Russia: Other Points of View

RUSSIA WEEK: THE FED'S GORDIAN KNOT

FINANCIAL ANALYSIS

by Chris Weafer

“More than any time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness, the other to total extinction. Let us pray that we have the wisdom to choose correctly”

                                                                                                                                 Woody Allen

Asian equities have extended Wall Streets move with a gain of over 1.5% for the MSCI Asia-Pacific Index at mid session today. Materials producers and industries linked to global economic activity are leading the gains. Most Asian developing market currencies are also trading better. That bodes well for Moscow's bourses and the ruble this morning with steel and mining names expected to be amongst the leaders. Moscow trade will, however, be quiet today as the London GDR market is closed for a holiday.

One month Brent is at $111.96 p/bbl. The dollar-euro rate is $1.4493. Gold is at $1,827.6 per ounce, up 1.5%, while silver is 0.9% better.

So at least now we know the equation; if US growth indicators deteriorate the Fed, or legislators prompted by the Fed, will put some additional stimuli in place. If growth indicators remain robust then they will not take any additional action. It does, of course, beg the question as to exactly what stimuli may actually be available. QE 1 and 2 did not work very well and the US government is grappling to reign in the deficit and borrowing. But, at least we now have confirmation that the Fed will not allow a growth deterioration without taking "some" action. Exactly what that might be will not be known until the next Fed FOMC meeting on September 20 and 21st. It does create a new dynamic for markets in September, i.e. bad economic numbers will not have the same negative effect as in August because it will increase the chances of intervention. The currency markets will, however, likely see more volatility. Bernanke and the Fed governors have something of a Gordian Knot to untangle. Investors hope that it does not take a latter day Alexander the Great to resolve it. 

The full note, with this week’s market diary, stock watch and a look at the stocks that took the biggest hit in August, and which offer the best upside, can be downloaded Download Russia_Week_Aug_29_11. Also included is the usual Russia update (economy, social, politics, market reforms), oil comment, weekly funds flow analysis, and tables showing the best and worst share performance of last week. 

THE AUGUST COUP IN CONTEXT

COMMENTARY

By Gordon M. Hahn

In August 1991 I was a PhD candidate studying at a major university in the Boston area.  I had been warning my professors for nearly a year that a coup attempt was coming and it would be led by an alliance of the siloviki and the CPSU.  It was not that I was especially smart but rather that I had been charged at a think tank to follow the CPSU, the Soviet military, and Soviet civil-military relations.  When the coup came, however, it still caught me off balance. 

I had long been a supporter of Mikhail Gorbachev’s reforms, but by August 1991 I understood that his plans since April 1991 had attained a new more radical quality. They were moving beyond an attempt to maintain a hybrid regime with elements of democracy but the CPSU still dominant; the policy he had conducted from 1988 to April 1991. He was now prepared to partner with opposition elements in the Russin republic (RSFSR) state apparatus led by the maverick and cantankerous RSFSR president Boris Yeltsin and to fashion a transition to democracy.

Gorbachev’s transition pact with the radical reformers required fully dismantling the party-state, and this was evident in Gorbachev’s new Union Treaty negotiated with Yeltsin and most of the union republics, the new democratic political and election system created by the treaty, Gorbachev’s plans to split the CPSU at a special party congress in November, and the draft party program that his reformist wing of the CPSU would have adopted after the split.

TWENTY YEARS AFTER THE SOVIET COUP, RUSSIA TAKES A HARD LOOK IN THE MIRROR

REPRINTS

http://rt.com

On August 19, 1991, Muscovites awoke to the jarring sight of tank treads on the streets and ballet slippers on the television as a counter-perestroika coup had begun.

­Today, as Russians pause to remember those three days that shook the Soviet Union to its very foundation, a surprising diversity of views about the event and its aftermath are surfacing. 

­From euphoria to disillusionment

Shortly after the failed putsch, which had been carried out with the intention of halting Gorbachev’s perestroika (“restructuring”), many Russians spoke with nostalgia on those exhilarating days; when they stared into the jaws of the Soviet military machine and walked away unscathed. In fact, protesters were shown playing guitars on top of the tanks and sharing cigarettes with the tank crews.

“Many Russian intellectuals are nostalgic for the first days after the unsuccessful August coup,” Leonid Zagalsky recollected in the Bulletin of the Atomic Scientists (BAS). “They remember those days with tears in their eyes; it was a time when the whole nation seemed to be united against the threatened return of totalitarianism.”

Zagalsky recounted that the failed Soviet coup presented “a real opportunity to be part of a noble impulse…It was an incredible feeling to stand in the human chain, hand-in-hand, fighting for democracy; this was the high point of their lives.”  

Eventually, however, such high-spirited assessments of those daring days of August were dashed by a more realistic reading of the situation. Although many Russians willingly risked their lives for the sake of Mikhail Gorbachev's tentative democratic reforms, few could have predicted that the immediate impact of the coup would be the collapse of the Soviet Union four months later.

RUSSIA TODAY: OIL AND LIBYA FACTOR

FINANCIAL ANALYSIS

by Chris Weafer

Asia's markets and most commodities are tracking higher this morning as investors wait in hope that the US Fed may announce some new measure to try and boost economic growth when it holds its annual meeting at Jackson Hole, Wyoming starting Thursday. Sentiment remains very fragile and while investors will try to extend those gains across other markets today, any disappointing data point will reverse that trend. 

The initial knee-jerk reaction to the news of the surprisingly quick advance of opposition forces into Tripoli yesterday was a $2 /bbl fall in the price of Brent as traders started to factor in a quick return for Libyan oil to the export market. A more sober reflection suggests that while a quick return of 300-500,000 bbl/d is possible, it may take anything up to 18 months for full recovery. (See more detailed note below). The price action of the past 24-hours supports the bullish case for oil and reflects the net long position in then Futures market. This is a very positive backdrop for the Russia investment case once the rest of the world settles. 

Brent crude for one-month delivery is trading at $108.79 p/bbl in Asia currently and that is now higher than Friday's close. WTI is at $85.03 p/bbl. 

REFORM LESSONS FOR PERESTROIKA 2.0

COMMENTARY

by Gordon Hahn

The nexus between this year’s 20^th anniversary of the failed Soviet hardline August coup that put an end to Mikhail Gorbachev’s perestroika and Russian President Dmitrii Medvedev’s reforms suggests drawing lessons from the perestroika era and other previous Russian reform efforts.  The onset of another Russian reform wave suggests another problem: drawing lessons from past Russian reform efforts.

Perestroika’s Lessons

The present ruling tandem of Medvedev and his presidential predecessor and present Prime Minister Vladimir Putin draws at least two lessons from the perestroika era.

Lesson 1: Russia does not need any more revolutions. Both Medvedev and Putin have stated many times their aversion to revolution.  They have in mind not just illegal, unconstitutional seizures of power from below or above.  Medvedev, Putin, and the bulk of the Russian elite and society do not trust rapid reform or the “miracles” or “tectonic shifts” reminisced about in an edition of Novoe vremya dedicated to Gorbachev’s 80^th birthday (Yurii Afanasev, “Tri oshibki prezidenta,” Novoe vremya, 28 February 2011, p. 16 and Viktor Shenderovich, “Velikii Yanus,” Novoe vremya, 28 February 2011, p. 16).

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Then and now. The 20^th anniversary of the 1991 coup attempt and its sequella is upon us and I agree with Gorbachev’s comment that the coup planners “were truly idiots, and they destroyed everything. And we proved ourselves to be semi-idiots, myself included.” The 17 March referendum  showed, with important exceptions, that the bulk of the population wanted to remain united. (The results foretold much of the coming fighting and secessions too). But it didn’t happen and there was no small misery in consequence of the breakup. However there is an interesting piece comparing ordinary life in Russia then and now in terms of purchasing power. In essence, despite much remaining poverty (20% or so), per capita income is up about 45% since 20 years ago. 45% is not that much perhaps over two decades, but the growth comes post-Putin after the seemingly unending fall throughout most of the 1990s. No wonder most Russians support Putin/Medvedev. It would be interesting to see a similar calculation in the other 14 former SSRs. In that connection, I leave you with this quotation from Ukraine’s then-PM Kuchma in 1993: “…like everyone else, I believed that Ukraine is so rich that it provided for the entire [Soviet] Union. It turned out that it is, in fact, rich. However, was it really a provider?” I believe many SSRs thought that they put in and the RSFSR took out and the moment Moscow was gone they would be better off. Not true, as they have had opportunity to learn and reflect on.

US-RUSSIA RESET: WHATS BEHIND THE GINNED-UP CRISIS IN U.S.-RUSSIA RELATIONS?

REPRINTS

www.foreignpolicy.com, August 12, 2011

BY SAMUEL CHARAP 

Samuel Charap is director for Russia and Eurasia at the Center for American Progress. 

Storm clouds are gathering over what has been a signature shift in U.S. foreign policy under President Barack Obama: the "reset" of relations with Russia. The usual suspects, from the Weekly Standard to the Washington Times to hawkish cold warriors in Congress, see recent news as vindication of their argument that the reset represents dangerous appeasement of a relentless foe on the march, an adversary with which it would be folly to cooperate in any way. 

Some of the headlines, including a supposedly Kremlin-ordered attack on a U.S. Embassy, leave one with the impression that the U.S.-Russia relationship is on the brink of a return to the state of near confrontation that Obama inherited. 

BUILDING A REPUBLIC 20 YEARS AFTER THE PUTSCH

REPRINTS

Moscow Times, August 16, 2011 

By Dmitry Trenin

Dmitry Trenin is director of the Carnegie Moscow Center. His most recent book, "Post-Imperium: A Eurasian Story," was published this summer.

Chinese leader Zhou Enlai may have been correct when he told U.S. President Richard Nixon in 1972 that it was too early to determine the impact of the French Revolution, but 20 years is usually enough to assess the importance of most historical events. It is also sufficiently close to remember what actually happened and to feel the elapsed period. Yet three days in August 1991 that changed the course of world history are still a cause of confusion and contestation in the former Soviet Union.

For most in Europe and the United States, 1991 takes a back seat to the fall of the Berlin Wall. This clearly demonstrates that what mattered to the West, then and now, was the reunification of Europe and of Germany within it. The fate of the Soviet Union itself was not an issue in the Cold War. The sudden collapse of the Soviet empire had to be managed and made permanent, but anything beyond that was deemed too difficult ­ and, frankly, unnecessary. 

NATO EXPANSION, AND U.S.-RUSSIA RELATIONS IN THE 'NEAR ABROAD'

COMMENTARY

by Gordon Hahn

Several events this week prompt a reconsideration of a potential deal breaker in the U.S.-Russian ‘reset’ or thaw, and the failed policy of NATO expansion without Russia which was adopted by the Clinton Administration in the mid-1990s. 

First, the anniversary of the Five-Day August 2008 Georgian-Russian War passed with Georgia still deprived of 30 percent of its perceived territory––and Abkhazia and South Ossetiya set on a long road to real independence.  This was the price Georgia paid for its own hubris and the West’s clumsy interference in a region it poorly understands.  That interference was driven by the policy of NATO expansion, which militarized American and Western democracy-promotion efforts and piqued Russian resistance to them.

In addition, American policy was driven in large part by the anti-Russian biases of many U.S. post-sovietologists, analysts, and journalists when it comes to assessing Russia’s relations with its own minorities and former Soviet nationalities.  Often, these relations are caricatured on the model of the white hats and the black hats.  The Russians are cast as the nasty black-hated nationalistic imperialists, while the peoples like Georgians and their nationalist leaders are cast as the good guys, ‘beacons of democracy.’ 

RUSSIAN FEDERATION WEEKLY SITREP

by Patrick Armstrong

Ossetia war anniversary. My take, three years later is here: in brief, Russia is better off and Georgia is worse off. As I argued elsewhere I believe that the war – and especially Saakashvili’s erratic and untruthful behaviour, “unravelled the sweater” of Western memes about Russia’s intentions. In short, the Russia that the anti-Russia lobby believes exists, and Saakashvili talked about, would have moved to Tbilisi, seized Saakashvili and still be there. Once you doubt Saakashvili’s word on this, you have to doubt everything else he said about Russia and that leads one to questioning more and more. I still believe that the most important fact was that the French Foreign Minister actually went to talk to the refugees from Ossetia. Generally Western observers – and Saakashvili’s claque especially – stubbornly refuse to contemplate the Ossetian and Abkhazian point of view. (Witness this from an American businessman who spends a lot of time there on the US Senate’s idea that Russia “occupies” Abkhazia.)