreover, he said, Russia needs a federal program for which he suggested the name "Russia without Parentless Children."

"An absolute majority of countries in the world don't give their children away to foreign countries. It's a disgrace and a demonstration of weakness," he said.

Astakhov was defending a draft law to prohibit the adoptions of Russian children by Americans that is part of planned legislation designed as retaliation for a U.S. bill to impose visa and financial sanctions on Russian officials blamed for the death in a Moscow prison in 2009 of Sergei Magnitsky, a lawyer for British investment fund Hermitage Capital.

The American bill has been passed by the Senate but still needs presidential endorsement to become law.

The Russian proposed retaliatory legislation, which would also involve Russia's unilateral pullout from the 2011 Russian-U.S. Agreement on Cooperation Regarding the Adoption of Children, passed the second reading in the State Duma on Wednesday.
The American Interest
December 18, 2012
What the Magnitsky Act Means
If implemented properly, it could mean the restoration of a normative dimension to Western policy on Russia.
By David J. Kramer and Lilia Shevtsova
David J. Kramer, a former Assistant Secretary of State for Democracy, Human Rights and Labor, is president of Freedom House in Washington, DC. Lilia Shevtsova, an AI editorial board member, is senior fellow at the Carnegie Moscow Center.

Sergei Magnitsky was a 37-year-old lawyer who was beaten, deprived of vital medical attention, and left to die in a Russian prison nearly a year after uncovering a massive fraud allegedly committed by Russian officials to the tune of $230 million. The very people whom Magnitsky implicated in the fraud arrested him in 2008; a year after his murder, several of these officials were promoted and awarded, adding insult to the fatal injury inflicted on Magnitsky.

Magnitsky's client, Hermitage Capital head Bill Browder, launched a full-court press to seek justice for his lawyer in the West in the absence of any possibility for justice inside Russia. Browder recounted Magnitsky's riveting story to members of the U.S. Congress and anyone else who would listen. Fortunately, two Congressmen, Senator Ben Cardin (D­MD) and Representative Jim McGovern (D­MA), did listen, and they followed up by leading the campaign to adopt the Sergei Magnitsky Rule of Law Accountability Act, which was approved by the House in a 365­43 vote November 16, and by the Senate with an equally bipartisan landslide (92-4) on December 6. The Act will deny visas to and freeze the assets of those in the Russian ruling elite implicated in Magnitsky's murder and other human rights violations and corruption. Various polls in Russia show support for the legislation by a ratio of more than two-to-one among those familiar with it. In targeting sanctions against corrupt and abusive Russian officials as opposed to the whole country, the Act resonates with the many Russians who are fed up with these kinds of problems in their country. The next critical step is to get European countries to adopt similar measures, which would have an even greater impact on those Russians who like to travel and do business in Europe.

There will likely be international ramifications to the approval of the Magnitsky Act ­especially if it gets applied to other abusive officials elsewhere around the world; Senator Cardin strongly supports such an extension of the law's reach. The Act is also bound to influence the Russian-American relationship­if not today, then in the future. If not implemented aggressively, the legislation risks ending up as yet another piece in the "Let's Pretend" game that the West has long been playing with Russia and other authoritarian states. (Indeed some hope for this outcome.) This would expose the deep crisis affecting the Western world and signal a victory for the forces of authoritarian corruption seeking to demoralize Western society. The U.S. Congress must see to it that the Obama Administration implements the legislation in a serious manner.

To understand the significance of the Act, we have to see the "Magnitsky factor" in a broader historical and political context. During the Helsinki process of the early-to-mid-1970s, the West created a new foreign policy model of linkage between interests and values. While the West pursued this linkage inconsistently and often only rhetorically, it was recognized as the key principle of Western foreign policy doctrine. This recognition was reflected in the almost universal acceptance of the Helsinki Principles, according to which human rights are not merely the internal matter of a country. This principle is a key part of the OSCE and the European Council's legal framework. It was translated into the philosophy of democracy promotion with the Western states and civic organizations that supported the building of democratic institutions (elections, parties, rule of law) in transition societies.

Regrettably, the Obama Administration announced early on in its reset policy with Russia that it was abandoning the notion of linkage between interests and values. This mistake essentially gave Putin a green light to engage in human rights abuses, secure in the knowledge that such actions would not affect the broader relationship. In passing the Magnitsky Act, Congress has fixed that mistake. Long before the Helsinki Accords, and consistent with them, the U.S. Congress approved the Jackson-Vanik amendment in 1974 to deprive countries of most favored nation trade status if they limited their citizens' right to emigrate. The Magnitsky Act takes the premise behind Jackson-Vanik and updates it to apply it to today's Russia.

The Old Ways of Dealing with Russia

Since the collapse of the USSR, Western policy toward Russia has gone through many zigs and zags. The West adopted the "Transformation through Integration" approach (promoting Russia's transformation by moving it toward the West), which implied the West's active cooperation in building Russian democratic institutions. As it became more evident that the Russian regime had little in common with liberal democracy, a modified model appeared, known as "Integration through Transformation" (integrating Russia with the West, but contingent on its transformation). But the essence of the model had not changed: The West still hoped that Russia would democratize, and it would participate in Russia's democratization and integration into Europe.

These hopes were grounded in the erroneous assumption that Russia had started moving toward democracy in the 1990s. In fact, Russia was reviving the system of personalized power under the guise of liberal slogans. By describing the period of the 1990s as a time of democracy in Russia, when to most Russians it was a terrible and dislocating decade, and by openly supporting the new Kremlin one-man rule, Westerners wound up discrediting the notion of democracy in the eyes of many Russians. "If this is democracy," they thought, "then we don't want any!" The West was thus reduced to participation in the imitation of reforms in Russia. Many Russians began to view the West as cynically interested in Russia's demoralization and degradation. Moreover, once the "collective" West embarked on this path, it couldn't veer from it. No Western politician was willing to admit that the belief in Yeltsin and Putin (early in his rule) as democratic reformers was a mistake. Nor did anyone want to risk undermining the advantageous partnership with Russia on issues of economics and security.

The West's imitation of a normative approach to Russia has had two consequences. First, it has tarnished the West's reputation as a normative society both on the Russian stage and on the global one. Second, it has facilitated the exportation of corruption to the West (especially to European countries) from Russia and other post-Soviet states. Thus, a segment of Western society began to serve the interests of corrupt elements from authoritarian or "imitation democracy" states and, in so doing, impacted the Western countries' foreign policies. Undermining the West from within through the exportation of corruption has been far more effective than the policies of confrontation and containment practiced by the Soviet Union.

Magnitsky as a Turning Point

The "Magnitsky factor" marks a turning point, since it allows for the possibility of solving the following problems:
restoring the primary role of a normative aspect in Western society by confronting the issue of normative imitation, external corruption and the demoralization of political elites in both Russia and the West;
undermining the sustainability of corrupt authoritarian regimes by limiting their external resources and hindering their elites' personal integration into the West;
bringing back liberal democracy as an attractive alternative to the authoritarian model;
overcoming anti-Americanism and anti-Western sentiments in Russian and other societies that are now suspicious of the West and its agenda by standing up for principle.
The Magnitsky Act signifies an entirely different format of Western influence. It does not intend to influence the societies that live under authoritarian regimes (in most cases, these societies no longer need lectures on building democracy); it is aimed instead at the elites who use Western countries to secure their interests and their authoritarian regimes.

To be clear, Congress likely would not have passed the Magnitsky Act had it not been linked to the repeal of the Jackson-Vanik amendment and the granting of permanent normal trade relations (PNTR) with Russia. The American business community, motivated by the prospect of losing equal access to Russia's markets once Russia became a member of the WTO, deserves credit for pushing on that front. Dropping opposition to Magnitsky was the only way for the American business lobbies to get PNTR, since a number of key members of Congress made it clear that they would not support PNTR without Magnitsky. Still, after the Senate vote, the business community focused its comments on the granting of PNTR status, which is understandable, in that most businesses are generally not interested in promoting democracy or human rights or imposing sanctions. Klaus Kleinfeld, Chairman and CEO of Alcoa and the Chairman of the U.S. Russia Business Council, had this to say: "We welcome today's historic Senate action which provides the U.S. business community with the certainty and predictability it needs to compete in Russia's growing market. Passage of Russia PNTR offers an important boost to U.S. businesses across sectors."

For the Russian government, however, the repeal of the Jackson-Vanik amendment has long been a non-issue. In fact, it provided the Kremlin with a familiar and convenient excuse for its constant anti-Western harangues. It was the Magnitsky Act accompanying PNTR that came as an unwanted surprise for the Kremlin. Thus, even with PNTR, American companies may find rough sailing in Russia in the near term, as the Kremlin and its lackeys in the Duma vent their frustration over the Magnitsky legislation. Nonetheless, by linking economic interests to universal values, Congress turned a new page in the foreign policy textbook­albeit a page turned against the wishes of the Executive Branch. This indeed marks a new approach, both for the United States and the West as a whole.

As noted above, Russian society, and especially its most progressive segments, have overwhelmingly supported the Magnitsky Act. It also supported the lifting of Jackson-Vanik but was much more interested in seeing it replaced with Magnitsky. Russian internet users, who are usually quite suspicious of the U.S., reacted to the passage of the bill on the popular Echo Moskvy website as follows:

"Of course, I doubt that that the American politicians sincerely care about Russia . . . but I can say one thing with certainty: the act WORKS. If we notice all the Kremlin's hype around the law, it means THERE MUST BE A REASON. Then, these efforts are not IN VAIN, after all. Whatever names we are calling Americans and regardless of how we are treating them . . . this time they did a great job!"

Here is one more posting on the same website:

"Thank you, the U.S. Senate, for trying to deprive Putin's gang of the reason to exist."

According to a recent Levada Center poll, 39 percent of Russians support the Magnitsky Act, an incredibly high level of support among the Russian public, who are usually reserved and even hostile toward the United States. Around 95.5 percent of listeners of Echo Moskvy (which, granted, has a largely liberal listenership) supported the Magnitsky Act, with only 4.5 percent against. Given the Kremlin's relentless and negative propaganda campaign against the Act, these levels of support in Russia are nothing short of amazing.

However, for the "Magnitsky factor" to work, its practical application must be developed further. First and foremost, it has to be adopted in Europe as well, since Europe is the main recipient of Russia's corrupt exports. Therefore, a Schengen Zone member of the EU should pass a similar law so that in effect all countries of the Schengen Agreement must abide by it. Passage in the UK, Norway and Canada would also send an important signal, but approval in the Schengen Zone would have the greatest impact.

At the same time, it is quite clear that "corruption donors" in Russia and other countries will take all necessary steps to block the new law and render it merely symbolic. "Baloney. It will change nothing," as one Russian official put it, perhaps hoping that the White House, which has constantly voiced its disagreement with the law, will be able to thwart it. But, just in case, the Kremlin has already started to prepare "symmetric" and "asymmetric" measures to combat American human rights violations. The Russian Foreign Ministry had this to say right after the bill was approved:

"The decision of the United States Senate following the House of Representatives of the United States approved the legislation, which under the false pretenses introduces the visa and financial sanctions against some Russian citizens, is the performance in the theater of the absurd. . . .
"It looks like that behind ridiculously biased approach taken in the U.S. Congress there is only the vindictive desire to get even for principled, consistent line of Russia in world affairs in favor of strict adherence to international law. We have to reiterate hyperactive opponents of normal development of Russian-American relations: their efforts look pathetic. However, the Russian side will have to respond."

This statement is quintessentially Soviet, for the Soviet Union was great at accusing its opponents of the same things it was accused of. Perhaps, the statement's authors failed to see its absurdity: They identify themselves with those responsible for a person's death and show their readiness to protect Russian human rights violators at any cost.

On December 13, President Vladimir Putin blasted the Magnitsky Act as a "purely political, unfriendly act." The Russian leader was apparently sincere when he said, "Frankly speaking, I don't understand. This is most likely a domestic political intrigue. But I don't understand why Russian-U.S. relations should be sacrificed for some domestic political gain." The Russian leader definitely does not believe that Americans can include a normative dimension into their policy; he evidently thinks that Washington works within the same policy formula that he pursues, and the rest is simply "intrigue." Apparently, thus far he has found no evidence to the contrary.

A natural question amidst all this froth arises: Why did the Kremlin allow the situation surrounding Magnitsky's death to escalate to the point that the West felt it had to adopt sanctions against members of the Russian ruling elite? The Kremlin's political shortsightedness is not the only culprit here. There is a more serious problem. The logic of personalized power does not allow the regime to display weakness. The regime cannot punish one if its own members; otherwise the principles of mutual loyalty and permissive connivance that consolidate Putin's regime will being to crumble.

Right after the Act's adoption, Moscow warned about restrictions on certain meat products from the United States. This constituted its first retaliatory step after the law was passed. The Russian Duma is endorsing its own version of the anti-Magnitsky law, carrying its own retaliatory measures: For example, it calls for American parents who adopt Russian children and abuse them to be banned from entering Russia, along with American officials guilty of abusing the human rights of Russian citizens, such as the notorious arms dealer Viktor Bout.

The reaction of the Kremlin and the ruling class to the Magnitsky Act is quite understandable. After all, some fear it will endanger their financial positions and their ability to remain connected to the West. Others, like the Communists, support retaliation against America to express their outrage at the very fact that the United States tries to exert pressure on the Russian elite. The irony of this is outstanding: The Communists and other elite groups known for their anti-American stances are in fact defending the right of the corrupt Russian elite to keep their assets in dollars and in U.S. banks!

The Magnitsky Act has its detractors in the West, as well among those who fear that the adoption of a new normative approach to foreign policy will complicate partnership with Russia on issues like Iran, Afghanistan, Syria, energy policy and so on. Staunch supporters of Kissingerian-style realpolitik will dismiss the normative approach as romantic dreaming. They believe that Western foreign policy should be a bargaining process or a "transactional relationship," and that the internal politics of a country one is negotiating with should be put on the back burner. There are also those who are directly implicated in catering to Russia's corrupt exports­banks, businesses, legal and political consultants, and companies engaged in PR for the Kremlin­who will work to make the Magnitsky Act irrelevant.

Incorporating the Magnitsky approach into the West's foreign policy does make it more complex. The West will have to abandon its traditional methods and stereotypes and move on to a multi-step diplomacy that may not yield immediate results. But this is no loss: current Western diplomacy no longer involves strategic thinking. The West may boast of its tactical successes, but these come at the expense of strategic failures. The question is whether Western diplomacy will be able to move on to normative politics. The jury is still out on that, including among those in Russia who support passage of the Magnitsky Act.

Nonetheless, the overwhelming support for the Magnitsky Act in the U.S. Congress, the unanimous backing for similar legislation in the European Parliament this fall and in the Dutch Parliament last July, and a recent resolution in the German Bundestag speaking out for civil society and human rights in Russia suggest that the West is adjusting its approach and reviving a more normative role in dealings with the Kremlin.

As the last decade's experience bears out, the realist approach to Russia has discredited the West in many Russians' minds. The West lost its overall vision and foresight of political developments amid Russia's turn toward authoritarianism and the spike in anti-American and anti-Western sentiments.

The coming year will be key to determining how systemic the change in approach by the West toward Russia will actually be. The "Magnitsky factor" offers some hope that the West will overcome its current malaise. And credit for that should go to people like Sergei Magnistky and those who seek justice for his death.
Project Syndicate
December 12, 2012
Russia's Foreign Friends
By Deana Arsenian
Deana Arsenian is Vice President of the International Program at Carnegie Corporation of New York.

NEW YORK ­ For the last nine years, Russia's President Vladimir Putin has hosted the Valdai International Discussion Club, devoting time and attention to leading Russia experts from around the world. Putin's interest in these discussions suggests that he is open to alternative perspectives about Russia's development and global role. But his government's position toward noncommercial institutions with foreign ties and foreign organizations operating in Russia raises concerns that it has lost sight of the value of international cooperation.

Since Putin first became president in 2000, Russia's political, economic, and social stability has been largely restored. But, while his government's policies helped to put Russia on the path to recovery, public- and private-sector entities worldwide also contributed, devoting time, energy, and capital to helping Russia to discard inefficient Soviet-era structures and pursue a society based on democratic principles, the rule of law, and a market economy.

Their efforts bolstered Russia's transformation into a stable, prosperous, and internationally engaged country. Rather than pursuing their own interests, foreign-funded organizations have largely based their actions on concern for Russia and its citizens, and on the belief that what is good for Russia is good for the rest of the world. Such sentiments have guided Russia-relevant programs for decades ­ in both turbulent and prosperous times.

Foreign entities that have made substantial investments in Russia's future include American philanthropic organizations, such as Carnegie Corporation of New York, as well as other Western donors. Such organizations have worked with Russian institutions and ministries to smooth the country's post-Soviet transition, responding to needs that Russia's citizens and leadership have defined.

For example, such foundations supported struggling Russian universities after the Soviet Union's collapse, helping them to regain their status while rebuilding academic programs in all disciplines. These organizations have supported thousands of Russian scholars, academics, and scientists, enabling them to contribute to Russia's transformation, rather than having to join many of their colleagues in pursuing opportunities elsewhere.

Moreover, through research and travel grants, foreign organizations have connected Russian intellectuals to the outside world, facilitating the linkages that are crucial in modern academic communities. They have worked with Russian civil-society leaders to strengthen the country's nongovernmental sector, a basic element of a functioning democracy. And they have funded programs aimed at creating and implementing effective policies to secure Russia's vast nuclear arsenal at a time when the country's ability to do so was dangerously weak.

Given this legacy of heavy investment by the Western public and private sectors in Russia's future, the Putin government's position on foreign and foreign-funded organizations seems puzzling. Recent steps ­ including the closure of the United States Agency for International Development, a requirement that foreign-funded noncommercial institutions register as "foreign agents," termination of the Nunn-Lugar Cooperative Threat Reduction Program, and harassment of foreign civic and philanthropic entities ­ undermine the progress that US-Russian partnerships have enabled.

Many observers are relieved that Russia no longer needs external aid to support groups and activities that previously relied on it. But the Putin government's policies, and the ways in which they are being implemented, do not do justice to Russia's past, present, or future. Instead, they diminish recent accomplishments, negate successful partnerships, and preclude the kind of international collaboration that has benefited Russia and the world.

Having presided over the country for more than a decade, Putin is in a unique position to achieve what no previous Russian leader could: making Russia part of the solution to global challenges, rather than part of the problem. A self-reliant, self-confident, transparent, strong, and engaged Russia is in the interest of not only Russia's leaders, but also of the foreign-funded organizations that have made such valuable contributions to its development.

The government's punitive approach to those who care deeply about Russia's future undermines this vision. Putin should act in the best interests of his country ­ and the rest of the world ­ by establishing Russia as a positive global force that is not afraid of its foreign friends.
Komsomolskaya Pravda
December 16,2012
The Litvinenko case -- a Blair family business?
By Alexey Pankin

What do these people have in common: Ken MacDonald, the
prosecutor who charged Andrei Lugovoi with the murder of
Alexander Litvinenko; Ben Emerson, a lawyer representing the
widow Marina Litvinenko; and Jessica Simor, the attorney
defending Lugovoi?

Strange bedfellows? Then add Cherry Boothe, the wife of Tony
Blair, the British prime minister back in 2006 when
Litvinenko died. Even stranger?

The answer to the question is that they are all part of the
law firm named Matrix Chambers.

Curiously it was MacDonald who gave the prosecutorial
anti-Putin spin to the very strange Litvinenko case. But
even curiouser is that the coroner, the official charged
with adjudging the manner of death, had never ruled it a

Do these coincidences and oddities lead to any definite
conclusion? Of course not. But if you look at the Litvinenko
case closely, you will see it contains a number of equally
piquant facts that, if known to the British public, would
surely discredit the case itself. That's especially so with
the ongoing coroner's inquest that will cost British
taxpayer nearly $7 million. That's a high price in these
difficult economic times.

But, alas, Russia may not be facing cheap solutions either.
The cost of Matrix Chambers attorney Jessica Simor to defend
Duma deputy Andrei Lugovoi is not likely to be
insignificant. Will Russian taxpayers be footing that bill?
I think it is disgusting to even think of that.

But that's not all. Now the Investigative Committee of
Russia has said it wants to become an "interested party" at
the inquest. In practical terms, this means that the Brits
would be free to decide what information to share or not to
share with Russia, said Mikhail Lyubimov, a former
intelligence officer and a great expert on how things are
done in the UK. At the same time, each instance of Russian
reluctance to give out information would bring on the
worldwide media howl, "they have something to hide."

Despite all this, it seems to me that Russia will have
gotten away from the Blairs lightly. In November, the Kazakh
media reported that Tony Blair has agreed to extend his
consulting contract with the Kazakh government. However, the
cost for his services has doubled to $16 million a year. Mr.
Blair was British prime minister between 1997 and to 2007.
That makes him one of the authors of the current global
financial crisis. It is hard to imagine what kind of advice
he could give to Kazakh president Nursultan Nazarbayev. It
all looks to me like it could be a ransom for assuring that
no systematic campaign against the "bloody Nazarbayev
regime," targeting the compromised democratic rights and
freedoms in Kazakhstan, has emerged in the Western media.

Some time ago U.S. President George W. Bush, wanting to
please his British partner Blair on the Iraq adventure,
assured the world: Blair is not an American poodle.

I cannot judge, who is a poodle and who is not. But consider
the two sister states -- Russia and Kazakhstan. Both in
their own ways are jumping back and forth through hoops that
are in the hands of the Blair family.