#2
No deep economic crisis occurs in Russia - Putin

ST. PETERSBURG, June 19. /TASS/. There was no deep crisis in the Russian economy, the country is going through hard times, Russian President Vladimir Putin said on Friday at the St. Petersburg International Economic Forum.

"At the end of last year, a deep crisis was forecasted to us. This did not happen. On the contrary, we have stabilized the situation, diminished negative market fluctuations and are confidently going through obstacle course mostly because Russia's economy has accumulated sufficient supply of inner strength," Putin said.

Speaking about energy prices in the world which greatly affect the Russian economy, the Russian president reminded that average price for Urals blend had fallen from $107.9 per barrel in 2013 to $56 per barrel in 2015. "According to Rosstat [Russian state statistics agency] estimates, Russia's GDP has fallen by 2.2% in the first quarter of 2015 comparing to the same period last year. Industrial production fell in January-April by 1.5%," the Russian leader noted.

Though Russia has limited access to global capital market and consumer demand has fallen, Russia maintains positive trade balance and growing volumes of non-oil export, Putin said. "In the first quarter of 2015, physical volume of non-energy export has grown by 17%," Putin noted.

Troubleshooting measures against the crisis have worked

Russian President Vladimir Putin believes that the trouble-shooting measures against the crisis have worked by and large and now systemic development can begin.

"The promptly taken measures to support the economy and the financial system have certainly worked. Now we are again focusing on the systemic tasks and the long-term development agenda," Putin said.

Now the task is to ensure "sustainable growth, greater effectiveness of the economy, labour productivity and an influx of investment."

"Our priorities are to improve the business environment, train personnel for the economy and state governance, education and technologies," Putin said.

Financial and banking systems of Russia became adapted to new conditions

Russia's federal budget deficit will total 3.7% at 2015 year-end, President Vladimir Putin said on Friday at the plenary session of the St. Petersburg International Economic Forum (SPIEF).

"The deficit of the federal budget in January - May 2015 totaled 1.048 trillion rubles ($19.2 bln) or 3.6% of GDP. It is expected that the deficit at year-end will equal 3.7%," the head of state said.

Financial and banking systems of Russia became adapted to new conditions and the currency rate was managed to be stabilized, the Russian president said.

"I would like to stress at the same time we did not resort to any measures limiting the free capital flow, just like in 2008-2009," Putin said.

Gold and currency reserves amount to more than $300 bln, the president said. "I have just talked with Elvira Nabiullina [head of the Bank of Russia]: $360.6 bln were at June 1 and slightly less now because these funds were used," the head of state said.

The Reserve Fund totaled $76.25 bln and the National Wealth Fund equaled $75.86 bln as of June 1, 2015, the president said.

Russia's inflation on downside trend

Russia has kept control over inflation, which is decreasing, Russian President said at a plenary session of the St. Petersburg International Economic Forum.


"We have kept control over inflation. Yes, it jumped due to the ruble's devaluation but now this trend is losing ground," the head of state said.

After consumer prices jumped in the first three months of this year, inflation is now decreasing. It equaled 1.2% in March and 0.5% in April, Putin said.

"The trend is obvious. We see a downside trend," the Russian president said.

[return to Contents] 

 #3
Putin advises US against dictating decisions to Russia

ST. PETERSBURG, June 19. /TASS/. Russian President Vladimir Putin has warned the United States against the intention of speaking to Russia in an ultimatum-like language and urged it to let Moscow decide its own needs.

"The problem is we are confronted with attempts at dictating standards and solutions in defiance of our interests," Putin said at a full-scale meeting of the St. Petersburg International Economic Forum. "In fact, the United States is telling us 'We are better.' In other words, the United States knows better what we need."

"Please, let us make decisions regarding our interests and requirements on our own, proceeding from our history and culture," Putin said, adding that the United States was seeking to "meddle with our domestic political processes, including through financing the non-government sector and imposing decision in the sphere on international security."

Putin recalled discussions of the situation in Iraq before the deployment of international forces in that country. "He who is not with us is against us," the president said, describing the United States' stance. "This is not a dialogue, this is an ultimatum," Putin said. "It is not right to speak the language of ultimatums with us."

The president however noted that he hopes common global goals of Russia and the United States will allow the two countries to improve ties.

"We are united by the wish to still work against common threats like terrorism, spread of drug threat and a likely and very dangerous tendency towards a possible proliferation of weapons of mass destruction," Putin said at the St. Petersburg forum.

Besides, this is the fight against very difficult infectious diseases that affect the whole regions, the president added.

"There are issues linked to global economy, energy and other spheres where the cooperation that we have established is not bad, in general," Putin said. "I expect that this will serve as a basis that will allow us to restore the former level of ties with the US and move on," he said.

 [return to Contents] 

 #4
www.rt.com
June 19, 2015
Putin: Unilateral US withdrawal from ABM treaty pushing Russia toward new arms race

Global decisions like the US pulling out of a treaty banning strategic anti-ballistic missile defenses are pushing the world towards a new Cold War, Russian President Vladimir Putin said. Military conflicts have a far lesser impact, he added.

"Not military conflicts but global decisions like the US unilateral withdrawal from the Anti-Ballistic Missile Treaty lead to a Cold War," Putin said. "This more in fact pushes us to a new round of the arms race, because it changes the global security system."

Putin made his comments at a key plenary session at the St. Petersburg International Economic Forum.

The 1972 ABM treaty between the US and Soviet Union ensured that neither side tried to neutralize its foe's nuclear deterrence by building an anti-missile shield. The US unilaterally withdrew from it in 2002, as the Bush administration claimed it needed protection from "rogue states" such as North Korea and Iran. Moscow believes that the US is actually building a global anti-missile system to undermine the defenses of Russia and China.

The Russian president's comments came in response to a question whether he felt that the Ukrainian armed conflict was pushing Russia and the US towards a Cold War-like confrontation.

Putin warned the US against trying to use the language of ultimatums in its relations with Russia.

"The problem is that they are constantly trying to impose their standards and decisions on us with no regard to our interests," he explained. "In essence they say: 'we are better' as if the US knows better what is good for us. Well, let us decide for ourselves what our interests and needs are as dictated by our history and culture."

He accused Washington of meddling in Russia's internal affairs and sticking to an arrangement that pits Russia either with America or against it.

"This is no dialogue. It's an ultimatum. Don't speak the language of ultimatums with us."

Ukraine is another example of how the US is causing trouble by maintaining its arrogant approach to international politics, Putin said.

"They should not have supported the anti-constitutionalists' armed coup that in the end led to a violent confrontation in Ukraine, a civil war in fact," he said. "We are not the cause of all those crisis events that Ukraine is experiencing."

 [return to Contents]

 #5
Moscow Times
June 19, 2015
Lack of Action Questions Forum's Reform Agenda
By Ivan Nechepurenko

ST. PETERSBURG - Amid the grandiose, ambitious slogans of this year's International Economic Forum, which opened Thursday featuring topics ranging from building efficiency in essential state-owned enterprises to making Russian jurisdiction "more comfortable for business," the need to shift from defining problems to acting on them loomed large across the conference rooms.

"Time to Act" was chosen by organizers as the overall motto of this year's St. Petersburg International Economic Forum, Russia's premier event in showcasing the country's economic policy.

The need to introduce comprehensive structural reforms that would bring competition into Russia's politics and economy has been a pervasive theme of this event during the last several years, but this pervasiveness has also brought frustration: Little has ever followed the promising statements made here every year by top government officials, including President Vladimir Putin.

In addition, Russia's current turn toward China is largely seen more as a replacement for the much-needed reforms than a complement to them, according to business executives and experts attending the forum.

Hit by sanctions and the oil price collapse, the Russian economy contracted by 2.4 percent from January to April, according to the Economic Development Ministry, negating the growth achieved in 2013-14. For the first time since Putin took the helm of Russian politics more than 15 years ago, Russians' real incomes have shrunk, with the government expecting the decline to reach 9.8 percent by the end of the year.

Economic Soul-Searching

Sanctions and lower oil prices have only revealed the main weaknesses of the Russian economy, experts, executives and government officials agreed during the forum's sessions and in private conversations. The main obstacle to the economic and overall development of the country is a lack of structural reforms and pervasive mismanagement, both at state and corporate levels, they said.

"Crises are always a result of bad management," said German Gref, CEO of Sberbank, Russia's biggest bank, earning loud applause from the audience at the opening session, extravagantly titled "Economics: Frank Answers to Pressing Questions."

Together with former Finance Minister Alexei Kudrin, Gref offered sharp criticism of the government's handling of the economy.

"We always discuss yesterday's problems. Nobody even tries to discuss the situation that we will have in the future, in the era when what we see is not only vast capital outflows, but also an increasing brain drain," Gref said.

Kudrin went further by saying that the government is not only not doing enough, but that its decisions and actions often go against its statements.

"Unfortunately, apart from plans there are decisions, actions that go against the plans," said Kudrin.

Kudrin cited the example of Russia's de-offshorization plans that, according to him, will not spur growth and will only make entrepreneurs' lives more difficult.

Gref and Kudrin's criticism was echoed by some of the heads of private companies working in Russia.

"Russia is becoming a champion at burying its head in the sand," Irackly Mtibelishvily, chairman of corporate and investment banking for Citibank's Russia and CIS division, said at one of the sessions.

Promises of Change

Sitting in the middle of Gref and Kudrin, Deputy Prime Minister Igor Shuvalov attempted to deflect the criticism by saying that the government has made all the necessary plans and is committed to structural reforms.

Shuvalov also said that he hopes there will be more political competition in the country in the future.

"I expect the next State Duma elections to be different from the 2011 ones. We are preparing for this," Shuvalov said.

The previous elections to the lower house of the Russian parliament were widely seen as rigged and resulted in large-scale protests in Moscow and in other big cities across the country. The next State Duma elections are scheduled for next year.

Both Russian and international entrepreneurs attending the forum praised it for being a successful networking platform where they said they could approach government officials to solve their immediate problems and raise concerns.

At the same time, they said the fact that businessmen have to resort to solving problems in this way points to the lack of modern government institutions in Russia.

A Changing Audience

Top executives continue to attend the forum, now in its 19th year. This year's event is being attended by more than 1,000 participants from over 100 countries, said Deputy Prime Minister Sergei Prikhodko, who is chairman of the forum's organizing committee.

Attendance by senior Western politicians was, however, of a different order this year. While two years ago German Chancellor Angela Merkel came to the event and held talks with Putin, this year Alexis Tsipras, Greece's recently elected prime minister, was the only Western leader expected at the forum.

As though as a consolation prize, many former Western leaders came instead, including former British Prime Minister Tony Blair, who shared his experiences on reforming the public administration system.

Many of the forum's sessions addressed the same issues as those discussed last year and the overall feeling in the conference rooms was one of deja vu. Putin is due to deliver his keynote speech here Friday, but most participants did not expect any groundbreaking announcements.

 
#6
Experts say foreign business's wide participation in economic forum means Russia's success
By Lyudmila Alexandrova

MOSCOW, June 19 /TASS/. Foreign business's wide participation in the St. Petersburg International Economic Forum (SPIEF) that opened on Thursday testifies to Russia's success amid negative international developments, experts say.

The Committee of Permanent Representatives of the EU member states took a decision on June 17 to extend the sanctions imposed against Moscow over its stance on developments in neighboring Ukraine for another six months. Foreign investors stand against the anti-Russian sanctions but are unable to exert sufficient pressure on their governments.

The St. Petersburg International Economic Forum will bring together representatives of 114 countries compared with 62 last year and 900 heads of companies (slightly over 600 in 2014) and a solid US representation of 12 heads of American firms, Russian presidential aide Yuri Ushakov said on Wednesday.
The St. Petersburg International Forum is attractive for foreign business because Russian assets have become very cheap, analysts say.

"Those who stayed aside now want to take the risk," Russian business daily Vedomosti quoted an employee of a global investment bank as saying.

According to a poll conducted by EY among the heads of western companies working in Russia, only 15% believe that the macroeconomic conditions in Russia have deteriorated significantly for them in the past year, Vedomosti said.

However, the poll shows that these conditions have deteriorated insignificantly for 59% of the respondents and have not changed at all for 15% As many as 39% of the respondents have plans to expand the geography of their companies' presence and only 3% have decided to put investment projects on hold.

"I'm going to the forum to confirm once again that Italian investors will never quit Russia," Vice-President of the Italian-Russian Chamber of Commerce Vincenzo Trani told Moskovsky Komsomolets daily.

It is exceptionally profitable to invest in all the BRICS member states (Brazil, Russia, India, China and South Africa), he added.

"Business taxation in Russia is much milder than in Europe and the United States. Your market is huge and has a lot of vacant niches, which entrepreneurs can take up, if they get our investment," the Italian business representative said.

According to Trani, Italian entrepreneurs are struggling against anti-Russian sanctions, which are "foolish."

"We, both the Italian businessmen and the parliament, are pressurizing our Cabinet of Ministers and demanding that it should speak for the sanctions cancellation but we have to be realists," he said.

"We have showed that we are not in isolation. Foreign business's interest in the forum is already a success by itself," Deputy Head of the Faculty of World Economy and World Politics at the Higher School of Economics Andrei Suzdaltsev told TASS news agency.

'They expected our economy to collapse already by December and the fact that we have been able to withstand this is perceived by them as a success," the expert said.

As for the western business's possible pressure on politicians to make them cancel the anti-Russian sanctions, these possibilities should not be overestimated, the expert said.

The participation of foreign businessmen in the SPIEF is so far a weak but still a positive signal," Director of the Center for International Trade Studies at the Russian Presidential Academy of the National Economy and Public Administration (RANEPA) Alexander Knobel said.

"Business interests are present compared with what was a year ago, the situation in the Russian economy has stabilized and trade is developing. But this will hardly help cancel the sanctions. Business will obey their governments," the expert told TASS.

This is very significant that the number of the SPIEF participants has grown, Associate Professor at the Chair of World Economy and World Politics at the Higher School of Economics Natalia Karpova told TASS.

"The entire global economy is now living through quite difficult times and everyone is looking for alternative opportunities while Russia is not the worst player in the world."

The Russian site is very interesting, she said. Russia occupies one-seventh part of the Earth's surface, boasts the world's second largest freshwater reserves and accounts for 12% of global primary energy resources while constituting 2% of the world's population. Besides, Russia remains an important player on the world scene, despite all complexities, the expert said.

"Business uses all baskets for putting eggs and, therefore, will not ignore the Russian basket," the expert said.

 [return to Contents]

 #7
Bloomberg
June 19, 2015
Russian Economic Path Is in Eye of Beholder for Putin Allies
by Olga Tanas and Paul Abelsky

The Russian economy is sailing along -- in the eye of the storm or toward calmer waters, depending on who's looking.

Gauging the health of the economy during the first two days of the St. Petersburg International Economic Forum were President Vladimir Putin's confidantes, past and present. Things looked worse off on the outside looking in.

"Everything has gone far better" than forecast in the fall, Igor Shuvalov, first deputy prime minister whose remit stretches from financial policy to sports, said Thursday.

Not so, countered Alexei Kudrin, who was finance minister for more than a decade and has worked with the president since the 1990s. "We are now in the eye of the storm," Kudrin said.

Putin himself will weigh in on Friday, delivering a keynote address to the showcase event in his hometown. His message to investors will fall short of delivering major initiatives to pull Russia out of recession, curtail corruption or strengthen property rights, according to four people familiar with the matter.

Stabilizing oil prices and a letup in the currency crisis that ravaged the economy last year are testing the authorities' resolve after they snapped into action with spending cutbacks and an emergency increase in borrowing costs to douse panic. With policy in flux, the clashing assessments underscore the challenge for Putin of managing the economy still besieged by sanctions enacted over the conflict in Ukraine.

Market Confidence

As the broader economy staggers through its first recession in six years, Russian assets are brimming with confidence. The ruble is the world's best performer globally against the dollar this year with a 13 percent gain after losing almost half of its value in 2014. The benchmark Micex stock index is up 19 percent this year. The yield on five-year government bonds ticked up one basis point to 11.17 percent on Friday, compared with this year's high of 17.64 percent in January.

Economic data released this week paint a bleaker picture. Industrial production dropped more than forecast by analysts, sliding for a fourth month in the longest slump since 2009. A crash in real wages and retail sales is putting Russia on track for the biggest drop in consumption in more than two decades, according to Otkritie Capital.

'Grim Reading'

The figures for May "made for grim reading," William Jackson, an analyst at Capital Economics Ltd. in London, said in a report on Thursday. The "data provide further evidence that Russia's economic downturn deepened in the second quarter."

That view was echoed by Daniel Hewitt, a London-based economist at Barclays Plc, who said "second-quarter real sector indicators confirm that the recession is intensifying."

As the debate continued Friday morning, Kudrin again said at a breakfast meeting with Economy Minister Alexei Ulyukayev, Finance Minister Anton Siluanov and OAO Sberbank Chief Executive Officer Herman Gref that Russia is in the full-fledged crisis. He warned that companies may step up job cuts after having coped by reducing salaries and hours in hope they can "wait through." Unemployment dropped to 5.6 percent in May from 5.8 percent in April.

'Less Negative'

Government officials in St. Petersburg found more to cheer about. Deputy Finance Minister Maxim Oreshkin said that on a quarterly basis the April-June period will show a "less negative" performance than in the prior three months.

Gross domestic product contracted 2.2 percent in the first quarter from a year earlier, the first drop since 2009 and down from a previous estimate for a 1.9 percent decline. The economy may shrink for two years in a row for the first time under Putin if oil stays at $60 through 2016, according to the central bank.

"We believe there won't be a second year of recession," Oreshkin said in an interview Thursday. On a monthly basis, "June data may already bring about something positive."

Ulyukayev was also more upbeat. He said at the Friday breakfast meeting that it was a "matter of definition" whether Russia is in crisis and predicted recession may last three quarters and "starting from the fourth quarter, we expect the beginning of restorative growth."

Sanction Threat

If Kudrin sees little relief in sight, that's because the uncertainty roiling the economy exposes "challenges that are political, non-economic in character," he said. For example, another wave of sanctions that restrict trade or the movement of capital can set Russia back, according to Kudrin.

"That's increasing the uncertainty and leaves little hope for traditional methods of exiting the crisis," he said.

European Union governments have struck a preliminary agreement to extend the measures against Russia by six months, according to two officials from the trading bloc. Final confirmation is due June 22, they said. Russia plans to react with a six-month prolongation of its ban on the import of a wide range of vegetable, fruit, meat and dairy products from the EU, according to two people with knowledge of the matter

Even if the slump will ease, the economy will be worse off in absolute terms a year from now, according to Gref, who was economy minister during Putin's first two presidential terms before leaving to run Russia's biggest lender, state-controlled Sberbank.

"A crisis always results from bad management," he said in St. Petersburg. "Today's situation is a result of structural problems and imbalances accumulated over time."

 [return to Contents]

 #8
CNBC.com
June 19, 2015
Russia faces 'serious challenges' and must push reforms
Holly Ellyatt    | Geoff Cutmore    

Russia faces a series of challenges and should use its current period of economic crisis as an opportunity to make far-reaching reforms, Russia's political and business leaders have told CNBC at a panel at the St. Petersburg International Economic Forum (SPIEF).

Hosted by CNBC's Geoff Cutmore, the panel met to discuss the topic "Never let a good crisis go to waste". Those taking parts in the session looked at how Russia could use its current crisis to address underlying structural economic problems and implement reforms so it can ultimately return to sustainable economic growth.

Last year's fall in oil prices and international sanctions on the country due to its annexation of Crimea and role in the conflict in Ukraine (which it denies) precipitated economic turmoil in the country, with the ruble losing half its value against the dollar, soaring inflation and capital outflows as investors ran for cover.

Russia's political and economic isolation could be an opportunity for the country to sort out its deeper structural problems, the CNBC-hosted panel of Russian government representatives and business leaders told the SPIEF audience.
Great challenges

Former Finance Minister Alexei Kudrin summed up Russia's problems succinctly, telling the audience that Russia faced "serious challenges."

"We have difficulties with the pension system, with the labor market which actually brings down the rate of development and we have a very bad structure of the budget and we don't spend much money on infrastructure. Our regions do not have enough resources and they've actually stopped investing," he said.

Kudrin explained that Russia had a great challenge to implement a new economic model that was "not dependent on oil prices...and to start economic growth we need to reform."

Earlier Friday at SPIEF, Economy Minister Alexei Ulyukayev said Russia's economy contracted by 3.2 percent in the first five months of the year, citing a preliminary estimate. The minister also said that he expected the contraction in the second and third quarters of 2015 to be around 3.5 to 4 percent.

Speaking at the CNBC panel, Ulyukayev said Russia's potential growth "was not very high."

"We very much believe that by the end of the year we will pass by the recession time and by next year we will be closer to potential growth, but that is only around 2 percent of gross domestic product (GDP). It's still lower than the average in the world, which is around 3.5 percent. (But) we want Russian growth higher than average."

However, he said that the Russian government was enacting deregulatory measures to support the economy and Russian businesses. "We still believe in the market and we are trying to support the market fundamentals."

Opportunity knocks

Russia's growth outlook for this year might not look rosy but the country is expected to return to positive growth in 2016. The ruble has also strengthened against the dollar from the lows seen at the start of the year and the rate of inflation, albeit at a high 15.8 percent in May, is slowly decreasing.

On Monday, Russia's central bank announced the fourth consecutive cut in interest rates, reducing its key interest rate to 11.5 percent, in a bid to stimulate growth in the economy.

Inflation remains high, however, at 15.8 percent in May which is preventing the bank from cutting rates at a fast pace.

Whether the bank is cutting rates fast enough is a matter for debate, however. Speaking on CNBC's panel Friday, Russian Finance Minister Anton Siluanov said Russia needed lower interest rates.

"We need interest rates to be brought which will make credit more accessible which is badly needed now. We have an advantage now after the devaluation of the ruble and the price of our costs going down, labor becoming cheaper and the economy becoming more attractive but what we need is resources - internal ones because we are being deprived of external ones."

He warned that Russia had to keep a grip on its spending, however, and needed "a new quality of growth based on investment not on current consumption."
Not all doom and gloom

Russian business leaders taking part in the conference were eager to point out that Russia's economy was not as gloomy as it is often depicted by the international media.

Mikhail Shamolin, the head of investment giant Sistema, told the panel that in his company, which has invested in 17 sectors, 16 sectors make money.

"The gloomy picture often depicted of the Russian economy, from our perspective, is not really true. There are business opportunities in Russia and businesses do develop, regulation is improving and we as an investor intend to stay in Russia and we see opportunities (here)."

Shamolin was keen to see more opportunities for investment and privatization as "that could help resolve the issue of productivity and the number of jobs that produce value."

Oleg Deripaska, president of aluminium giant Rusal, told the panel that Russia was in a period of transition, rather than crisis although he insisted "a political resolution" to issues like Ukraine was needed.

"There are some areas where we can see tremendous progress- such as in taxation, but I would say that markets in Russia are looking for more points of equilibrium after the shock of sanctions...But it's important to define what will be our new model of economic growth and how we promote the market economy."

In order for Russia to return to growth, a number of guests on CNBC's panel and high-profile members of the audience participating in the debate, such as the chairman of PwC International, Dennis Nally, noted that the government needed to make efforts to understand the needs of its business community and to encourage them to invest again.

That perspective was echoed by Christopher Pissarides, professor of Economics at the London School of Economics (LSE) in London - who said that Russia's young generation needed to be encouraged to create businesses.

CNBC's panel of guests was made up of Anton Siluanov, finance minister of the Russian Federation and Alexei Ulyukayev, minister of Economic Development were joined by Alexey Kudrin, former Russian finance minister and Andrey Makarov, chairman of the Russian government's Committee on Budget and Taxes.

Among the Russian business leaders on the panel were Oleg Deripaska, head of aluminum giant Rusal, Kirill Androsov, managing director of Altera Investment Fund, Mikhail Shamolin, president and chief executive of Russian investment giant Sistema and Oleg Viyugin, Chairman of the Board of Directors of MDM Bank.

[return to Contents] 

 #9
New York Times
June 19, 2015
Despite Tensions, U.S. Company Officials Attend Russian Economic Forum
By ANDREW E. KRAMER

ST. PETERSBURG, Russia - For a few days at least, profits seem to be trumping politics in Russia.

On Thursday, Kremlin officials proclaimed their success in wooing at least 24 chief executives to attend an economic conference here, some arrived despite objections of their home governments.

The three-day event, which runs through June 20, also drew Greece's prime minister, Alexis Tsipras, who had been talking to the Russian gas company Gazprom about pipeline deals to lift revenue for his debt-ridden country. Mr. Tsipras was expected to speak at the business gathering on Friday.

Last year, American and some European chief executives largely boycotted the event, the St. Petersburg International Economic Forum. Showing up is not illegal under European Union rules and American sanctions imposed on Russia for annexing Crimea and supporting rebels in eastern Ukraine, but the White House has discouraged attendance.

"Through our combined sanctions, restrictive measures and reduced diplomatic engagement, we have sent a clear signal to Russia's leadership that we will not return to 'business as usual,'" said a statement from United States government. "We have communicated our position to the U.S. business community in multiple fora."

That did not stop 12 chief executives from United States companies from showing up, according to Yuri Ushakov, an adviser to President Vladimir V. Putin. In total, Mr. Ushakov said, 70 American company officers attended, though the full list of attendees was not made public on the event's website.

The published forum program listed as attending Jim Rogers, chairman of the Miami financial company Beeland Interests; John Wories, president of Amsted Rail; and Jacob Frenkel, chairman of J. P. Morgan Chase International. David Bonderman, a founder of TPG capital, a private equity investor with shares in a grocery store chain here, also reportedly planned to attend.

Dmitry Peskov, Mr. Putin's press secretary, told RT (formerly Russia Today) that "business circles are interested in Russia, as evidenced by the guest list of the forum."

The forum was hosting more representatives of international businesses than last year "despite attempts by some countries to isolate Russia," Sergei E. Prikhodko, a deputy prime minister, said in an opening speech.

The European business contingent was even larger than that from the United States. Among the prominent chief executives attending were the directors of BP, the British oil company, and the French bank Soci�t� G�n�rale.

In one contract, the chief executive of the Royal Dutch Shell oil company, Ben van Beurden, agreed with Gazprom's director, Alexey Miller, to build a third liquefied natural gas plant on Sakhalin Island in Siberia.

European and United States sanctions do apply to the oil industry, but only to drilling work in the Arctic Ocean at depths greater than 150 meters, or about 500 feet, and to technology used in hydraulic fracturing.

The St. Petersburg forum, held during the city's period of midsummer white nights, is Russia's version of Davos. It is a prized chance to mingle with Kremlin insiders and cut deals.

The executives came even as the luster of the event was wearing off. Russia is sliding into a recession this year and faces risks from a shaky cease-fire in Ukraine. The Russian economy depends heavily on an oil industry hampered over the last year by a steep drop in crude prices. Russia could benefit greatly from investment and technology transfers from the multinational companies, but those are unlikely under the international sanctions.

A former finance minister, Aleksei L. Kudrin, cautioned of a "creeping change in the concept of how the market should work" in Russia; the government and Parliament are wiggling back toward ideas of pervasive state control, an old problem in Russia.

Russia will be able put an end to its economic doldrums only if domestic politics loosen to allow a freer atmosphere for businesses, Mr. Kudrin said. He suggested President Putin could call a snap election to win a new mandate for economic reforms that would help diversify the economy away from oil dependence. Mr. Putin has three years remaining on his six-year term.

This year, the event became a chance to resist sanctions.

European Union ambassadors agreed on Wednesday to extend by six months the sanctions on financial companies - and some oil and defense companies - calming worries that Greece, seeking leverage in its debt negotiations, might break the 28-nation unity over the Ukraine conflict.

Under European Union rules, all nations must act in lock step to impose sanctions, as a single veto annuls the trade restrictions. The sanctions are set to expire at the end of July. A formal extension still requires a vote next week by European foreign ministers.

Mr. Tsipras of Greece openly opposed sanctions even as his government voted for them. He was scheduled to meet with Greek businessmen on Thursday.

Ties with Europe were further strained on Thursday when authorities in France and Belgium froze assets linked to the Russian government to satisfy multibillion-dollar damage claims by shareholders in the former Yukos oil company. The courts agreed that the Russian government effectively nationalized Yukos, costing United States-based shareholders about $6 billion in losses. The Russian foreign ministry said it would retaliate against the freezing of assets in the case, but didn't specify how.

 [return to Contents] 

 #10
www.rt.com
June 18, 2015
Ex-Russian finance minister Kudrin suggests early presidential elections to speed up reforms

Russia's former finance minister, Aleksey Kudrin, has proposed an early presidential election to provide a mandate for much-needed economic reforms.

"Why don't we bring the presidential elections closer and announce a new program of reforms?" Kudrin said Thursday at the St. Petersburg International Economic Forum. He added that the newly elected president would receive a boost in public credibility and this would make it easier for that person to carry out economic reforms.

Kudrin also said that the main threat to the Russian economy still comes from major structural weaknesses and added that existing government programs were only calculated until 2018. This timeframe was too short to solve any real, serious economic problems, Kudrin said.

The former finance minister claimed in his speech that such an approach had apparently yielded some positive results when tried in Kazakhstan. Early presidential elections were held in that country in late April, where incumbent President Nursultan Nazarbayev won by a landslide with virtually unanimous support. Almost immediately after the elections, Nazarbayev announced a major tax reform in the country, as well as a broader program, dubbed "100 Steps." The authorities plan to transform Kazakhstan's state administration, judicial system and economy, and eventually pull the nation up to be in the 30 most developed countries of the world.

Russian lawmakers both from the ruling party and the opposition sharply criticized Kudrin's suggestion on Thursday, however, and said that it looked like an attempt to weaken the country.

Sergey Neverov, of the United Russia party, said that he saw no reason to hold an early presidential election. "Such suggestions can be considered as an attempt to bring certain instability into our society," the Vedomosti newspaper quoted Neverov as saying.

The head of the Communist Party State Duma caucus, Ivan Melnikov, told reporters that he would only comment on such suggestions if they came from President Vladimir Putin or his official representatives. "When it comes from Kudrin, the very word 'reforms' sounds ominous," Melnikov added.

Mikhail Yemelyanov of the center-left party Fair Russia noted that, in his opinion, Kudrin was representing a pro-western section of Russian society and these section wanted to change the date of elections to destabilize the country.

The next presidential elections in Russia are scheduled for 2018. The presidential term is currently set at six years.

Putin has not yet announced his intention to run for another term. So far, presidential ambitions have been openly announced only by the head of the nationalist Liberal Democratic Party, Vladimir Zhirinovsky.

Liberal party Yabloko said in a major development program that one of its founders, Grigory Yavlinsky, would be put forward as a presidential candidate as a real alternative to Putin. Yavlinsky himself has not yet commented on this initiative.

 [return to Contents] 

 #11
Sputnik
June 19, 2015
Jim Rogers: 'Russia has Changed, Russia is Rising, I'm Investing'

Despite the Western efforts to discourage investors from participating in the St. Petersburg Economic Forum, the affair is in full swing. Jim Rogers, legendary investor and chairman of Beeland Interests, is in attendance, and he told Radio Sputnik that the Russian economy may be the most promising market for fellow investors.

"Well, it's gonna change the world," Rogers says when asked about the role of the BRICS Bank. "You know, the world has been dominated by IMF, World Bank, and other American-controlled institutions, and that's never good, that only one players in charge of everything. So now we're going to have competition...

"This will be very good for the world," he adds.

Speaking with Radio Sputnik, Rogers notes how the United States economic actions are driving other together, in particular Russia and China. In the long-term, that new economic alliance can only hurt the US, as it continues to impose unfair sanctions.

"I suspect even Japan, eventually, will be closer and closer to Russia, just because they need to. That's where the transportation will be, that's where the natural resources are," he says. "Go east, don't go west."

"Putin is trying to encourage people to invest in the stock market. The more of that, the better."

Part of Russia's strength comes from its natural resources, and not only in oil and natural gas, but also in even more essential resources, like water and timber.

"You do have a lot of water [in Russia], which also means you have the potential for agriculture, which means you have the potential for many many industries which are going to be important in the future."

Rogers also expresses his support for the Trans-Pacific Partnership deal, saying he supports all open and free trade agreements.

"Any opening of trade and opening up and freeing of trade is good for everybody."

He did, however, express misgivings about the way the Obama administration has gone about promoting the TPP deal.

"Unfortunately, for some reason, the Trans-Pacific Partnership, they won't tell us what's in it. America's supposed to be this open and transparent democracy, and here they are passing a bill where they won't even tell the people who are voting for it what's in it.

"Which is peculiar and worrisome to me as an American citizen..." he adds.

When asked specifically about what investments to watch for in the future, Rogers offered sage advice.

"I was bearish on Russia for forty-seven years, and the last couple of years Russia has changed, so I'm changing," he said.

"If you can invest in change, and you buy it at a good price, you're probably going to make a lot of money."

 [return to Contents] 

 #12
TASS
Russia may be second-division economy in five years - ex-minister Kudrin

St Petersburg, 18 June: Russia's share in the global economy may be reduced significantly in the next few years, and in five to seven years it may be relegated to the ranks of second-division economies. This forecast was made on the air of [Gazprom-owned, editorially independent] Ekho Moskvy radio by former Finance Minister Aleksey Kudrin, a member of the presidium of the economic council under the Russian president.

"Russia's share in the global economy this year is the lowest in all of its post-1992 history. This year we are on about 3 per cent, in the next two to three years it will have dropped to about 2.7 per cent. This decline is inevitable because our average growth in the next few years will not be higher than 1.5 per cent," Kudrin said.

This means that in five to seven years Russia may be relegated to the status of a second-division economy, he said. "We were once the 6th largest economy, and at some stage we may be the 20th or perhaps drop outside the top 20 economies - in about 20 years, unless we have growth rates above 4-5 per cent every year," the former minister said.

"This is why there should be no delay in resolving the structural problems in the economy. It is a question of political will," he explained.

Speaking on [Russian pro-Kremlin, privately-owned, rolling news station] LifeNews TV, Kudrin urged the political elite not to delay key economic reforms. "The more serious reforms, as I see it, are so far being postponed. We shall therefore lose two to three years, which may in the future affect the Russia's competitiveness. We may lose even more in some sectors," he pointed out.

In Kudrin's opinion, Russia's main economic problems are connected with the demographic situation. "This is the most profound problem in the country, worth thousands of billions of roubles a year. The labour market is dwindling. The numbers of able-bodies population fall by 900,000 every year, and that with 80m working," the former finance minister stressed. [Passage omitted: Kudrin suggested introducing more productive technology and using migrant labour]

 [return to Contents] 

 #13
Bloomberg
June 18, 2015
Kremlin Weighs Early Presidential Vote as Economic Worries Mount
by Ott Ummelas and Henry Meyer

The Kremlin said experts will study the idea of calling early presidential elections, a move that could give Vladimir Putin a fresh term while his approval rating remains near a record high.

"This is a new proposal," Dmitry Peskov, Putin's spokesman, told reporters on a conference call just minutes after former Finance Minister Alexei Kudrin, a longtime ally of the president, mooted the idea at the St. Petersburg International Economic Forum. "Political experts and circles will discuss this idea like they do others."

Putin, 62, is facing growing pressure from inside and outside the government for new measures to pull the world's largest energy exporter out of its first recession in six years. He won elections in 2000 and 2004 before becoming premier for four years to abide by constitutional limits. When he returned to the Kremlin in 2012, the term had been extended to six years, with the next election scheduled for March 2018.

Kudrin, one of the few people Putin has publicly called a friend, told a panel discussion that he "really liked" the decision by long-running Kazakh President Nursultan Nazarbayev to call early elections in April while simultaneously announcing a bold reform program. Nazarbayev, in power for more than a quarter of a century, won with 98 percent of the vote.

While Putin's ratings remain above 80 percent, the Russian leader may be concerned that the current economic slump will eat away at his popularity the longer it goes on, said Alexei Makarkin, deputy head of the Moscow-based Center for Political Technologies.

'Guarantees' Wanted

"The idea of bringing forward the presidential vote is being discussed at the moment," Makarkin said by phone. "It could happen as early as next year. By 2018, his re-election might prove tougher and he wants guarantees it will go well."

The central bank said Monday that the economy may contract for two years in a row for the first time in the Putin era if oil prices remain at $60 a barrel through 2016. Growth averaged 7 percent during his first two terms.

Even as the economy slumped, the ruble rebounded from last year's plunge. It has gained 13 percent against the dollar in the past three months, the most in the world.

First Deputy Prime Minister Igor Shuvalov, who was on the panel with Kudrin, said the issue of moving up the date of the presidential election was for the Constitutional Court to decide. One legal provision that would allow for that would be if the country was deemed to be under threat, Makarkin said.

U.S. Plot

Russia's Security Council in March accused the U.S. of plotting to oust Putin by financing the opposition and encouraging mass demonstrations, like it did in the "color revolutions" in the former Soviet Union and the Arab world.

Putin, who is locked in the worst confrontation since the Cold War with the U.S. and its allies, has been cracking down on dissent by prosecuting opposition leaders and tightening the state's control over the media and non-governmental organizations. The president is scheduled to give the keynote speech at the forum in his hometown on Friday.

Kudrin left the government in September 2011 after more than a decade as finance minister because of a public feud with then-President Dmitry Medvedev over military spending.

"Even if we're not calling early elections in the Duma, why don't we bring forward presidential elections and announce a reform program that would be easier to implement with a mandate from the voters," Kudrin said. He ruled out running himself.

Putin, Medvedev

Putin ceded the presidency after completing the maximum two consecutive terms allowed by the constitution in 2008. Medvedev became president and appointed Putin his premier, with the two swapping jobs in May 2012 after disputed parliamentary elections that sparked the biggest protests of Putin's rule.

The government this week backed a bill to move up parliamentary elections currently scheduled for December 2016. The vote may be rescheduled for September to help pro-Putin parties ensure victory over the opposition because it would be preceded by a low-key campaign over the summer, when much of the population is at the dacha, the RBC newspaper reported in May, citing unidentified lawmakers.

Kudrin, who as finance minister presided over budget surpluses between 2000 and 2008, has questioned government expectations for a quick economic turnaround, saying earlier this month that companies are only now beginning to feel the pain of collapsing demand.

The economy is now "in the eye of the storm," Kudrin said on Thursday.

No Successor

Kudrin may be jockeying to replace Medvedev as prime minister, said former Kremlin adviser Stanislav Belkovsky. Putin doesn't need early elections to "liberalize" the economy, Belkovsky said on his Facebook account.

Under Russia's constitution, the powers of the head of state can be terminated in the event of the president's resignation, incapacitation or impeachment. Once terminated, elections must be held within three months, as was the case when Boris Yeltsin resigned on the last day of 1999, elevating then-premier Putin to acting president and giving him the inside track to the Kremlin.

Putin could opt to resign and then stand again for president while Medvedev served as acting head of state, though it would be less risky to secure a ruling from the Constitutional Court saying the country's under threat, according to Makarkin, the political analyst.

"In any case, Putin intends to prolong his mandate," Makarkin said. "He has identified himself so deeply with Russia that he can't see anyone to entrust with the leadership of the country."

 [return to Contents] 

 #14
Bloomberg
June 18, 2015
Early Election Would Benefit Putin, Not Russia
By Leonid Bershidsky

Russia's former finance minister, Alexei Kudrin, came up with an interesting idea for turning Russia's recent economic woes to the country's advantage: moving up the scheduled 2017 presidential election. The problem with this suggestion -- which may have been floated as a trial balloon with the Kremlin's approval  -- is that President Vladimir Putin could use it to take Russia further into the past.

Kudrin, who built up the international reserves that are now helping Russia ride out a second economic crisis, lost the finance minister's job in 2011 and has since made liberal statements that went against Putin's line. The president, however, still counts him among his loyalists. During a carefully choreographed call-in session with voters in April, Kudrin asked the president about creating a new growth model for Russia. In response, Putin called their relationship "very good, practically a friendship," and said he would stick to the policies Kudrin helped formulate during his tenure: "If you and I failed to envision something, that is probably our fault, and yours, too."

Kudrin clearly wasn't satisfied with this answer: Since he left the finance post, the price of oil has dropped more than 50 percent, Russia invaded Crimea and become involved in the conflict in Ukraine, creating severe tensions with the West. Surely, those developments must call for changes to the old plan. So today, speaking at the St. Petersburg Economic Forum, Putin's version of Davos, Kudrin dropped his bombshell:

Structural reforms are not just about writing a nice document. They take political will,  they take a team, they take a president who shares all these points. Why don't we, if we're bringing forward the parliamentary election, why don't we also bring forward the presidential election and announce a new reform program that would be easier to implement with a mandate of trust?

It seems strange to suggest that Putin might need a stronger mandate, given that he has an approval rating above 80 percent. In April, a poll found that 62  percent of Russians were ready to vote for Putin; no one else received more than 6 percent support. There is, however, some uncertainty about the future: What if the economy performs so poorly that by 2017, when the next election is scheduled to take place, Putin could no longer be confident of a more or less honest victory?  

His party, United Russia, appears to be unsure it can hold on to its majority in parliament without the kind of shenanigans that set off mass protests in Moscow after the last election, in 2011. That's why its lawmakers pushed through a measure to move the 2016 parliamentary elections from December to September, when statistics show there's usually a lower turnout. United Russia has always been less popular than Putin himself because it is known as the party of corrupt local bosses, and the string of repressive laws it has been passing hasn't endeared it even to generally pro-Putin voters. That doesn't mean, however, that another two years of negative and almost-zero growth -- the Bloomberg consensus forecast is for -3.7 percent of gross domestic product this year and 0.5 percent in 2016 -- won't scrape off some of Putin's teflon.

Russia has avoided an economic collapse this year by devaluing the ruble and shoring up banks and major companies. These steps have affected ordinary Russians, however. Today, Rosstat, the official Russian statistics agency, reported than for January through May, retail turnover declined 7.7 percent, compared with a year earlier. Russians have less money to spend: Their real incomes dropped 3 percent in the first five months of the year. Unemployment increased almost 6 percent, to 4.3 million people.

For now, Putin is doing his best to distract from the bad news with surging patriotism, indignation against the treacherous West and hatred for perfidious Ukrainians. This week, he even opened a kind of military-themed Disneyland called Patriot Park. And Russians do say that the TV set will beat the fridge every time. Yet when an autocrat wants to be certain of re-election -- and Putin has never settled for less -- it's best to ride the wave when it's still high.

Kudrin's idea is that winning now and locking in  another five years in office will give Putin more leeway to try and restart growth. Some of the measures may be unpopular, such as the health care reform that is quietly underway and is aimed at dismantling the remnants of the Soviet system. Tax cuts may be needed, resulting in social spending reductions that would hurt public sector workers who are among Putin's loyal electorate. An increase in the retirement age would hurt another loyal group. Other needed reforms would just need time and determination to push through, such as the deregulation required to reduce corruption and create incentives for private business to innovate and make Russia less dependent on imports. Devaluation by itself hasn't yet resulted in increased local production because private investors would rather send capital out of the country than expand or start Russian projects.

In other words, Kudrin's idea is that, with more time before the next election, Putin would be less constrained and better able to point Russia in a healthier direction. The problem is that may not be what Putin wants to do.

Putin will appear Friday at the St. Petersburg Economic Forum and his speech will probably be a lot like his state-of the-nation address in December: He'll seek to reassure his audience of Russian and Western business leaders that Russia isn't collapsing and that it still represents an opportunity rather than  a threat. He won't, however, announce any kind of economic liberalization or present any growth-boosting plan: He is too focused on ideology to concentrate on the economy. And he certainly has no stomach for cutting social  spending now.

Influential Putin allies in parliament rejected Kudrin's idea. Sergei Neverov, the deputy speaker, called it "an attempt to introduce a certain instability to society." Franz Klintsevich, deputy head of the United Russia faction, added that Putin's mandate was already strong enough to push through reasonable reforms. The president doesn't have to agree with them, but even if he decides to go for the certain win now, he won't do what Kudrin would like him to do. Rather, the dictatorial system he's built in Russia will only become more ossified and the anti-Western ideas that fuel it will grow more outlandish.

 [return to Contents] 

 #15
Interfax
June 18, 2015
Russia basically contented with hydrocarbon prices, says Putin

Current prices on the hydrocarbon market could stay at this level for the next one or two years; this affects the ruble exchange rate against the U.S. dollar and the euro, and the Russian government is contented with this, Russian President Vladimir Putin said.

"It's roughly clear how the hydrocarbon market is going to develop, and if nothing unusual happens, I think it will exist within this price niche for the next year or two. On the whole, the budget and the real sector have been adapted to it, this affects the foreign exchange rates and the ruble's exchange rate against the [U.S.] dollar, the euro and other currencies. And we are basically and generally contented with all of this," Putin said at a meeting with Russian industrialists.

The government will try to continue acting in the manner it has acted in before, he said.

"The Central Bank has a lot of regulation tools and a lot of various methods to increase or reduce the ruble stock in the country and buy foreign currency to replenish the reserve funds. By the way, the Central Bank did this quite actively earlier and then less actively. In other words, this is about regulation within the framework of market relations, and it is surely going to be used to ensure interests of our producers in the real sector," Putin said.

A businessman attending the meeting asked Putin "to support the dollar, not to let it fall," which should enable Russian producers to consolidate their stand on the market.

"As concerns the ruble exchange rate. First of all, we are talking publicly, and cameras are on here - this all is certainly a market sector. But at the same time, you must have noticed that, as soon as the ruble strengthened and went down 50 [rubles per $1], it then started gradually rising. And I should tell you and give credit to the government that the government does support the premise that you have just formulated," Putin said addressing the businessman who asked him to uphold the U.S. dollar.

In particular, the Industry Ministry supports this premise, he said.

"All of us understand everything, and you can't go overboard here, because the national currency's excessive weakening has negative implications, and you and we know about this," Putin said.

At the same time, Putin said this is important for the real sector in terms of consolidating its position on markets, and the government will continue to support the domestic industrial sector, he said.

"We will be improving and strengthening the instruments" of this support, Putin said.

 [return to Contents] 

 #16
Moscow Times
June 19, 2015
Russia's Middle Class Won't Return to Pre-Crisis Spending - Report
By Sam Skove

Russia's middle class is likely to continue to spend less even after the country's economy recovers from its current crisis, a report said Thursday, in a trend that threatens to disrupt a once-key driver of Russian economic growth.

Russia's economic crisis, triggered by low oil prices and Western sanctions over the Ukraine crisis, has seen Russians' real incomes fall steeply, dropping 13.2 percent year-on-year in April, according to data from state statistics agency Rosstat.

As buying power drops, many middle-class Russians have trimmed their spending, according to a report released Thursday by multinational audit firm PricewaterhouseCoopers (PwC).

Just over 50 percent of consumers earning 30,000-50,000 rubles ($560-$940) a month and 53 percent of consumers earning 20,000-30,000 rubles ($370-$560) a month reported spending less on everyday goods over the last 12 months, according to PwC.

This change in spending habits will likely leave many middle-class Russians with a taste for cheaper brands even after Russia's economic crisis ends, PwC said. The report cited cases seen across the EU following the 2008-09 financial crisis in which consumer spending shifted toward cheap, high-quality items over brand name ones.

PwC defines Russians earning more than 16,000 rubles ($300) but less than 50,000 ($940) per month as middle class.

Steadily rising consumer spending was a key engine of Russia's rapid economic growth in the 2000s, and further spending cuts on the part of consumers could prolong the current economic contraction, which is forecast to hit about 3 percent this year.

Thirty-two percent of respondents in PwC's survey reported spending less overall, 31 percent said they were buying less expensive items, 25 percent said they were now buying items on sale and 19 percent said they had switched to cheaper retailers.

Many Russians proved ready to give up some nonessential goods, with 66 percent saying they had cut spending on apparel and 50 percent saying they had curtailed spending on cosmetics, according to PwC.

The auditor based its results on a survey of 3,000 urban Russians. It did not provide a margin of error.

 [return to Contents] 

 
#17
CNBC.com
June 18, 2015
Russia sanctions helping businesses to thrive
Holly Ellyatt    | Geoff Cutmore    

International sanctions may have contributed to a period of economic turmoil in Russia but some of the country's chief executives have told CNBC that they have thrived under the trade embargo.

Russia has been operating under international sanctions for over a year now since its annexation of Crimea last year and perceived role in the pro-Russian uprising in east Ukraine.

While the ban has hit some Russian sectors hard, such as banks and energy companies, sanctions have also galvanized other companies to become more attractive to their home market, more competitive and more efficient in terms of infrastructure.

Vladimir Tikhomirov, chief economist at Russian financial services firm BCS Financial Group, told CNBC that some businesses were thriving from Russia's political and economic isolation.

"It is quite obvious that there are some companies that have benefited -- and are likely to benefit from continued sanctions -- and these are agricultural and food producers," he said.

"Russia gross domestic product (GDP) data after the sanctions were imposed showed that some sectors of the economy were posting significant increases in output, such as the dairy sector and meat production."

Russia food producers were given a boost by Russia's retaliatory ban last August on agricultural imports from Europe, U.S., Australia, Canada and Norway, forcing consumers to shop for home-grown products.

Agricultural production figures from Russia's State statistics service certainly do show a jump in agricultural output from the second to third quarter of 2014, with an index of output in "farms of all types" leaping from 101.7 to 111.0 in that period.
Loving sanctions

Dmitry Kostygin, chairman of Russian online retailer Ulmart, told CNBC that "food retailers are doing fantastic and some retailers are doing quite well" out of sanctions.

"We see that demand has shifted. People travel less abroad, they stay at home so they go less to restaurants - they shop and cook themselves to a certain degree. Overall, it's quite an interesting experience," he said.

The experience shows no sign of ending any time soon. The country has been accused of not upholding a ceasefire agreement with Ukraine following a recent uptick in violent skirmishes in the region, raising the prospect of an extension of sanctions.

On Wednesday, European officials agreed in principle to extend sanctions by six months and this is expected to be ratified on Monday. However, their Russian counterparts said Thursday that it did not plan to extend its own retaliatory sanctions.

Surprisingly, Kostygin said he would be disappointed if sanctions were lifted.

"I would be disappointed if the sanctions were cancelled and I think for Russia this is quite a healthy process honestly," he said, speaking to CNBC from SPIEF. "I see that quite a lot of production has shifted from Ukraine into Russian companies and that's worth tens of billions of dollars and also agriculture is on the rise. So, while it's somewhat painful - like moving out of your parents' home for the first time - it's necessary and it's healthy."

Perfect storm

On a sector-specific level, sanctions have put a ban on financing some Russian banks, energy and defense companies, an embargo on exports of certain energy-related equipment and technology and a ban on the trade in arms with Russia.

As such, Russia's old guard of financial firms and oil and gas companies have suffered from the impact of sanctions, lower oil prices and rampant inflation caused by investors dumping the ruble last year, causing it to lose half its value against the dollar.

The "perfect storm" of factors hitting Russia's economy means that Russia's economy is forecast to shrink by 3.4 percent in 2015, according to the International Monetary Fund's latest statistics, albeit a smaller contraction than previously forecast.

Russia is not the only country to be hurt by sanctions, however. Germany, which export many goods to Russia, saw exports to the country fall by 18 percent in 2018. Europe, meanwhile, has tried to put a brave face on Russia's retaliatory ban.

The European Commission states on its website that: "in spite of the Russian ban, after seven months of embargo, total EU agri-food exports to third countries (those outside the EU) increased by 2.3 percent in value in the period August 2014-February 2015 compared to the same period of the previous year."

Enforced efficiency

While the slowdown on the back of sanctions has hit some sectors hard, business leaders tend to agree that trade bans have forced their companies to become more efficient.

The chief executive of SIBUR, Dmitry Konov, told CNBC that sanctions had helped companies to find efficiencies.

"I believe that Russia businesses overall has significant potential to keep on looking for efficiencies and, to some extent, I believe that the events over the last 12 months have helped the Russian economy to get stronger and healthier," he said Thursday.

"We have slowed down investment but maybe for some companies and sectors because the efficiency of investment progress was not up to scratch but now we're more selective and do things in a more efficient way," he said, speaking to CNBC at SPIEF.

Of course, not everyone feels love towards a trade ban. Vladimir Yakunin, chief executive of state-owned transportation company Russian Railways, told CNBC that the current sanctions were an "illegal limitation of economic and political collaboration between different countries" and that only the United Nations could impose sanctions.

Despite the rocky domestic backdrop, however, he said business was "satisfactory." "We are not doing bad, we are in line with the government program, we are doing our investment program...so I would say it's satisfactory."

 [return to Contents] 

 #18
Business New Europe
www.bne.eu
June 18. 2015
THE long decline in Russia's international reserves has stopped
Heli Simola of Bank of Finland
[Charts here http://www.bne.eu/content/story/comment-long-decline-russias-international-reserves-has-stopped]
 
Russia's international reserves have declined substantially, by around $150bn, since the start of 2014. However, during the second quarter of this year the level of reserves has been relatively stable, fluctuating at around $350bn-360bn.

The recent stabilization has been supported by the continuous current account surplus that Russia has maintained despite the huge drop in oil prices. Naturally, exports have contracted substantially as crude oil, petroleum products and natural gas still make up nearly two-thirds of the country's exports. But with subduing demand and the steep depreciation of the ruble late last year, imports have fallen even more pronouncedly, leaving the current account significantly in the positive.  

By contrast, the financial account has continued strongly in the negative. That was mainly caused by foreign debt repayments, as the increased uncertainty and Western sanctions have made it more difficult for Russian companies to refinance their debt.

This year the Central Bank of Russia (CBR) has practically not spent any money from the international reserves on ruble-supporting market interventions in line with the policy announced in November. However, in the past few months there has not been even much need for supporting interventions, as the ruble was strengthening rapidly until end-May. The forex repos provided by the CBR have still lowered the international reserves, but the central bank has cut them down recently when perceiving less demand for them.  

Russia's international reserves in 2014-15, USD bn.

Reserves reported according to international standards

Russia's international reserves are reported in accordance with International Monetary Fund (IMF) standards and so are made up of the central bank's gold reserves, liquid assets denominated in foreign currencies (at end-March, 85% of them were in the form of securities and the rest in cash and deposits), special drawing rights (SDR), and the country's reserve position at the IMF.

Russia's international reserves also include the majority of the country's oil funds (the entire Reserve Fund of $76bn, and $52bn of the Welfare Fund at the end of May). They are reported as part of the international reserves because they are invested in liquid dollar-, euro- and sterling-denominated assets. The CBR controls and invests the assets as instructed by the Ministry of Finance, and therefore they are regarded as central bank assets. On the liabilities side of the central bank's balance sheet, they are recorded under government claims on the central bank.

If the oil fund assets that are part of the international reserves were needed, for example to stabilise the ruble, the Ministry of Finance could instruct the central bank to use those fund assets also for this purpose, in the same way as the other parts of the international reserves are used. For example, in December 2014 as the ruble depreciated sharply, the Ministry of Finance sold some of its currency assets to support the rouble.

Structure of Russia's reserves in 1.6.2015, %

Use of oil funds does not necessarily reduce reserves

The Russian government plans to use a considerable part of the oil funds this year to support the economy. The deficit in the 2015 federal budget is planned to be covered mainly by Reserve Fund assets. According to estimates by the Ministry of Finance (based on federal budget approved in April 2015), the value of the Reserve Fund will total RUB2,620bn at the end of December 2015, compared with RUB4,040bn ($76bn) at the end of May. So about RUB1,400bn ($25bn) would still be used this year. In addition, the government has decided to use in 2015 a maximum of RUB550bn ($10 bn) of the National Welfare Fund to finance measures in support of economic growth and a large part of that has already been withdrawn.

If the withdrawals of the fund assets continue to be made mainly in rubles as so far, the use of them should not change the value of the international reserves. The Ministry of Finance sells currencies included in the international reserves to the central bank and receives rubles in return. The value of the international reserves is not affected, but the share of the Funds in the international reserves will decrease because currency assets are transferred directly to the central bank.

Future development of reserves

The development of Russian exports usually follows quite closely oil price movements, so if the current market expectations of a gradual mild increase in the oil price continues, the value of Russian exports should also increase moderately. The contraction in imports has slightly slowed down in the past few months and it could moderate slightly, further supported by real strengthening of the ruble. But with the expected weak demand, there is probably not too much room for imports to improve, so the current account is likely to stay in the positive also in coming months.  

Capital outflow is expected to continue, as Russia's company sector still has a notable foreign debt stock of $510bn (government foreign debt is small at $40bn). Most of the debt is long term, but Russia faces total payments of about $80bn in the second half of the year and a further $44bn in the first half of 2016. Of the private sector debt, however, about 15% is denominated in domestic currency so there is no foreign currency need for these debt payments. In addition, companies should be able to refinance part of their debt as in past months, particularly as one-fifth of the foreign debt is inter-company or similar debt.

Judging by traditional indicators, the level of Russia's international reserves is relatively comfortable. The reserves cover imports of about 10 months or about 300% of short-term foreign debt, which is three-times higher than the standard thresholds. However, the CBR governor Elvira Nabiullina stated recently that in the current environment of Russian companies' very limited access to international financial markets, the CBR feels that even more prudent evaluation of the reserve adequacy is needed. According to the CBR's current view, Russia's international reserves should be large enough to cover significant capital outflows for two to three years and hence it started in late May currency purchases to replenish the reserves up to $500bn over the next few years. 

 [return to Contents] 

 #19
Interfax
June 18, 2015
Chechen leader on Nemtsov murder, investments, oil, Ukraine, marriage

The Kremlin-backed leader of Chechnya, Ramzan Kadyrov, has suggested that the murderers of Russian opposition politician Boris Nemtsov should be sought in Ukraine, rather than in Chechnya. He praised his region's economic potential and oil reserves. Kadyrov also slammed Committee Against Torture Russian human rights organization, accusing them of following the West's guidelines to Russia's detriment. He confirmed the presence of Chechen volunteers in eastern Ukraine but ruled out the existence of a Chechen battalion. He also touched on marriage traditions in Chechnya and his friendship with French actor Gerard Depardieu in a lengthy interview with Interfax correspondents, Vyacheslav Terekhov and Andrey Novik, published on 18 June.

Nemtsov murder

Asked if he believes that Chechen man Zaur Dadayev was responsible for Boris Nemtsov's murder in February 2015, he said:

"I think that the trace of the crime should not be sought in Chechnya but in Ukraine, the SBU [the Security Service of Ukraine] and further, in the USA. There are many preconditions to assume that [ethnic Chechen] Adam Osmayev, who currently commands a Ukrainian battalion named after Dzhokhar Dudayev, is behind the murder," he said.

"Adam Osmayev works for the Western secret services, acting as their pawn, and knows very well how to get rid of a problematic person. The organizers of the murder had used Nemtsov and later eliminated him. Now they are trying to shift the blame on to somebody else. They accuse me of saying in the past that Nemtsov should be killed but this is not true! What was the point of murdering him? Had he done anything to us? Had he hampered me in any way? He had not even visited Chechnya for many years. The last time I saw him was in Gudermes some 14 years ago," Kadyrov said.

He also stressed that he did not believe that Ruslan Geremeyev, deputy commander of the Sever battalion in Chechnya, was complicit in Nemtsov's murder.

"I know Ruslan Geremeyev very well. We fought against terrorists. I know him as a patriot of Russia and I think it is wrong to accuse him. I do not believe that he could be complicit in this. I read in the press that he has left," Kadyrov said.

"When everything is sorted out, Geremeyev will have an opportunity to prove his innocence and sue those who defamed him. I certainly do not know details related to his alleged departure," he added.

Chechens in eastern Ukraine

He said that Chechen volunteers were indeed present in eastern Ukraine but ruled out rumours of a Chechen battalion there.

"There are certainly [Chechen] volunteers there [in eastern Ukraine] but not only from Chechnya but from other regions as well. There are even Americans there. People can see injustice practised by the Ukrainian leadership, Europe, and the West and travel there to defend the people of Donetsk and Luhansk. This is nothing extraordinary. I do not know how many people are there. People keep going and leaving," Kadyrov said.

"Had there been a Chechen battalion there, everything would have ended a long time ago. They would have reached Kiev a long time ago. If we look at the situation realistically, the situation there is contained by the Russian leadership," he said.

"I have been saying for a long time that if we are accused of aggression, let us show them in reality how we can fight. And then the Kiev regime will smell gunpowder," Kadyrov said.

He also criticized the Kiev government of appointing a former Georgian president as governor of Odessa region.

"What did they do in Odessa? They appointed Saakashvili, who had betrayed his own people, as governor. I had always thought that the Ukrainians were strong and courageous people and had their own ambitions. I think that there are no patriots left there anymore. Had there been a single patriot there, they would have long expelled Saakashvili from there so he could go and ride his bike in America," he said.

Subsidies

Kadyrov criticized reports that suggest that Chechnya is dependent on federal subsidies alone, arguing that his region possibly possesses as much oil as Saudi Arabia.

"Let me tell you that we receive the same subsidies as other regions - not more and not less. The federal targeted programme of support for Chechnya was endorsed to the tune of R130bn of which we have only received R70bn despite the fact that our republic was destroyed during the [1990s] war," he said.

"Our ill-wishers want to portray us in a negative light. They are filming reports about our republic, [and say] that all taxes come to Chechnya and get lost here. This is a lie," he said.

"In a number of branches of economy, growth reaches 100 per cent. In terms of the growth rate, our republic is among the five leaders. We are opening factories and plants and we have increased the tax collection rate. Yet we certainly have problems too. For example, major Russian banks who are supposed to be helping the regions are not giving us loans even despite the fact that our projects are better in every respect. They are transparent and profitable, and investors are offered full guarantees that their money will be secure," Kadyrov said.

He said that Chechnya also has foreign investors.

"For example, we are currently in talks with the United Arab Emirates to ensure that they undertake support for small and medium-sized businesses. New entrepreneurs here will receive grants starting from 50,000 dollars. We are trying to work with various partners. We had very good relations with Israel and Western Europe but this all stopped due to the sanctions. Now we are having to knock on other doors to ensure that investments keep flowing in. There are many ongoing projects in Chechnya now with the participation of Russian and foreign investors. These give Chechnya thousands of jobs and large budget revenues," Kadyrov stressed.

Oil

"Oil extraction has fallen to 600,000 t currently even though our oil was the purest in the Soviet Union. Our revenue from oil amounts to zero today. Very little money is allocated for geological exploration. There are no new [oil] wells, and all taxes from the existing ones go to Moscow. The same is true of the construction of an oil processing plant: despite the [Russian] president's instruction, things have not started. We have agreed to meet the leadership of [Russian oil major] Rosneft to discuss all problematic issues and I think we will come to an agreement. I will disclose a secret and say that we have a lot of oil here. Our elders say that the amount is no less than in Saudi Arabia," he said.

Akhmat Kadyrov Foundation

Kadyrov denied media reports that the Akhmat Kadyrov Foundation is partially sponsored through money collected from the salaries of public sector workers.

"If even a single resident of this republic fails to get their salary in full, I will stop respecting myself. Those who deduct funds from people's salaries are no men or Muslims to me. When my father died, my mother set up this foundation, investing in it everything we had. Currently, the foundation is engaged in business, building facilities, earning money and helping those in need on the money earned," he said.

"When we were rebuilding the republican stadium, I sold all my cars, except for an old Zhiguli, and transferred all my salary to the foundation. Everybody knows this. Those who think that it is possible to play games, using the names of my parents against me, are deeply mistaken and should be brought to account for this," Kadyrov said.

Election

Kadyrov reiterated that he supports the idea of electing regional governors through a direct vote and stressed that he would not run unless he knew that 90 per cent of voters supported him.

"I have always said that regional heads should be elected through a direct vote. We elect MP and municipalities, so why should we display such distrust towards regional leadership? As a result, sometimes it so happens that in some regions, people who are equipped with power enjoy absolutely no authority and are only supported by three to four per cent of the population," he said, adding that "the question about a direct vote should be addressed to Moscow, not me".

"I would never occupy this seat if I collected less than 90 per cent of votes" Kadyrov said.

Opposition

Kadyrov said he welcomed opposition but opposed those who sought to harm Chechnya's image from abroad.

"I am an enemy to those who murder and rob. I am against representatives of the devilish direction who ran away to Europe and are trying to harm the image of our republic and this country from there. If a serious opposition politician emerges I will immediately meet and speak with them. I can find common language with anybody," he said.

Committee Against Torture

Kadyrov slammed the operation of the Russian human rights organization Committee Against Torture, accusing them of fulfilling the West's agenda.

"What is the committee doing here? There is no war here and nobody is being tortured or abducted. Chechnya is the most peaceful region at the moment and even prosperous Europe admits this. Let me tell you what they are doing here. They find marginal people, such as drug addicts, and tell them to write a statement against Kadyrov for money. This is how they process foreign grants. They do not seek to protect people. They are corrupt and their office is in America. They are doing everything in their power to discredit our republic. We certainly have human rights organizations here that are exercising their direct functions and are welcome to continue doing so," he said.

No federal ambitions

Kadyrov ruled out having any ambitions to work in the federal government.

"I have never had [federal ambitions] and will never have them. I do not want to work either in the government or the Presidential Administration, or the State Duma or the Federation Council. This is not for me. I want to complete my work here," he said.

Work of law enforcers

Kadyrov said he would eradicate the practice of law enforcers operating using masks.

"During the war, people in masks abducted and murdered our residents. Terrorists also operate in masks. After the war, this is a very painful issue for Chechnya. Back in 2005, I said that since we were following the right path and defending the constitution and the law and order, there should be no room for mask shows. What is there to hide? What is the point in working in masks if we are defending the law?" he said.

He once again slammed Stavropol law enforcers for killing Chechen man Dzhambulat Dadayev, who was suspected of murder, during a special operation in Chechnya recently.

"Stavropol law enforcers violated all rules and laws which were, incidentally, not invented by me, in trying to detain Dzhambulat Dadayev. It is wrong to detain a crime suspect in this fashion. Nevertheless, nobody cares about this now. The attitude is nonchalant. Even the Investigative Committee refused to launch a criminal case into the killing of Dadayev," he said.

"My statement sounds threatening for bandits and terrorists, not for those who are defending the law and order. We have fought and intend to continue fighting against Russia's enemies without hiding our faces. After conducting special operations and eliminating the most blood-thirsty ringleaders of the terrorists, we have never hidden the identities of those who took part in this or who eliminated individual ringleaders. This is how we fought against terrorism," Kadyrov said.

"I am not threatening anybody. I only ask for and demand observance of the laws and rules that were not invented by me. It is true that I am the least problematic person in Russia. One phone call, just one word from the commander-in-chief is tantamount to a law for me. Like nobody else, I am loyal to the president. How could I fight against his subjects? However, those who violate the law on the territory that is entrusted to me are criminals for me and for all citizens and should be held accountable for their actions under Russian laws," Kadyrov said.

Relatives of rebels

He reiterated his conviction that relatives of rebels should be held accountable for their actions.

"This, however, is not only about relatives who did not know anything about the grave crimes committed by their loved ones. If the relatives can see that the person disobeys them, goes to forest [i.e. joins rebels], takes up weapons to murder, they should report this to the law-enforcement agencies. However, when they help terrorists, feed them and supply them with weapons, these are not just relatives but accomplices of terrorists. It means that they should not receive their pensions or salaries here so that they can send the money they earn here to the bandits," Kadyrov said.

"However, if a person repents in a timely manner they are welcome to return to normal life. I have saved thousands of such people who had gone astray. We have issued amnesty for about 8,000 young people and sent them back home," he said.

Polygamy is "a blessing"

Kadyrov said that Islam permits polygamy and that Chechen men should be allowed to practice it if their circumstances allow them to do so.

"Our religion permits polygamy. This is not an obligation but the possibility exists if health and material conditions permit people to pursue this. Polygamy is necessary to prevent people from having lovers from whom they get a lot of problems both health-wise and in terms of discord at home. They are forced to live in lies, permanently cheating on their wives and children," he said.

"Many people find this strange. But I tell them to find at least one man who did not have several lovers. There are no such men. And all these men cheat on their wives. I would never be able to cheat on my wife. Therefore, polygamy is very good, while having many lovers is wrong. If I oppose polygamy I will not be Muslim. I support men having several wives if they need them and are capable of supporting them. This would also resolve the demographic problem in Russia," he said and added that this is not at variance with Russian laws.

"We are not violating the law of the Russian Federation. Only one marriage is registered at the marriage registry. There are 25m Muslims in Russia and for such regions as Dagestan, the Chechen Republic and Ingushetia, polygamy should be allowed. Those who think that we are savages for this are savages themselves because this is a normal, pure and right attitude towards women," he said.

Controversial wedding

Kadyrov also commented on the recent wedding of 17-year-old Luiza (Kheda) Goylabiyeva, who was reportedly forced to marry 47-year-old Nazhud Guchigov, the chief of police in Chechnya's Nozhay-Yurtovskiy District. The wedding caused controversy and condemnation in Russia.

"A 17-year-old girl married a 47-year-old strong and healthy man in Chechnya and this is presented as a tragedy. However, unfortunately, few people speak about thousands of rapes of underage children in other regions. Men here lead a healthy lifestyle, engaging in sports and are in good health after 40. A 93-year-old man recently married a 33-year-old woman here and she gave birth to their son," he said.

Chechens in Russian cities

Kadyrov said that the behaviour of ethnic Chechens across Russia has significantly improved of late.

"The situation is now absolutely different. Things have stabilized. It is no longer fashionable to kick up a brawl. Chechens live normally in the capital [Moscow]. Moscow does not complain. Those who violate order and commit crimes, and use foul words, are not Chechens even if they come from Chechnya. I ask people's forgiveness for them," he said.

Depardieu's flat

Kadyrov said that French actor Gerard Depardieu has long been absent from Chechnya where he was presented with a luxurious flat a few years ago.

"Indeed, Depardieu has not appeared for a long time. Apparently, he has many apartments. He is a rich man. It is a pity he is not coming to the republic. When he lived in a hotel here, he cooked wonderfully. He loves to eat well. I thought I would resettle him here in Chechnya and go and have lunch with him. This did not work. However, I keep in touch with him and we are friends. He is truly our good friend," Kadyrov said.

 [return to Contents] 

 
#20
Carnegie Moscow Center
June 18, 2015
Don't Overreact to Russia and its Forty "New" Intercontinental Ballistic Missiles
By RICHARD SOKOLSKY and PAUL STRONSKI
Richard Sokolsky is a senior associate in Carnegie's Russia and Eurasia Program. Paul Stronski is a senior associate in Carnegie's Russia and Eurasia Program.

Russian President Vladimir Putin's announcement that Moscow plans to add more than 40 intercontinental ballistic missiles (ICBMs) to its nuclear arsenal is troubling. It raises perceptions of Russian threats in Europe at a time when post-Cold War East-West relations are at a historic low. The announcement is just the latest example of nuclear saber-rattling from the Kremlin over the past year-a trend that started during an uptick in fighting in Ukraine last August, when Putin warned that "Russia is not to be messed with. Let me remind you that Russia is one of the largest nuclear powers." In September, Russia tested a new ICBM as the Kremlin talked about the need to maintain a nuclear deterrent. In March 2015, Putin reportedly claimed that nuclear forces were put on standby during the Crimean annexation campaign a year earlier.

Loose talk about nuclear weapons heightens tensions, but the actual military threat these missiles pose should not be exaggerated. Putin's pronouncements have been primarily for propaganda purposes and other Kremlin officials have tried to walk back some of this rhetoric, likely aware that it does not play well in the West and even in some corners of Russia itself. Extreme statements about nuclear weapons and conflict with the West have caused concern among elements of the Russian political and intellectual elite-some of whom warn that continually whipping up confrontation in Europe or the United States is a "dead end" for Russia.  

Even people close to Putin seem to worry about the consequences of his rhetoric. Reportedly within 40 minutes of Putin's statement, his foreign policy advisor Yuri Ushakov stated that Russia has no intention of launching an arms race, underscoring that an arms race would weaken its economic capabilities.

This week's rhetoric confirms to Western ears that Russia is an unpredictable actor. But, the Kremlin's nuclear saber-rattling could easily be a sign of the Russian leadership's lack of confidence in the country's own conventional capabilities, particularly as the United States expands its high technology and precision strike capabilities. Russian military strategists have long feared that their conventional capabilities pale in comparison to NATO's. Some are starting to worry about China's too.

These ICBMs likely do not add any new nuclear capabilities to what Russia has right now. The country is already in the middle of an ICBM modernization program, as September's ICBM test shows. It is unclear whether the announcement actually includes 40 new ICBMs or whether they are just part of the more than 50 ICBM deployments that Putin already announced for 2015 back in December. Furthermore, Russia already has a large force of tactical nuclear weapons that can reach most targets in the Baltic states and possibly elsewhere in Central Europe. The added military value of 40 ICBM warheads is marginal and it is unlikely they will give Moscow a capability it does not already have.

Putin claimed the missiles will be added to the arsenal this year, so it is conceivable that some, if not all of them, were probably already in production or pre-deployment before the announcement as part of Russia's ongoing strategic force modernization program.

Concern in the Western media about these Russian plans provoking an arms race is misplaced. The United States is already in the middle of a robust and expensive program to modernize its strategic nuclear forces and its tactical nuclear weapons posture in Europe. Washington should therefore feel no compelling need to match these newly announced ICBMs because it is already upgrading its capabilities to meet current and future threats.   
There is also some doubt about Russia's capacity to produce and pay for these new ICBMs. Russia previously co-produced ICBMs and many of their components with Ukraine. The Ukraine war is forcing the Russian military-industrial complex to become fully self-reliant. Many Russian officials tout this as a positive development. But even before the war, Deputy Prime Minister Dmitry Rogozin, who is responsible for military production, claimed that Russia's defense factories and design bureaus were already "overworked" and "did not have time to do what the Defense Ministry orders."   

A prominent example of the problems the Russian defense industry faces is its next-generation Armata T-14 battle tank. In February, Russian Deputy Minister of Defense Yuri Borisov publicly stated that the government "miscalculated" on the Armata by failing to budget enough money to build the amount of tanks it required. They also seemed to skimp on quality. One of the new tanks reportedly broke down during a dress rehearsal for this year's May 9 Victory Day celebrations.  

Russia's budget is severely stretched and it is unclear where it will get the money to build additional ICBMs, as the Armata example shows. The rise in defense spending is forcing the government to rein in spending elsewhere. The Russian government now struggles to balance military spending-key to the war in Ukraine and to projecting military power-with the need to keep up social spending on pensions, education, and other aspects of the social safety net that underwrite domestic stability as the economy contracts. A recent poll suggested that the Russian public prioritized social spending over the military by a wide majority; 67 percent wanted the government's first spending priority to be raising living standards, while only 12 percent thought the first priority should be military modernization and rearmament.   

So, if these ICBMs might not actually be new and if Russia might not have the money to build them anyway, what was the purpose of the announcement?

The Kremlin was likely speaking to both international and domestic audiences. Russian officials earlier this week lashed out against U.S. plans to station battle tanks, infantry fighting vehicles, and other heavy weapons in Baltic and Central European countries that border Russia. That plan-still reportedly under development-is meant to assure NATO's easternmost allies of the alliance's commitment to their defense. Putin's announcement was likely in response to this U.S. proposal. Its goal was to unnerve those very same allies.  

The announcement also could have been an attempt to stoke discord within NATO between allies (mainly in the east) who believe that improving NATO's ability to defend the Baltic states is the best way to deter Russian aggression and those (mainly in the south and west) who fear provoking Russia even further by being too aggressive either with sanctions or military preparations. The announcement was also likely to be an attempt to achieve the Russian goal of breaking Western consensus on how to respond to Russian aggression in Ukraine and threats elsewhere.   

Domestically, Russia faces growing economic and social problems due to a combination of low oil prices, sanctions, and the Ukraine war. This announcement highlights alleged foreign threats to Russia-a tactic frequently used to divert attention from domestic problems. Furthermore, at least parts of the Kremlin see the military sector as a means to grow the economy, while defense workers have long been an important Putin constituency. Making pledges to the defense industry at an arms show outside of Moscow was possibly an attempt to shore up the country's image as a producer of modern armaments-important both to maintain its market share in the global arms market and to reinforce perceptions of Russian strength to domestic audiences. It would be an easy political win, particularly if these weapons were already in development.   

Putin's announcement is troubling mainly because of its political and psychological impact on NATO allies. But it is no cause for alarm and the United States and NATO should avoid an overreaction that will just play into Putin's hands.

 [return to Contents] 

 #21
West's support for state coup in Ukraine prime cause of crisis in Ukraine - Putin

St PETERSBURG, June 19. /TASS/. The prime cause of the crisis in Ukraine was the West's support for the anti-constitutional coup and not Russia, President Vladimir Putin said on Friday as he answered questions at a plenary session of the St Petersburg International Economic Forum.

"We are not the root-cause of the showings of the crisis that are taking place in Ukraine," he said. "They shouldn't have supported the anti-state and anti-constitutional coup, the armed seizure of power that eventually ignited a tough confrontation and de facto a civil war in that country."

The vanishing of the bipolar world and the disintegration of the USSR threw the U.S. and its Western partners into a state of euphoria of some kind - instead of building good-neighborly relations, they started exploring new territories. In part, NATO began its eastwards expansion.

"Quite possibly, some of our partners might have gotten an illusion that a global center like the Soviet Union had existed in the postwar world order and now that it was gone, vacuum appeared and it was to be filled urgently," he said.

"I actually think that's an erroneous approach to the solution of the problem," Putin said.

Putin suggests way of settling crisis

As for ways for settling the crisis, the Russian president said Kiev needs transition from manipulations to practical work. The Ukrainian parliament should have passed a resolution to implement the law on the special status of the Luhansk and Donetsk People's Republics, the Russian president said.

The Ukrainian parliament should have passed a resolution to implement the law on the special status of the Lugansk and Donetsk People's Republics, the Russian president said.
"Our friends in Kiev fulfilled this decision formally and along with a resolution adopted by the Verkhovna Rada on implementing this law, they made amendments to the law, as far as I know, to article 10, which fully disavowed this action," Putin said.

"This is manipulation and nothing else and it is necessary to switch from manipulations to practical work," he said.

Putin said that in addition to the above mentioned steps Kiev should carry out a constitutional reform, decentralisation, should adopt a law on municipal elections and announce amnesty so that the Minsk agreements can be fulfilled.

"A political dialogue is impossible with people face a threat of criminal prosecution," he said adding that all this should be implemented with the consent of Donetsk and Lugansk.

"But unfortunately, we cannot watch any dialogue," the Russian president said. "There are only hints that it is going to start, but too much time has passed since the Minsk agreements were signed."

Putin has again pointed out that both sides are far from a direct dialogue on economic revival of these regions.

"The thesis 'we have no money' does not work in this case," he said in conclusion. "If the current Ukrainian authorities think that it is Ukraine's territory and there live the Ukrainians who enjoy the right to be provided with disability benefits or pensions and who have earned them working in accordance with the Ukrainian law, then the Ukrainian authorities cannot deny payments of these benefits as they just have no right to behave so! They are violating their own constitution.".

Putin says Moscow wants trust-based dialogue with Ukraine

Putin also added that Russia hopes for trust-based dialogue with Ukraine.

In spite of all the current complexities, the Russians and Ukrainians make up a single nation, a single ethnos with a shared history and culture and they are destined to have a common future. he said.

"We have a shared history, a shared culture with common spiritual roots," Putin said. "Whatever may happen, Russia and Ukraine will be destined to a shared future in one way or another," the president noted.

He recalled that Russia had initiated the process of disintegration of the USSR and the granting of sovereignty to other former Soviet republics.

"Nothing has changed in this sense since then, and today Russia and Ukraine are bound by very practical things in addition to all those ties that formed over centuries," Putin said. "These are the common engineering, energy and transport infrastructure, common regulations, and so on and so forth."

"Last but not least, we're linked by an opportunity to speak the same language without obstacles," he said.

 [return to Contents] 

 #22
www.theblogmire.com
June 18, 2015
Russian non-Invasion Causing Concern in European Capitals

Tensions across the Baltic States and Poland have reached fever pitch in recent days as it has become increasingly clear that the Russians have no plans whatsoever to attack any of these countries. For the last year, Poland, Latvia, Lithuania and Estonia have been giving increasingly urgent warnings of Russian invasion and have been attempting to convince the rest of the world that it must act decisively in order to stop President Vladimir Putin carrying out his plan to recreate the Soviet Union, this time from Vladivostok to Johannesburg.

However, despite issuing repeated warnings of imminent peril, the Russians are still showing no signs of turning up and even seem to be saying that they've got better things to do with their time. Only last week, Mr Putin claimed in an interview with the Italian newspaper, Il Corriere della Sera, that the idea of attacking a NATO country was only in the "nightmare of an insane person".

The refusal to invade has become a source of much consternation in Warsaw, Riga, and Tallinn, but it comes as a particularly bitter blow to the Lithuanian President, Dalia Grybauskaitė, who has been increasingly vocal about the threat and who has put the country on panic mode for some time. Earlier this year, in preparation for the imminent invasion, the government in Vilnius put out a 100-page public information pamphlet - How to act in extreme situations or instances of war - which advised citizens how to survive a Russian invasion, and which contains sections on "the organization of civil resistance" and "how to act under battlefield conditions."

A spokesman for the Defence Minister Juozas Olekas, who unveiled the booklet in January, was clearly upset by the Russian response:

"We went to all that trouble of producing a booklet on what to do when they invade, and then they don't even have the common decency to come and invade us," he said. "It's just typical of Russians. You just can't trust them with anything."

He went on to say that the country was now advising its citizens on what to do in case of a Russian non-invasion, and a second pamphlet - How to act in normal situations or instances of peace - is already being prepared in case the Russians carry out their threat not to come. The new booklet is said to advise Lithuanians on how to cope with the idea that their country might not be all that important to Russia after all, and it contains a number of other things people can get worked up about Russia in order to detract from the country's own internal issues.

In Warsaw, where hostility to Russia has been growing due to an ongoing Government awareness programme, a spokesman for the Polish Government, who wished to remain nameless, said the following:

"Russia has invaded Ukraine on no less than 47 occasions during the past 12 months or so. We don't know why they keep invading, and then retreating and then reinvading again, but we know they have because we've been keeping a close eye on Twitter and Facebook, and because Arseniy Yatsenyuk says so. Of course we naturally assumed that sooner or later this would mean they'd come for us - at least that's what we've been telling our people for the last year - and so the idea that they might stay at home after all is bad news indeed. If they continue not to come, the people might actually start to think it was all a silly hoax to detract their attention away from Poland's own issues, and that could be disastrous for us as a nation."

The fear that Russia might stay at home is echoed in Washington, with a spokeswoman for the State Department sounding genuinely perplexed:

"We're sure that the Russians want to recreate the Soviet Union. That's what our President said the other day and we have no reason to disbelieve him. The first port of call before they get to Johannesburg must surely be the Baltic States and then Poland. So why won't they invade? It's a mystery to us, but we're continuing to work with our vassals ... sorry I meant to say allies, to scare people into understanding the threat, and I think it's important to note that even non-invasion can be considered a part of their ongoing aggression"

Last week there were hopes that the invasion might be about to happen, when two British RAF Typhoons stationed in Estonia were scrambled to intercept and shadow two Russian military aircraft over the Baltic Sea. However, the hopes were dashed when it was pointed out by experts, who looked at a map, that Russia is next to the Baltic Sea and a jolly sight closer to it than Britain is.

 [return to Contents] 

 #23
Wall Street Journal
June 19, 2015
Buttressing the Front Line Against Putin
The U.S. must compel Nordic and Baltic states to put aside old prejudices and link arms against the Russian threat.
By Edward Lucas
Mr. Lucas is vice president of the Center for European Policy Analysis, from whose latest report this piece is adapted

Russia is waging a new cold war in the Baltic region, breaching international law and the conventions that govern civilized behavior among nations. The Kremlin provokes and intimidates its neighbors with aggressive espionage, corruption of political elites, propaganda onslaughts, cyberattacks, economic sanctions, coercive energy policies, surprise military exercises, and violations of airspace, territorial waters and even national borders, as when Russian agents crossed into Estonia last year to kidnap a senior security official.

These episodes have gone largely unnoticed in the outside world. Scandinavia in particular still enjoys the image of a region with zero geopolitical risk: the epitome of good government, stability and harmony. Many in Denmark, Finland and Sweden find geopolitics and hard security anachronistic, topics regarded with a mixture of detachment and distaste.

In truth these countries are on the front line of Vladimir Putin's hybrid war against the West-and Mr. Putin is winning. Yet Russia's creeping victory comes not from its own strength. Compare Russia with its nine neighbors in the region: the Nordic five (Denmark, Finland, Iceland, Norway and Sweden), the Baltic three (Estonia, Latvia and Lithuania), and Poland. These countries together-the Nordic-Baltic-Polish nine, or NBP9-have a combined gross domestic product of $2.3 trillion, roughly a third more than Russia's $1.7 trillion. Their annual defense spending is a healthy $33 billion, compared with Russia's $84.5 billion.

The real problem for the NBP9 is strategic incoherence. They are divided: NATO and non-NATO; European Union and non-EU; big and small; rich and poor; heavy spenders on defense and free-riders. They don't coordinate fully (or in some cases at all) their threat assessments, weapons purchases, strategic plans or military exercises.

Poland and Estonia-NATO members who meet the alliance's 2%-of-GDP target for military spending-fear they will bear the burden of defending the others. In private conversations Polish officials say bleakly that their country, by far the strongest militarily of the nine, must have contingency plans to fight alone if let down by NATO.

The other countries, for their part, fear Poland's political unpredictability. The government of Donald Tusk, prime minister from 2007-14, was dependable. What will future Polish governments be like? Memories of the chaotic era of the late President Lech Kaczyński, marked by erratic decision-making and outbursts against Germany, are still vivid. His identical twin, Jarosław Kaczyński, still dominates the opposition Law and Justice party.

The Baltic states fear any dilution of the NATO treaty's Article 5 guarantee, which says that members "agree that an armed attack against one or more of them . . . shall be considered an attack against them all." But in the non-NATO countries of Sweden and Finland, many still fear entanglement in a U.S.-led military alliance.

The Nordic five-prosperous and established democracies-worry that the poorer and worse-governed Baltic states do not fit in with them. The Baltic states do not trust each other and fret that the rest of the region regards them as too small and vulnerable to be taken seriously. Norway, which has by far the largest interests in the Arctic, fears that the other countries don't understand the threats it faces there.

The best way of avoiding an East-West conflict in the Baltic region is to improve security cooperation. No country can afford to step aside, citing its historical, geographical or political specificities. This will involve some difficult rethinking of national preferences (and prejudices). Poland will have to take its smaller neighbors seriously. Sweden and Finland will have to intensify their cooperation with their NATO neighbors, and the Baltic states will have to accept non-NATO involvement in their defense. NATO will have to accept that the regional security requires a tailor-made solution.

The U.S., as always in Europe, will have to shoulder risk and spend money. This week's announcement that the U.S. will position heavy weapons in Eastern Europe is welcome news. So are the NATO exercises now taking place with 15,000 troops from 22 nations. The U.S. must instigate this coordination as only it can. Every country in the NPB9 considers its bilateral relationship with the U.S. to be the most important component of its defense decision making. If the U.S. asks Polish soldiers to exercise in Sweden, or Swedish and Finnish aircraft to exercise in the Baltic states, it will happen. Without American leadership, the region's security will be bedeviled by squabbles about national particularities.

The credibility of NATO, and thus of the U.S. as a European power, depends on whether it can guarantee the security of the NBP9 and in particular the three states most vulnerable to Russia: Estonia, Latvia and Lithuania. If the Baltic states are successfully attacked or undermined-for example, through coercive but nonmilitary regime change-then NATO, the world's most successful military alliance, would be revealed, perhaps without even a shot having been fired, as powerless.

Such a humbling of America would have a huge and potentially catastrophic effect elsewhere, including the Pacific. Allies such as Japan, Taiwan and South Korea would find it hard to believe American security guarantees. They would be strongly tempted either to make their own arrangements with the authorities in Beijing, or engage in a destabilizing nuclear-arms race to guarantee their own security.

As the future of the NBP9 depends on American power, so does the future of American power depend on the NBP9.

 [return to Contents] 

 #24
RFE/RL
June 18, 2015
UN Says Ukraine War Made Russia Top Asylum Destination

A United Nations report says Russia became the world's single largest recipient of asylum requests last year as a result of the war in eastern Ukraine between Ukrainian government forces and Russian-backed separatists.

The figures also show that Russian authorities are being far more lenient toward Ukrainians than toward applicants from other countries.

The report by the UN refugee agency (UNHCR) says a total of 271,200 Ukrainians applied for refugee status or temporary asylum in Russia after the outbreak of the Ukraine conflict -- about 99 percent of the asylum claims in Russia during 2014.

By comparison, the UNHCR cited data from the Ukrainian State Emergency Service that say 823,000 people were internally displaced by the end of 2014 as a result of the fighting.

About 19,000 Ukrainians also filed asylum requests in 67 other countries.

Among them, the countries with the most Ukrainian asylum seekers were Germany with around 2,700; Poland and Italy with roughly 2,100 each; and France with some 1,400.

Russia granted asylum status to about 90 percent of Ukrainians who applied during 2014.

The UN report noted that Ukrainians were predominantly granted temporary asylum in Russia, compared to around 7,000 who received refugee status.

Rights groups say the speedy approval process for Ukrainians stands in stark contrast to asylum seekers from other countries in previous years, when as many as 1 million undocumented foreigners were thought to be in Russia awaiting access to the process of obtaining a ruling on their applications.

Russian authorities also have been notorious for denying refugee status to asylum seekers from other countries in previous years -- with an approval rate of less than 5 percent.

Russia's laws on refugees require asylum seekers who enter the country illegally to file an application with the regional Ministry of the Interior within 24 hours of their arrival. Those who fail to do so face possible imprisonment as illegal immigrants and can face delays on a formal evaluation of their asylum claims.

In the case of Ukrainians, however, Russia has been more accommodating.

Sergei Temryakovich, the head of the Immigration Control Department of Russia's Federal Migration Service, said on June 10 that Moscow had allocated about 10 billion rubles ($1.86 million) to help meet the basic needs of Ukrainian asylum seekers.

Temryakovich also said that 336,000 Ukrainians had been granted asylum or refugee status in Russia by June 10 -- meaning about 65,000 applications have been approved by Russian authorities since the start of 2015.

Kyiv and Western officials accuse Moscow of responsibility for the conflict in eastern Ukraine, which has killed more than 6,400 civilians and combatants, including the supply of troops and heavy weapons and equipment.

 [return to Contents] 

 #25
Russia's leverage to influence Ukraine's self-proclaimed republics not 100% - Lavrov

ST PETERSBURG, June 19. /TASS/. Russian Foreign Minister Sergey Lavrov has confirmed that Russia has certain leverage to influence the leaders of the self-proclaimed Donetsk and Luhansk republics, but it is not 100%

"Certainly, we do have an influence on them. They are greatly dependent on us. To take humanitarian aid alone, which no other donor provides there in such great amounts," Lavrov said.

"And, of course, they depend on us politically, because we want to see their legitimate rights as part of the Ukrainian people respected in the context of the settlement. Is that influence as great as 100%? Certainly not," Lavrov told the RBC television channel in an interview.

 [return to Contents] 

 #26
Moscow Times
June 19, 2015
Losing Patience With Ukraine Mess
By Pyotr Romanov
Pyotr Romanov is a journalist and historian.

A person could get a headache trying to sort out the mess in Ukraine. It is as if there are two jigsaw puzzles, each showing the same picture of Ukraine, but containing pieces of differing shapes and sizes. In fact, the West bears a share of the blame for this aggravating situation. Moscow does too, although Russia has at least acted more consistently in this conflict.

The latest example is the decision by the U.S. Congress to deny funding to the Ukrainian Azov battalion, accusing it of neo-Nazi ideology. The battalion's soldiers not only wear the Nazi wolfsangel symbol on their sleeve - the same worn by the 2nd SS Panzer Division Das Reich - but also display the SS spirit in the Donbass by shedding a great deal of civilian blood. Here, the decision of the U.S. Congress is just.

The problem is, what should Washington do about the rest of the nationalist volunteer forces in Ukraine that are no better than Azov? Why does the U.S. support them? Is it only because U.S. President Barack Obama dislikes Kremlin policy? Former U.S. President Franklin Roosevelt was not too fond of Kremlin policy either, but that did not drive him into the arms of Hitler!

Hasn't the West already had enough of the Nazis, what with SS veterans in the Baltic states holding marches? In short, there are two picture puzzles - one depicting the U.S. denying support to the Azov battalion, and another showing Washington providing aid to similar militias. The pieces just don't fit together. Unfortunately, this is an ongoing problem.

Washington officially supports the Minsk agreement and even lectures Moscow occasionally about violating it. But if it is so concerned about that agreement, why doesn't the United States instruct the government in Kiev to do something about nationalist Right Sector troops headed by Dmytro Yarosh that openly refused to honor the Minsk agreement?

After all, when OSCE observers report that some "third force" is constantly violating the cease-fire, it is clear that they are referring to Ukrainian nationalist fighters. Another mystery: Does Washington want to uphold or disrupt the Minsk agreement?

By the way, isn't it a little strange for the West to claim support for the Minsk II agreement - in which representatives of the self-proclaimed Donetsk and Luhansk people's republics played at least a nominal role - while at the same time supporting what the Kiev government refers to as "anti-terrorist operations" in eastern Ukraine? I would like to know whom the West thinks Kiev is battling in the Donbass - "terrorists" or separatists? There is a difference.

That is not all. I can understand the desire of the U.S. to put the Kiev authorities in a good light. Cossack trousers and traditional embroidered shirts are only fitting for a folk festival. A state looking to integrate with the West should look the part. That is why Washington began putting Ukrainian leaders into suit jackets and ties right from the start.

That also explains the burning desire to have held at least the semblance of presidential elections as soon as possible after Maidan, and after that, equally questionable elections for the Verkhovna Rada. The next step was to quickly begin reforms - a very risky undertaking in today's unstable conditions. In short, it is, in principle, fully understandable why Washington wants to make the new Kiev administration come across as a full-fledged government.

However, it remains unclear how any European state - or any country, for that matter - can tolerate the existence of domestic militias that operate outside the control of the central government. And considering Kiev's reliance on Washington, that question should get redirected to the United States.

Ukrainian President Petro Poroshenko earlier pledged to withdraw all nationalist volunteer militias from the conflict zone. He never did. The Ukrainian siloviki have repeatedly said they intend to disarm illegal fighting units. They have not. How are we supposed to understand that?

Perhaps the Kiev authorities and their U.S. handlers do not really want to be rid of those troops, are physically unable to demobilize them, or else are unaware that those "Nazis" are not simply handing out flowers among the civilians of eastern Ukraine.

In response to the timid threat from Kiev, the Right Sector immediately and demonstratively held military exercises - and of course, without receiving permission from the authorities. The "Nazis" only "notified" Poroshenko of their maneuvers.

The Right Sector has stated that its military forces will continue refusing to obey the Ukrainian General Staff. Even in Lviv, the capital of Western and pro-European Ukraine, fighters wearing camouflage hold rallies at which they not only criticize the president - who, by the way, deserves the criticism he gets from both the right and the left - but also hurl the dirtiest insults at him.

And finally, Yarosh has announced plans to form a full-fledged army as an alternative to the Ukrainian forces. It is seemingly an ultimatum directed at the authorities.

Of course, that is all simply nonsense for any normal state, and it shows why the pieces of the two Ukrainian puzzles do not match. Considering that Ukraine is constantly on the verge of yet another Maidan, it is possible that Ukrainian neo-Nazis will lead the next revolution.

That is why people here are getting a headache from this mess. The United States might be too far away to feel any discomfort, but it is strange that the European Union has yet to come down with a migraine as well.

 [return to Contents] 

 #27
World Affairs
http://worldaffairsjournal.org
June 18, 2015
Should Kyiv Blockade the Donbas Enclave?
By Alexander Motyl
ALEXANDER J. MOTYL is professor of political science at Rutgers University-Newark, as well as a writer and painter.

Ever since the Poroshenko Bloc's leader, Yuri Lutsenko, stated that the "President of Ukraine believes the cancerous tumor should be subjected to a blockade," Ukrainians have been heatedly debating whether Kyiv should sever all ties with the Russian-occupied Donbas enclave.

The argument for a blockade, which would entail a total cutoff of economic relations as well as deliveries of electricity, gas, and water, is straightforwardly strategic. Ukraine is at war with Russia and its puppets. The Kremlin started the war and seems to have no intention to end it. Putin's puppets engage in continual aggressions, systematically violating cease-fires, and openly stating that they intend to conquer at least all of the Donbas. Kyiv knows it can't win on the battlefield, but is hoping to be able to stop further Russian expansion. If Ukraine is to prevail, Kyiv needs to do everything possible to weaken the Kremlin's proxy war machine. A blockade would hasten the Donbas enclave's economic decline and make the region ungovernable. The blockade would do the trick.

The argument against a blockade rests on humanitarian and political concerns. A blockade would hurt the enclave's citizens-Ukrainian citizens who don't deserve to suffer for the misdeeds of the separatists. Abandoning these people would not only be cruel, but counterproductive, as it would turn them completely against their mother country, Ukraine. Moreover, cutting off all economic ties to Ukraine would only drive the region into Russia's arms and thereby seal its loss to Ukraine.

Both arguments are compelling, and both arguments entail painful trade-offs, but I find the one for a blockade to be more persuasive. Which side you choose depends on what you believe Ukraine's top priority is. For me, that's easy: it's the war, which is killing soldiers and civilians, undermining Ukraine's national economy, threatening its stability and its prospects for survival, and hampering reform. The war must either end or be frozen, and the sooner the better. If a blockade promotes that goal, then it's justified.

Would the people of the enclave suffer as a result? Yes, but remember this. The choice before Kyiv is not who should suffer, but who should suffer more: the 40 million Ukrainians in Ukraine, who are already paying an exorbitantly high price in terms of blood and money for Putin's war, or the 3 million "Enclavians" in the Donbas, who are also paying an exorbitantly high price for their misguided support of the separatist adventure? For me, 40 million who made the right choice beats 3 million who made the wrong choice hands down.

Would a blockade drive the region into Russia's arms? Yes and no. For starters, the vast majority of the enclave's residents detest Ukraine and everything it hopes to become (such as a Western, democratic, rule-of-law, market state). Ditto for the separatists and their leaders. In effect, the region is already lost to Ukraine. At the same time, it's not at all clear that the enclave would therefore join Russia. The Kremlin has made it pretty clear that it wants the enclave to remain in Ukraine. And if you don't believe Moscow's statements, consider its deeds. Russia has constructed a 100-kilometer-long ditch along its border with the occupied Donbas, ostensibly to keep out smugglers. Whether that's the actual intent is unclear, but the mere fact of a long ditch separating Russia proper from the enclave its puppets claim to be liberating obviously does not testify to Russia's desire to incorporate the enclave. And why should it? Rebuilding the region would cost billions, and Moscow is already saddled with the economic mess that is Crimea.

The choice before Kyiv-and it's one that Ukrainian policymakers have assiduously been pretending doesn't exist-is quite stark. Either a reformed, Western-oriented, and prosperous Ukraine without the Donbas enclave or an unreformed, Russia-oriented, and backward Little Russia with the enclave. You can't have both. And if you don't believe me, listen to Yuri Shvets, a former Ukrainian KGB agent now living in Washington: "The Donetsk and Luhansk province territories captured by the aggressor ... are a Trojan horse. Putin created it; let him now feed it. To let that 'horse' into Ukraine is tantamount to political and economic suicide."

 [return to Contents] 

 #28
AFP
June 17, 2015
Ukraine creditors reject 'haircut' despite default threat

Kiev (AFP) - Ukraine's biggest private creditors mounted a firm defence Wednesday of their refusal to accept a debt write-off that could keep the impoverished but strategic ex-Soviet nation from slipping into default.

The group of four US investment giants -- owed nearly two-thirds of the $15.3 billion (13.6 billion euros) Kiev is seeking in debt forgiveness -- denied being too firm with a Western ally reeling from a war with pro-Russian militias across its eastern industrial heartland.

Kiev argues that investors placed their bets in Ukraine's Eurobonds when the government was aligned with Russia and must now bear the partial cost of a 2014 popular revolt against the corruption-tainted regime.

Ukraine's debt restructuring offer would both delay and reduce upcoming interest payments. Kiev also wants to slash the value of the original bonds -- a package of measures that could see creditors get back only 40 cents on the dollar.

The proposed "haircut" on the principal has particularly upset the ad-hoc bondholders' committee.

"A haircut sends the wrong signal to global capital markets when Ukraine can least afford to be shunned," they wrote in a letter published in the Financial Times.

The group made no mention of their previous demand for Kiev to dip into its depleted central bank reserves to cover the upcoming payments.

That plan was heavily criticised by International Monetary Fund chief Christine Lagarde on Friday and now appears to be off the table.

'Moral obligation'

 The Financial Times argued last week that the bondholders "have a moral obligation to agree to a restructuring that reduces Ukraine's debt to sustainable levels."

The paper's comments came as the deadlocked talks over how Kiev could save money over four years hurtled toward an early July deadline with both sides sticking to their guns.

Kiev threatens to stop servicing its debts if no agreement is found by the time the IMF decides on whether to stick to its $17.5-billion support programme at a board meeting expected within the next few weeks.

The IMF had initially warned that it would find it hard to issue the next loan payment -- $1.7 billion that Ukraine has been waiting for since the end of last year -- without a debt restructuring arrangement in place.

But both Lagarde and her deputy have since signalled that the IMF will keep financing Ukraine as long as it pushes ahead with its prescribed austerity and restructuring measures.

The IMF cash makes up the core of a broader $40-billion package that includes individual government assistance as well as the credit payment rescheduling plan.

Ukrainian President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk both huddled with parliamentary leaders to encourage them to on Thursday push through a raft of measures the IMF would like to see in place by the start of July.

"I hope to have a fruitful discussions and see these seven laws debated and passed," Yatsenyuk said before the talks.

Kiev is expected to make $39-million Eurobond interest payment Wednesday that would keep the restructuring talks alive.

No formal announcement on whether that money was handed over to the creditors was expected before Thursday.

 [return to Contents] 

 #29
Kurier (Austria)
June 16, 2015
Deputy head of OSCE mission in Ukraine "cautiously optimistic" on Minsk deal
Interview with the deputy head of the OSCE mission in Ukraine, Alexander Hug, by Stefan Schocher; place and date not given: "The Fact That We See More Does Not Please Everyone"

Considering the tangle of information and rumors, reports by the OSCE observer mission in Ukraine are a neutral anchor point. Moreover, the organization monitors the observance of the agreement of Minsk of 12 February 2015. The deal provides for a withdrawal of heavy weapons as well as a permanent stop to the fighting. In addition, it contains measures for a political pacification of the region, such as, for example, the holding of regional elections under OSCE supervision, and the return of Ukrainian border troops to the parts of the Russian-Ukrainian border that are not controlled at present. Alexander Hug, a Swiss national, is the deputy head of the mission. [The Austrian daily] Kurier met him for an interview.

[Schocher] Mr. Hug, given the current circumstances, do you see a possibility at all to fulfill your mandate?

[Hug] The situation is in fact difficult. On the one hand, we see a larger number of civilian victims -- deaths and injured people; but we also see a larger number of injured and deaths among the warring parties. Both are measurable indicators of an escalation. We see the use of heavy weapons and an increased number of hot spots. In addition, we see that the two sides entrench themselves. And we see an increased number of minefields. Not only do they show that the two sides do not trust each other; they also have negative consequences for the civilian people because they cannot move about freely. This separates the people. And our patrols repeatedly get involved in incidents -- they are the target of shootings; they are no longer allowed to cross checkpoints. This happens almost every day.

[Schocher] After the battles near Donets'k two weeks ago, many people said that the Minsk II Agreement was dead. Do you share this view?

[Hug] It is too absolute to say so. Ahead of the Marinka incident (battles in a suburb of Donets'k, note), I was in Minsk to head the 'Security' working group. For four hours, we talked about substance -- not about the format. There were good discussions between all parties concerned. The platform that the Minsk Agreement offers is important -- it is the only one we have. And as long as the parties talk with each other, at least, there is hope.

[Schocher] Where do you see points of progress? Apparently, security is not among them.

[Hug] The fact that the OSCE can continue its activities is already to be seen as progress. Our work supports the efforts of both sides to reach a peaceful solution. However, it is for the two sides, and not the special mission, to stop the shooting and to withdraw the weapons. We accompany these efforts, we document them.

[Schocher] Do you believe that the Minsk Agreement will be fully implemented someday?

[Hug] I am cautiously optimistic.

[Schocher] Kyiv repeatedly suggested a change of the mandate. Do you think that it is possible with the current mandate to really deescalate the situation?

[Hug] The point is that the mandate is made up of two main components: the first is to observe and to recognize facts and to report about them. The second is to enable dialogue. I think it is important to evaluate whether additional measures will contribute to stability in Ukraine. If the answer is yes, we should take them into account.

[Schocher] Catchword dialogue: most recently, the impression has arisen that many aspects of the mission are being called into question. To what extent does this affect the work?

[Hug] It is true that we are faced with criticism from many sides; on the part of the rebels, on the part of Kyiv, and also on the part of Moscow -- which, basically, is not a bad thing: the fact that we are being criticized shows that we are impartial. We increasingly observe weapons systems that we did not observe before; our unmanned aircraft see a lot. We now have access to satellite images. The fact that we see more does not please everyone. But our mandate is to report independently. We will continue to do so. Our dialogue with the rebels is still working. The same exists on the Ukrainian side.

[Schocher] There are plans to increase staff. A figure of 1,000 observers has been mentioned -- is that enough?

[Hug] This is an option when extending the mandate. But it is necessary to consider whether more observers will provide more information. The situation that I described to you considerably restricts our activities. An example: in eastern Ukraine, we have up to 50 teams patrolling the region. However, most recently, because of the security situation, we reduced them to 25 or even 20 per day. If we deployed more observers there now, this would not necessarily lead to better reports.

[Schocher] The great unknown in this war is whether regular Russian forces operate there. What is your view?

[Hug] Several times, we saw persons moving in areas that are not controlled by the government who wear the insignia of the Russian Federation. We saw weapons systems that Ukraine does not possess. We saw massive movements of materiel -- trucks, tanks, and other military goods -- from the east to the west. We also saw tracks of armored vehicles running across the border, and we questioned two people in Kyiv, who told us that they were part of an active unit of the Russian Army who were sent to Ukraine on a rotational basis. It is not for us to draw conclusions -- this is the responsibility of the OSCE member countries. But it is important to add that these observations are not denied by any side.

[Schocher] Not even by Russia?

[Hug] No, it did not address the OECD to formally deny the allegations.

 [return to Contents] 

 
#30
Ukraine's Tornado battalion fighters threaten to use weapons against Kiev operatives

KIEV, June 18 /TASS/. Members of Ukraine's Tornado battalion have locked themselves up at a base located in a school building in Severodonetsk, the Kiev-controlled part of the Luhansk region, and have threatened to use weapons against Ukraine's Interior Ministry employees sent to pacify them, Ukraine's Chief Military Prosecutor Anatoly Matios said on Thursday.

The Ukrainian military revolted after they had learnt that Ukraine's Interior Minister Arsen Avakov was planning to disband the Tornado battalion, Matios said in an interview with the Ukrainskaya Pravda daily.

He added that Avakov had sent one of his deputies, the heads of the internal and public security departments as well as representatives of the National Guard to Severodonetsk to disarm the Tornado fighters.

According to Matios, there are 170 people on the base's territory.

"Huge amounts of weapons and ammunition are stored at the base. The Tornado fighters have planted mines along the perimeter of the base and have installed firing points and automatic grenade launchers in certain places. They have practically blocked the approach to the base. They have threatened to shoot if any decisive actions against them are taken or if and investigator and operational teams make an attempt to approach the base," Ukraine's chief military prosecutor stressed.

"I believe that we are obliged to act in strict compliance with the law and immediately disarm this group that has disobeyed and is refusing to fulfill orders," Matios said adding the Interior Ministry employees would have to return fire in case of an armed resistance.

He noted that a considerable part of the Tornado battalion was made of former convicts, many of whom have long criminal records.

 [return to Contents] 

 #31
Kyiv Post
June 18, 2015
SBU Chief Fired After Flap With Poroshenko
By Oleg Sukhov

Ukraine's Parliament on June 18 approved President Petro Poroshenko's request to sack Valentyn Nalyvaichenko as head of the Security Service of Ukraine, amid growing recriminations over who is to blame for the government's faltering drive against crime and corruption.

The SBU chief's dismissal was favored by 248 out of the Rada's 422 lawmakers, amid accusations by opposition lawmakers saying that a backdoor deal was reached involving horse-trading of key posts. SBU First Deputy Head Vasyl Hrytsak was later appointed as the agency's acting chief.

The move followed a standoff between Nalyvaichenko and the Prosecutor General's Office. The public dispute flared after Nalyvaichenko accused a former top prosecutor of covering up corruption allegations. Lawmaker Serhiy Leshchenko, part of Poroshenko's faction, in turn accused Nalyvaichenko of being a a prot�g� of tycoon Dmytro Firtash, an ally of ousted President Viktor Yanukovych.

Firtash faces criminal racketeering charges in America, accusations that he denies. On April 30, he successfully fought extradition to the U.S. in a Vienna court while under a travel ban.

Nalyvaichenko also ran the spy agency from May 2006 to January 2010 under then-President Viktor Yushchenko, under whom Firtash's business interests flourished.

Analysts also indicated that Poroshenko was unhappy with alleged corruption at the SBU.

Moreover, public criticism is growing over the administration's failure to punish multibillion-dollar corruption of the deposed regime of ex-President Viktor Yanukovcyh.

The sacking was backed by Prime Minister Arseniy Yatsenyuk's People's Front party.

Nalyvaichenko, a member of Kyiv Mayor Vitaly Kiltschko's UDAR party, is likely to go into politics, Taras Berezovets, head of political consulting firm Berta Communications, said. "He will be positioned as a 'European Putin' - an intelligence officer with a European attitude and a strongman," Berezovets said.

He may either become a competitor of Klitshko in their UDAR party, launch his own political project or head a political project linked to tycoon Ihor Kolomoisky and the Ukrop nationalist group in the Rada, Berezovets added.

Nalyvaichenko said he was ready to be fired. "The president has initiated my dismissal, and I must bite the bullet and leave," he said on June 18.

On June 17, he attributed his sacking to the Kremlin's alleged desire to get rid of him. He added that the Kremlin also wanted Yatsenyuk to be fired, citing information obtained by the SBU's counterintelligence department.

He has denied links to Firtash, who with the Kremlin co-owned RosUkrEnergo, the former intermediary that supplied Russian natural gas to Ukraine. "All accusations that were made about any links to RosUkrEnergo and Firtash were refuted by me a long time ago, including on March 17, 2009 in Parliament," Nalyvaichenko said.

Analysts attribute Poroshenko's decision to sack Nalyvaichenko to his alleged ties with Firtash and his unhappiness with the SBU's lack of success against corruption.

Valentyn Nalyvaichenko enters the Prosecutor General's Office on June 15 to be questioned over his allegations that ex-Deputy Prosecutor General Anatoly Danylenko covered up alleged corruption at oil firm BRSM-Nafta, where a fired this month claimed six l

Moreover, the spy agency has been at the center of corruption scandals. Odesa's new governor, former Georgian President Mikheil Saakashvili, wrote in a June 18 Facebook post that many SBU officials "run a protection racket for smuggling." In March, ex-Dnipropetrovsk Oblast Deputy Governor Hennady Korban also accused SBU officials of running a protection racket for smuggling of goods into Russian-occupied territory.

Leshchenko wrote on June 14 that the conflict between Poroshenko and Nalyvaichenko flared up after the SBU head fired top officials of the agency's anti-corruption department without permission from the Presidential Administration. Berezovets said the officials were Poroshenko's men.
SBU spokespeople Markian Lubkivsky and Olena Hitlianska were not available.

Meanwhile, Nalyvaichenko's resignation also exposed similar problems at other law enforcement agencies - the Prosecutor General's Office and the Interior Ministry. On June 15, he accused Anatoly Danylenko, a former deputy prosecutor general, of covering up alleged corruption at oil firm BRSM-Nafta and of co-owning the company. The accusations came amid a fire at a BRSM-Nafta oil depot where six people were killed.

Oleh Berezyuk, head of the Samopomich parliamentary faction, said on June 17 that Nalyvaichenko had provided information on the incompetence of other law enforcement agencies. The SBU had submitted data on major criminal investigations to other agencies, but no progress was made, Berezyuk added. "We consider the work of law enforcement agencies, including the Prosecutor General's Office, the SBU and the Interior Ministry, as unsatisfactory," Pavlo Kishkar, a member of the Samopomich faction, said at a news briefing on June 18.

Kishkar said that almost no cases against ex-Yanukovych allies had been sent to court. The SBU, prosecutors and the Interior Ministry have also faced criticism for failing to prevent the escape of Yanukovych ally and member of Parliament Serhiy Klyuyev earlier this month. Klyuyev was stripped of parliamentary immunity in an embezzlement case.

Another parliamentary group, Ukrop, did not support firing Nalyvaichenko. Ukrop lawmakers Boryslav Bereza and Borys Filatov told reporters on June 18 that Klitschko had agreed to support Nalyvaichenko's dismissal in exchange for introducing single-round mayoral elections and getting his candidate appointed as the city's top prosecutor.

Filatov said that single-round elections were also advantageous for Lviv Mayor Andriy Sadovy, whose Samopomich party also backed firing Nalyvaichenko.

According to a YouTube video of the June 18 Verkhovna Rada session, a man identified by Ukrainian media as Serhiy Vysotsky, a member of the People's Front faction, texts blogger Karl Volokh on a smartphone: "(Lviv Mayor and Samopomich leader) Sadovy was given the position of the Lviv prosecutor and the Lviv customs office in exchange for Valentyn (Nalyvaichenko)."

Vysotsky was not available by phone or e-mail.

Ukrop lawmakers also alleged that ex-Prime Minister Yulia Tymoshenko's Batkivshchyna party had agreed to back the sacking in exchange for replacing Ecology and Natural Resources Minister Ihor Shevchenko with a minister loyal to Tymoshenko.

"This is not the Verkhovna Rada, it's a bazaar," Bereza wrote on Facebook. "This is being done in a classical Byzantine style."

Kishkar and Leshchenko said they did not know anything about back-door deals. Oksana Zinovieva, Klitschko's spokeswoman, was not available.

Nalyvaichenko's dismissal was also not supported by the Opposition Bloc, the heir to Yanukovych's Party of Regions, and the populist Radical Party, which has been accused of ties to Firtash and Serhiy Lyovochkin, Yanukovych's former chief of staff. Radical Party leader Oleh Lyashko denies these connections.

 [return to Contents] 

 [return to Contents] 

 #33
New Statesman (UK)
June 16, 2015
In Kiev, after the revolution, what do ordinary Ukrainians really think?
A new police force, rising prices and hope for the future on the streets of Ukraine's capital.
BY JANA BAKUNINA

Arriving in Kiev, you'd be hard pressed to find signs of economic hardship and the ongoing war. The billboards along the motorway leading from the airport into the city centre advertise luxury cars and apparel. Couples strolling along Khreschatyk, Kiev's main street, on a balmy summer night are dressed according to the latest fashion from European catwalks. Young street artists sing Ukrainian rock pleasing the crowds. Ubiquitous coffee vendors sell proper coffee (from 10p a cup) made using Italian coffee machines fit into the back of their cars. Souvenir stalls are packed with fridge magnets of the Ukrainian flag, mugs "I Love Kiev" and toilet paper with an image of Putin and a caption even the Urban Dictionary would struggle to translate.  

What began as a peaceful protest against government corruption and demand for closer relationship with Europe in November 2013, when hundreds of thousands of Ukrainians came out to Maidan Nezalezhnosti, Kiev's Independence Square, led to riots, political crisis and violent clashes in different parts of Ukraine. The bloodshed in Kiev ended in February 2014 after former president Yanukovich fled the country and the new "pro-European" government came into power. However, at the same time new protests sparked in southern and eastern Ukraine where predominantly Russian-speaking population argued for closer integration with Russia.

Following an unconstitutional referendum, the Crimean peninsula became a federal subject of Russia in March 2014. At the same time protests in Donbas (area of the river Donets) in eastern Ukraine escalated to the full-scale civil war between pro-Russian separatists and the new government, led by Petro Poroshenko. According to the UN News Centre, at least 6,454 people (both military and civilians) have died, and another 16,146 have been wounded since the outbreak of hostilities. Over 1.3 million people have been internally displaced due to the ongoing conflict. Despite the truce brokered by Russia, Germany and France back in February 2015, armed skirmishes continue to claim lives.

Meanwhile, life goes on in Kiev. Old babushkas sell wild carnations they had picked earlier that day. Evdokiya, who is in her eighties, struggles to make ends meet on her monthly pension of 1,200 hrivna (c.�40). Ukraine's latest CPI (Consumer Price Index) indicates an inflation rate of 58 per cent year-on-year. Evdokiya is plainly pessimistic about the future: "It's been getting worse and worse," she says. Her generation went through the famine of the 1931-1932, World War Two, the collapse of the Soviet Union in 1991 (when Ukraine became an independent state) and now the Euromaidan revolution. Her life has seen more than a fair share of austerity.

Poroshenko's government, distracted by the war, is slow to mend the social infrastructure: pensions are pitiful, the healthcare is free on paper but in reality, everything has to be paid for. On the other hand, streets and metro stations are heavily patrolled by the newly formed police force. "We need this vigilance right now", argues Alina, a former investment banker who now works for the UN. Alex, 25, tells me he has first hand experience of the new policing regime. When walking home from work, he was stopped by the patrolling policemen and asked for his papers, a routine matter in Kiev. Once they had learned he was born in Donetsk, they searched his backpack and his pockets before letting him go. Alex's father is still in eastern Ukraine, his mother lives in Odessa and his sister has emigrated to Switzerland. Alex has two jobs, managing a hostel and making coffee, but he hopes to move to Poland, if he can get a work visa.

Perhaps unsurprisingly, the older generation is worried about the future. Larisa, 52, sells chilled drinks and snacks at the People's Friendship Arch built in 1980s by the Soviet government. Since Russia and the Ukraine are no longer "friends", the titanium arch is not lit at night (above) and, according to Larisa, is about to be deconstructed. "There are no jobs, unless you are 20 or 30", complains Larisa. "My children work 12-hour shifts and get 2,000 hrivna [c.�67] a month". Meanwhile, the government promised to clean Kiev of any remaining Soviet signage. "They'll pour money into taking the images of wheat stems off cast iron bridges, as if we don't have other problems."

Larisa's frustration is understandable. The new mayor of Kiev, the former boxer Vitali Klitschko, decided the city had too many soft drinks and coffee vendors and announced a tender for a limited number of places. Apart from a mountain of paperwork, each retail place was offered for a considerable license fee, payable up front. "Who but the rich entrepreneurs with a network of kiosks and connections within the city administration can afford to pay in advance?" asks Sveta, who had to fold her own kvas (traditional fermented cold drink) stand. Sveta got a job with a chain of soft drink stalls in Mariinsky Park but her income, which has to feed a family of five, has halved. Vitalik, 28, tells me the same story, as he is setting up his coffee van in the Volodimirskaya Gorka Park: "In Kiev's administration, one gang was replaced with another."

While retail trade and hospitality are generally suffering from fewer tourists coming from Russia and the West, caf�s in the centre of Kiev are making the most of the local crowd. Anya and Andrey are having family dinner with their three-year-old daughter on Khreschatyk, just two hundred yards from Maidan Nezalezhnosti, where only candles, flowers and black-framed photos remind on the blood that was spilled when Yanukovich's force opened fire on the protesters. "People came to put an end to the dictatorship from Kremlin," explains Anya, "we had had enough of Putinism." She admits that life was better with the previous government, because of Russia subsidising the Ukraine's economy. "The prices are crazy right now," says her husband Andrey, "while an average bank clerk (working at Italian Intesa) earns 3,500 hrivna [c.�117] a month." And yet, the couple is optimistic about the future, arguing that Poroshenko needs time to deliver the reforms he had promised. "We are in a vulnerable state right now, but I hope changes will come. I support our president and I hope we'll join the EU," says Anya, raising a toast to Ukraine with a shot of prune vodka. "We are happy to die as long as we are not dragged back to the USSR."

Another couple, Alina and Svyatoslav, also in their early thirties, speak of the "re-born" Ukraine with the passion of true patriots. "Ukraine today has the best government it has ever had." Indeed, many new ministers were recruited from the private sector. Minister of Finance, Natalie Jaresko, was one of the co-founders and Chief Executive Officer of a fund with $600m under management. Minister of Economic Development and Trade, Aivaras Abromavicius, was previously a partner at private equity firm Swedish East Capital. Andrii Pyvovarskyi, Minister of Infrastructure, was also a former investment banker. The newly drafted reforms are offered to public scrutiny via an online portal reforms.in.ua, with its model inspired by the government site of the UK. "Our society has awakened, reforms are on their way," says Alina. "Now we need the war to end."

The deep wound that cannot stop bleeding is the war in the east. Most people speak little of it - it's too painful a subject. Some are less inhibited: "Eastern Ukrainians aren't Ukrainians. They aren't patriots," says Kiev-born Anya. Such opinions are not uncommon here, which makes one wonder whether "United Ukraine" posters still spread around the city are mere lip service. Back in the early years of the USSR the territories east of the river Dnieper were rapidly industrialised. Coal mining and metallurgy transformed Donbas into the powerhouse of the Soviet Union. Migrant workers from all over Russia settled in Eastern Ukraine and have been living there ever since.

Dima, 37, who came to Kiev from Donetsk ten years ago, tells me he has relatives in Kuban and Siberia. Under Yanukovich, the corruption was so widespread that you could not run any business without "buying protection" first. Local elections were always rigged. "Imagine a teacher, respected by the local community, standing for elections into the local government. Everyone knows and supports him. Then comes a suit from Kiev with an expensive car and a handful of glossy flyers and wins the seat," says Dima. With his mother still living near eastern battlefields, he is hopeful the new government can improve on the previous one. "It's a tricky and a turbulent path, but I believe we are moving forward."

Chess enthusiasts have been meeting in Kiev's Shevchenko Park for generations. Dmitriy, 58, who now lives in Israel, recalls coming to play chess here 40 years ago. Men I spoke to were first reluctant to talk about politics, masterfully changing the subject to literature and beer, without taking their eyes off the chessboards. "We have no idea where we are heading to, but we are clinging to the boat," offered one. "Our country is great, the government isn't," added another. They fear the new ministers are too used to working from their offices to make themselves more present. They don't visit enterprises or hospitals but they write reforms. On the other hand, Poroshenko has only been at the steering wheel for just over a year, and his performance is too early to judge. "People got a new sense of freedom, that's why we are patient - for now," explains one player. His opponent Dmitriy, who started his business in Ukraine in the early 1990s producing medical equipment, is curiously positive, despite his company suffering from the excruciatingly high costs of the imported materials: "If you are entrepreneurial and ambitious, the opportunities in the times of crisis are unparalleled."

"We needed a kick up the backside to get going," is a telling summary offered by a young barista, who fixed me a mean cup of coffee near Maidan, where the Independence Monument appears to be shining in the light of new optimism.

 [return to Contents] 

 #34
www.globalresearch.ca
June 18, 2015
Kiev: Chestnuts Blossom Again
By Israel Shamir
Russian Israeli writer

I had to whip up my courage to go to the Ukraine. There was a recent spate of political killings in the unhappy and lovely land, and the perpetrators never apprehended; among those killed was Oles Buzina, a renowned writer and a dear friend.

Two years ago, well before the troubles, we had a drink under a chestnut tree in a riverside caf�. Buzina was in his forties, rather tall and slim, had a narrow sarcastic face of Mephistopheles, a bald head, a hint of moustache and a bad temper. He was a Thersites among the warlike nationalists of Kiev, laughing at their sacred myths of eternal Ukraine Above All. He called their beloved nationalist poet, the first one to write in the local dialect, "a vampire" for his predilection to bloody scenes. Buzina wrote in Russian, the language educated writers of the Ukraine preferred and perfected since Gogol, and he rejected the parochial narrative of the recent coup d'�tat.

He was shot at high noon, in a street near his home in central Kiev, and the killers just vanished in thin April air. He was not alone: opposition journalists were killed, shot like Buzina and Suchobok, parliament members, governors and officers of law were defenestrated like Chechetov, MP in the "epidemics of suicides". Were they killed by local extremists freely operating in the land, or did they become victims of Seals Team Six, the feared American assassins who kill enemies of the Empire by their thousands from Afghanistan to Ukraine to Venezuela? Who knows. Many more independent journalists and writers escaped by the skin of their teeth - to Russia like Alexander Chalenko or to Europe like Anatol Shary.

I've met them in Kiev before the troubles, I've met them in their exile, and they told me of threats, of gangs of armed football fans and neo-Nazis roaming the land. I was scared, as in my advanced age I did not fancy a sojourn in a torture cellar, but curiosity, desire to see with my own eyes and judge for myself, and above all, the attraction of chestnuts in full tender bloom defeated the fear, and I took a rare Moscow-Kiev train. Always full in normal days, it was half empty. Other travellers were also worried: the Ukrainian border guards were known to arrest people on slightest suspicion or to ban entry after a few hours in a police cooler.

The border guard that checked my Israeli passport was a huge man in a military camouflage with large strip displaying his blood type in bold Latin numerals: IV Rhesus -. Still, he let me in after checking with his computer and asking a few questions. I was to see many soldiers and officers in battle dress all over Ukraine, as many as in Israel, perhaps. Kiev government obviously took a leaf from Israel's cookbook: schmaltzy advertising for military is ubiquitous, including calls to join the army, to support soldiers, to feed soldiers, to entertain soldiers, as if these soldiers of theirs are defending homeland from barbarians. In reality, they are shelling and looting the breakaway provinces, like the Yankees in the Gone with the Wind.

The looting made the war quite popular for a while with an average Ukrainian. That is, until coffins began to arrive from two major defeats of the Kiev army, under Ilovaisk and Debaltsevo. Pictures of young men who died fighting to regain Donbass are displayed in prominent places in Ukrainian cities - there are too many of these martyrs for a small victorious war. The stream of volunteers dried up, and the regime began drafting able-bodied men. A number of draftees chose to flee to Russia or went into hiding, but the army is being beefed up all the same - by the mercenaries of Western private companies as well.

Minsk agreements quelled the war, though shooting and shelling goes on. The renewal of full-scale hostilities is still very possible: the US wants a proxy war against Russia. The regime may choose war  for economic reasons as things go from bad to worse. Standards of living dropped sharply: hryvna, the currency, went down, prices went up, while salaries and pensions remained as they were.

Do people complain, do they regret the February 2014 coup? Not really. They blame Russia's Putin in all their misfortunes and refer to him by an obscene nickname. "Putin is envious of us for we shall join the EU", a burly internet caf� owner in camouflage told me, though at that very time, in Riga, the EU leaders made it clear that in no way Ukraine will become a full member of EU. Rather, an associated one, like Turkey or North Africa. Militarist propaganda ("stand by our boys") made an impact. As does the nationalist one. Many Ukrainians speak with palpable hatred of Russia, though with surprising ease they go to work and live in Russia if and when an opportunity arises.

Russians believe that deprivations will sober the people of Ukraine, but it seems unlikely. The Ukrainians, like all Russians (and that's what they are, for Ukraine is the south-western part of historical Russia, and as Russian as any place) are hardy, stubborn, patient, frugal and able to survive in most adverse conditions. A reverse could be possible: in 2004, the first Maidan coup (also sponsored by the West) installed a pro-Western president, but he earned universal scorn and failed to get re-elected. The second Maidan coup could suffer a similar fate, but this time the regime decided to ban the opposition parties. The Communist Party is banned, and the previously ruling Regions Party was dismantled and its members are forbidden to participate in elections. The Kiev regime does not need an appearance of democracy, as they have the West's support.

I do not want to exaggerate: Kiev is not hell on earth; it is still a comfortable city. People are reluctant to express their views in public, and some do not want to be seen with a man from Moscow, but their fear is not overwhelming. Communists and pro-Russian people in general are more likely to lose their job than their life. And a lot of Ukrainians look at Russia with love and sorrow, and express it. These are the Communists, who suffer daily threats; these are the Orthodox Christians, for the regime favours the Uniate Catholic Church of Eastern Rite and strong-arms the Orthodox from their churches; these are Russian-language writers and intellectuals who had their newspapers closed down and books removed; last but not least,  there are industrial workers employed in still-surviving industries, for the Ukraine was the most industrialised part of Russia.

In the South-East of Ukraine, they fight with weapons; elsewhere, a slow-going war of words and ideas goes on. What do they fight for? The Russian version of the story - ethnic Ukrainian Neo-Nazi followers of Bandera persecute Russians of Ukraine - is a great over-simplification. So is the Ukrainian version of Ukraine choosing Europe against Russia pulling it back into its unwanted embrace. The reality is quite different. You understand that when you encounter pro-Ukrainian Russians of Russia. They are numerous, influential, prominently placed in Moscow, as opposed to numerous but disenfranchised pro-Russian Ukrainians of Kiev. The civil war goes in Ukraine and Russia, and it is not an ethnic strife, as both sides often pretend.

This is the ongoing struggle between comprador bourgeoisie and its enemies: the industrialists, workers, military. This struggle goes on since 1985, for 30 years. In 1991, the Empire won. The Soviet Union was undone. Industry and armed forces were dismantled. Science was eliminated. Workers lost their jobs. The state (in both Russia and Ukraine) became subservient to the Empire. This was a tragedy for ordinary people, but an opportunity for collaborationists.

Many people prospered at dismantling of the Soviet Union. Not only the oligarchs - a whole class of people who could get a piece at privatisation. The Western companies bought a lot of industries and dismantled them. The agricultural complex was destroyed. Russia and Ukraine were hooked to the global imperial economy: they bought manufactured goods and food from the West, or from China for the US dollars. The only produce of Russia has been its oil and gas.

There were two failed attempts to reverse the tide in Russia. Yeltsin blocked both with tanks. Worn and hated, he appointed Putin to succeed him. Putin was chosen and supported by oligarchs and by the West to rule Russia with an iron fist in a velvet glove and to keep it hooked and subservient. Very slowly he began to shift ground to independence. Putin's Russia is still far away from full independence; it is far from clear Putin even wants that. Putin is not a communist, he does not want to restore the Soviet Union; he is loyal to Russia's rich, he sticks to the monetarist school of thought, he trades in dollars through Western banks, he did not nationalise so many industries and lands taken over by the crooks.

Still Putin's became the third attempt to reverse the tide. He did much more than it was permitted by the Empire. He crossed red lines in his internal policies by banning Western companies from buying Russian resources; he crossed the red line in his foreign policy while protecting Syria and securing Crimea. He began to re-industrialise Russia, produce wheat and buy Chinese goods bypassing dollar. He limited power of oligarchs.

But Yeltsin's people, the Reaganite compradors, retained their positions of power in Moscow. They control the most prestigious universities and the High School of Economics, they run the magazines and newspapers, they have financial support of the oligarchs and of foreign funds, they are represented in the government, they have the mind of Russian intelligentsia, they miss Yeltsin's days and they do love America and support the Kiev regime for they correctly see it as direct continuation of Yeltsin's.

Yes, there is a big difference: Yeltsin was an enemy of nationalists, while Kiev uses nationalism as the means to consolidate its hold. Kiev is also much more militarised than Moscow ever was. The common ground is their hatred of Soviet past, of communism and socialism. Kiev decided to destroy all monuments of the Soviet era and rename all the streets bearing Soviet names. Moscow anti-communists loudly supported this move and called to emulate it in Russia. Gorbachev's intellectual elite, elderly but still going strong, also supported Kiev's resolute anticommunism.

Putin hardly moved these people out of power. He cherishes his ties with Anatoly Chubays, an arch-thief of Yeltsin's days, and with Kudrin, the Friedmanite economist. Recently he began to deal with their supply lines: Western NGOs and funds have to register, their transactions made visible and revealed huge financial injections from abroad into their media. Still, people identified as pro-Putin are a minority in Moscow establishment. So much for his "ruthless dictator" image!

This duality of Russian power structure influences Russian policy towards Ukraine. A minority that is "more pro-Putin than Putin", calls for war and liberation of the eastern provinces of the Ukraine. They see confrontation with the West as unavoidable. The powerful comprador group calls to abandon Donbass and to make peace with Kiev and with New York. They want Russia to follow in the footsteps of Kiev, minus its nationalism. Putin rejects both extremes and treads the middle ground, annoying both groups.

The Kiev regime could use this reluctance of Putin and broker a good stable peace. But their sponsors want war.  The breakaway Donbass was the power engine of all the Ukraine. The new regime is keen to de-industrialise the land: industrial workers and engineers speak Russian and relate to the Soviet Union and to Russia its heir, while Ukrainian-speakers and supporters of the regime are mainly small farmers or shopkeepers. This is a standard fare of ex-USSR: de-industrialisation is the weapon of choice for pro-Western regimes from Tajikistan to Latvia. Of Russia, too: the first thing carried out by pro-Western reformers in Gorbachev and Yeltsin's days was de-industrialisation. It is said that Obama's Transatlantic Free Trade Area (TAFTA) will de-industrialise Germany and France. Thus industrial Donbass has good reasons resisting its inclusion in the Ukraine, unless this will be a federated state leaving much of its authority to the provinces. Kiev prefers war depopulating the region.

So in Ukraine I found a follow-up to dramatic events of 1990s. Who will win: the next generation of Gorbachev's reformers in the nationalist folkish dress - or the industrial workers? Perhaps Putin could answer this question, but he is not in haste. In the second article we shall look at Moscow and its recent moves.

 [return to Contents] 

 #35
The Economist
June 20, 2015
Ukraine and Russia
Putin the uniter
The war has made most Ukrainians see Russians as enemies, not friends

MIKHAIL ZABRODSKY, the broad-shouldered commander of Ukraine's airborne troops, came of age in the Soviet Union. After the Soviet collapse he even served in the Russian army. When he moved home to Ukraine he stayed in touch. "We were all friends," he says, shaking his head. When Russia turned its guns on Ukraine last year, Mr Zabrodsky "couldn't believe it." He was not alone.

Ties between the two countries, forged over more than a millennium, are deep. Russia and Ukraine both trace their lineage to a Slavic prince, St Vladimir (or Volodymyr), who appears on both countries' banknotes. For centuries, tsarist Russia claimed Ukraine as an extension, calling the territory "Little Russia". Under the Soviet Union, the narrative shifted to one of brotherhood, with the Communists presenting Russia and Ukraine as parts of an inseparable Slavic family. When Khrushchev as Soviet leader gave Crimea to Ukraine in 1954, he was marking the 300th anniversary of the Pereyeslav Rada, a compact joining Cossack-ruled territory in Ukraine to the Russian empire. In 1982 a silver titanium "Arch of Friendship" in honour of "the reunification of Ukraine and Russia" was erected on a hilltop outside Kiev overlooking the Dnieper river.

Even after Ukraine voted for independence in 1991, bilateral relations remained mostly cordial. But by annexing Crimea and waging war in Ukraine's south-east, Russia's Vladimir Putin has made an enemy of erstwhile brothers. In the past 18 months, a psychological shift has seen public opinion in Ukraine turn sharply against Russia. In September 2013, just before the Maidan revolution, 88% of Ukrainians felt "positively" about Russia, says the Kiev International Institute of Sociology. By May 2015, that number had fallen to 30% (it would be a lot lower if it excluded people in the rebel-held south-east). As Mr Zabrodsky concludes, "the brotherhood is over." That will hamper the Kremlin's efforts to pull Ukraine back into Russia's orbit, which it managed after the 2004 Orange revolution. Mr Putin still speaks of Russians and Ukrainians as "one people", but Ukrainians don't see it that way.

The changing mood manifests itself on Ukraine's streets. There is a movement to boycott Russian goods: markers noting "Russian products" dot Ukrainian supermarket shelves. A sign in Kiev's Museum of Mikhail Bulgakov (a Kiev-born writer who wrote in Russian) tells visitors who "support the military occupation of Ukraine" that they are not welcome. Not far from the Friendship Arch, vendors who once sold Soviet kitsch now tout patriotic Ukrainian wares and anti-Russian souvenirs. "The selection has changed with the people's tastes," says Artyom Shumilov, who sells varieties of toilet paper plastered with Mr Putin's face at his stall in Kiev's Andreevsky Descent.

The longer the war drags on, the more entrenched opinion becomes. Olexander Scherba, a Ukrainian diplomat, eschewed the Maidan protests, calling himself "a Eurosceptic and Russophile" on his Facebook page in late 2013. "I was ready to forgive Russia a lot," says Mr Scherba, now Ukraine's ambassador to Austria. "But now it's absolutely clear: they are an enemy." Even many who made allowances over Crimea have begun to see Russia differently. And in the last three months of 2014, the share of eastern Ukrainians who viewed Russia positively fell from 83% to 51%.

Polling by the International Republican Institute finds a majority of Ukrainians in government-controlled territory favouring membership of the European Union, whereas only 13% want to join Russia's customs union. Ukraine's government has begun building a wall along its border with Russia, a symbolic gesture attuned to the country's mood. Support for Ukrainian independence has never been higher. "Putin has done more to unite Ukraine than anyone else," says an official in Ukraine's presidential administration.

Yet some fret that this may not last. Petro Poroshenko, Ukraine's president, warns against a "revanche of pro-Moscow political forces" in forthcoming local elections. Regional divides are deep: despite the war, many in the south-east are sympathetic to Russia. Practical economic concerns make cutting ties with Russia impossible. A failure to deliver on the promises of the Maidan could leave Ukrainians disenchanted. But though patience with Ukraine's new leaders may wear thin, a return to Russia's embrace is unlikely. "We were stabbed in the back by our own people," says Vladimir Paniotto, director of the Kiev International Institute of Sociology. "Once people you know have suffered, restoring relations becomes very complicated."

 [return to Contents] 

 #36
Kyiv Post
June 18, 2015
Editorial
New arms race

The last time that the West got into an arms race with the Kremlin, the Soviet Union collapsed.

So when we hear threats from Russian President Vladimir Putin that he will respond to the West's improved NATO defenses on Russia's border, our response is: Bring it on, peewee Stalin!

Hopefully one outcome of a new arms race will be the collapse of Putin's murderous kleptocracy, putting an end to his paranoid fantasies that the West is encircling Russia and humiliating him.

The only one humiliating Putin is himself and the main beneficiaries of his demise will be Russians.

He has managed to turn the democratic world against him with his disregard for international law, his seizure of Ukraine's Crimean peninsula and his war against Ukraine. He still has friends in China, North Korea and in other dictatorships that don't care about rule of law, democracy and human rights.

Let him have those friends. Ukraine its throwing itself in league with the West's democracies which, while imperfect, still offer the best path to peace and prosperity. The European Union rightly this week extended its tepid sanctions for another six months against Russia. We hope that the West follows through with arms for Ukraine, a hefty "war tax" on Russia's energy exports and a ban on Russia's use of the SWIFT banking transfer system. Russian assets abroad should also be seized to compensate Ukraine.

We hope that Putin will spend more of Russia's shrinking gross domestic product on weapons. Over time, such a strategy will create a guns-vs-butter tension in Russian society that will take the shaky wheels off Putin's regime.

Russia will have less than $2 trillion in gross domestic product this year. Combined, the United States, Canada and the European Union will have GDPs exceeding $35 trillion annually.

Following Putin's announcement this week that Russia will add 40 new intercontinental ballistic missiles, NATO Secretary General Jens Stoltenberg accused Russia of nuclear saber rattling, describing it as "destabilizing and dangerous."

This is true, but unless Putin is a complete mad man, his defense spending will be a complete waste of money on weapons he can't use and an arms race that he doesn't have the resources to win.

The sober, botoxed version of Leonid Brezhnev will soon meet his fate and Russians will wonder what hit them when another collapse takes place and the next Mikhail Gorbachev is left holding the bag of a decrepit empire.

 [return to Contents] 

 #37
www.foreignpolicy.com
June 18, 2015
The Undiplomatic Diplomat
Russia hawks on Capitol Hill love Victoria Nuland, the State Department's point person for Ukraine. Many European can't stand her.
BY JOHN HUDSON
John Hudson is a senior reporter at Foreign Policy and co-author of the magazine's "The Cable" blog where he reports on diplomacy and U.S. national security issues.

On a sweltering Tuesday afternoon in June, John McCain was working himself into a lather about the Obama administration's handling of the crisis in Ukraine.

"It's so shameful and disgraceful that it's hard for me to restrain myself," said the Arizona Republican, ticking off a list of perceived White House missteps.

He was just about to finish an analogy comparing Barack Obama to Neville Chamberlain when a reporter interjected with a new question: What did the senator think about the top U.S. diplomat assigned to the conflict?

McCain paused, and his demeanor changed dramatically.

"I'm a great admirer of hers," he said of Victoria Nuland, America's most senior diplomat for Europe. "She's very, very smart."

McCain's gushing approval of Nuland is shared by many on Capitol Hill, including large numbers of Democrats. But there's one place where Nuland is far more polarizing: Europe, the very continent where her job requires her to cultivate strong and trusting relationships.

In interviews with Foreign Policy, her European colleagues have described her as "brash," "direct," "forceful," "blunt," "crude," and occasionally, "undiplomatic." But they also stressed that genuine policy differences account for their frustrations with her - in particular, her support for sending arms to Ukraine as the country fends off a Russian-backed rebellion, a policy not supported by the White House.

"She doesn't engage like most diplomats," said a European official. "She comes off as rather ideological."

The great irony of Victoria Nuland is that the same qualities that make her a superstar in Washington make her controversial in Europe at a time when transatlantic ties are under incredible strain.

Nuland, a career foreign service officer, is the State Department's point person on the Ukrainian crisis and the boss of all 50 U.S. embassies in Europe and Eurasia. As the fighting in eastern Ukraine killed more than 6,400 people and plunged U.S.-Russia relations to levels unseen since the Cold War, Nuland has had to spend months shuttling across the Atlantic in an attempt to forge - and maintain - a united Western response to Moscow's aggression.

Her popularity in Washington stems in part from the aggressive rhetoric she employs to castigate the Russians and push the Europeans to take a harder line.

In March, she accused Moscow of conducting a "reign of terror" in Crimea and eastern Ukraine. Days earlier, she became the first U.S. official to publicly use the term "invasion" to describe the Kremlin's transgressions in the country. She has repeatedly blasted "Russia and its separatist puppets" for committing "unspeakable violence and pillage" and has vowed to make Russian President Vladimir Putin pay for any further escalation. During congressional testimony, she has compared the process of negotiating with the Europeans to herding "cats." And last year, a leaked audio recording famously caught her saying "fuck the EU" during a phone call with the U.S. ambassador to Ukraine.

"She doesn't tend to pull her punches," said Sen. Chris Murphy (D-Conn.), who prides himself on his progressive foreign policy credentials. "I'm an enormous fan of 'Toria."

Despite her unassuming title - assistant secretary of state for European and Eurasian affairs - Nuland has been a major player in U.S. foreign policy for years, working for both neoconservative Republicans and liberal Democrats. During former President George W. Bush's administration, she was Vice President Dick Cheney's principal deputy national security advisor. Before assuming her current job, she worked under Hillary Clinton as a State Department spokeswoman.

"As the most prominent member of the unique - some might even say improbable ... Dick Cheney-Hillary Clinton Alumni Association, she has earned the trust and confidence of Democrats and Republicans alike," Secretary of State John Kerry said at Nuland's swearing-in ceremony in September 2013.

Because of her strong ties to Clinton and powerful Republicans, many observers expect Nuland's career arc to bend upwards regardless of which party triumphs in 2016, making her an important diplomat to watch out for.

First, though, she has a minefield of challenges to navigate through in her current position.

While European complaints about Nuland's diplomatic style are genuine and fairly ubiquitous, she has also been dealt an incredibly difficult hand.

Nuland frequently meets with senior European leaders who outrank her and delivers messages they often don't want to hear.

In a crisis of this magnitude, many of these delicate tasks would traditionally get kicked up to Nuland's boss, the undersecretary of state for political affairs, Wendy Sherman. But Sherman has been saddled with the momentous job of leading the U.S. negotiating team in the Iran nuclear talks, giving Nuland an unusual degree of latitude and influence for an assistant secretary.

This significant level of autonomy has led her interlocutors to fixate on her as a driving force of hawkishness within the Obama administration, whether fairly or not.

"Many Europeans, and certainly Moscow, hate Nuland, which is just one more reason why her political base on Capitol Hill adores her," said a congressional aide familiar with the issue.

In Europe, Nuland is widely presumed to be the leading advocate for shipping weapons to Kiev - a proposal bitterly opposed by the Germans, Hungarians, Italians, and Greeks who fear setting off a wider conflict with Moscow.

The White House has also argued against providing lethal assistance to Kiev because Moscow enjoys what's known as "escalation dominance," or the ability to outmatch and overwhelm Ukrainian forces regardless of the type of assistance the United States would provide.

Nuland is not the only Obama administration official who has supported arming Ukraine, but in Europe, she has become the face of this policy, thanks to a pivotal event that occurred in February during the annual Munich Security Conference.

At the outset of the forum, Nuland and Gen. Philip Breedlove delivered an off-the-record briefing to the visiting U.S. delegation, which included about a dozen U.S. lawmakers in the House and Senate. Unbeknownst to Nuland and Breedlove, a reporter from the German newspaper Bild snuck into the briefing room and published a report that reverberated across Germany but gained little to no traction in English-language media.

The report said Nuland and Breedlove were pressing U.S. lawmakers to support the shipment of defensive weapons to Ukraine and belittling the diplomatic efforts German Chancellor Angela Merkel and French President Fran�ois Hollande were making in Russia.

"We would not be in the position to supply so many weapons that Ukraine could defeat Russia. That is not our goal," Breedlove was quoted as saying. "But we must try to raise the price for Putin on the battlefield."

Nuland reportedly added, "I would like to urge you to use the word 'defensive system' to describe what we would be delivering against Putin's offensive systems," according to a translation.

A senior administration official disputed this characterization of the briefing, but one of the lawmakers in the room at the time, Rep. Mike Pompeo (R-Kan.), corroborated the Bild article in an interview with Foreign Policy. "When I was at the Munich conference, the senior administration officials that spoke to the U.S. delegation made very clear that they were advocating for the provision of defensive weapons for Ukraine," he said.

The U.S. official told FP that the gathering had more to do with "calming Europe down" about the policy options that the White House was considering than anything else. The official said the briefers made "clear that no decisions had been made" and tried to "dispel some of the wilder rumors circulating in Europe that, for example, the [United States] was considering becoming co-combatants in Ukraine."

Whatever the nuances, the takeaway for many Europeans after the conference was that Nuland gave short shrift to their concerns about provoking an escalation with Russia and was confusingly out of sync with Obama.

"Nuland has been a hardliner and supporter of arms delivery," read an article in the respected German news magazine Der Spiegel. "Unlike her President Obama, she has a clear idea of what must be done."

The White House declined to comment for this article.

When asked about Nuland's early advocacy for arms to Ukraine, State Department spokesman John Kirby offered an unequivocal defense of her. "The secretary has enormous respect for Assistant Secretary Nuland and counts on her advice and insight during this critical time in transatlantic relations, especially in shoring up our support for Ukraine," he told FP.

Although clearly at odds with the White House, U.S. lawmakers - in both parties - believe Nuland has been saying all the right things.

"It's refreshing to hear it," said Rep. Eliot Engel, the top Democrat on the House Foreign Affairs Committee who also attended the Munich conference. "I think we should be providing Ukraine with defensive weapons. I don't buy the argument that Russia can always beat Ukraine ... I think that's a defeatist attitude."

Engel's hawkish predisposition is shared by a vast majority of lawmakers in the House and Senate.

In December, Democrats and Republicans in Congress overwhelmingly passed legislation authorizing the president to provide lethal aid to Ukraine, including ammunition, troop-operated surveillance drones, and antitank weapons. The president agreed to sign the legislation only because it did not require him to provide the aid, which he has yet to do. Trying a new tactic this week, the Senate included a provision in its military policy bill that would withhold half of the $300 million for Ukrainian security assistance until 20 percent of the funds is spent on lethal weaponry for Kiev. The provision is opposed by the White House for fear that lethal assistance would only serve to escalate the bloodshed in Ukraine and hand Putin an excuse for further violent transgressions.

While policy differences like this one account for some of the bad blood between Nuland and her European counterparts, her tough style clearly plays a role as well.

"Some tend to perceive Nuland's assertiveness as a bit too over the edge, at least for the muffled European diplomatic environment," said Federiga Bindi, a senior fellow at Johns Hopkins University's School of Advanced International Studies.

Her defenders say Nuland's brand of tough love is exactly what's needed to enforce Washington's response to Russia following the annexation of Crimea last year.

The White House strategy has been to unite Europe against Russia through a mix of punitive, but non-military, measures. That has included: U.S. and EU economic sanctions targeting Russia's state energy, arms and financial sectors announced last September; kicking Russia out of the G-8; and discouraging allied leaders from inviting Putin to their capitals or visiting Russia at the head of state level.

Keeping Europe united is no easy task.

On the issue of deterring Russia militarily, Europeans are all over the place. The Baltic States favor a more aggressive response, while Italy and Greece seek a more diplomatic route. Meanwhile, Germany and France, the two most powerful EU countries, have been seeking a solution somewhere in the middle.

On sanctions, European leaders have been more reluctant than the United States because their countries have lucrative and long-standing business relationships with Russian firms. Already, French agricultural exports and Italy's tourism industry have lost significant business due to the sanctions policy.

When European countries fall out of line, they have to answer to Nuland, which doesn't always go over well.

In mid-March, for instance, Nuland traveled to Rome after the prime minister of Italy, Matteo Renzi, met with Putin in the first official trip to Moscow by any major European leader since Russia annexed Crimea.

The Italians had defied the Western policy of isolating Putin. Nuland, the first Washington visitor to Italy since the Renzi trip, had the difficult job of playing enforcer. According to one diplomatic source, the intensity of Nuland's scolding left her Italian interlocutors offended and angry.

A senior administration official insists it was a message that needed to be delivered. "The administration's policy has been to discourage allied leaders from inviting Putin to visit their capitals and from visiting Russia at the head of state level," said the official. "Senior officials at every level in the U.S. government had been expressing concern to the Italians about Renzi's plans."

Acknowledging the tense standoff, the official added that Nuland's message was conveyed "with disappointment, not anger."

This sort of tough love is exactly what American officials cherish about Nuland.

"She tells it the way it is," said Engel. "It's not guarded. It's not phony."

A fluent speaker of French and Russian, she has been known to attribute her penchant for cursing to the months she spent learning Russian on a Soviet fishing trawler in her 20s.

The daughter of the late Sherwin Nuland, a renowned Yale University professor, and the wife of Robert Kagan, a prominent neoconservative writer, Nuland has long been surrounded by powerful and evocative communicators.

Kagan, a co-founder of the Project for the New American Century and one of the foremost boosters for the disastrous U.S. invasion of Iraq, is no stranger to ruffling the feathers of Europeans. In the early aughts, he penned a widely-read essay about the growing split between the United States and Europe on foreign policy. When it comes to military force, he said, "Americans are from Mars, and Europeans are from Venus."

At her swearing-in ceremony, Nuland referenced Kagan's essay in a heartfelt testament to their marriage. "He is my Mars, he is my Venus, he is my planet Earth," she said.

Last year, Nuland and Kagan told Politico that they fell in love "talking about democracy and the role of America in the world" on one of their initial dates.

Because of her marriage to Kagan, most Europeans believe she's a Republican, but her hawkish approach to Russia isn't entirely unique within the Obama administration.

According to U.S. officials, other senior Americans have privately indicated support for arming Ukraine as well, including Kerry, Defense Secretary Ashton Carter, Vice President Joe Biden, and her Munich briefing partner, Gen. Breedlove. Carter has even aired his preference publicly. "I very much incline in that direction because I think we need to support the Ukrainians in defending themselves," Carter told the Senate Armed Services Committee in February.

Two other key voices in the administration on Ukraine are Charles Kupchan, the senior director for European affairs at the National Security Council, and Celeste Wallander, senior director for Russia and Eurasia. The views of Kupchan and Wallander are said to derive heavily from their academic work. Kupchan specifically is a longtime NATO skeptic whose doubts about a military solution to the crisis are an important intellectual bulwark against some of the more hawkish proposals filtering through the National Security Council.

Despite the fact that Nuland is not outside the mainstream of many State Department views on the Ukraine crisis, her reputation as the most pugnacious of hawks isn't likely to subside in the minds of Europeans anytime soon. In many ways, that's because she'll never live down the moment that made her famous: the leaking of a private phone call of her disparaging the European Union in 2014 as the political standoff between the Ukrainian opposition and former Ukrainian President Viktor Yanukovych unfurled.

Ironically, that phone call is one of the best-known, but least understood aspects of Nuland's tenure as assistant secretary.

Contrary to widespread reports at the time, Nuland's expletive had nothing to do with frustrations over the EU's posture toward the Yanukovych regime or Nuland's general view of the 28-nation bloc, according to diplomatic sources on both sides of the Atlantic.

The F-bomb heard 'round the world was actually the result of a much more technical disagreement dating back to early January 2014. At the time, hundreds of thousands of protesters at Maidan square had been calling for the resignation of Yanukovych after the Moscow-friendly president reneged on a promise to sign an association agreement with the European Union, among many other grievances.

U.S. officials had been pressing Yanukovych to throw out the current regime and establish a technical government that included leaders from the opposition. After several weeks of resistance, Yanukovych relented and offered the opposition two senior slots in a new government, a major diplomatic breakthrough. Worried about being outplayed by the canny politician, however, the opposition wanted a third party - ideally the EU - to help broker the talks. When the EU refused to commit, Nuland, using language she would come to regret, recommended shoving the Europeans aside and giving the task to the United Nations instead.

"That would be great, I think, to help glue this thing and to have the U.N. help glue it," said Nuland. "And, you know, fuck the EU."

German Chancellor Angela Merkel called Nuland's phone call "totally unacceptable," and the State Department later said that Nuland apologized for the remarks to key EU contacts.

Most suspect the audio was leaked by Russian intelligence services in order to drive a wedge between the EU and the United States.

Thus far, that strategy has failed as U.S.-European unity on sanctions remain in place, albeit shakily. On Wednesday, the EU agreed to extend sanctions on Russia for six months, defying an aggressive lobbying campaign by Moscow. Still, the alleged spy craft set the tone for what has been a rocky relationship between Nuland and her European counterparts.

 [return to Contents]