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Jan Winiecki compares Vladimir Putin’s short-sighted leadership to Soviet rule in the 1970’s and 1980’s. – Project Syndicate
RZESZOW – With the Winter Olympics underway in Sochi, Russia is again in the global spotlight – and President Vladimir Putin is taking the opportunity to present his country as a resurgent power. But, beneath the swagger and fanfare lie serious doubts about Russia’s future. In fact, long-term price trends for the mineral resources upon which the economy depends, together with Russia’s history (especially the last two decades of Soviet rule), suggest that Putin’s luck may well be about to run out.
Mineral-resource price cycles generally begin with a rise lasting 8-10 years, followed by a longer period of stable, relatively low prices. Given that prices have been on an upswing since the middle of the last decade, they should begin declining within two years, if they have not done so already. Moreover, the last price trough lasted more than 20 years, implying that Russia cannot expect simply to wait it out.
But, beyond acknowledging the need to cut spending – an obvious imperative, after the estimated $50 billion cost of the Sochi Olympics – Putin has not signaled any concrete plans to tackle Russia’s economic weaknesses.
Russia faced a similar challenge in the 1970’s and 1980’s – and, like Putin today, its leaders failed to do what was needed. According to former Prime Minister Yegor Gaidar, who led Russia’s only post-Soviet government that was oriented toward systemic change, the socialist command economy exhausted its growth potential by 1970.
Under non-totalitarian circumstances, the threat of stagnation would have generated strong pressure for systemic reform. But the Soviet Union’s aging communist leadership, encouraged by the OPEC-generated oil-price explosion and the discovery of massive hydrocarbon reserves in western Siberia, took a different tack, using natural-resource revenues to finance continued military expansion.
In an effort to appease the public, the Soviet leadership increased food imports – both directly (meat imports, for example, quintupled from 1970 to 1980) and indirectly (by increasing feedstock imports). While this strategy worked in the short term, it caused food consumption to increase far beyond what the economy could sustain.
As a result, the Soviet economy became even more dependent on resource revenues, making it extremely vulnerable to price fluctuations in international commodity markets. When mineral prices began to decline in the early 1980’s – reaching their lowest point in 1999 – the economy, which had already been stagnating for about five years, went into a free-fall.
Today, the Russian economy is no more resilient than it was in the late Soviet era, with commodities, especially oil and natural gas, accounting for around 90% of total exports and manufacturing for only about 6%. If anything, the economy’s dependence on exports of fuels and industrial minerals has increased, meaning that smaller price fluctuations have a greater impact on Russia’s fiscal and external position. Indeed, some observers – including the Central Bank of Russia (CBR) – have predicted that the country’s current account could slip into deficit as early as next year.
A lasting deficit would eliminate the major economic difference between Putin’s Russia and its Soviet counterpart during the 1980’s – namely, the financial buffer that has been accumulated over the last decade. It is this buffer – which amounted to $785 billion in the 2000-2011 period – that protected the economy from a larger shock when the global financial crisis erupted in 2009, and that has financed Russia’s foreign-policy initiatives, including its recent cooperation with Ukraine.
The CBR’s warning of twin fiscal and current-account deficits assumed that oil prices would remain steady, at $104 per barrel in 2015. But my expectation that oil prices will decline over the next 3-7 years suggests that Russia’s medium-term prospects are actually considerably worse.
In short, Russia will soon have to confront diminished macroeconomic health, with few options for restoring it. Russia’s uncompetitive manufacturing sector certainly cannot pick up the slack, and this is unlikely to change, given Putin’s unwillingness to pursue the needed shift to a more knowledge-intensive economy.
This new reality will not only affect Russia’s foreign-policy and imperial ambitions; it will also undermine the relative social and political stability that has characterized the last decade. Without resource revenues, the government will struggle to finance the policies and programs that are needed to placate ordinary Russians. In this context, the Sochi Olympics, intended to herald Russia’s triumphant return as a global power, may soon come to be regarded as a swansong.
When Russia bid to host the 2014 Winter Olympic Games, they committed to green building standards and a “zero waste” policy that promised not to add to landfills. The $51-billion Sochi Olympics – the most expensive in history – will truly have costly consequences to the environment. The area of development includes a UNESCO World Heritage site and a national park – the most biodiverse location in Russia. Eight thousand acres of preserved forests have been damaged and wetlands important for migrating birds have been buried under two metres of crushed rock. Suren Gazaryan, a zoologist with Environmental Watch on North Caucasus (EWNC) who is living in exile due to criminal charges stemming from his humans rights work, says that parts of the park have been totally destroyed. He adds that much of the government’s much-vaunted reforestation efforts have been “pointless.” The planting of 1.5 million new trees was often done by unqualified personnel who violated conventional methodology.
The Associated Press reports that Russia’s state-owned rail monopoly has been using illegal landfills to dump construction waste from an $8.2-billion, 48-kilometre highway and railroad link between the airport and alpine venues. These illegal landfills are in a water protection zone, and could potentially lead to the contamination of Sochi’s groundwater. Some IOC members have reportedly admitted to making a poor choice when they selected Sochi. Former IOC member Els van Breda Vriesman told Dutch broadcaster NOS that many members would vote differently today.
The Russian government stepped up law enforcement activity against local environmentalists during Olympic construction. Activists have been detained and criminally charged, some have lost their jobs. The government plans to illegally shut down EWNC due to the group’s insistence on legal compliance during Olympic preparations.
Before we get too up-in-arms about Russia’s environmental misconduct, let’s not forget our own here in Canada.
More reason for concern: Environmental destruction and Indigenous rights abuses often go hand-in-hand. We saw this play out at the 2010 Olympics in Vancouver, where protestors linked environmental degradation and Indigenous sovereignty, and we’re seeing it again now with the Circassian community calling Sochi “the genocide Olympics.” The Circassians are indigenous to the North Caucasus region but were driven from driven from the area in the 19th Century. Historian Walter Richmond is calling Sochi the site of Europe’s first genocidein a new book.
As if Russia did not already have enough worries, with the security issues associated with the Sochi Olympics and the growing unrest next door in Ukraine, it now faces severe downward pressure on its currency. Any currency crisis flirts with economic opportunity and political disaster at the same time. The falling ruble can address some of Russia’s structural economic shortcomings, but only if other financial resources are made available in the process.
Russia is not alone in seeing its currency plunge. Turkey, South Africa, Argentina and Thailand have all experienced precipitous declines in their respective currencies since the beginning of 2014.
A common refrain runs through all these cases. The end of the U.S. program of quantitative easing and foreign investors’ rapid retreat from emerging markets has jolted the currency market, creating uncertainty in its wake. Throw in Russia’s low growth rate, high levels of capital flight and endemic corruption and one has all the conditions for a perfect currency storm.
January was a particularly bad month for the Russian ruble, with the currency falling more than 6 percent against the euro-dollar basket. The ruble rebounded a bit in early February, but it has again resumed its downward trend, with many experts speculating that the currency has yet to find its bottom.
The currencies of Russia’s post-Soviet neighbors also are in freefall, most notably in Ukraine, where currency controls have been introduced to save the hryvnia from total collapse. Kazakhstan, meanwhile, preemptively devalued the tenge by 19 percent in an attempt to keep its economy—and its exports—competitive.
To date the Russian government’s response to its currency woes has been reasonably restrained, unlike during the 2008-09 crisis when the Central Bank quickly went through $200 billion in reserves to defend the ruble. Russia currently possesses almost $500 billion in foreign exchange reserves. So to the extent that Russia has a rainy day fund, it is not raining hard enough, from the Central Bank’s perspective, to justify a major intervention to slow the ruble’s slide.
A falling ruble, in fact, solves several problems for the Russian government while setting the stage for a potential economic recovery. President Putin made several big campaign promises in 2012, especially in terms of increased social spending, that put significant strains on the Russian budget last year. Since the Russian government can make these payments with cheaper rubles, the burden on the budget has shrunk.
The decline in the ruble’s value also presents opportunities for Russian exporters, since their products naturally become more competitive abroad as the ruble declines. Though it appears unlikely that most Russian companies are in a position to profit from this changing dynamic, Russia’s wheat exports are up dramatically thanks to the declining ruble.
Russia brings other advantages to this crisis as well, including a balanced budget and a steady stream of hard-currency earnings that are not tied to value of the ruble, thereby allowing the state to replenish its coffers at a consistent rate. So one can clearly identify the scenario where Russia not only survives this devaluation but theoretically comes out in a better place than where it started.
But not all currency crises have happy endings. A weaker ruble portends a lower standard of living for many Russians. The specter of inflation further hovers over Russia as its citizens invariably will now chase after imported consumer products with cheaper rubles.
But the big unknown is whether Russia is flexible enough to benefit from the current financial crisis. As the ruble weakens and the price of labor and other inputs fall, Russia should be in a position to replace expensive imports with more affordable Russian-made goods. Such substitution occurred after the 1998 currency crisis and ultimately contributed to Russia’s sustained recovery.
Yet today, it remains an open question whether Russia possesses adequate financial and human capital to spark such business investment. Over the past decade, Russia’s entrepreneurial spirit has been snuffed out through excessive government regulation, corruption, and the steady rise of state-owned enterprises. The legal environment is so suffocating that Russia may not have sufficient reserves of entrepreneurs willing to assume the risk and invest in the Russian market.
Russia also still suffers from disastrous capital outflows. More than $60 billion dollars left the country last year for various destinations in the offshore banking system—and this money is exactly what Russia requires to buy equipment and otherwise invest in domestic business in order to take advantage of the falling ruble. Yet there is no sign that this money is returning onshore any time soon, especially if the government continues to talk about taxing Russian offshore companies doing business in Russia.
No supplemental investment means no sustained economic turnaround and the growing likelihood that a falling ruble will mirror a weakening economy, as opposed to reversing it. And as recent events in Argentina and Turkey suggest, such a development is a recipe for political failure. In both of these countries, a collapsing currency has fueled speculation as to the long-term prospects of their leaders. President Cristina Fernandez and Prime Minister Recep Tayyip Erdogan are floundering, in part because to address the currency crisis means to question the very economic policies that have sustained their popularity during their many years in power.
President Putin has not had to face this choice as of yet, but that day of reckoning may be approaching if Russians realize that basic Western consumer goods, foreign travel, and other perks of Russian capitalism are now beyond their reach.
Russians have weathered several currency crises over the past thirty years; so far, no one is shouting that the sky is falling. However, a currency crisis that is not contained could easily spill into politics, something that Putin wants to avoid at all costs. If the latter occurs, then it will be officially raining in Russia, and money will be no obstacle in any attempt to stabilize the ruble.
Will Pomeranz is the acting director of the Kennan Institute for Advanced Russian Studies at the Wilson Center in Washington D.C.
Image: RIA Novosti archive, image #978876 / Alexey Kudenko / CC-BY-SA 3.0
The Sochi Olympic Games and the Threat of a Terrorist Attack. Who is Behind the Caucasus Terrorists? | Global Research
In the weeks leading up to the Sochi Winter Olympics, the Western Media has released a dribble of “trustworthy reports” examining “the likelihood” of a terrorist attack at the height of the Olympic games.
In late January, the British government warned “that more terrorist attacks in Russia (following the Volgograd attack in December) are “very likely to occur before or during the Winter Olympics in Sochi”. (BBC, January 27, 2014).
As the Olympic torch reaches Sochi, CNN released, in a timely fashion, the results of an “authoritative” opinion poll (based on a meager sample of 1000 individuals): “57% of Americans think terror attack likely at Sochi Games”
Earlier news reports focussed on the mysterious menace of a so-called “Black Widow” terrorist attack emanating from Chechnya, Russia’s hotspot of Islamic terrorism. According to a so-called “catastrophe expert” Dr Gordon Woo, a Black Widow attack “is almost certain to happen”:
“Because of the history between the Russians and the Chechen people who splintered to form the Caucasus Emirate, Sochi is a prime target for terrorism,” said Woo, who has advanced insurance modelling of catastrophes, including designing a model for terrorism risk. (Business Times, UK)
The Sochi Games are occurring at the height of a Worldwide crisis marked by the confrontation between the US and Russia on the geopolitical chessboard. In turn, the ongoing protest movement in Ukraine has a bearing on Russia’s geopolitical control of the Black Sea.
What would be the underlying political objective of a terrorist attack?
Are these slanted media reports solely intended to create an aura of fear and uncertainty which causes political embarrassment to the Russian authorities?
While network TV and the tabloids have their eyes riveted on the Black Widow, the more fundamental question as to Who is behind the Caucasus terrorists goes unmentioned.
None of the news reports has focused on the fundamental question which is required in assessing the terror threat.
Both the history of Al Qaeda as well as recent developments in Syria and Libya confirm unequivocally that the Al Qaeda network is covertly supported by Western intelligence.
History: Who is Behind the Chechen Terrorists?
What are the historical origins of the Chechen jihadists, which are now allegedly threatening the Sochi Games? Who is behind them?
In the 1990s, following the collapse of the Soviet Union, the US waged a covert war against Russia. The objective was to promote the secession of Chechnya, a “renegade autonomous region” of the Russian Federation, at the crossroads of strategic oil and gas pipeline routes.
This was a covert intelligence operation. The main Chechen rebel leaders, Shamil Basayev and Al Khattab, were trained and indoctrinated in CIA-sponsored camps in Afghanistan and Pakistan.
The two main Chechen jihadist formations, affiliated to Al Qaeda were estimated at 35,000 strong. They were supported by Pakistan’s Military intelligence (ISI) on behalf of the CIA; funding was also channeled to Chechnya through the Wahabbi missions from Saudi Arabia.
The ISI played a key role in organizing and training the Chechnya rebel army:
“[In 1994] the Pakistani Inter Services Intelligence arranged for Basayev and his trusted lieutenants to undergo intensive Islamic indoctrination and training in guerrilla warfare in the Khost province of Afghanistan at Amir Muawia camp, set up in the early 1980s by the CIA and ISI and run by famous Afghani warlord Gulbuddin Hekmatyar. In July 1994, upon graduating from Amir Muawia, Basayev was transferred to Markaz-i-Dawar camp in Pakistan to undergo training in advanced guerrilla tactics. In Pakistan, Basayev met the highest ranking Pakistani military and intelligence officers (Levon Sevunts, “Who’s Calling The Shots? Chechen conflict finds Islamic roots in Afghanistan and Pakistan”, The Gazette, Montreal, 26 October 1999.)
Following his training and indoctrination stint, Basayev was assigned to lead the assault against Russian federal troops in the first Chechen war in 1995. (Vitaly Romanov and Viktor Yadukha, “Chechen Front Moves To Kosovo”, Segodnia, Moscow, 23 Feb 2000)
The Geopolitics of the Sochi Winter Olympics
The Sochi Olympics are at a strategic location on the Black Sea at the crossroads of Russia’s oil and gas pipelines.
The forbidden question (both by the West as well as by the Russian government) in addressing the possibility of a terror attack is: Who is behind the Terrorists?
While the US sponsored Chechen rebels were defeated in the 1990s by Russian forces, various Al Qaeda affiliated formations –including the “Caucasus Emirate militant group, Imarat Kavkaz (IK) — remain active in the Southern Caucasus region of the Russian Federation (e.g. Chechnya, Dagestan, Ingushetia and Abkhazia).
Both the Russian based Al Qaeda groups as well as the broader network of jihadist formations in the Middle East, Central Asia and the Balkans constitute CIA “intelligence assets” which could potentially be used to trigger a terrorist event at the height of the Sochi Olympics.
Needless to say, Moscow is fully aware that Al Qaeda is an instrument of Western intelligence. And Moscow is also aware that the US is covertly supporting terror groups which threaten the security of the Olympic Games.
Within the Russian military and intelligence establishment, this is known, documented and discussed behind closed doors. Yet at the same time, it is a “forbidden truth”. It is taboo to talk about it in public or to raise it at the diplomatic level. Washington knows that Moscow knows: “I know you know I know”.
The more fundamental questions which both the Russian and Western media are not addressing for obvious reasons:
- Who is behind the Caucasus terrorists?
- What geopolitical interests would be served, were the US and its allies to decide to trigger a “False Flag” terror event before or during the Sochi Olympic Games?
Just a few short weeks away, the opening ceremony of the Sochi Winter Olympic may go off with a bang, literally, judging by the amount of “terrorist” chatter surrounding the games. Today however, it is more than just chatter: earlier the Russian media reported that Russian security forces had come across multiple unexplained deaths and explosive devices in a region near Sochi, resulting in an aggressive “anti-terrorism sweep.”
The developments are bizarre to say the least:
A car with a body inside exploded as police approached it in Russia’s Stavropol Territory, reported Russia’s state-owned RIA Novosti, citing the Interior Ministry. In the same area, Russian authorities reportedly discovered a car containing the bodies of three men along with explosive material. The day before, two more bodies were found in the same region.
Russian officials are investigating the possible cause and motive for the deaths — a Russia analyst speculated to ABC News the deaths could be related to organized crime — but at any rate the mystery and the security sweep add to an already tense situation in southern Russia as the Olympics approach.
One person keeping a close eye on the developments is none other than president Obama, who as we reported yesterday, will unleash an ad blitz for Obamacare around the Olympics. The last thing he will want is for the participants in the games to have need of it. Which is why one can be certain that the NSA and various US security forces are already well aware of any potential sources of terrorism around the games. Sure enough, in a statement of condolences from the White House over the most recent Volgograd bombings, President Obama’s National Security Council slipped in an apparent jab at the Russian government over the security situation. “The U.S. government has offered our full support to the Russian government in security preparations for the Sochi Olympic Games, and we would welcome the opportunity for closer cooperation for the safety of the athletes, spectators, and other participants,” the NSC statement said.”
Some thoughts on who they may be:
Just 10 days ago more than 30 people were killed in dual suicide bombings in Volgograd, Russia, some 400 miles northeast of Sochi. By comparison, Moscow lies more than 850 miles north of Sochi. In October seven people were killed when a suicide bomber detonated explosives on a bus, also in Volgograd. The Stavropol Territory lies approximately halfway between Volgograd and Sochi – approximately 150 miles away from the Olympic site.
No group has publicly claimed responsibility for the bombings, but in the case of the October bus bombing, Russian authorities said the bomber hailed from Dagestan, a restive region in southern Russia to Sochi’s east that, along with Chechnya, is home to a violent Islamist insurgency that has fought Russian government forces for decades.
The leader of the insurgency, Doku Umarov, sometimes referred to as “Russia’s Osama bin Laden,” last June called on his followers to “do their utmost to derail” the Sochi Olympics, which he called a “satanic dance on the bones of our ancestors.” In the past Umarov has claimed responsibility for deadly attacks on Russian civilians, including the 2011 bombing of Moscow’s Domodedovo airport.
What is far more clear is who is providing the funding and supplies for the Islamists – the same puppetmaster who was behind the Syrian conflict. Recall:
Bandar told Putin, “There are many common values and goals that bring us together, most notably the fight against terrorism and extremism all over the world. Russia, the US, the EU and the Saudis agree on promoting and consolidating international peace and security. The terrorist threat is growing in light of the phenomena spawned by the Arab Spring. We have lost some regimes. And what we got in return were terrorist experiences, as evidenced by the experience of the Muslim Brotherhood in Egypt and the extremist groups in Libya. … As an example, I can give you a guarantee to protect the Winter Olympics in the city of Sochi on the Black Sea next year. The Chechen groups that threaten the security of the games are controlled by us, and they will not move in the Syrian territory’s direction without coordinating with us. These groups do not scare us. We use them in the face of the Syrian regime but they will have no role or influence in Syria’s political future.”
Putin laughed in Bandar’s face, the Saudi natgas pipeline gambit in Syria failed, and as a result the escalation in Sochi is progressing just as Bandar implied it would. Naturally this puts Obama in a tough spot: he can’t openly act against Saudi interests once again after alieanting his ally in the region and take out the terrorist camps in Chechnya, but the last thing he would want is to cart home coffins of athletes.
Which means US participants are resorting to Plan B:
the U.S. ski and snowboard team this year will be overseen by a private security firm, which plans to have as many as five aircraft on standby in case of a medical or security emergency in Sochi. “This environment is unique,” Global Rescue CEO Dan Richards told USA Today Wednesday. “You just don’t have competitions in places like Sochi with any frequency. … In the last 10 years, there has been nothing like it.”
William Rathburn, who was the head of Olympic Security during the bombing of the 1996 Olympic Games in Atlanta, Georgia, told ABC News that while he’s confident Russian officials “have done everything they can” to secure the upcoming games, the odds of an incident are “very high.”
“It’s an opportunity for the Chechen [militants] or anyone else to embarrass Russia or [Russian President Vladimir] Putin, I think,” he said. “It’s far easier to protect against attacks on somebody who might be targeted, a group or country or delegation. [But] it’s clear that the people who conducted the two bombings in Volgograd are willing to indiscriminately kill people. It’s very difficult to protect against…”
And after last year in which Putin humiliated US and most western foreign policy on virtually every front, the number of people who want to embarass Putin is quite long.