'Damn Lies, Deep Crisis' In Russian Economy, Says Former Central Banker

A former deputy chairman of the Russian central bank has said Russia’s economic crisis is worse than Moscow admits and that the Kremlin’s optimism about future prospects "has not been based on reality."

Sergei Aleksashenko told SW on February 10 that "the Russian economy is not going to grow" in the near future "and the most likely scenario is stagnation in the medium term."

He said Russian authorities "have not acknowledged the real nature of the crisis, at least publicly" and the crisis "is not over, as the Kremlin claims."

"On the contrary," he said, “the Russian economy is set to continue downward."

The Russian economy has been hit hard by falling global oil prices and international sanctions imposed in response to the Kremlin’s illegal annexation of Ukraine’s Crimean Peninsula two years ago and its support for pro-Russian separatists in eastern Ukraine.

President Vladimir Putin has wagered that ordinary Russians will withstand the hardships brought about amid deteriorating relations with the West over his foreign-policy maneuvers.

But now, Aleksashenko said, Russia is experiencing a series of negative trends that, by his estimate, dragged down Russia’s GDP by 9 percent in 2015.

Russia’s state statistics agency said GDP fell by only 3.7 percent last year

Aleksashenko called that a "statistical miracle" that "does not reflect the real problems."

“As the saying goes, there are lies, damned lies, and statistics,” he said. “If we slice and dice [the official statistical data,] it would be evident that the only growing component of Russia’s GDP was net export.”

For all other components, investments in Russia have been decreasing.

Russia saw a growth in net exports during 2015 at least in part because imports declined -- a situation exacerbated by a weakened ruble and the Kremlin’s retaliatory ban on importing food and other products from the EU and the United States.

In fact, Aleksashenko maintained, there was no growth of Russian exports at all.

Aleksashenko said the real problems facing Russia’s economy are a lack of investment, high inflation, and the declining ruble, which has lost half of its value against the U.S. dollar since early 2014.

Russian authorities have responded to lost Western export markets by announcing that Russia’s future growth will rely more on domestic production and, especially, with developing new trade ties in Asia to replace the loss of exports to the West.

Putin has pushed during the last two years to expand influence in Asia by developing Russia’s eastern territories and integrating them more with developing economies in the Asia-Pacific. That geopolitical strategy hinges on Russia’s potential to become a major supplier of oil, natural gas, iron, steel, and other raw materials to China and other Asian countries.

But Aleksashenko said the Kremlin’s talk of “a pivot to Asia” to fuel Russian growth is not supported by market realities.

“We should not treat the Chinese market as a substitute for the European one,” he said. “This natural gas is provided from different deposits and fields” that are as much as 2,000 kilometers apart and unconnected.

Further, he said, the bulk of Russian exports -- as much as 80 percent -- consists of raw materials and commodities.

But the economic slowdown in China has eased the global demand for such products.

“Therefore, Russia cannot sell more,” he said. “Of course, Moscow would like to rely more on exporting armaments. But that accounts for just about 5 percent of overall Russian exports.”

Russia also has tried to export cars to neighboring countries, he continued. But that accounts for less than 2 percent of exports.

Thus, he said, “external demand cannot be a significant driver of the Russian economy.”

Nor can domestic production, he added.

Agriculture is the only sector of the Russian economy that has shown continuous growth, expanding at an average of 3 percent each year since 2003. But agriculture’s share of Russian GDP is just over 3 percent.

Aleksashenko estimated the Russian agriculture sector would have to grow by 10 percent each year to become “a significant factor in overall growth of the Russian economy.”

And that, he said, “is not doable.”

Despite the ongoing impact of international sanctions, Aleksashenko suggested that they no longer are playing a decisive role in determining Russia’s economic trends and have little effect at all on Kremlin policy decisions.

“Financial sanctions prevent many Russian banks and companies from borrowing money in foreign markets,” he said. “That played a huge role by the end of 2014 and at the beginning of 2015 when Russia had to replay its foreign debt, amounting to 10 percent of its GDP.”

But he said that burden fell dramatically to less than 3 percent of GDP during the last three quarters of 2015 and will continue to fall through 2016.

“It’s still a huge burden, but it cannot destroy the Russian economy.”

Aleksashenko was the Russian central bank’s first deputy chairman from 1995 to 1998 and was a deputy finance minister under President Boris Yeltsin.

He said that in late 2014 he was forced out of his job as editor of an influential economic newsletter published by Moscow’s Higher School of Economics due to his criticism of the Kremlin’s economic leadership.

He is now a senior fellow in global economy and development at the Brookings Institution in Washington.

‘Criminal in the Kremlin’: An Interview with Professor Walter Clemens

 

Below is an interview conducted recently with Walter Clemens, a professor emeritus of political science at Boston University and an associate of the Davis Center for Russian and Eurasian Studies at Harvard University.

 

MOTYL: Walter, you’re well known for tackling complex moral and legal issues of international relations in your work. One of your books was Can Russia Change?

 

CLEMENS: I’m still doubtful.

 

MOTYL: Your current project is titled “Can—Should—Must We Negotiate with Evil? The World and North Korea.”

 

CLEMENS: The subtitle could also read “The World and Vladimir Putin.”

MOTYL: What should the international community do about Mr. Putin?

 

CLEMENS: He should be indicted and brought before the International Criminal Court. Putin is probably guilty of all types of transgressions the court is authorized to prosecute—genocide, crimes against humanity, war crimes, and aggression. As Russia’s president or prime minister, Putin dispatched Russian armed forces against the peoples of Chechnya, Georgia, and Ukraine while keeping them in a province of Moldova. His troops killed between 100,000 and 200,000 Chechens, split off South Ossetia and Abkhazia from Georgia, and watched as South Ossetians carried out ethnic cleansing of Georgian villages. Putin’s forces have seized Crimea, putting Tatars as well as Ukrainians at risk. Putin has fomented separatism in eastern Ukraine and sent several thousand Russians to fight alongside the separatists. He may not have intended for his proxies to shoot down a Malaysian airliner, but he provided the equipment and training that permitted them to do so and kill nearly 300 civilians. When weapons based in Russia strike targets inside Ukraine, however, there is no doubt about Putin’s intentions.

 

MOTYL: Do his actions actually meet the definitional requirements of the crimes you outline?

 

CLEMENS: The Rome Statute setting up the International Criminal Court in 2002 gave precise definitions of genocide, crimes against humanity, and war crimes—all of which fit Putin’s policies. But the member states’ lawyers did not define “aggression” until 2010. According to this definition , aggression includes “the invasion … by the armed forces of a state of the territory of another state”; “annexation by the use of force of the territory of another state”; “bombardment by the armed forces of a state against the territory of another state”; and “the sending by or on behalf of a state of armed bands, groups, irregulars or mercenaries … against another state.” Putin’s forces have clearly committed all these forms of “aggression,” but the ICC cannot exercise its jurisdiction over such crimes before 2017 and until the requisite number of member states have given their approval.

 

Meanwhile, it is clear that Putin’s Kremlin has violated the 1929 “Litvinov Protocol,” which put into force for Russia, Poland, Romania, Estonia, and Latvia the Pact of Paris outlawing war. That pact is still in force.

 

MOTYL: Very well, let’s agree that Putin’s armed forces are guilty on each of these counts as well as of committing crimes of genocide, crimes against humanity, and war crimes. Is the man Vladimir Putin guilty of these crimes as well? Couldn’t he argue that he knew nothing about them?

 

CLEMENS: Putin might counter that he bears no personal responsibility for what Russian forces have done. On the other hand, he has reigned as a virtual dictator over Russia since 1999 and cannot evade responsibility for the crimes his troops commit. Putin could deny that the ICC has jurisdiction, because Russia is one of 31 states that have signed but not ratified the Rome Statute. Pending ratification, however, Russia is obliged under international law not to violate its ICC obligations.

 

MOTYL: So who would bring charges against Putin?

 

CLEMENS: That’s where the complexities get deeper. The Rome Statute gives first jurisdiction to courts in the home country of the accused. Since Russian courts are puppets of the president, they cannot be expected to try and convict their boss. The United Nations Security Council could refer the Putin case to the ICC, but Russia would surely veto such a move.

 

Some 122 states have signed and ratified the Rome Statute. The statute provides that a party to the treaty “may refer to the prosecutor a situation in which one or more crimes within the jurisdiction of the court appear to have been committed” and request “the prosecutor to investigate the situation for the purpose of determining whether one or more specific persons should be charged with the commission of such crimes.” Three states party to the statute have cause to bring charges against Putin: Moldova, Georgia, and the Netherlands. Given that the Netherlands lost nearly 200 citizens on MH17, it probably has the strongest grounds for bringing charges against Putin. Georgia and Moldova, for their own reasons, have solid reasons to join the suit. Nongovernmental actors such as Human Rights Watch and Chechen organizations could also file charges. The Rome Statue permits the prosecutor to initiate investigations motu proprio, or on his/her own initiative, on the basis of information received from individuals or organizations.

 

Malaysia and Ukraine also have grounds to bring charges against Putin, because Flight MH17 belonged to Malaysia and was shot down in Ukrainian airspace. But their failure to ratify the statute disqualifies them from taking their complaints to the court. The United States has also disqualified itself by the George W. Bush administration’s decision to “un-sign” the Rome Statute negotiated and signed by the Clinton White House.

 

MOTYL: Do you seriously expect charges against Putin to be brought?

 

CLEMENS: Putin’s crimes rank with those committed by leaders in the former Yugoslavia who were charged and convicted of war crimes. But there are obstacles. Whereas complaints from ultranationalist Croats and Serbs about persecution of their heroes did not rattle the international community, many governments and businesses in Europe do not wish to offend the Kremlin. Even the United States prefers to retain Russian cooperation in many spheres, from outer space to North Korea.

 

Still, the climate is changing. Putin’s actions in late July–early August led the European Union and the United States to intensify their sanctions against Russia. To try and put the leader of a regional superpower in the dock would be a further step up the ladder. Significantly, Navi Pillay, the UN high commissioner for human rights, said the downing of the Malaysia Airlines jet may be a “war crime.” In July, the Court of Arbitration in The Hague ordered Russia to pay $50 billion in damages to shareholders in the defunct Russian oil company Yukos. That same month, Washington announced that Russia has been testing ground-based cruise missiles in violation of the 1987 Intermediate-range Nuclear Forces Treaty. These accusations come on top of other suspicions aroused by a string of unexplained murders of Russian journalists and others who challenged Putin over the years. And did not the recent cyber attacks against Ukrainian government offices in Kyiv and abroad originate in Putin’s Kremlin? A milieu of crime appears also to have spawned the theft by Russian gangsters of 1.2 billion usernames and passwords belonging to more than 500 million e-mail addresses around the globe.

 

The bottom line is obvious. If the world does not stand up to Putin today, as the Economist warned on July 26th, “worse will follow.”

Female One-Star General to Serve in Russia’s Defense Ministry

A female staffer in Russia’s Defense Ministry has received a promotion to become the ministry’s sole female general, following a decree by the country’s supreme commander posted on the Kremlin website on Tuesday.

“To assign the rank of a major general to Knyazeva, Yelena Georgiyevna,” the presidential decree said.

Colonel Knyazeva worked as acting head of the ministry’s main department for international military cooperation in 2010-2011 and now holds the post of the department deputy head.

There were no female generals in active service in Russia’s Armed Forces until recently compared with the Interior Ministry, the Investigative Committee, the Federal Penal Service and the Customs Service where special grades are assigned instead of military ranks.

In the mid-1990s, senior military ranks in the Russian Armed Forces were assigned to the world’s first woman cosmonaut Valentina Tereshkova who received the rank of major general of the Air Force and Federal Compulsory Medical Insurance Fund ex-deputy director Natalia Klimova who became a major general of the medical service.

Klimova, however, was later stripped of her rank by a court decision in a high-profile corruption case involving the fund’s former management.