Activity – Page 2 – Committee for Russian Economic Freedom

September 28, 2016September 28, 2018

From The Cherry Orchard to the Khimki Forest

“You have no mercy on the woods, or the birds, or on women, or on one another…”

Uncle Vanya, А.P. Chekhov, 1896

photo by etosibir.ru — Photo by etosibir.ru

Chekhov’s Uncle Vanya and The Cherry Orchard were written more than a century ago, but they remain a brilliant portrait of Russian society and its attitude toward the world around, woods included.

Forests cover around 45 percent of Russia’s territory, and the country accounts for 24 percent of the world’s timber resources. The Siberian taiga and its cedar trees are as much a symbol of Russia as the Kremlin and Sputnik. It would seem that Russian forests should be valued and protected as a national treasure. However, just like the people of Russia, Russian forests have their own peculiar fate full of suffering and tragic mistakes.

Back in 2013, an international team of scientists calculated that from 2000 to 2012, Russia had lost more forest area than any other country in the world. Such forest cover loss was caused by different reasons including forest fires, storms and insect pests. However, this was also due in no small part to human activity. According to World Wildlife Fund’s estimates, Russia annually loses around $1 billion due to illegal logging.

According to First Deputy Prosecutor General Aleksander Buksman, illegal logging is responsible for more than 800,000 hectares of Russia’s forest loss annually, which is more than half of the total wood harvest in the country. Read More “From The Cherry Orchard to the Khimki Forest”

September 21, 2016April 15, 2019

Sincerely yours at your expense

Russian officials’ increasingly frequent statements about the lack of funds in the country’s budget to cover even the bare necessities of life make one almost believe their sincerity. It is not that officials themselves experience money problems. The most recent examples with Medvedev’s 35-billion-ruble country house or 8 billion rubles in cash discovered in the possession of the temporary acting head of Russia’s anti-corruption agency, colonel Zakharchenko, do not leave any doubts regarding Russian officials’ success in siphoning off the national wealth. However, besides a few million of ministers, lawmakers, policemen and prison officers who are comfortably settled in life, there are some 140 million citizens in Russia, whose living standards directly depend on budget funds left over after officials’ rent-seeking activities.

In late 2015 and early 2016, the country’s budget was adopted with a deficit and later subject to sequestration. According to the most recent official figures, in the first half of 2016, Russia’s budget deficit has reached 1.52 trillion rubles. Over this period, Russian tax and customs services have collected around 5.24 trillion rubles, and, all other revenues included, the country’s gross national income reached the lower-than-expected 5.87 trillion rubles, since the 2016 draft budget envisaged 13.74 trillion rubles in revenues. It is obvious that at the end of the year, this figure will prove to be unattainable, as Medvedev sincerely admits.

The government traditionally rejects the option of increasing taxes and thus suggests balancing the budget for the next three years by cutting spending by 3.5 trillion rubles. Read More “Sincerely yours at your expense”

September 8, 2016September 9, 2018

The Earth’s Edge is Harsh and Embraced by Silence

Russia’s Far East, a region that is farthest from Moscow with more than 6,000 kilometers between them, has been going through difficult times for quite a while now. Since 1990, when the last population influx was registered, the region’s population has decreased by more than 20 percent with 90 percent of it being due to the migration outflow – not to natural population decline. A considerable part of the population leaves the region to seek jobs and a better life.

Making a speech at the 2016 Eastern Economic Forum, Putin promised to turn Vladivostok, the country’s largest city on the Pacific Ocean coast, into a Russian San Francisco. Our dreamer in the Kremlin must be counting upon investments from Japan and China, including a joint development of the disputed Kuril Islands. One has a hard time believing that though.

This year, a Federal Law No 119-FZ from May 1, 2016 dubbed “On the Far Eastern Hectare” was adopted on the government’s initiative. However, the attractive idea of giving away land for free to anyone interested is confronted by the greed of corrupt officials. Right after the law had come into effect, opposition activist Aleksei Navalny exposed fraud schemes used by officials with regard to allocated land plots, when, for example, the most attractive ones turned out to be occupied within minutes of the entry into force of the aforementioned law. This story just gets funnier as it goes. According to the project’s official website, in three months only 379 people out of 6 million who still live in Russia’s Far East submitted requests for complimentary land plots.

A few years ago, when skyrocketing oil prices provoked an investment urge, there were plans to build automobile-manufacturing plants Read More “The Earth’s Edge is Harsh and Embraced by Silence”

August 31, 2016September 9, 2018

Stadiums Versus Hospitals

Russian healthcare, just like state-funded Soviet healthcare before it, has never been characterized by either quality or accessibility. Despite rather large investments in the medical industry that both the federal and local budgets could afford during the period of high energy prices, the quality of medical care received by the population remains appallingly poor. There is a deficit of doctors, and their level of knowledge does not meet modern-day standards. There is a continuous deficit of effective drugs. Today, when oil revenues have plunged and there is no prospect of foreign investment, the question arises: At whose expense will the government be cutting back on spending? The authorities have quickly found a solution on the federal level by gradually reducing healthcare spending for over a year. Local authorities act in a similar way. Only, whereas in Putin’s opinion, the government cannot cut down on “national security” spending (or in other words, federal expenditures on the police and special forces used to suppress popular unrest), local authorities use budget funds that were supposed to be spent on health care and education, for example, to build sports facilities for the upcoming 2018 FIFA World Cup instead. Thus, in St. Petersburg, funds originally intended for the construction of schools, daycare centers and healthcare facilities are going to be used to complete the construction of the Zenit Arena stadium.

Georgi Poltavchenko, Putin’s colleague from the Leningrad KGB and current governor of St. Petersburg, called this redistribution of funds a “technical solution” instead of admitting that the country that is rapidly sliding into poverty simply cannot afford an expensive World Cup. It would seem that it should not be difficult for
Read More “Stadiums Versus Hospitals”

August 24, 2016April 15, 2019

SHOALING CREEK OF FDI

According to the recent statistics provided by the Russian Federal Statistics Service, foreign direct investments (FDI) in Russia have dropped in the first half of 2016 by 4.3% APR. In fact, shallowing of the investment inflow has continued for more than two years. Hunger for superprofits sharks of capitalism perceive the expropriation of Yukos in the mid-2000s as an isolated case, which does not affect the overall investment climate in the country. They continued actively flirting with the Putin’s regime, and only economic sanctions, entered by the Western governments in 2014 in response to the annexation of Crimea and support of separatists in Donbass, have forced transnational corporations to slow down its expansion on the Russian market.

Russia’s overall investment climate quickly turned from positive to negative. Russia was among the top three recipients of FDI with a record US$94 billion in 2013. This precipitously fell to only US$21 billion in 2014 and US$4.8 billion in 2015.

In 2014 just 178 new foreign investment projects worth US$13 billion were launched, compared to 396 projects worth US$23bn in 2011. Russia’s second biggest European investor (after Cyprus), the Netherlands, decreased its investment from US$5.7bn to US$1.23bn in 2014. Even though weak currency usually attracts foreign investors, as ruble weakened, FDI kept collapsing.

Ernst & Young sees the following issues negatively influencing the investment climate: inconsistent and selective law enforcement, non-transparent decision-making procedures, and corruption.

Historically, the main industries for FDI inflows in Russia have been wholesale and retail trade, banking, manufacturing, and the mining sector (mostly extraction of oil and gas). Surprisingly Read More “SHOALING CREEK OF FDI”

August 17, 2016September 9, 2018

A Mortgage from Putin

German Gref (right) and Vladimir Putin / Photo by rieltor-89.ru

Vladimir Putin rarely acts as an advertising agent, but the current economic crisis and the fear of political instability it provokes are forcing the president to recur to unorthodox methods of state support for key segments of business on which the regime’s financials are based. During his meeting with the head of Sberbank—Russia’s major bank, 51 percent of which is owned by the state—Putin suggested that Russian citizens should take out mortgages without waiting for interest rates to go down.

There could be many reasons for such promotional activity, the chief among them being a slowdown in nominal wage growth, an upturn in inflation since July, and a rise in the unemployment rate. These factors are already affecting the banking sector and could potentially lead to a balance-of-payments crisis, the holding back of wages and pensions, and other systemic problems. Analyzing Putin’s aforementioned statement, Russian economist Sergei Aleksashenko notes that while the numbers of mortgage loans have been increasing, their amounts have been steadily diminishing.

As of the summer of 2016, the growth of Russia’s mortgage market has been mostly caused by measures of state support, the repeal of which, according to the Russian Finance Ministry, will inevitably lead to an increase in mortgage rates and a lower demand for mortgage loans. Essentially, Sberbank is the only bank that shows decent mortgage figures, whereas such key players in the Russian banking sector as VTB24, Gazprombank and Rosselkhozbank, not to mention smaller banks, demonstrate an almost two-fold decrease in the volume of mortgage loans. Read More “A Mortgage from Putin”

August 10, 2016September 9, 2018

The Hard Labor Market

According to official data from the Russian Federal Statistics Service (Rosstat), Russia’s unemployment rate had been decreasing during the period from 2010 to 2014. Data from 2015 shows, however, that this trend has changed—the official unemployment rate demonstrated a minor but symptomatic increase of 0.5 percent and reached 5.8 percent. According to calculations of the Russian Ministry of Labor, in 2016, Russia’s unemployment rate could amount to 6 percent, and the situation is not expected to change significantly in 2017.

It is clear that in Russia official data concerning the population’s employment and unemployment rate can be considered only partially objective. The country’s shadow labor market where people are listed as either formally unemployed or employed for a minimal salary in one place while they are actually getting paid in cash somewhere else without declaring their income is just too big.

Rosstat claims that as of June 2016, the economically active population in Russia reached 76.9 million people (or 52 percent of the country’s overall population,) with 4.2 million of them being officially unemployed and another 30 million being employed in the shadow sector of the economy and not paying taxes, according to President Putin’s statement. In 2013, Deputy Prime Minister Olga Golodets declared that the “sectors that we can see and that are clear to us employ a total of 48 million. It is anyone’s guess where the others are employed, what they are busy with, and how”. Despite the president’s order to deal with this situation, it seems that no specific measures have yet been taken on the state level. Most likely, the government simply Read More “The Hard Labor Market”

August 3, 2016September 9, 2018

Barefoot Toward an Empire

The news of the suspension of production at the major Russian car manufacturer AvtoVAZ in Togliatti, on the Volga River, neither comes as a surprise nor dominates the front pages. Considering the current economic situation this is quite logical: AvtoVAZ is not the first car maker in Russia to recur to this option. The Ford Sollers plant in Vsevolozhsk, the Volkswagen plant in Kaluga, Peugeot, Citroen, Mitsubishi, and other automobile manufacturers have suspended production at one time or another. It is obvious that even Putin’s KGB friend Sergei Chemezov, the current CEO of the Rostec state corporation that controls more than 700 machine building and defense plants in the country, including AvtoVAZ, cannot force Russia’s drastically impoverished population to buy new cars. It is also clear that the problem lies not with AvtoVAZ itself—whose Lada cars are world-famous for their low price and their simplicity—but with the overall crisis in the Russian economy that is suffering because of low oil prices and Western economic sanctions imposed in response to the military aggression against Ukraine.

Despite the assurances by Putin’s press secretary in early 2015 that “the fall in sales will be followed by a rapid growth,” the situation so far is the opposite. According to the Russian Auto Dealers Association, the automobile market has lost 40 percent of its model range in the last two years—and that is not the limit. Even the once-popular and inexpensive Ford Focus dropped out of the top 25 models sold in Russia, and the top rankings are now held by the cheapest cars that are two decades behind the 2016 European economy-class vehicles in terms of quality and technology. Even the sales of these “naked” cars are Read More “Barefoot Toward an Empire”

July 26, 2016September 9, 2018

Hydroelectric Power in Service of Cooperative Ozero

Bratsk Hydroelectric Power Station / Photo by evrosib.ru

Hydroelectric power plants – gigantic dams across the country’s biggest rivers that supply cheap energy to entire Russian regions and their extremely energy-intensive industrial enterprises – used to be one of the key symbols of the Soviet Union’s industrial might. Up to this day, Russia’s hydroelectric power plants have been cumulatively providing around 20 percent of the country’s energy.

Out of more than 100 major hydroelectric power plants, with the total number of them in Russia reaching almost 200, most are owned by RusHydro PJSC that was founded as a public company by chief architect of the Russian privatization, Anatoli Chubais. However, the state still owns 67 percent of the company’s shares. Another three major hydroelectric power plants belong to En+ Group controlled by Oleg Deripaska who is also president of the world’s second largest aluminum company Rusal. Deripaska’s interest toward hydroelectric power industry is not surprising since aluminum production is a highly energy-consuming process, and Rusal uses most of the electricity generated by Deripaska’s hydroelectric plants. Deripaska’s Russian assets can be considered private only nominally. A classic Russian oligarch of the 1990s, Deripaska is well-known for a statement he made in his 2007 interview to the Financial Times: “If the state says we need to give it up, we’ll give it up. I don’t separate myself from the state. I have no other interests.” Since in recent years global demand for aluminum has been steadily decreasing, Deripaska has no plans to extend his energy assets. As to the situation with RusHydro, its future is less clear. What is obvious that it shows much more signs of corruption and lack of professionalism. Read More “Hydroelectric Power in Service of Cooperative Ozero”

July 13, 2016September 9, 2018

The Russian Orthodox Church during the Tsar (President) Putin’s era

The newly established authoritarian regime in Russia has chosen to make the promotion of spirituality that is being served up as an intrinsic part of Russian culture and self-identification of the Russian nation as one of its priorities. It is obvious however that the regime’s real purpose consists in using this simple method to force its nationalist and patriotic rhetoric onto the population by glorifying the county’s past successes and inspiring pride in the “centuries-long history of the Russian empire” which in its turn allows the regime to draw the population’s attention away from the authorities’ lack of competence in governing the country and to cover up the most flagrant corruption by top Russian officials.

Responsible for spirituality, the Russian Orthodox Church (ROC) is formally separated from state institutions that, according to the law, are supposed to be secular by nature. However, ROC enjoys a number of economic advantages that have been granted to the Church during the Putin’s era. Thus, for example, it is impossible to use standards methods to calculate its “market capitalization” because legally, ROC is divided into more than 30,000 different organizations and since the mid-1990s it has not been disclosing either its gross budget or expenses. According to certain estimates, ROC’s income possibly reaches 5.6 billion rubles (or around $87 million) a year, without including federal funds that are being allocated annually to ROC and structures close to it which amount to another 3.5 billion rubles (or about $54 million). This does not seem such a large sum for a Church with more than 50 million faithful, does it?

However, this is only a part of the Church’s budget that different sources or ROC representatives themselves disclose from time to time in their statements. Read More “The Russian Orthodox Church during the Tsar (President) Putin’s era”