Russia and the CIS News Digest
Putin Highlights Russian Nuclear Weapons Development
Addressing the Russian Armed Forces leadership on Nov. 17, President Vladimir Putin again said that Russia is developing a new form of nuclear missile, unlike those of other countries. "I am sure that they will be put in service within the next few years and, what is more, they will be developments of the kind that other nuclear powers do not, and will not have," Putin was quoted by the ITAR-Tass. As in the case of Putin's similar statements, made during a visit to the Federal Nuclear Center at Sarov last year, and at the time of his visit to view a test at the Plesetsk launch site earlier in 2004, details were not provided. Russian commentaries focussed on programs believed to be underway, for development of a hypersonic cruise missile and of maneuverable multiple warheads with which the mobile Topol-M intercontinental ballistic missile could be outfitted.
Putin Meets IMF Head, Signals Early Debt Repayment
Welcoming International Monetary Fund Managing Director Rodrigo de Rato at the start of the latter's three-day visit to Russia on Nov. 18, President Putin confirmed that he is open to talks on spending some of the billions of dollars available from Russia's "stabilization fund," to make early debt payments to the IMF and to the Paris Club. The fund is comprised of over-budget revenues from the taxation of high-priced oil exports. Putin said that "the growing capabilities of the Russian economy and financial system"i.e., the surfeit of petrodollarsmake it possible to do this.
Radical free-market advocates, including Putin's economic adviser Andrei Illarionov, have been campaigning in favor of the debt-reduction scheme and against spending the stabilization fund domestically, at all costs, in order to "prevent inflation." In a pre-trip interview in Kommersant, Rato concurred, and appeared eager to be the recipient of Russian petrodollars. "We would welcome advance repayment of Russian debt to the IMF," salivated Rato (perhaps thinking of monies the Fund might not be getting from Argentina), "In our opinion, this would be the right thing to do."
Putin remarked that early payment of the debt will also "help prevent the adoption in international financial practice of instruments that, in our opinion, represent a sometimes incorrect use of debt obligations." This evidently refers to a new practice on the part of some Paris Club creditors. The Paris Club deals with state-to-state loans, which, in Russia's case, date from the Soviet Union's borrowing in the 1970s and 1980s. According to the Kommersant interviewer of Rato, "Germany is already issuing its own securities for the part of Russia's debts, owed to it." According to the Russian financial wire service RosBusinessConsulting (RBC), Italy's government announced Nov. 10 that it, too, might begin to securitize its approximately 1 billion euros in Russian Paris Club debt, assigning the Italian export credit agency called SACE to manage the commercial resale of this debt. Like Putin, Rato called this practice dubious, saying that "Germany's decision to securitize part of Russia's bilateral debts" raises questions from the standpoint of the Russian government's rights, as well as those of the Paris Club as a whole.
In either case, whether by securitizing the old debt or extracting cash from Russia for its early repayment, these look like attempts to use the debt relationship with petrodollar-flush Russia, to grab liquidity that's rather desperately needed by foreign governments and large banks, alike.
Russia To Invest $5 Billion in Venezuela
Russian Ambassador to Venezuela Alexei Yermakov has announced plans for Russian investments of $5 billion in the Venezuelan economy over the next 10 years. The first $1 billion of this amount will go into the aluminium sector, and the remaining $4 billion to the energy sector. Currently under discussion, are agreements on electricity generation and oil exploration, which include one between Venezuela's state oil firm PdVSA and the Russian firm Lukoil, to increase production of oil, gas and petroleum derivatives. Russia's Gazprom has also indicated interest in participating in a project to transport and process Venezuelan gas. The Russian government has committed itself to selling 40 combat helicopters to Venezuela, which the Chavez government says will be used to guard its border with Colombia. Venezuelan President Hugo Chavez will be in Moscow on Nov. 25-26 to further discuss strengthening bilateral relations.
St. Petersburg Governor on Mission to Iran
St. Petersburg Gov. Valentina Matviyenko (a former Soviet ambassador to Greece and Malta) visited Iran and Azerbaijan on a Nov. 8-12 trip, accompanied by officials and business figures. The latter included Vladimir Katenev of the major machine-producing company Power Machines, and head of the St. Petersburg Chamber of Trade and Industry Chamber. In Tehran, Matviyenko was received by Vice President Mohammad Reza Aref and other officials. The main agenda items in her talks with Iranian government and business figures on economic cooperation, were joint projects in energy, machine-building, communications, and wholesale trade (particularly, timber and beer). Katenev's company is involved in the Bushehr nuclear-power project. Other Russian firms that signed agreements were Zvezda (sale of diesel engines to Iran), the Sevkabel (Northern Cable) Plant (agreement on joint ventures with an Iranian firm that provides cable for power plants and public transportation), and Stepan Razin Brewery of St. Petersburg.
Although this official agenda featured closer ties between St. Petersburg companies and Iran, it was clear thatas with her earlier trip to JapanMatviyenko was carrying out important diplomatic assignments for the Kremlin. A state visit to Tehran by President Putin is planned for 2005.
Ukrainian Presidential Run-off Too Close To Call
An RIA Novosti wire dated Nov. 12 was one of several indications that leading Moscow circles were preparing themselves for a possible victory by opposition candidate Victor Yushchenko in the Nov. 21 Ukrainian Presidential run-off election. Yushchenko was narrowly ahead of Prime Minister Victor Yanukovych in the first round and has picked up support from the Socialist Party (Alexander Moroz), which won over 5% in the first round. Among the pledges Yushchenko gave in exchange for Moroz's support, was a promise to withdraw Ukrainian forces from Iraq.
The RIA Novosti wire by political commentator Vladimir Simonov was headlined, "Who said Yushchenko was bad for Russia?" Although "hostile pre-election posters often depicted Mr. Yushchenko as an American cowboy with a lasso or wearing an Uncle Sam stars-and-stripes hat," Simonov wrote, "Everything is not so black and white.... I have no doubt that a Yushchenko Presidency could suit Russia, especially in terms of economic development. It is common knowledge that, when he was Prime Minister in 1999-2001, Mr. Yushchenko succeeded in halting the decline in bilateral trade and put an end to the main sore point in relationsthe theft of Russian gas. He also opened the Ukrainian market for major Russian companies and insisted that the Ukrainian economy be privatized in an exceptionally transparent manner. All this can be hardly detrimental to Russian business. In stark contrast, Viktor Yanukovich's government recently put Ukrtelecom and Krivorozhstal up for privatization on terms that virtually excluded Russian industrial groups, in particular, Severstal. As a result, one Ukrainian company took control of the country's biggest metallurgical plant, the Krivoy Rog works, without an auction being held. This lucky company is rumored to be connected with a relative of a senior official in the Kiev establishment. Although this may seem inconsequential, it is rather indicative."
President Putin visited Ukraine Nov. 12-14, for the second time in a month. He appeared with outgoing President Leonid Kuchmathe political sponsor of Yanukovychat a ribbon-cutting ceremony for a ferry boat line in the Crimea, but otherwise kept a relatively low profile.
Tensions remained high on election eve. Yushchenko warned yesterday of a "strong-arm scenario" to declare Yanukovych the winner, regardless of the true vote count. He said that "we will lead people into the streets and defend our rights," if there is vote fraud.
Tensions Rise Over Abkhazia Elections
The situation around the inconclusive Presidential election in Abkhazia, an autonomous region within Georgia, where Russian peacekeeping forces are based, heated up in mid-November. On Nov. 12, Russian Foreign Ministry spokesman Alexander Yakovenko said that Russia "will be forced to take measures to protect its interests," if tensions continue to escalate. Yakovenko accused supporters of one of the candidates, Sergei Bagapsh, of attempting to seize power by force. During the day on Nov. 12, they had seized several government buildings. He added that, "all responsibility for the likely effects will be placed on Bagapsh and his followers."
The election was in early October, but both Bagapsh and Prime Minister Raul Khajimba claimed victory. The Abkhazian Supreme Court ruled first in favor of one, then reversed itself to favor the other. A trip to Moscow by both candidates yielded no solution.
Georgian Foreign Minister Salome Zurabishvili (a French citizen and diplomat, until President Saakashvili recruited her to his government last year) said that Georgia's ambassador in Moscow would meet Foreign Minister Sergei Lavrov today to protest. At a press conference the evening of Yakovenko's remarks, Zurabishvili read a statement of "protest and indignation," calling Russia's expression of its interests in Abkhazia an "unacceptable innuendo" and "attempted interference by the Russian Federation into the internal affairs of the Georgian state."
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