Tuesday, March 31, 2009

Which country will be first to default?

03–31–2009 – MOSCOW. (Oleg Mityayev, RIA Novosti economic commentator) - The global economic downturn has sent tumbling governments of smaller European countries. The first country to see its national currency collapse was Iceland in January; in February, Latvian prime minister filed resignation. The Czech government is resigning now as well, and the Hungarian and Bulgarian governments are likely to follow suit. Ukraine's largest and most influential opposition party, the Party of Regions, has demanded a resignation of the government. So why are European governments collapsing like houses of cards? The key reason is looming default that some of them may announce soon. Some countries could default because of the harsh terms on which they received financial aid from the International Monetary Fund. The money they receive must only be spent to support the national currency, which is usually directly linked to either the dollar or the euro, or to cover the budget deficit. However, national banks of the aid recipients are forbidden to print more cash to support internal demand, because, according to the IMF, such actions fuel inflation and undermine a country's financial stability. That a flagrant example of double standards. U.S. President Barack Obama and Federal Reserve head Ben Bernanke do not have to ask anyone's permission to print another $800 billion to stimulate American producers. Even though these steps increase inflation in the United States, and, what is more, they devalue other countries' assets denominated in U.S. dollars, such as their central banks' reserves. The need to reform the IMF has been widely discussed lately. In fact, the IMF itself revised its credit terms as recently as last week. The main innovation is a new lending instrument, dubbed the Flexible Credit Line. The FCL, without any conditions or a limit on the amount of money that can be borrowed, will allow countries to use the credit line as a "precautionary instrument" and can be drawn on at any time, the IMF said, amending, however, that the FCL was designed for member countries the IMF views as having well-managed economies, "with very strong fundamentals, policies, and track records of policy implementation." In other words, it is unlikely to be available to countries on the verge of default. The most powerful emerging economies, the BRIC nations, currently support a radical reform of the IMF. These countries - Brazil, Russia, India and China - suggest revising the international group's role and harmonizing it with the current global financial architecture. The BRIC counties insist on changing the system of distribution of votes in the IMF in favor of the most rapidly developing countries, which play a substantial role in the global economy. This would help augment the IMF's funds and make its loans more easily available to countries that need them. Along with the BRIC countries, the IMF reform plans are supported by the United Kingdom, Germany, Indonesia, Saudi Arabia, Canada and Mexico. The idea to replace the dollar as the international reserve currency by another supra-national currency that would be controlled by a reformed IMF is also gaining supporters. The proposal was made by Russia, China and Kazakhstan. However, while the world's leading economies are busy discussing reform plans for the global financial system, smaller nations may decide that announcing default is the shortest way out of their blind alley.

How the crisis affects the world leaders’ earnings

How the crisis affects the world leaders’ earningsMarch 31, 2009 - Ecommerce Journal by Kara Deniz - Today, when the whole world is suffering consequences of the global crisis , when most of the countries are in the deepest recession, when even the largest corporations have to reduce their business significantly, when a lot of companies have to stop their activity, when people increasingly lose their jobs or have their salaries cut off at best, one important question is arising: whether the global economic recession influences somehow the incomes of the heads of the states, who are supposed to “take care” of the nations’ economic health. So let’s check which of the leaders earns more than others. The US President Barack Obama gets $ 400,000 annually, Prime Minister of UK Gordon Brown gets $353,188 annually, while Russian President Dmitry Medvedev earns just $81,000 (that reflects almost the five, and four and a half times difference respectively). At the same time, as www.paywizard.org shows, the former President of the USA, present Public speaker, Bill Clinton has $51,855,599.00 annually. Charles, Prince of Wales earns $ 26,043,520 annually, Willem-Alexander, Prince of the Netherlands - $1,290,240, Beatrix, Queen of the Netherlands - $6,401,280, while Prime Minister of the Netherlands earns only $172,800 annually. These huge salaries can be compared to President of Indonesia Susilo Bambang Yudhoyono’s earnings, who has just $5,337 per year; or to President of India Pratibha Patil’s incomes, who has $ 36,434.00, or to President of Argentina Cristina Fernandez de Kirchner’s salary, that equals $53,468. President of Chile, Michelle Bachelet gets $134,429.00 yearly. President of Mexico, Felipe Calderon gets $189,027.00 annually. Thus Prime Minister of Denmark has $181,517, while Prime Minister of Russia earns yearly only $69,468 per year. It’s obvious, that world leaders earnings don’t even depend on the size of the country. Well, probably the size of world leaders’ incomes could be explained from the point of country’s riches. Actually, earnings of the heads of the sates do not even reflect the results of their work. So it doesn’t matter how successful they are in their business they will get as much money as it’s possible and as their governments allow. However, exceptions also exist. Thus in 2007 salary of Ireland Prime Minister, Bertie Ahern, was raised to € 310,000 (38,000 increase), that was the time when Ireland was lightly affected by the crisis. But in 2008 Brian Cowen, who stepped in after him, agreed to get €257,000. Nicolas Sarkozy, President of France, got his salary doubled in 2008, now he earns $346,000.00 annually. However, he didn’t succeed enough in leading the country through the economic crisis that made French dissatisfied. So last week France faced the wave of protest demonstrations. Another well-paid European leader is Gordon Brown, whose salary was reduced, but it was just because of sterling weakening against the dollar. At the same time some leaders are trying to win their voters’ hearts by reducing their own salaries. Thereby Evo Morales, the President of Bolivia since 2006, halved the salary prescribed to him that made him elected by 67% of citizens. Well, how could it happen, that the President of the USA, the country that suffered mostly, the country that gave a start for the global crisis, has the incomes that exceed the incomes of the majority of country leaders? And why, when enormous amount of people across the world have no jobs and no earnings for living, our rulers’ salary size cannot be reduced, moreover it grows? Well, we can continue to ask questions like these, but unfortunately they can just stay rhetorical for us… - Article

Friday, March 20, 2009

Kissinger back in Operation ‘Reset’

 © RIA Novosti19 March 2009 - Moscow News №10 2009 by Ayano Hodouchi, Anna Arutunyan and Tim Wall - Henry Kissinger, the arch-practitioner of realpolitik and détente with the Soviet Union in the 1970s, is back in a new role - to reset relations between the new U.S. administration of Barack Obama and Russia. In Moscow, Kissinger is famous as Richard Nixon's National Security Adviser, who negotiated the historic Strategic Arms Limitation Talks and the Anti-Ballistic Missile Treaty with Soviet leader Leonid Brezhnev. He has been involved in talks with every head of state in the Soviet Union and later Russia over the last 40 years. On Friday, he is to have talks with President Dmitry Medvedev in Moscow as part of a group of four "wise men" in U.S. foreign policy, according to Kommersant. While Kissinger's role is being billed as an unofficial one, his access to Russian leaders in recent years has been nothing short of phenomenal - gaining several one-on-one meetings with then-President Vladimir Putin during his two terms in office. He also was the first senior U.S. figure to visit President Medvedev after his inauguration last summer, and most recently met with Medvedev in December. Then, sources say, he was acting as an unofficial envoy for Obama's transition team in proposing a revamping of U.S.-Russian relations after the Cold War-style falling out under George W. Bush's administration. The U.S. Embassy said on Thursday it did not have any information about Kissinger's visit. The choice of Kissinger to spearhead talks with Russia appears to be based on his long experience and popularity amongst Russian politicians. The Russians respect him for thinking and talking in concrete, realistic terms, and not about ideology. While Kissinger enjoys wide respect among Russian leaders, he has a controversial reputation internationally - particularly in South America, where he has been accused of involvement in the so-called Operation Condor in the 1970s, when the United States allegedly backed right-wing military dictatorships in Chile, Brazil and elsewhere in killing and repressing left-wing activists. Kissinger has denied any involvement. The Obama administration is seeking to rebuild relations with the Kremlin and win support over Afghanistan, Iran, missile defense and the reduction of nuclear arms. For Obama, U.S.-Russia relations seem to be an issue of considerable importance. This week Obama announced he would nominate Rose Gottemoeller, director of the Carnegie Moscow Centre from 2006 to 2008, as Assistant Secretary of State for verification and compliance. If her nomination is approved by the U.S. Senate, Gottemoeller, a leading expert on U.S.-Russian relations and nuclear security, will have the great responsibility of negotiating a follow-up for the START Treaty, the largest and most complex arms control treaty in history, which expires in December. The current Under Secretary of State, William Burns, served three years until 2008 as the U.S. Ambassador to Russia, and Alexander Vershbow, who preceded Burns as ambassador, was nominated this month by Obama as Assistant Secretary of Defence for International Security. With so many old Russia hands nominated to key positions in his administration, Obama has made it clear that he considers cooperation with Moscow one of the most important issues for his presidency. Jeff Mankoff, adjunct fellow for Russia Studies at Council on Foreign Relations in Washington, said that the administration of George W. Bush believed the Clinton presidency had paid too much attention to Russia. While Russia at times rose to the top of Bush's inbox - for instance during the war with Georgia last summer - his administration never seemed to have a clear sense of where Russia fitted in the larger U.S. strategic landscape, Mankoff said. "Obama's interest in pressing the reset button seems to me not only about having better relations with Moscow, but also appears motivated by a belief that Russia really matters," Mankoff said. Ariel Cohen, a senior research fellow at the Heritage Foundation, put it even more strongly. In an advance copy of his testimony to the U.S. Congress on Thursday, Cohen said: "Moscow's efforts at carving out a ‘sphere of privileged interests' in Eurasia and rewriting the rules of European security have negative implications for U.S.-Russia relations, international security, and the autonomy of the independent former Soviet states. Russia is and will remain one of the most significant foreign policy challenges facing the Obama administration. Failure to stem Russia's revisionist efforts will lead to a deteriorating security situation in Eurasia and a decline of American influence in Europe and the Middle East." Cohen said that hopes for reaching an agreement on a third anti-ballistic missile base in Europe could be dashed in a few months' time, as Russia's sending of strategic bombers to Cuba and Venezuela, and the rearmament plan announced by Medevedev on Tuesday, clearly do not indicate that Russia is disposed to be amenable to U.S. suggestions. Russia's envoy to NATO, Dmitry Rogozin, said on Thursday that Russia was also eager to clear up "stuff clogging relations between the two countries, thanks to Bush and his team." In particular, Rogozin pointed to the issue of NATO expansion towards Russia's borders as a key stumbling block, but identified weapons control and cooperation in dealing with the financial crisis as potential areas for progress. Gennady Yevstafyev, a security policy analyst and former official in Russia's Foreign Intelligence Service, expressed skepticism about U.S. hopes that Russia would play an important role in restraining Iranian nuclear ambitions. "I've always said - Iran is a thing in itself, and they will not do anything for another country," Yevstafyev said. "They act only in their own interests. To think that we can influence their decision in the sense that they will listen to us and stop their program - that is mistaken. We can assume certain commitments not to ship offensive military weapons, but we cannot make commitments not to supply defensive-type weapons. Every country has a right to defend itself, and the Americans have never made such concessions themselves." On March 16, a U.S. policy commission on Russia outlined a new approach to U.S.-Russia relations in a report. It was enthusiastically received in Russia, with Kommersant calling it "the most flattering description of Russia [since] the end of the Cold War." The report offers some concessions to Russia, including stopping short of backing NATO membership for Ukraine and Georgia, cooperation on arms control, and helping Russia's WTO accession.

Wednesday, March 18, 2009

A Crisis Crash Test

March 6, 2009 - St.Pete Times by Yulia Latynina - Of all the official statements coming from the government and big business over the past few weeks, three stand out as most important. First, multibillionaire Oleg Deripaska announced that he would not request any more government assistance for his ailing business empire. Second, Olimpstroi, the state corporation responsible for preparing Sochi for the 2014 Olympics, will reportedly return 50 billion rubles ($1.4 billion) to state coffers. (Rosnano and Russian Railways will also hand back 130 billion rubles and 80 billion rubles, respectively.) The third most important announcement was made by Prime Minister Vladimir Putin on Friday when he met with United Russia leaders: “The crisis is far from hitting its peak,” he said. Translated from “Kremlinese” into ordinary English, the first statement means that even Deripaska — the most-connected oligarch among Putin’s favorites — won’t get any more cold cash from the government. The second means that financing for Putin’s pet project to turn Sochi into a winter wonderland is drying up. When oil prices were high, the Kremlin suffered no political fallout for making poor decisions. After former Yukos CEO Mikhail Khodorkovsky was sentenced in May 2005 to eight years in a prison located in a remote, radioactive Siberian town, the markets had a brief scare, but they recovered relatively quickly because the economy was in the midst of an oil-driven boom. Almost a year after Khodorkovsky was arrested, then-President Putin abolished elections of regional governors, but few seemed to care too much because most Russians enjoyed higher living standards as petrodollars flooded the economy. Now, of course, the situation has reversed completely. The political cost of making bad decisions is extremely high, but poor decisions are the only kind the Kremlin is capable of making — in good times as well as bad. The authorities are unable to grapple with the crisis because it was precisely their actions that caused it in the first place. When a drunk driver slams into a tree, the tree is not the cause of the accident. Russia’s leaders are like a drunk driver. Intoxicated by petrodollars and racing along the highway at 200 kilometers per hour in his armor-plated Mercedes, the driver slammed into a huge tree called the global financial crisis. The driver is still alive thanks to the car’s fat air bag — the country’s stabilization fund. Although heavily bruised and injured, the driver is able to get out of the smashed car, look at the tree and scream, “It was you, America, that caused this whole mess!” Russia’s economy is falling at a record rate, comparable only to its rapid decline in fall 1941. The country has spent a whopping $200 billion on “supporting” the ruble. In the end, the only support to speak of is that the ruble has lost about 50 percent of its value since last summer, while the $200 billion spent on this accomplishment is gone forever. Few know for sure how much money is really left in the Reserve Fund. Meanwhile, the market value of Russian companies has decreased by roughly 75 percent on average since their peaks last year, while their huge debts have not gone away. This imbalance could easily result in mass defaults or bankruptcies. The ruling elite were willing to forgive Putin for his mistakes during the prosperous years, but when the magic goose stopped laying its golden eggs, they started taking a hard, sober look at the person who sparked a gas war with Ukraine in the heat of a dire financial crisis and who threatens to shoot protesters at unsanctioned political rallies.
Yulia Latynina hosts a political talk show on Ekho Moskvy radio.

Tuesday, March 17, 2009

The Kremlin's Failing Monopoly

17 March 2009 - The Moscow Times by Alexander Etkind - Ever since Vladimir Putin came to power a decade ago, the Kremlin regime has relied on two pillars: the security forces and energy exports. By suppressing internal rivals and absorbing their assets, the regime created a dual monopoly. Redistributing some of the profits from high energy prices enabled the regime to improve living standards and make itself popular with ordinary Russians. And resolving internal problems through a disproportionate use of force reassured even the regime's security-obsessed former KGB men. Until recently, this combination of carrots and sticks functioned effectively. The virtual absence of popular protest in Russia during the Putin years seems amazing. But make no mistake: Putin's popularity ratings relied not on his vigor, humor or mystique, but on salaries and credits that Russians had never enjoyed before. And as long as oil prices were growing faster than Russian salaries, those in power could still grab a big slice of the profits. Now that happy union between the Kremlin and ordinary Russians is ending. Few Russian policymakers, much less the people, expected oil and gas prices to collapse as they have. We do not know what will happen next. If prices rebound, Putin and his people will glorify themselves for their wisdom. But if prices remain stagnant at current levels, Putin's system is doomed to failure. It is no coincidence that George W. Bush's and Putin's disastrous presidencies were cotemporaneous. By driving up energy prices, Bush was Putin's greatest ally. Putin returned the favor by refocusing Russia from its multiple problems to "terrorism." Both sought to undo the work of their successful predecessors, Bill Clinton and Boris Yeltsin. Both led their countries into traps with which their successors must deal. When Bush said that he liked what he saw in Putin's eyes, he meant it. But their successors are as different as the procedures that brought them to power. Since Soviet times, the Kremlin has traditionally been wary about Democratic administrations in the United States. John F. Kennedy refused to tolerate the Soviet military presence in Cuba. Jimmy Carter boycotted the Moscow Olympics. Clinton led the successful operation against Slobodan Milosevic's Serbia, the Kremlin's best friend in Europe. And U.S. President Barack Obama's triumph heralded the fall in oil prices. With energy revenues screeching to a halt, Putin's regime will lose popularity. Central myths about Putin being the healer of the nation and the supplier of giveaway budgets are collapsing. And Putin cannot avoid responsibility. If the Kremlin claimed credit for the oil- and gas-fired prosperity of the past six years -- prosperity only because of economic exuberance elsewhere in the world -- the Kremlin should be accountable for the current devastation. In the 1998 crisis, Russians did not yet take for granted imported cars, foreign tourism and other middle-class perks. The ruling group in the Kremlin was variegated and conflict-ridden, but its response to the crisis was effective and even creative. Now, the ruling group is uniform, unanimous and most likely unfit for any serious revision of policy. It is a dangerous situation. Though the current level of anti-Americanism in Russia's official media seems unprecedented, the regime is most worried about internal problems. During the current financial crisis, which hit Russia right after the war with Georgia in August, the Kremlin and the State Duma issued a series of laws and orders that have turned Putin's authoritarianism into a dictatorship. Opposition parties have become negligible. The oligarchs' businesses have been largely nationalized. The presidential term has been extended. Industrial centers with growing unemployment will receive more troops. Trial by jury, which was infrequent anyway, is being seen less and less. The concept of high treason is bandied about almost daily. We will see more persecution of scientists, journalists and businessmen, whose work with international charities, media or corporations will now be construed as treachery. Some of these people will be murdered rather than tried; others will be tried by state-appointed judges rather than murdered. But this is not news anymore in Putin's Russia. What will become news will be the sort of mass protests that were seen recently in Ukraine, Thailand or Greece. Can Putin's dual monopoly survive them? Perhaps, but it will do so only if it risks deep change, a new perestroika rather than simply a thaw. But it is more likely that the regime is too rigid and too blinkered to act.

Medvedev orders large-scale Russian rearmament

17 March 2009 - AFP - MOSCOW: President Dmitry Medvedev on Tuesday announced a "large-scale" rearmament and renewal of Russia's nuclear arsenal, accusing NATO of pushing ahead with expansion near Russian borders. Meeting defence chiefs in Moscow, Medvedev said he was determined to implement reforms designed to streamline Russia's bloated military. Russia continued to face various security threats requiring robust defense capacity, he said. "From 2011, a large-scale rearmament of the army and navy will begin," Medvedev said at the meeting of the country's top defence chiefs. He called for a renewal of Russia's nuclear weapons arsenal and added that NATO was pursuing a drive to expand the alliance's physical presence near Russia's borders. "Analysis of the military-political situation in the world shows that a serious conflict potential remains in some regions," Medvedev said. He listed local crises and international terrorism as security threats and also stated: "Attempts to expand the military infrastructure of NATO near the borders of our country are continuing. "The primary task is to increase the combat readiness of our forces, first of all our strategic nuclear forces. They must be able to fulfil all tasks necessary to ensure Russia's security," Medvedev said. And while he praised Russia's military thrust into Georgia last year in defence of the rebel region of South Ossetia, he also said the conflict had also shown up the military's failings. The comments came despite statements by Russia's leaders suggesting a thaw in relations with the United States after the George W. Bush era and the inauguration of President Barack Obama. Medvedev, who took office last May and has struggled to escape the shadow of Prime Minister Vladimir Putin, is due to meet Obama for the first time next month in London. Some analysts have detected a softening of US support for NATO enlargement to ex-Soviet countries on Russia's borders such as Georgia and Ukraine, an expansion that Moscow vehemently opposes. In recent days a bipartisan commission of former US senators visited Moscow to try to frame Obama's future policies and recommended he stop encouraging Georgia and Ukraine's NATO bids. The Obama administration has said it is weighing what to do about a Bush-era project to build missile defence facilities in eastern Europe that has angered Moscow. Moscow-based defence expert Alexander Golts said he detected a contradiction in Medvedev's rhetoric, arguing that demonising NATO is at odds with Russia's stated goal of a slimmed down, efficient military. "The president is confusing two types of threats - real and mythical," said Golts. "There are real threats, notably instability in Central Asia, but there, Russia can resist them alongside NATO. In Afghanistan it is clear NATO is also helping to defend Russia." Russia, the world's largest country and one of a handful of nuclear-armed states, was attempting to streamline its military, which currently numbers about one million personnel, he added. And the army was also burdened by corruption, bureaucracy and an array of non-core organisations. Another independent expert, Pavel Felgenhauer, said it was unclear if the Kremlin had the stomach for military reforms likely to involve mass lay-offs in the current economic crisis. "There's a lot of opposition in the ranks and this opposition will grow," Felgenhauer said. "It's unclear if the Kremlin will stay the course." At Tuesday's meeting Defence Minister Anatoly Serdyukov, a civilian who once ran a Saint Petersburg furniture company, said non-combat deaths in the military remained high at 471 last year. He spoke of what he called an "unhealthy moral and psychological atmosphere in certain military formations." A host of non-core activity, from guest-house management to weapons repair and food production, would be transferred from the defence ministry to a state-owned civilian company, Oboronservis, he added.