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Why Putin will win re-election: Russians like the status quo

While Russia needs more economic reforms, most citizens are afraid of things getting worse before they get better

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(bne IntelliNews) – Russia has fallen into the middle income trap and it is going to struggle to climb out again. One of the things that keep countries in this trap is that while life could be better, it’s actually not that bad. The Kremlin is banking on the population’s preference for the status quo over radical change to ensure that President Vladimir Putin is a shoo-in at the March 2018 presidential elections. But another six years of Putin’s rule will only make it harder to escape from Russia’s mediocrity.

Russian do want change, and polls show they want it more than ever before. But they just don’t want very much change. The population is haunted by the very recent memory of the nightmarish 1990s when incomes were counted in the $10s and inflation hit a peak of 2400% (that’s 6% a day). Any change must come with guarantees of preserving what they already have.

And life has improved out of all recognition in the last two decades. From a basket case in 1992, today Russia has become a more or less a normal country. It is the only emerging market that has been reclassified “high income” by the United Nations Development Programme (UNDP) in the last decade and has incomes on a par with the poorest EU member states.

Although a lot of money has been invested into things such as new equipment and technology, profits and productivity are rising more slowly than costs. The trap is despite the fast catch up of the early phase, the economy becomes increasingly uncompetitive as time passes.

The Russian economy demonstrated astonishing growth between the two financial crises of 1998 and 2009 in its catch-up phase. The gross domestic product expanded 83% in these 11 years, productivity was up by 70%, and fixed capital investment doubled in real terms.

Whereas in 1999, per capita GDP (in purchasing power parity – PPP – terms) was $9,300 (only 25% above the global average), by 2008, this indicator had increased to $21,600 (78% above the global average). At the same time Russia’s share in the world economy (calculated at prevailing exchange rates) grew fourfold over the same period, from 0.6% to 2.7%. And most importantly the welfare of the population increased considerably: real wages increased by 3.4 times, and real pensions increased by 2.8 times.

Russia raced ahead until  2014, when it suddenly hit the brick wall of the “silent crisis.” It has been losing ground to its competitors ever since – especially now that Central Europe is booming.

The rule of thumb is the middle income trap kicks in when salaries are 40% of the US average, according to the European Bank for Reconstruction and Development’s chief economist Sergei Guriev. Currently the US per capita income is $58,030;  as of the end of 2016 against Russia’s is $22,540, or 38.8%.

To catch up with countries with a similar level of economic development, Russia needs to increase capital investment by an additional 1% of GDP per year, said Guriev at a conference of the New Economic School in Moscow this week, as well as make a lot of really obvious investments into infrastructure, social services, education and health, among other things.

One of the most insidious parts of this trap is that life at this level is actually not too bad – especially when set in the context of a country emerging from the poverty of the early stages of transition. In order to boost productivity both company owners and the workers have to make a big effort and take risks. The forces of “creative destruction” need to be unleashed where successful companies flourish, but the inefficient ones go bust. Transition country leaders are more focused on keeping people employed because of the hardships that went before, and so support the inefficient companies for the sake of the jobs they provide. Likewise, the workers would rather keep a secure but low paying job than take risks on a much better one that comes with the possibility of it blowing up.

All this conspires to make it hard for a country in the middle income trap to climb out of its potential and move on to the next stage.

Much has been written on the rising poverty in Russia, but again put it into the European context and life in Russia is not so bad. Russian poverty is on a par, or better, than the EU average and most of the developed world. The current Russian poverty level is 13.1% of the population, but that compares favourably with the US poverty level of 12.9% and is better than both Portugal and Spain – two countries the Kremlin said it wants to catch up with – that have poverty levels of 18% and 21.1% respectively. Likewise, Russia per capita income is 114% and 85% of per capita income in Portugal and Spain respectively in PPP terms.

Thanks to the residual oil and gas revenues, Russia continues to make incremental progress, although clearly the collapse of oil prices in 2014, and the associated deep devaluation of the ruble, have knocked the country back; but after a decade of 10% annual wages increases, there is a very large income cushion to fall back on. But to escape the trap the government will have to make radical and deep reforms – and that boils down to getting the work force off the government teat and into the private sector.

Another myth about Russia is the size of the public sector. The most widely quoted estimate is the estimates of the Federal Antimonopoly Service (FAS), which said state-owned companies actually account for a whopping 70% of GDP. However, as bne IntelliNews reported the actual size of the public sector is more like 40% – although there is a lot of uncertainty over the actual number.

The problem the Kremlin faces is that to really make a difference it needs to basically sack half the workforce and tell them to find a better job – and in most regions these private sector jobs simply don’t exist. Even after the elections are passed and with radical reforms clearly on the agenda, the Kremlin is unlikely to make this move.

Moreover, the people themselves don’t want it. A fascinating survey by Carnegie Endowment for International Peacefound that Russians are evenly divided on the need for radical reform: 42% of Russians advocate decisive and full-scale changes, another 41% called for minor changes and a gradual improvement of the current situation. It was the poor that are keenest on fast change, while the middle class are for the status quo. Surprisingly, the young were least keen on change.

And this “it used to be a lot worse,” thinking is part of the reason so many Russians will vote for Putin: a poll by the state-owned pollster, the Russian Public Opinion Research Centre (VTsIOM), reported 84% will vote to keep Putin and 70% will turn out to vote.

But the people are discontented. The standard of living has clearly fallen over the last four years so Russians want something to change. Another survey by the Institute of Sociology of the Russian Academy of Sciences found that the phlegmatic Russians are keener on change than ever before. Unsurprisingly the respondents to this survey were wholly focused on raising the standard of living and improving social services, while political changes remain a secondary concern. There is a basic tension in Russian society between the desire for change and the fear of reforms that may upset the hard-won “not that bad” status quo.

The survey found that over the past 10 years, most respondents preferred stability to change: in 2007 the ratio was 60% to 40%, in 2012 72%/28%, and in October 2016 61%/39%. The tables finally turned this autumn and by December the ratio had flipped to 49%/51%.

This survey, by contrast with Carnegie’s, found that the desire for change was much stronger with the young than the old: of Russians aged 30, 62% support the reforms; of 31-40-year-olds 51% want changes; and over 41-years the majority are for keeping the status quo. The crisis has gone on too long and people are tired of coping. While there is a mild economic recovery at the federal level, on the ground real incomes only went positive earlier this year and the more important real disposable incomes (money left after spending on food and utilities) is still just in negative territory.

What  can the government do to get out of this trap? The answer is pretty obvious and most of the key elements are already in the plans being proposed. New economic drivers need to be found in the form of new business, technology and added value production, but so far the only effective investment the government has made is into agriculture. The government has gone a bit blockchain bonkers, but this initiative has yet to produce many jobs. To get these to work, institutions need to be made more efficient, rules simplified and the rule of law and property rights vigorously enforced.

One indicator of the problems is the lack of small and medium-sized enterprises (SMEs) in the economy. Large business is more productive everywhere, but the gap between large and small business in Western Europe is 40%, and in Eastern Europe it is 70%, according to the EBRD. Another recent survey found that 80% of SMEs had been approached by officials for bribes.

Most of Central Europe had the needed deep reforms forced on them by their EU accession bids and are booming as they begin to move beyond the middle income trap. None of the Eastern European countries have made these changes. The earliest these changes could appear is in the second half of next year, but don’t hold your breath.

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Foreign Banks Are Embracing Russia’s Alternative To SWIFT, Moscow Says

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative.

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Via Zerohedge


On Friday, one day after Russia and China pledged to reduce their reliance on the dollar by increasing the amount of bilateral trade conducted in rubles and yuan (a goal toward which much progress has already been made over the past three years), Russia’s Central Bank provided the latest update on Moscow’s alternative to US-dominated international payments network SWIFT.

Moscow started working on the project back in 2014, when international sanctions over Russia’s annexation of Crimea inspired fears that the country’s largest banks would soon be cut off from SWIFT which, though it’s based in Belgium and claims to be politically neutral, is effectively controlled by the US Treasury.

Today, the Russian alternative, known as the System for Transfer of Financial Messages, has attracted a modest amount of support within the Russian business community, with 416 Russian companies having joined as of September, including the Russian Federal Treasury and large state corporations likeGazprom Neft and Rosneft.

And now, eight months after a senior Russian official advised that “our banks are ready to turn off SWIFT,” it appears the system has reached another milestone in its development: It’s ready to take on international partners in the quest to de-dollarize and end the US’s leverage over the international financial system. A Russian official advised that non-residents will begin joining the system “this year,” according to RT.

“Non-residents will start connecting to us this year. People are already turning to us,”said First Deputy Governor of the Central Bank of Russia Olga Skorobogatova. Earlier, the official said that by using the alternative payment system foreign firms would be able to do business with sanctioned Russian companies.

Turkey, China, India and others are among the countries that might be interested in a SWIFT alternative, as Russian President Vladimir Putin pointed out in a speech earlier this month, the US’s willingness to blithely sanction countries from Iran to Venezuela and beyond will eventually rebound on the US economy by undermining the dollar’s status as the world’s reserve currency.

To be sure, the Russians aren’t the only ones building a SWIFT alternative to help avoid US sanctions. Russia and China, along with the European Union are launching an interbank payments network known as the Special Purpose Vehicle to help companies pursue “legitimate business with Iran” in defiance of US sanctions.

Given its status as a major energy exporter, Russia has leverage that could help attract partners to its new SWIFT alternative. For one, much of Europe is dependent on Russian natural gas and oil.

And as Russian trade with other US rivals increases, Moscow’s payments network will look increasingly attractive,particularly if buyers of Russian crude have no other alternatives to pay for their goods.

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US leaving INF will put nuclear non-proliferation at risk & may lead to ‘complete chaos’

The US is pulling out of a nuclear missile pact with Russia. The Intermediate-Range Nuclear Forces Treaty requires both countries to eliminate their short and medium-range atomic missiles.

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Via RT


If the US ditches the Intermediate-Range Nuclear Forces Treaty (INF), it could collapse the entire nuclear non-proliferation system, and bring nuclear war even closer, Russian officials warn.

By ending the INF, Washington risks creating a domino effect which could endanger other landmark deals like the Strategic Arms Reduction Treaty (START) and collapse the existing non-proliferation mechanism as we know it, senior lawmaker Konstantin Kosachev said on Sunday.

The current iteration of the START treaty, which limits the deployment of all types of nuclear weapons, is due to expire in 2021. Kosachev, who chairs the Parliament’s Upper House Foreign Affairs Committee, warned that such an outcome pits mankind against “complete chaos in terms of nuclear weapons.”

“Now the US Western allies face a choice: either embarking on the same path, possibly leading to new war, or siding with common sense, at least for the sake of their self-preservation instinct.”

His remarks came after US President Donald Trump announced his intentions to “terminate” the INF, citing alleged violations of the deal by Russia.

Moscow has repeatedly denied undermining the treaty, pointing out that Trump has failed to produce any evidence of violations. Moreover, Russian officials insist that the deployment of US-made Mk 41 ground-based universal launching systems in Europe actually violates the agreement since the launchers are capable of firing mid-range cruise missiles.

Leonid Slutsky, who leads the Foreign Affairs Committee in parliament’s lower chamber, argued that Trump’s words are akin to placing “a huge mine under the whole disarmament process on the planet.”

The INF Treaty was signed in 1987 by then-President Ronald Reagan and Soviet leader Mikhail Gorbachev. The deal effectively bans the parties from having and developing short- and mid-range missiles of all types. According to the provisions, the US was obliged to destroy Pershing I and II launcher systems and BGM-109G Gryphon ground-launched cruise missiles. Moscow, meanwhile, pledged to remove the SS-20 and several other types of missiles from its nuclear arsenal.

Pershing missiles stationed in the US Army arsenal. © Hulton Archive / Getty Images ©

By scrapping the historic accord, Washington is trying to fulfill its “dream of a unipolar world,” a source within the Russian Foreign Ministry said.

“This decision fits into the US policy of ditching the international agreements which impose equal obligations on it and its partners, and render the ‘exceptionalism’ concept vulnerable.”

Deputy Foreign Minister Sergey Ryabkov denounced Trump’s threats as “blackmail” and said that Washington wants to dismantle the INF because it views the deal as a “problem” on its course for “total domination” in the military sphere.

The issue of nuclear arms treaties is too vital for national and global security to rush into hastily-made “emotional” decisions, the official explained. Russia is expecting to hear more on the US’ plans from Trump’s top security adviser, John Bolton, who is set to hold talks in Moscow tomorrow.

President Trump has been open about unilaterally pulling the US out of various international agreements if he deems them to be damaging to national interests. Earlier this year, Washington withdrew from the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear program. All other signatories to the landmark agreement, including Russia, China, and the EU, decided to stick to the deal, while blasting Trump for leaving.

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Kiev ‘Patriarch’ prepares to seize Moscow properties in Ukraine

Although Constantinople besought the Kiev church to stop property seizures, they were ignored and used, or perhaps, complicit.

Seraphim Hanisch

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The attack on the Eastern Orthodox Church, brought about by the US State Department and its proxies in Constantinople and Ukraine, is continuing. On October 20, 2018, the illegitimate “Kyiv (Kiev) Patriarchate”, led by Filaret Denisenko who is calling himself “Patriarch Filaret”, had a synodal meeting in which it changed the commemoration title of the leader of the church to include the Kyiv Caves and Pochaev Lavras.

This is a problem because Metropolitan Onuphry of the Ukrainian Orthodox Church which is canonically accepted and acts as a very autonomous church under the Moscow Patriarchate has these places under his pastoral care.

This move takes place only one week after Patriarch Bartholomew I of Constantinople unilaterally (and illegally) lifted the excommunications, depositions (removal from priestly ranks as punishment) and anathemas against Filaret and Makary that were imposed on them by the hierarchy of the Moscow Patriarchate.

These two censures are very serious matters in the Orthodox Church. Excommunication means that the person or church so considered cannot receive Holy Communion or any of the other Mysteries (called Sacraments in the West) in a neighboring local Orthodox Church. Anathema is even more serious, for this happens when a cleric disregards his excommunication and deposition (removal from the priesthood), and acts as a priest or a bishop anyway.

Filaret Denisenko received all these censures in 1992, and Patriarch Bartholomew accepted this decision at the time, as stated in a letter he sent to Moscow shortly after the censures. However, three years later, Patriarch Bartholomew received a group of Ukrainian autocephalist bishops called the Ukrainian Orthodox Church in the USA, who had been in communion with Filaret’s group. While this move may have been motivated by the factor of Bartholomew’s almost total isolation within Istanbul, Turkey, it is nonetheless non-canonical.

This year’s moves have far exceeded previous ones, though, and now the possibility for a real clash that could cost lives is raised. With Filaret’s “church” – really an agglomeration of Ukrainian ultranationalists and Neo-Nazis in the mix, plus millions of no doubt innocent Ukrainian faithful who are deluded about the problems of their church, challenging an existing arrangement regarding Ukraine and Russia’s two most holy sites, the results are not likely to be good at all.

Here is the report about today’s developments, reprinted in part from OrthoChristian.com:

Meeting today in Kiev, the Synod of the schismatic “Kiev Patriarchate” (KP) has officially changed the title of its primate, “Patriarch” Philaret, to include the Kiev Caves and Pochaev Lavras under his jurisdiction.

The primate’s new official title, as given on the site of the KP, is “His Holiness and Beatitude (name), Archbishop and Metropolitan of Kiev—Mother of the cities of Rus’, and Galicia, Patriarch of All Rus’-Ukraine, Svyaschenno-Archimandrite of the Holy Dormition Kiev Caves and Pochaev Lavras.”

…Thus, the KP Synod is declaring that “Patriarch” Philaret has jurisdiction over the Kiev Caves and Pochaev Lavras, although they are canonically under the omophorion of His Beatitude Metropolitan Onuphry of Kiev and All Ukraine, the primate of the canonical Ukrainian Orthodox Church.

Philaret and his followers and nationalistic radicals have continually proclaimed that they will take the Lavras for themselves.

This claim to the ancient and venerable monasteries comes after the Holy Synod of the Ecumenical Patriarchate announced that it had removed the anathema placed upon Philaret by the Russian Orthodox Church and had restored him to his hierarchical office. Philaret was a metropolitan of the canonical Church, becoming patriarch in his schismatic organization.

Representatives of the Ecumenical Patriarchate have clarified that they consider Philaret to be the “former Metropolitan of Kiev,” but he and his organization continue to consider him an active patriarch, with jurisdiction in Ukraine.

Constantinople’s statement also appealed to all in Ukraine to “avoid appropriation of churches, monasteries, and other properties,” which the Synod of the KP ignored in today’s decision.

The KP primate’s abbreviated title will be, “His Holiness (name), Patriarch of Kiev and All Rus’-Ukraine,” and the acceptable form for relations with other Local Churches is “His Beatitude Archbishop (name), Metropolitan of Kiev and All Rus’-Ukraine.”

The Russian Orthodox Church broke eucharistic communion and all relations with the Ecumenical Patriarchate over this matter earlier this week. Of the fourteen local Orthodox Churches recognized the world over, twelve have expressed the viewpoint that Constantinople’s move was in violation of the canons of the Holy Orthodox Church. Only one local Church supported Constantinople wholeheartedly, and all jurisdictions except Constantinople have appealed for an interOrthodox Synod to address and solve the Ukrainian matter in a legitimate manner.

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