From Volume 7, Issue 4 of EIR Online, Published Jan. 22, 2008
Russia and the CIS News Digest

LaRouche: Top Russians Too Complacent About World Economy

Jan. 19 (EIRNS)—Two years ago, Dmitri Medvedev, now the leading candidate to succeed Vladimir Putin as President of Russia, was one of the first Russian officials to talk openly about the global financial crisis as a strategic determinant for the years ahead. More recently, however, Medvedev has missed the mark in his evaluation of that crisis. Touring Western Siberia this past week, Medvedev noted that the development of a mortgage market in Russia has slowed because of the global liquidity crunch, Prime-TASS reported. "Let's hope that this year such processes will be mitigated, or even entirely absent, on a world scale, so that we'll be able to redress this situation," Medvedev said.

"They shouldn't be turning a blind eye to the systemic nature of the crisis!" Lyndon LaRouche exclaimed, upon hearing of Medvedev's remarks. Likewise, LaRouche called some of Moscow's claims of economic success during 2007 "unjustified boasting," given that the "successes" were based—as the Russian leadership well knows—on the worldwide speculative surge in natural gas and petroleum prices.

On Jan. 11, for example, the Russian Central Bank announced the increase of Russia's international reserves by $172.66 billion (+56.8%) during 2007: "a new record" rise for a single year. With $476.4 billion in reserves at year's end, the Central Bank said that Russia now ranks third in the world in international reserves, behind only China and Japan.

Another dubious success, announced by Deputy Prime Minister Alexander Zhukov on Dec. 28, was the attraction of $45 billion in foreign direct investment (FDI), a 50% increase for the year. Even as Russia pushed to diversify its economic growth into manufacturing, two-thirds of the FDI went into the same fuel and energy complex that generates Russia's petroleum exports and its recent financial gains. Alfa Bank, one of the still-functioning institutions created by Russia's nouveau riche "oligarchy" in the 1990s, said in a "bright forecast," published Jan. 14 and reported by the RBC financial news agency, "Russia is likely to become a safe haven for investors in 2008, thanks to its political stability, isolation from U.S. mortgage market problems, and high oil prices."

Offsetting the rosy year-end reports was a surge in inflation to 12% for the year, but over 16% for foodstuffs, for which Russia depends on imports in many categories. Less widely reported, but equally ominous, was the ballooning of Russian corporate foreign debt, according to a Jan. 10 report in Vedomosti. While the government used the national Stabilization Fund (another hoard of oil export earnings) to pay down the official state debt to $37 billion, Russian companies, including the majority state-owned Gazprom and Rosneft firms, borrowed abroad on a large scale, bringing their total foreign indebtedness to $440 billion—almost as much as the vaunted reserves!

On Jan. 17, Putin met at the Kremlin with Andrei Kostin, head of VTB (formerly Vneshtorgbank, the ex-Soviet Foreign Trade Bank). Kostin informed the President that VTB is positioned to take over 10-15% of the market of lending to Russian companies, "which is currently dominated by the major western banks." For this purpose, VTB is setting up an investment division with offices in Moscow and London, seeking to become "one of the leading investment banking institutions," against the backdrop of huge losses by existing global investment banks. At the same time, Kostin told Putin, VTB will continue to expand its operations in the (former Soviet) CIS countries, India, and China.

U.K. Analyst Offers Plan To Cut Russia Down to Size

Jan. 19 (EIRNS)—The first days of 2008 saw the publication, and international circulation through Johnson's Russia List and other Internet venues, of a plan to cut Russia down to size. Titled "Russia & the West: A Reassessment," Shrivenham Paper #6 of the Defence Academy of the U.K. was written by James Sherr, a British military analyst of Russia since the late Soviet period. While a disclaimer says that the content may not "reflect the views of the Ministry of Defence or Her Majesty's Government," the report dramatizes the extreme hostility to Russia on the part of leading circles in Britain, cited by Lyndon LaRouche during his Jan. 17 webcast.

Sherr writes, "A powerful Russia is once again a fact of life.... They have recovered pride in their own traditions and are determined to advance their own interests.... The post-Cold War partnership, founded at a time of Russian disorientation and weakness, is over.... Although Russia is not a global threat, it seeks to be both enabler and spoiler." Above all, Sherr berates Western leaders for having "underestimated" the Russian leadership's assumption that it should have "equal say" with other nations, concerning security issues in Europe.

The British analyst proceeds to catalogue weaknesses of the current Russian system, which could contribute to cutting Russia down to size. He expresses particular interest in the potential for internecine strife in the Russian intelligence and law enforcement community, to undercut Putin's authority while he is still in office, or to disrupt an orderly succession. In the economic field, Sherr points to vulnerabilities in Russia's energy sector, which "is seen by many in the Kremlin as a foundation of the country's power and an engine of economic growth and modernization." The chief vulnerability, he suggests, is Gazprom's failure to develop new gas fields, making the Russian gas monopoly dependent on purchasing gas from other former Soviet republics, in order to meet domestic demand and also export. For Sherr, the most promising developments in the energy field are revitalized EU efforts to force Russia to change Gazprom's distribution practices, and "the alienation of Russia's traditional partners," among which he cites developments involving Germany, Sweden, Hungary, and Turkey.

Sherr concludes that "Russia is underestimating its own shortcomings and our potential leverage," and opines, "We should not."

Russian-British Tensions Escalate

Jan. 17 (EIRNS)—The political clash between Russia and Britain is deepening, with Russia's Federal Security Service (FSB) interviewing the Russian employees of the British Council, which Russia ordered closed late last year. The Council attempted to reopen its regional offices in the New Year. British Foreign Secretary David Miliband responded today that "any intimidation or harassment of officials is obviously completely unacceptable," and called the Russian actions "reprehensible" and "not worthy of a great country." Britain's Foreign Office said Russia's ambassador to London was summoned for talks.

The FSB on Jan. 15 said it acted to "protect Russian citizens from possibly being drawn into the Britons' provocative games as tools." Also on Jan. 15, St. Petersburg police stopped Stephen Kinnock, one of the British Council's directors and son of Lord Kinnock, former leader of the Labour Party, for violating a traffic sign. He refused to take an alcohol test, and yesterday was being interviewed by police. Kinnock was the person who reopened the office in St. Petersburg on Jan. 14. Miliband in London said, "We've heard very serious reports of intimidation and harassment of British Council officials. Obviously we take that very seriously indeed."

Primakov Warns of Foreign-Backed Threats to Russia

Jan. 19 (EIRNS)—Senior Russian figure Yevgeni Primakov, in a speech given Jan. 14 in his capacity of president of the Russian Chamber of Commerce and Industry, delivered a startling warning against the potential destabilization of Russia by Russian "pseudo-liberal oligarchs," with backing from abroad.

Primakov reviewed the shifts accomplished under outgoing President Putin's leadership, which brought the Russian economy back to life after the devastation of its looting by neo-liberal policies during the 1990s. Most important, he said, have been the beginnings of a shift to manufacturing, and the enunciation of an "industrial policy" for the first time, in 2007. None of these processes has gone far enough or been consolidated yet, Primakov warned.

The former prime minister urged his audience to take seriously Putin's appeals to "protect the course that Russia has taken." The danger, he said, comes from "pseudo-liberals who have gotten close to the oligarchs," and who enjoy support from "sponsors outside Russia." Not all businessmen are "oligarchs," Primakov said, emphasizing that he means the group that seized control over parts of the government "as a result of the predatory conditions of privatization" in the 1990s. "Today," he added, "the tendency for power to move into the hands of the oligarchs has been suppressed. But that does not mean that the pseudo-liberals, who enjoy the support of external forces hostile to Russia, have abandoned the desire to bring the country back to the times of their rule in the 1990s."

Describing a second danger, Primakov became the latest Russian figure to allude to behind-the-scenes clan warfare, going on in connection with the Russian Presidential succession. He said that there is a danger from "a part of the state apparatus, which is attempting to secure its activity not by democratic means, but by the creation of a command-market system. These state servants become interwoven with business, and lobby for the interests of various groups; this part of the apparatus is a breeding ground for corruption, which is becoming epidemic in Russia."

Primakov continues to be active on behalf of Russian diplomacy and foreign policy concerns. Yesterday, he was received by U.S. President George W. Bush, together with Henry Kissinger and other members of the Kissinger-Primakov group "America and Russia: A Look to the Future," founded in the Spring of 2007.

Putin Offers Europe Pipeline Instead of Kosovo Showdown

Jan. 19 (EIRNS)—President Putin called "illegal and immoral" the threatened unilateral declaration of independence by Kosovo, including support coming from the international community, European newspapers reported today. Putin also said that Russia will not support such a decision, during a press conference held yesterday in Sofia, Bulgaria, where he and First Deputy Prime Minister Dmitri Medvedev, the chairman of Gazprom, were finalizing an important natural gas deal and pipeline deal.

The agreement will allow Russia to send natural gas directly to Europe via Bulgaria, through the planned South Stream pipeline, bypassing Turkey and in direct competition with another pipeline project: Nabucco. The South Stream pipeline is a joint venture between Gazprom and Eni, while the Nabucco project is led a consortium of European companies with aggressive support by the United States and the European Commission.

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