Russian and American election year - “Opportunity 08″

 This week-end’s big event: Russian presidential elections on Sunday!

Let’s see where the very likely winner Medvedev will take the country. But given that that the West has been very bad at dealing with Russia, I wonder if the next US president will be able to change tack and somehow be able to engage and tame the roaring Russian bear.

Worrying sign: Hillary Clinton - although apparently the best-informed US candidate on Russia - has demonstrated that she can’t even pronounce the name Medvedev…. I got this info from the really excellent Robert Amsterdam Russia-blog. Given that the US risks “Losing Russia”, we hope (oh no, that sounds like candidate Obama….!) that elections this year in both countries will bring change. Given Europe’ structural inability to take up the Russian challenge (a radical change in its foreign policy structures would be needed, as well as in its energy markets),  more immediate hopes can only be put on the United States. The Brookings Institution has a nice banner of the candidates (Huckabee is now lost). But I love the title: “Opportunity 08″. Let’s hope it will be seized in Russian affairs too.

Policies towards Russia: reaping what one has sown? [update]

It is increasingly clear that “the West” has got Russia badly, very badly, wrong. Europe and the US have accumulated errors towards Russia and are now reaping what they’ve sown. Hard statement, I know.

Dmitri Trenin from the Carnegie Moscow Centre recently wrote one of the first books – entitled “Getting Russia Right” - that tries to undo the mythical fear and loathing in which Russia’s policies are held in the West. Not that the recent slide in both democratic achievements and economic freedoms combined with growing international sabre-rattling is not worrisome: on the contrary! Yet it could be that the West should have been able to see it coming. It even probably could have averted some developments had it acted rightly on time, based on more realistic perceptions. Just a few random illustrating examples:

Russia’s WTO accession - something happening again?

 

The news are just out: Peter Mandelson is in Russia to discuss its WTO accession.

Russia’s double-headed eagle is in action again. On the one hand, sabre rattling on the rise in military matters, more pragmatism in economic matters on the other. The last big speech by Putin had these two elements: only the sabre-rattling was heard in the West. My little source  close to the ground reported:

Putin outlines economic development goals in speech at State Council
Deutsche UFG, Russia
Monday, February 11, 2008

At the State Council meeting on Friday, President Putin made several important statements about Russia’s economic development.

__ Development should become innovative, and the growth rates much higher than now.

Using Russia’s natural resources to undertake further extensive development may become a significant threat for the country. Instead, economic reforms should be continued as the Russian economy is currently not effective.

__ Russia needs a specific development plan through 2020.

__ In the tax sphere, Putin supports the idea that the co-financing of pension savings should be tax exempt. Also, the tax on companies’ and individuals’ medical and educational expenses should be minimised. VAT should be minimised and the tax rate unified.

__ Productivity should increase four-fold in 12 years.

__ Income inequality should be reduced.

__ Power in Russia should be decentralised. Regarding recent changes, Putin particularly mentioned the political changes which have taken place in the last several years and that have resulted in the development of a stable and working political system.

__ The state sector should be reduced and private capital attracted more actively.

__ Russia may be able to double its 2000 GDP by 2009. For 2000-07, GDP has already increased by 72%, and to double it by 2009 would require an annual growth rate of 7.8% y-o-y (less than in 2007).

__ There will be no denomination this year.

All in all, this speech is one of the most liberal over the last several years and may, in our view, be an indication of the main economic targets that Putin will set if he becomes Prime Minister after the presidential elections. We believe that it will be taken positively by the market.”

This change in tone in economic policies is a better starting point for final negotiations to enter the WTO. Regarding the internaitonal politics of Russia’s WTO accession: Russia has started reaching out to Georgia (see here and here) to solve various bilateral issues between them. Georgia is wielding its veto to Russia’s WTO accession. Ukraine managed to access to the WTO before Russia - making Russia lose face. It looks like Russia is hurrying up and wanting to get its act together. There is an understanding that it cannot remain isolated from the rest of the world, and entering the WTO (as well as attenting NATO summits) shows that Russia and the West are “talking to each other” again, if harshly.

Oh, and let me, at this late hour of the day, and as a relaxing game, develop a conspiracy theory - these are so popular in matters Russian and post-Soviet. Was the Georgian tycoon Patarkatsishvili killed by both the Georgian  and the Russian governments? Both hate him - the first for his role as opposition leader, the latter for his friendship with the exiled oligarch Berezovksy… Strange coincidence, this death and this sudden warming up of relations between Russia and Georgia.

Ukraine joins the WTO - the beginning of a long story?

It is confirmed: Ukraine will now accede to the WTO. A big 47-million booming market, Ukraine was the third biggest country outbeside Russia and Iran outside the WTO fold.

Europe is now keen to sign a bilateral free trade agreement with this new frontier country on its Eastern borders. To watch now:

- Ukraine is strong in agriculture: how far will Europe want to open its market in sensitive agricultural products? It could be that the current price hike in agricultural products renders Europe more flexible…

- Ukraine is also very strong in metals. EU anti-dumping exercises tend to focus on metals, and have been hitting Ukraine. How will protectionist forces within Europe influence the outcome of the FTA?

- Ukraine’s economy still needs deep structural and institutional market reforms. Opening up services, accepting international competition in key industries (machinery, cars) might be hard to swallow.

- The EU wants to offer a comprehensive FTA, among others in order to stave off Ukrainian ambitions to join the EU. Given current enlargement fatigue in Europe, the politics of this FTA will be interesting to watch…

- There is/was a tacit “Russia first” policy in WTO accession talks of countries belonging to the former Soviet bloc. Given delays in Russia’s accession, Ukraine is not willing to wait. Russia is not in the position to oppose Ukrainian accession before itself, despite criticising the move by telling Ukraine it is joining on unfavourable conditions (Ukraine accepted restrictions in agricultural subsidies that Russia is still debating with its partners). With FTA talks with the EU looming ahead, Russia’s reaction will need to be watched closely however.

The next CIS country WTO accession in the pipeline is Kazakhstan. ECIPE is preparing a research paper on the matter, it should be out around the end of the month or early March. Watch that space…!

Below the chilly heights of Davos: turbulences. Credit crunch to Russia

This year’s World Economic Forum gathering at Davos is running full steam. Top CEOs and politicians from all over the world flocked in to discuss ways to improve the state of the world. On top of the magic alpine mountain, all these leaders appear like they are seeking respite from the current turbulences in the world economy, in order to philosophize on the state of the world. In between fancy wine tasting sessions, the Credit Crunch is wielding its threatening sword on the fate of the world’s businesses and economies. George Soros himself wrote this week that it is the worst market crisis in the last 60 years. So Soros:

What do Russians actually think about democracy?

It is election time in Russia - rigged parliamentary ones recently, Presidential elections to come. We are even almost sure who is going to be the next president. But the government still worries about what people think. And Russian pollsters - most under some form of control by the Kremlin, found out a few interesting things. My source is http://www.businessneweurope.eu (requires subscription):

A “poll conducted by the Levada Center reported that 68% of people prefer order to democracy, while only 18% said that they believe democracy is the most important factor. A poll by the VTsIOM research agency said that 52% of people favor an economy based on state planning and distribution; this is in contrast to 41% asked the same question in 1997 when 67% of people polled said they believed that maintaining order is paramount, even if democracy and personal freedom become of secondary importance.

(…) At the same time, 66% of people (according to a Levada poll) said they believe that the authorities must be controlled by civil society. This is up from 55% in a poll conducted two years ago. There is also a lot of uncertainty as to exactly what democracy actually is. The Levada poll reported - in a multiple choice questionnaire - that 44% of people thought it means freedom of expression, 30% said it represented order and stability, 26% said it stands for economic prosperity, and 21% said it is law and order. Finally, 11% of respondents said they believed democracy was empty talk.”

So, is it the End of History for the former Soviet bloc?

It is now almost twenty years since the Berlin Wall was torn down and Francis Fukuyama announced the End of History, a world full of democratic capitalist countries and boring Western-style normality…. So, is the former Soviet bloc there now?

In an authoritative book already mentioned in my recent posts, Anders Aslund from the Peterson Institute undertook a first systematic stocktaking of Transition in Central and Eastern Europe, Russia and Central Asia. The former Soviet bloc has known a great number of convoluted developments since then. The uncertainties surrounding Russia’s future and place in the world, as well as the controversies raised by the accession of Bulgaria and Romania to the European Union make this book a timely contribution to the debate on what went right, and what went wrong. Certainly, Aslund’s book makes a few points that will raise some controversies.

As one cannot be too long in a blog post, I will try to be short on the main conclusion drawn by Aslund on reform: the quicker and more systematic the better.

Shifting power equations: Russia and the IMF

Today, an innocent press release from the IMF following the visit of its Managing Director to Russia, reveals a lot about Russia’s position and the IMF’s standing in the world…

How fighting monopolies at home can help fight monopolies abroad

EU Energy market liberalisation, relations with Russia and Gazprom, the merger between Suez and Gaz de France - interesting stories coming up….

The EU’s current plans to open up the internal European market for energy displeases the national champions Eon and GdF. But they also displease Gazprom.

Treating Gazprom like Microsoft?

…. Katinka Barysch, Chief Economist of the Centre for European Reform, published a brilliant piece in the FT today on how Europe can to respond to Gazprom. The last months in Russia have shown that the country is reverting its trend to political and economic liberalisation. The current nexus of apparently mutually reinforcing monopoly power in the Kremlin combined with monopoly power in the energy sector, represented by Gazprom, is increasingly worrisome (please see a small piece by me this summer  in Stirred Up on the matter for a little bit of background - no self-promotion meant here…).

Katinka Barysch argues that one of the answers of the EU to Russia’s energy policies namely is…