Cyrill Vatomsky, Where All Politics Are Global

After three days of grandiose forecasts and pompous back slapping at the St. Petersburg Economic Forum, some sober and colder analyses of what had been said and claimed appeared in Kommersant Business Daily. The article by Andrei Illarionov {link in Russian only} former Putin's economic adviser starts off with a satirical title "Bananotechnology" - a reference to recently touted government investment in nano technology in Russia that is gradually acquiring the shape of Nikita Khrushchev's corn cob with a hint at a banana republic status. Some serious real successes (like reviving of the Aeroflot Boeing contract, and the total $14 billion worth of signed contracts) of the forum aside, "pink glasses" metaphor would do no justice to verbal and virtual gongs, incense, crystal balls and other Al Gore-like obscurantism in economic forecasting oozing from VIP participants of the forum like former World Bank head James Wolfenson, Russian President Putin, and his two minions - come democratically appointed heirs -Servey Ivanov and Dmitry Medvedev. As Financial Times noted sourly , the economic forum was reminiscent of old Soviet style gatherings

"where the only speakers were chosen by the ruling bureaucracy."

Here are some excerpts from Illarionov's article, mixed in with my comments. The article strikes hard by its uncompromising pro-capitalist drive. Not surprisingly, the discussion thread at Kommersant web site is full of nasty attacks by rabid nationalists calling the author a deserter, a traitor, a Yankee lap dog, a paid CIA stooge and what not. It was also quite interesting to read what some of them think of the US and how strong the fruits of the USSR propaganda still are.

James Wolfenson, a senile retiree from World Bank claimed Russian GDP increased five fold since 1995. Illarionov sardonically suggested Wolfenson should have consulted any number of acquaintances from his rolodex or maybe just try a simple Internet search to get a 55% figure instead.

In retrospect, both World Bank and Citigroup could probably do better then employ him in any intellectual capacity. I remember commenting about his senility some years back when he could not figure out why anarcho-antiglobalists were opposing his favourite Davos get together.

Mr. Putin's speech has been mentioned before and by this blog among others . Russian President proudly proclaimed that direct foreign investment in Russian economy grew by two and a half times. The following sentence mentioned accumulated foreign investment to have surpassed $150B.

Listeners might have had an impression that the latter number relates to the direct foreign investments mentioned in the first sentence. This however is not true.

As of April 1 2007 $151B is the total for foreign investment, including indirect, i.e. mutual, portfolio, bonds, and other instruments. According to Illarionov the main investment appeal indicator is direct private foreign investments. As of April 1 2007 Russia accumulated $73B. However serious this absolute figure might look, as a percentage of GDP this looks very modest - only about 7% GDP. Deduct direct investment in upstream oil and gas and the number gets even smaller: 4.5% of GDP.  Compare this to direct foreign investment is Ukraine that exceed 19% of GDP, 25% of GDP in Latvia, Lithuania and Poland, 42% in Georgia and 59% in Estonia.

I already mentioned Mr. Putin's macroeconomic claim regarding G-7 countries' share of World economic output drop from 60 to 40 . I have to admit, I took the former number for granted without double checking. I have forgotten the predictable ease former Soviet apparatchiks show while dealing with numbers. Mr. Putin it appears had outright lied.

That in 2007 G-7's share of world economic output was 41% was true. But it is also true that G-7's share was not 60% but 51%.

But even these claims paled in comparison with forecasts. Mr. Wolfenson "promised" that Russian economy and economies of developed nations will grow 20 fold by 2050...But nobody seemed to have time to stop and think in St. Petersbourg, comments Illarionov.

For a country whose population declines so rapidly, a 20 fold GDP grows would translate into a 25 fold GDP per capita growth. History does not know anything even close among economic miracles of the past: in 43 years Japan's GDP per capita grew 10 times, 12 times in Korea, 13 times in Taiwan, and 17 times in China.

Someone is smoking something. This smacks of return to absurd and laughable gigantomania of USSR forecasting. One of Putin's potential democratically appointed heirs Sergei Ivanov advanced even more futurama claiming that by 2020 Russian GDP will be among the top 5 in the world and per capita GDP by purchasing power parity (PPP) would be $30,000 in 2005 prices. Another candidate for democratically appointed heir Mr. Medvedev agreed. That was the same Medvedev that lamented the death of capitalism when UK frowned at his Gasprom buying a UK energy supplier to create a vertical monopoly. No wonder they can spout any nonsense while they think that monopolistic capitalism is the true capitalism.

These two clowns do not understand what smart people elsewhere understand perfectly well: you can not reach 50% of per capita GDP of the most economically advanced nation. To reach such a level means to transcend the developing economy status that can drive economic growth simply by sheer power of expansion. At higher levels of development economic growth requires a completely different environment.

Growth rates depend more on social and state institutions like protections of private property, separation of powers, free mass media, independent judiciary, civil liberties, political rights, and law.

I had to do a double take when I read this next figure Illarionov mentions.

Russian economy could have experienced fast economic growth in the oil industry, but looting of Yukos by the state and other swindles {possible translations also include: fraud, shady deal, racket, and hustle} annual oil production rates have tumbled from 13% to 2%. Russian economy could have experienced fast growth in natural gas industry, but Gasprom is squeezing independent producers, while increasing its own production by 0.6% in 8 years.

These are horrendous numbers for a country so dependent on oil and gas sectors for almost everything, for a country where according to some figures up to 60% of Government Budget is derived from oil and gas revenues. Illarionov was one of the few on record predicting the 1998 default that crippled Russia big time. This time he is calling for a complete reversal of the current direction that Putin and both his heirs apparent represent.

 

Although the vocal protests and PR driven saber rattling around the move of the Bronze Soviet Soldier to a military cemetery seem to be subsiding, the real fallout will be felt for quite some time. Not in form of direct actions but rather in attitude that will result in actions or inactions.

Western attitude towards relationships with Russia seems to be dull and lacking. It lacks excitement of the early 90-s, it lacks the sense of partnership of late 90-s and it starts loosing the sense of trust that came out of the Reagan Gorbachev era. Just like political capital of a leader can be wasted, political capital of a country can diminish. The US can most certainly feel some loss of political capital due to situation in Iraq, but it is expected from a controversial endeavor of such magnitude. But what has Russia spent its political and emotional capital on? What does it want to achieve by pursuing the current course? And is there a course after all?

Condi Rice is in Moscow right now and I would like to see a show of hands from people that think that something of any significance is going to be achieved during this visit? Kommersant Daily dies not expect any advances on any major issues.(link in Russian only) Oh, of course, they all will be addressed one way or another but both sides will likely agree to disagree.

The White House will sit and wait for changes during the complex period of transfer of power to a new president. Neither the White House no Kommersant seem to be considering a democratic transfer of power through free elections. There is no expectation of a vibrant political struggle, clashes of ideas, debates of where does Russia go from here. The course seems to be set, the engine running fairly smoothly and the crew is ready to go wherever the captain is taking the ship to. And this probably is going to be the main achievement of President Putin, if one can call it such: the tired crew is willing to follow the captain to that deserted island with a treasure chest. Does it occur to them that wild savages are going to eat half of them when going gets tough?

Who will send rescue teams when the mortgage bubble causes a crash in Russia? Brotherly Turkmenistan? Friendly China? Grateful Iran? It probably will not be neighbours like Estonians or Poles. Radio Echo Moskvy reports that Estonia might follow Poland and block the new Russia-EU agreement.

Estonian Defence Ministry will also ask NATO to consider computer attacks (most likely denial of service types) from foreign countries equal to military attacks. US Senator Richard Lugar had already suggested NATO should consider energy blackmail as a military upfront. Neither suggestion is likely to be adopted any time soon, but this forms a peculiar context around the course that Russia is pursuing. And my nagging feeling is that Russia is not pursuing any course at all. It has been taken for a ride by its President and his cohorts.

Russia has recently made several threatening moves using energy supply and flexed some natural gas muscle letting Europe know of its intentions. It has been on a buying expedition trying to purchase energy infrastructure in Europe, it has successfully blocked any potential for a TransCaspian  pipeline, routing all future gas from Turkmenistan through Gasprom pipelines and switches. Russian President hints of other sinister powers in the world that are supposedly seeking world domination. And then he takes two days to congratulate Nicolas Sarkozy with his presidential election victory in France.

What might be the purpose of this collision course? I can think of only one answer that does not involve excessive use of imagination: there is no purpose.  There is no plan, there is no course other then  the course of personal power and enrichment for the clan of Mr. Putin. To this purpose Russia's political and emotional capital is being spent with incompetent, criminal neglect.

Catching up. Feb 4th Radio Show

If there is one world one could apply to my views and most of my shows across the board that would most likely be optimism. This show takes it further. Optimism is the main thread of it. And it was not planned. It just went on and developed ad lib.

Mentioning of Senator Webb and John Edwards and Jim Hightower and their vision of soup kitchen America took me to the simple statement – this country never had it as good. Which lead to the Economist article about the state of Great Britain, subtitled “You've never had it so good”

The place is enjoying a period of extraordinary prosperity. Fourteen years of stable growth have kept unemployment down. There have been social gains as well as economic ones: fewer children and pensioners live in poverty than ten years ago. Crime is broadly lower. And with prosperity has come renewed political clout. Britain has helped to shape aid for Africa, the debate on climate change, European enlargement and, last week, negotiations to restart world trade talks.

All this is especially remarkable in contrast with the recent past. A quarter-century ago, the home of the industrial revolution was closing factories and mines. The class war raged as unions took on the government and business.

 

In 2006, the country bought from Russia 24 Sukhoi 30 jet fighters, 53 MI-24 military helicopters and 100,000 Kalashnikov assault rifles.

Putin is building more nuclear submarines to fight his war in Chechnya.

And Finally, Nicolas Sarkozy is embracing “les Anglo Saxons” Why?!

As it is his way, Pipes only stayed for about 15 minutes. Nonetheless, he did not at all sound an "islamophobe" to the contrary, he came across as caring for the people. And he did sound optimistic - Islam, he said, does not have to be the way it is now. And now is not the best of times for Islam.

The sound quality is not too good, unfortunately. We were having connection and broadcast equipment problem and issues at the time of my show. I will not even going to post the rest of the Sunday show since the station was at low power most of the time and the quality was not adequate.

January 14th broadcast of the Embassy of the New World Order.

Just another installment of utter brilliance... as one of the callers said.

Subjects for this January 14th edition of the Emabssy of the New World Order on KSCO AM 1080 included:

• Escalation and surge of troops in Iraq. There is at least one aspect that must be considered before any comments are made and way too many armchair admirals and generals do not understand it. I have to admit that I myself foolishly neglected to find out more about numbers and was of the opinion that additional 20,000 are not enough compared to 140,000 already there. Well, it appears that in terms of Baghdad proper, this escalation and surge will more then double US troop contingent. According to Economist, 5 brigades will be added to 4 stationed there. Since Baghdad is the central point for the push, my optimism levels have risen to manageable levels.
• La Patria o la tumba! Hugo Chavez is dropping silly pretense and is calling himself for the communist he is. He is embarking on the path of late Salvadore Allende nationalizing communications, energy and oil industries. Considering records of Communist states or states with nationalized pyramid economies like USSR running out of grain with all the Ukrainian topsoil, the end result will be Venezuela running out of oil, oil money and making its people even more poor.
• Case to the point is a shocking prediction of  Iran running out of oil. Not out of oil in the ground, but out of oil available for consumption. Combine this with German Gref's warning that Russia might run out of natural gas for internal use. Oil prices have been on decline for some time now hovering just above $50 per barrel. Iran and Russia whose governments survive because of the petrodollars they rake in, might begin to feel the pinch if the situation continues to deteriorate. Especially if it is true that 70% of Iran's budget is based on oil revenues.
• Quick commentary on yet another PR fiasco the inept Putin Inc administration dragged Russia into - the quarrel with Belarus over oil and gas supplies, Gazprom's stake in Belarusneftegaz as well as another reminder to the Europeans of how reliable as a partner Russia can be.

As always much more substance, callers, funnies in the podcast. Download and enjoy.

The tempest in the Minsk teapot is brewing into a regional tornado that eventually threatens to wipe Belarus democratically self-elected President Aleksander Lukashenka off the political map of Europe.

• Some time in the past Mr. Putin decided to abandon considerations for unification of Belarus and Russia into a new state entity thus allowing Mr. Putin to run for the third term as President of Russia, making democratically self-elected Lukashenka a mere nuisance and a waste of hard earned petrodollars.
• Also some time in the past, democratically self-elected Belarus President Alexander Lukashenka mouthed something that Mr. Putin found offensive.
• Russia decided to raise prices Belarus pays for natural gas imports from Russia to $200 per 1,000 cubic meters. On the surface, this goes along the lines of “Russia(Gazprom) ain’t Santa Claus.” Too true. Calendar based contracts turn democratically elected CEO of Russia Inc into a Grinch instead.

Another one bites the dust... I know it is not nice to say bad things about recently dead people, but what good could you say about recently dead really bad guy? Who really was worse then Saparmurat Niyazov, the petty dictator of the poor Central Asian nation of Turkmenistan? The guy that stole national wealth from his people to adorn his capital city with golden statues of himself? Burn in hell, jerk would be more appropriate I think, albeit childish.

• Huge natural gas reserves made Turkmenistan a magnet for influences. Without Turkmen gas Russia would not be able to honor its gas supply obligations to Europe and have much l;eft over for its internal consumption.
• Europe is seriously dependent on Russian/Turkmen natural gas supplies.
• So, instability of Turkmenistan would theoretically be a bad thing for both Russia and Europe, unless...

ALMATY, Dec. 23 (Xinhua) -- Turkmenistan's acting President Gurbanguly Berdymukhamedov has sacked the country's Parliament speaker Ovezgeldy Atayev, Turkmen state television reported Saturday.  "You have been relieved from the post of parliament speaker," Berdymukhamedov said on state television after the chamber voted to strip Atayev of his immunity.

Speaker of Turkmen Parliament Ovezgeldy Atayev has been arrested, APA special reporter in Turkmenistan reports. Criminal proceedings were instituted against the speaker two hours later the news about Saparmurat Niyazov’s death was announced. Under the Constitution, the presidential powers must be transferred to the parliament speaker.

WASHINGTON, Dec. 21 (UPI) -- Security experts are recommending that Americans and other foreigners prepare to leave Turkmenistan.

Some claim that one and a half month before he had some operations (heart, eye and leg) and died 20-25 days before (according to some Russian resources 3 days ago), and in this period internal dynamics of Turkmenistan compromised on the solution. In fact, official declaration of the name of the Vice President and Mister of Healt Kurbanguli Berdimuhammedov is giving the impression that the leadership problem has been solved for the time being.

It will be interesting to see who would eventually emerge and the new basi. Somehow I think we have not heard last from Lt. Gen. Geldimukhammed Ashirmukhammedov, the security minister.

Is this where the golden secure parachute will be found for Vladimir Putin when he is termed out from the presidency of Russia in 2008?

On Saturday Russian President Vladimir Putin held a meeting of the Russian Security Council at which a new strategy that would give the government control of gas and oil extraction from the Russian shelf was discussed. It is hoped that the shelf will be Russia’s main energy resource base for the 21st century. To achieve this goal, the strategy calls for an end to joint-venture projects and a renewed focus on Russia’s home-grown strengths. To that end, the Russian gas and oil giants Gazprom, Rosneft, and Zarubezhneft may be combined into a single government monopoly that would take over the shelf, which would mean new inspections and headaches for foreign operators already working there

• Decimation of Yukos and transfer of its assets to Roseneft for pennies on the dollar. 
• Appointment of Putin's long time personal secretary and aid Igor Sechin to Chairmanship of the Board of Directors of Rosneft.
• Float the Rosneft IPO at FTSE. The IPO was coordinated with the Kremlin.
• Alexei Miller, another Putin's confidant from when Putin was deputy Mayor of St. Petersburg is the CEO of Gazprom.
• Valery Golubyev yet another ex-KGB, ex-St. Peterburg government confidant was appointed to run Gazprom's oil arm.
• German Gref, Russian Economic Development minister made a mistake suggesting to split Gazprom. Mr. Putin had a talk with him and the issue is no longer on the agenda.
• Earlier this year Gazprom was given the natural gas export monopoly.
• Gazprom now has former German Chancellor Gerhard Schröder on its payroll

Putin considers it a personal achievement that Gazprom is now worth about $260 billion and ranks as the third-largest corporation worldwide in terms of market capitalization, after ExxonMobil and General Electric. The position Gazprom now holds in the international energy trade is "the result of concerted state activity," Putin said in his state of the nation address in May.

• Use Gazprom's subsidiary Gazprom Media to take control of the major private - as it was at the time - TV Channel NTV.
• Use Gazprom to exert (or is it extort) influence over neighbouring states by either closing or threatening to close the natural gas or oil spigots.
• Use Gazprom to literally incite rebellions in disputed or breakaway areas of independent states formerly parts of the USSR.

Gazprom's leadership went as far as receiving South Ossetian "President" Eduard Kokoity for negotiations last October. The subject of the negotiations was an ambitious pipeline construction project. The pipeline would lead across the Caucasian Crest and into South Ossetia's capital city of Tskhinvali. Both the smirking rebel leader and the Gazprom managers knew only too well that the project, developed by the Kremlin, wasn't motivated by expectation of financial gain, but by the desire for political power.

• Use Schröder and the proposed pipeline across the Baltic Sea to drive a wedge between Western Europe and ungrateful former USSR sattelites and colonies like Poland, Ukraine, Estonia , Latvia and Lithuania, by threatening to isolate them from energy resources.
• Actively use foreign policy of Russia to destabilize the Caucuses region via Chechnya, South Ossetia, Abkhazia and prevent more capital investment in creating pipelines that would bypass Russia, threatening its monopoly and leverage power, and connect Central Asian energy resources with access to Black and to Mediterranean seas. 
• Begin harassment of foreign investors (Sakhalin) with the aim of either forcing new conditions or altogether forcing them away.
• Start moving towards creating a global natural gas cartel.

December 03, 2006 Embassy of the New World Order

• 100,000 fewer houses for the poor were built during his 8 years then in 5 under the previous administration.
• Venezuela has, on the whole, slipped on the Human Poverty Index because of its failure to improve access to basic needs
• Inflation is on the rise and price controls have led to shortages of Venezuelan staples like coffee and beef.
• Venezuela’s homicide rate has doubled to become the highest in the world, with 10,000 people murdered annually out of an overall population smaller than that of Canada.

• The media is more concerned with headlines, that’s why they are all badgering Rice and Hadley and others in the Administration – WILL BUSH ADMIT, WILL BUSH CONFESS?!
• The same exact people that has for decades been complaining about the realpolitik – inspired foreign policy when US cozied up to dictators here and there to offset Soviet dictators there and here. Now, the same exact people are lauding the return of the realist Mr. Baker.

After the fall of the USSR, NATO has been soul searching for something to do. It meandered mindlessly walking into entanglements in Kosovo and later Afghanistan, but the apparent reemergence of Russia seeking regional domination and using its energy resources is finally providing it with some life energy.

Some of us have been arguing all along to no avail for expansion of NATO and turning it into the club of free market democracies as well as those that are genuinely seeking capitalism. Yes, in the wake of the post USSR inertia, NATO has expanded its membership to countries of the Eastern Europe placing over them an aegis of the clause five of the NATO charter. But then came doldrums of where next? The US has been trying to push for further enlargement and taking on more responsibilities, but Europe has not been as keen, whether because it did not want or could not afford to take them on.

The last few years seem to be providing food for thought. The two most important security threats Europe is facing now are terrorism and energy supplies and European NATO members are beginning to wake up to these challenges. This week's NATO summit in Riga, Latvia promises to become if not a watershed, at least a first major step towards establishing NATO's role on both issues.

Implications and goals of NATO's involvement in Afghanistan are pretty clear: the first NATO operation outside of Europe, the largest ever NATO deployment, importance of =success in Afghanistan for the capitalist West are all self evident. What is much less evident is Europe's growing worry about Russia and its ability and willingness to use its energy resources to blackmail, dictate or retaliate on issues of foreign policy. Yes, the message is still brought up by a US Senator:

“The use of energy as an overt weapon is not a theoretical threat of the future; it is happening now,” Lugar had warned. Iran has threatened to shut off oil if sanctions are imposed because of its pursuit of a nuclear weapons program, Lugar noted, and Russia actually did halt energy deliveries to Ukraine in a short-term strong-arm attempt to achieve political goals. “NATO must determine what steps it is willing to take if ... another member state is threatened as Ukraine was,” Lugar said. And he listed a number of steps he said required urgent action.

Lugar's Senate Foreign Relations Committee just passed  S. 4014,

The goal of this bill is to reaffirm U.S. support for continued enlargement of NATO to democracies that are able and willing to meet the responsibilities of membership. Specifically, the legislation calls for the timely admission of Albania, Croatia, Georgia, and Macedonia to NATO and authorizes security assistance for these countries in Fiscal Year 2007. Each of these countries has clearly stated its desire to join NATO and is working hard to meet the specified requirements for membership. The bill also affirms that the U.S. stands ready to consider, and if all applicable criteria are satisfied, to support efforts by Ukraine to join NATO, should Ukraine decide that it wishes to meet the responsibilities of membership in the Alliance.

Kommersant immediately jumps to a conclusion that this is some big anti-Russian plot and Lugar might be expressing official Washington position. According to Kommersant, Lugar's message is quite simple - "energy war should be treated as a conventional war."

To burst Kommerant's bubble, Lugar's position goes way beyond simple anti-Russian stance - which is unfortunately the prism Russia looks at everything. The security framework Lugar is suggesting applies as much to Iran, OPEC and to Gasprom's plans of a future natural gas cartel. Let's after all, not forget, who started this round. It was not Lugar, it was Mr. Putin and his autocratic use of the energy spigot that created the situation.

Every action causes a reaction. Poland as the major protagonist of the Energy NATO is squarely Putin's own creation. Lugar's demarche is a reaction to Russia's attempts at blackmail of its neighbours. If Russia wants to use energy as a political lever, as a mechanism of exerting foreign policy influence, then it will have to accept that other countries and alliances like NATO will react to this appropriately.

Neither Kommersant no anyone else should be surprised that Lugar suggested NATO should look at potential memberships of Azerbaijan and Kazakhstan. What will that do? Look at the map, it will draw a straight line across the energy rich Central Asia, across the Caspian Sea, and then to Mediterranean Sea, to the Black Sea into Europe and elsewhere. Creating an energy supply along this line will undermine Russia's monopoly and would minimize effects of any attempts of energy blackmail whoever might be behind it.

Does this all cast any more light on the tempest in the teapot in Belarus?