Hello! This week our top story is about the movers and shakers in Russia’s new government, which was unveiled this week. We also look at what Russian officials got up to at this year’s World Economic Forum in Davos and have highlights from an interview with economist Andrei Movchan, as well as a brief recap of the state of play in Telegram’s battle with the U.S. authorities and a rundown of the controversy generated by Russia’s new minister of culture.
Divvying up responsibility in Mishustin’s new government
There have been almost no new faces in the Russian government for 8 years, but the last two weeks have seen changes happening at a bewildering pace. Last week, we discovered that the new prime minister would be Mikhail Mishustin, and then the make-up of the new government was announced Tuesday. The Bell has learnt who will oversee who in the cabinet, and which ministers will have access to the biggest cash flows as President Vladimir Putin prepares to unleash a spending spree in the last 4 years of his presidency.
- First Deputy Prime Minister Andrei Belousov has been given the most authority in the cabinet. A familiar face in the corridors of power, Belousov has been Putin’s economic advisor for the last 7 years. He is an advocate of a strong state and believes Russia is surrounded by a “ring of enemies,” according to one senior official (Belousov was the only official from Russia’s ‘economic bloc’ to support the 2014 annexation of Crimea). Belousov, 60, is also believed to be the ideologue of Russian economic strategy in which the state is the dominant player and growth is to be generated through a $420 billion spending program. The question remains: where will all the money come from?
- This spending programme, known as the National Projects, is divided up by sector, including infrastructure, culture and digital economy. The lion’s share of the money, $189 billion, will be under Belousov’s direct control as he will oversee the most expensive road construction projects.
- Finance Minister Anton Siluanov, who was stripped of his deputy premiership in the new government, will be one of the few who can challenge Belousov. Siluanov is the government’s leading fiscal conservative, he contributed to Russia’s record low rate of inflation (4 percent in 2019 compared to 13 percent in 2015). Whether inflation can be kept low is now an open question. However, it will be hard for Siluanov to stop Belousov, who has huge bureaucratic resources at his command and a close relationship with Putin himself (you can read in detail about the ‘economic bloc’ of the new government in Russian here).
- Bloomberg called the former Minister of Economic Development and current president’s economic advisor Maxim Oreshkin “Putin’s new favourite official”. This could be true, but for the new economic bloc, he is more of a dark dark horse. Prior to becoming a minister Oreshkin worked at Rosbank (owned by Société Générale), Credit Agricole, VTB Capital which gained him the fame of the main governmental supporter of market economy. However, this did not stop the launch of the spending programmes and the increase in the state’s share in the economy. It is a mystery whether Oreshkin’s progressive views will affect economic policy.
- There have also been big changes at the government ministries dealing with social issues. These ministries have been particularly unpopular because of healthcare reforms, which left many smaller towns without hospitals; and the 2018 increase in the pension age, which caused even Putin’s approval rating to fall (Rus) to a five-year low. In addition, there is a new minister of sport, who has an uphill battle to shed Russia’s association on the international stage with doping, and a new culture minister (see below). One of the jobs for all these new ministers will be to manage $102 billion worth of social spending pledges made by Putin (real incomes in Russia have fallen for 5 years in a row, and are unlikely to start growing again in the near future).
- In contrast, there were almost no changes in the so-called power ministries. Defense Minister Sergei Shoigu, Emergency Situations Minister Yevgeny Zinichev, and Interior Minister Vladimir Kolokoltsev all kept their positions — as did long-serving Foreign Minister Sergei Lavrov.
- Prime Minister Mikhail Mishustin has to hold this ship together. Known for his modernization of the tax system, he began his career in the IT sector in the 1990s and had a brief spell in investment. Several of his deputies at the Federal Tax Service have joined him in the government, which means he has been given leeway to bring in his own people. Their job is now the exact opposite of what they did in the past: they used to collect taxes; now they have to decide how to spend them.
Why the world should care
Russia’s new government may well be more efficient than its predecessor (although failure is unlikely the reason for the shakeup — many who left have landed big jobs in the presidential administration). No-one expects any major reforms of the legal system or the security services to be launched. But it is exactly these sorts of changes that could generate the 5 percent annual GDP growth demanded by Putin (growth is currently under 2 percent), according to economists surveyed by The Bell. It’s unclear if the National Projects will have even nearly the same effect.
“There is nothing worse in Russia than a battle for power”: highlights of an interview with economist Andrei Movchan
Amid the news of a new government, The Bell founder Elizaveta Osetinskaya did a wide-ranging video interview (Rus) with economist and financier Andrei Movchan. A former banker, Movchan now heads Movchan’s Group and his book, Russia in a Post-Truth Era: Common Sense vs. Information Noise, was published last year. We have translated some of the best bits of the interview into English.
Why Putin is re-writing the constitution. “The ‘collective Vladimir Putin’ had a think about how to ensure a power transfer did not end up in cataclysm…. He [Putin] really doesn’t want to leave the country in bloody chaos… many people, including myself, have said this for years — under Putin, we suffer as we suffer, but if something happens to him we will suffer in ways we haven’t even dreamt. There is nothing worse in Russia than a battle for power.”
Where the economy is headed. “The government’s task now will be to take everything they can from people, and hand it to the right people in the right places. We will increase social spending, returning to the system used by the USSR when the state had everything. In other words, the state takes all it can and then gives it out again. The overwhelming majority of people will be fed so much they will feel almost no hunger. This is how we do it — there will be very few people in a really bad way. At the same time, no-one will worry if everyone is in in a bad way. Can such a country lead the developed world? Of course not. Can such a country survive for a long time? Of course, it can — what else can it do?”
Why the ‘Chinese miracle’ is not a model for Russia. “The Chinese political model seriously obstructs economic growth. The problem is one of absolute numbers — 5 percent annual growth for China is worth $500 billion, while 1 percent annual growth for America is $640 billion. At the moment, China is a country where per capita GDP is the same as Russia. People say China has been very successful, but this is linked to it having a low starting point. As well as to the fact that a group of developed countries graciously allowed China to grow. China is big business for developed countries. They thought it would be profitable, but now they are starting to realise that, in some ways, they are damaging themselves.”
What will happen to Russia when no-one needs oil. “It will be the same as when no-one needed the USSR’s oil… Gorbachev, perestroika, Yeltsin, bandit democracy, carving-up of everything that is left, love for the West, Western credit, humanitarian aid. And if [the price of] oil then recovers, all the rest will be the same as well. Overall, I think this will only end when we join the European Union, in one form or another. Because Russia is a huge sales market and a source of resources for the European Union. And the European Union is a massive source of technology, management structure, communication systems and trade for us. Our real historical destiny is entry into Europe.”
Russians focus on question dodging & depression in Davos
No-one expected any major revelations from the high-level Russian officials sent to the World Economic Forum in Davos this year, but it was still entertaining to watch. Most of them were forced to wriggle out of difficult questions, and one even organised an event that turned into a discussion on mental health.
- The most confrontational session was with Maksim Oreshkin, 37, a former minister who has just been appointed an economic advisor to President Vladimir Putin. He opened his speech by saying that Russia has achieved macroeconomic stability, which prompted other members of the panel to demand an explanation of how Russia will fight corruption — instead of “rosy pictures”.
- Oreshkin fended off the question, saying he was only in a position to talk about his own experience of corruption at the Ministry of Economic Development. “There were some problems, but not anymore,” he told the audience. He did not specify exactly what problems he meant, but his predecessor, Aleksei Ulyukayev, is currently in jail after being convicted of extorting a bribe from Igor Sechin, head of state-owned oil giant Rosneft (Ulyukayev never admitted his guilt and there are many unanswered questions about the charges).
- Oreshkin was then challenged by the founder of Hermitage Capital, Bill Browder, over the case of Hermitage lawyer Sergei Magnitsky, who died in prison after being arrested when he made allegations of tax fraud against top Russian law enforcement officials. Oreshkin said he could not comment on Magnitsky because he wasn’t working for the government at the time. When U.S. foreign policy expert Paul Dobriansky asked Oreshkin about protests over pension reforms, he told her not to draw false conclusions and to visit Russia so she could “look people in the face”.
- Andrei Kostin, the head of VTB bank, had to dodge questions about another problematic topic — Western sanctions. Kostin himself is under sanctions, and his bank is also a sanctioned entity. Kostin said the sanctions against him were “unfair”, just like the accusations against U.S. President Donald Trump, whom he wished good luck in the ongoing “impeachment saga”.
- Others seemed unconcerned about topics like sanctions and economic growth. German Gref, the head of state-owned Sberbank, invited Indian yogi Sadhguru to give a talk during a breakfast event organized by Russia’s largest bank. The subsequent discussion focused on depression, and ‘digital autism’.
Why the world should care
The behaviour of the Russian delegates to Davos reflects Russia’s awkward position on the world stage. On the one hand, Russia has fundamental disagreements with European Union and U.S. officials — on the other hand, the Kremlin doesn’t want to erect a new iron curtain, and relations with the West must, somehow, be maintained.
Telegram vs. SEC to set precedent for crypto-market
The battle between messenger app Telegram and the U.S. Securities and Exchange Commission (SEC) has been hotting-up: Telegram’s founder Pavel Durov was questioned for 18 hours at the beginning of the month and piles of case documents are exchanged between the sides almost daily. The main conflict is over the SEC’s contention that Gram (tokens Telegram sold to investors for $1.7 billion to raise funds to develop its TON blockchain platform) should be classified as a security. If this were the case, it would mean Telegram had broken the law by not obtaining SEC approval for their issuance. Telegram’s maintains that Gram is a currency, just like bitcoin, and that SEC approval is not required.
The outcome of the case will determine the legal framework for the entire crypto-market. The SEC also claims (Rus) that Telegram didn’t provide evidence of TON’s existence to investors. Despite all this, investors are still telling The Bell they do not anticipate problems with the project. The hearing is set for February 18, but both sides have asked for the date to be moved forward. We could know the ruling very soon.