Russia and Central Asia News Digest
Finance Minister Kudrin Notices World Financial Crisis
In his famous poem "Khorosho!" ("Good!") about the Bolshevik Revolution, Vladimir Mayakovsky told how the news spread across the huge country, reaching eventually the remotest province and its most illiterate inhabitants, even the drowsiest. On July 25, the drowsy head of Russian Finance Minister Aleksei Kudrin was struck with the fact of a global financial crisis. Speaking with Russian journalists, Kudrin allowed as how one could observe "certain signs of an international financial crisis." Devoted as he is to monetarism and globalization, Kudrin hurried to add, that he was sure the U.S. Federal Reserve and the European Central Bank would take measures, but he didn't sound sure that they would work. Market capitalization has collapsed already, said the Russian Finance Minister, and looming ahead is the inability of companies to service their debts, threatening "the stability of the banking system."
Russia To Proceed With Iran Nuclear Cooperation
Pursuant to its approval by Prime Minister Mikhail Kasyanov on July 24, the Russian government has published a program of long-term economic cooperation with Iran, for the period until 2012. Included is construction of four to six nuclear power stations, including Bushehr-2, Bushehr-4, Ahvaz-1, and Ahvaz-2. Reporting on negative reactions from the United States, as depicted in the U.S. press, Izvestia and other Moscow papers emphasized Russian scientists' and politicians' confidence that spent fuel, from the VVER-1000 light-water reactors sold by Russia to Iran, can be handled so as to prevent the accumulation of weapons-grade plutonium.
The question of Russian-Iranian nuclear cooperation jumped to the top of the agenda, in Moscow talks held the week of July 29, by U.S. Energy Secretary Spencer Abraham, and State Department arms control negotiator John Bolton, a leading figure of the "war party" in Washington. At an Aug. 1 press conference in Russia, Abraham said, "Clearly the extension of Russian nuclear cooperation with Iran remains an issue of utmost concern to us. We consistently urge Russia to cease all nuclear cooperation with Iran, including its assistance to the reactor in Bushehr." Russian wires reported that Abraham said the matter had been referred to "the highest level" for further discussion.
In Washington, meanwhile, there are rumors of an attack on the Bushehr plant before the fuel is loaded, likely by the Sharonist militants of the Israeli Defense Force, who carried out such an operation against Iraq in 1981.
Schemes for Using Russian Oil
While chastizing Russia about its nuclear projects in Iran (see previous article), the Abraham-Bolton delegation pursued the "energy dialogue," announced last May when the U.S. and Russian Presidents met in St. Petersburg. The Russian Energy Ministry announced July 31 that Secretary of Energy Abraham and Minister of Fuel and Energy Igor Yusufov had discussed creation of an oil reserve, held on Russian territory, for purposes of "increasing energy price stability." Abraham pledged U.S. assistance in "creating and managing the reserve."
Yusufov called Russia's first big shipment of oil to the United States "a positive experience, despite some problems." The shipper was Yukos, owned by Mikhail Khodorkovsky, whose strong advocacy of Russia's role as oil supplier to the United States has figured in dubious geopolitical calculations about replacements for Mideast oil in the event of war. The shipment arrived in Texas July 3, but Yukos was unable to collect payment, because one of its creditors sued to impound the funds in payment of an outstanding debt.
Wage Arrears Rise Again in Russia
The Russian state budget, which is now under pressure for rising debt-service payments, due to the fall of the dollar, has practically no reserves for emergencies. Early summer floods in southern Russia, for example, became the chief cause of a doubling of state-sector wage arrears, to 3.2 billion rubles ($101 million), during June. There were no funds available for disaster relief, so payroll was diverted. At the government cabinet meeting of July 22, President Vladimir Putin called for emergency measures to reduce the arrears. According to an Izvestia monitored by RFE/RL Newsline, 17 out of Russia's 89 regions have serious wage arrears to teachers, some of whom have not received June wages or their vacation pay. Vremya MN reports that medical-sector workers' salaries nationwide are 1.38 billion rubles ($43 million) in arrearsmore than a month, in many areas.
Russian Capital Investment Plummets
At a press conference on July 18, Russian Minister of Economics and Trade German Gref admitted that investment in fixed capital during the first half of this year had come in far below projected levels. Such investment grew only 1.8% in the first six months of 2002, as against the anticipated 4.5% increase. Gref attempted to explain away the collapse, as being based on companies' confusion about new tax laws, which changed the calculation of depreciation allowances, and lowered the basic tax rate from 35% to 24%, while abolishing a 50% investment tax credit.
'Economic Mobilization Plan' Reported To Be in the Works
A plan for an "economic mobilization program" is in preparation for Russia, and the Franklin D. Roosevelt New Deal should be a model, wrote Mikhail Antonov in commentary for Pravda.ru July 26. He reported that the "mobilization program" is being developed by a team close to Sergei Pugachov, for presentation to President Putin in the Autumn. Pugachov is the former head of Mezhkombank, now representing Tuva in the Federation Council (upper house of Parliament). He has long-standing ties to President Putin. In June, right after Putin called for the repatriation of flight capital, the President met with Pugachov for two hours, reportedly on the nuts and bolts of attracting the money of the "oligarchs" back into the country.
According to Pravda.ru, the Pugachov program calls for "restoration of the government monopoly on export and import of important goods, to deprive oligarchs of their economic might";
*preventing capital flight by putting foreign-trade accounts only in authorized banks;
*"introduction of a state order for enterprises," including that accounts should be settled at government-controlled prices;
*control over foreign travel, including currency spent;
*improving the media, including, ending big-business media control.
Elaborating the need for such measuresdespite liberal reformers' complaints about alleged "fascist" precedentsPravda.ru writes that the real precedent, is the United States in the 1929 Depression and the FDR program. The Depression was rooted, not just in the stock-market bubble, but in the control of 30% of national private earnings by 5% of the population. Antonov described the economic devastation of the U.S., which was "on the verge of a destructive social outburst" under Herbert Hoover.
The article then describes FDR's New Deal, emphasizing the reconstruction of the banking system; "establishment of governmental control over securities markets" to control speculators; control of currency issuance; and control of gold and silver exports. In addition, there were rural reconstruction and the TVA, followed by the war mobilization. "This was how the U.S.A., industrial giant and first power of the world, appeared." Antonov wrote.
He concluded: "Measures taken by Roosevelt are more far-reaching than Senator Pugachov's program. And Russia may choose among three ways only: ... keep up the present inconsistent liberal line, ... switch over to radical liberal reforms, ... for sure to result in a social outburst. And finally, the third way is to form a mobilization economy to guarantee higher GDP growth and Russia's incorporation into a post-industrial [sic] society."
Tempest Over Kremlin Plan To Make Raw Materials National Property
Kremlin legal expert Dmitri Kozak, deputy chief of the Presidential Administration, is reportedly preparing legislation to shift control over most of Russia's natural resourcesincluding oil, natural gas, gold, diamonds, and ferrous and non-ferrous oresto the Federal government, declaring them Federal property. More details of the plan are emerging, although it is not yet clear where it fits in the ongoing Russian brawls over economic policy. On the one side, elements of the plan echo Academician Dmitri Lvov's impassioned call, at June 2001 Duma hearings, to "place our national wealth on the balance sheet of the state." On the other, it coincides with a push from oil-sector Russian "oligarchs," to get President Putin to play Russia's oil card in nasty geopolitical dealings with the United States.
What's for sure, is that the possible changes in formal ownership arrangements for Russian oil and other resources have destabilized Moscow and international financiers. An article in the July 26 issue of Vedomosti headlined, "Kremlin wants the natural resources: The oligarchs' nightmare may come true; Companies call it nationalization; investors predict outflow of capital." The article says that Kozak's plan is in fulfillment of Putin's request to deal with the situation, where "some of our companies have resources that will last them 10-15, 25, or even 30 years. Some of them are already prepared to sell these resources, boosting their capitalization at the nation's expense." Vedomosti says that Kozak has found the solution, in the form of an amendment to the Law on Natural Resources, which "comes down to this: All natural resources will be property of the state."
Under the new law, all existing licenses for raw materials exploitation would be cancelled, and replaced by concession agreements. Kozak told Vedomosti that only those companies, which have honored their license agreements, will be eligible for the concessions. According to Kozak, relations between the state and companies handling natural resources "will become only more civilized." He explained, "A license is a purely administrative document. A concession moves relations between the state and the company onto a legal basis. This is an agreement between the state and the private company which offers better guarantees to both signatories.
The Wall Street Journal of July 30 also covered the issue, under the headline "Specter of Nationalization Spooks Investors in Russia." Jeanne Whalen wrote, "A word most investors thought the Kremlin had expunged from its vocabularynationalization crept back to the fore last week as the presidential administration floated a puzzling proposal for the state to retake greater control of oil reserves and other natural resources now in private hands." Cancelling the license agreements that give companies the right to produce and sell oil and other minerals, wrote Whalen, means that "the state would own the minerals and pay companies a 'commission' for producing them, according to a copy of the proposal given to the government." Kozak told the WSJ that the plan was being "misinterpreted," and was merely an attempt "to give the state greater control of oil at the wellhead, in order to ensure that taxes are paid in full."
Both the WSJ and Vedomosti highlighted anguished reactions from a certain David Hearne of Brunswick Capital Management, who said, "I guarantee that as soon as the government tried to push this through, capital will flee from Russia en masse.... Essentially, this is a text-book example of asset-stripping: licenses are the companies' major assets. Russian companies' shares will plummet." Sergei Aleksashenko, a former government official who is now Vice President of Interros, said, "Kozak has gone even further than the Russian communists, who merely dream of nationalizing natural resources scheduled for export.... If this is not nationalization, I don't know what is."
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