From Volume 7, Issue 18 of EIR Online, Published Apr. 29, 2008
Russia and the CIS News Digest

Step To Consolidate Russia-North Korea Rail Cooperation

April 25 (EIRNS)—The Russian and North Korean Railways yesterday signed an agreement to set up a joint venture company for gathering investment to eventually build the Khasan-Rajin rail project. The ultimate goal of the project is reconstruction of the broken-down rail link between North Korea (DPRK) and Russia, along with container and other infrastructure. The project was first discussed in 2001 when North Korean leader Kim Jong-il travelled to Moscow, where he signed a declaration with President Vladimir Putin on creating a railway transport corridor connecting South and North Korea, with Russia and Europe. The North and South Korean railways were first re-connected in June 2003 after 50 years. Russia and North and South Korea met in 2006, and agreed to begin upgrading the North Korean rail lines, which have to be entirely rebuilt, and connecting them to the Trans-Siberian railroad. North Korea's only other existing rail link is with China.

Vladimir Yakunin, President of the state-owned company Russian Railways, and Kim Yong Sam, North Korean minister of railways, signed the agreement to set up a joint venture company for 49 years, with Russia holding 70%, and North Korea 30% of the stock. The joint venture will coordinate the project, and subcontract design and reconstruction of the 52-kilometer Tumangan-Rajin railway line and construction of a container terminal at Rajin port in northeastern North Korea, which could transship cargo from South Korea. The two sides will also act to lessen border controls between the two rail stations at Khasan in Russia and Tumangan in North Korea.

Yakunin said that the two sides "have been moving towards this moment for seven years. I am convinced that the agreement and contract signed today will serve to strengthen the economic ties between Russia and DPRK as well as between the DPRK and the Republic of Korea."

Fukuda Visits Moscow

April 25 (EIRNS)—Japanese Prime Minister Yasuo Fukuda flew to Moscow today to meet President Vladimir Putin and President-elect Dmitri Medvedev, to discuss the development of Siberia, the G-8 summit in Tokyo in July, and global warming. According to Itar Tass, Fukuda was to discuss Tokyo's initiative for cooperating with Russia in the development of Siberia and the Far East. "The sides will discuss, in particular, the deepening of interaction in the interests of strengthening regional stability, and the expansion of partnership in the spheres of energy and transport," a Japanese Foreign Ministry source said.

Before leaving Tokyo, Fukuda told the press: "Looking at the global situation, I think it is time for us to mutually cooperate with Russia extensively on bigger issues. We will hold discussions centering on such matters, but for that, I want to talk on an ongoing basis, about the major issue of resolving the territorial dispute and concluding a peace treaty, and hope that we can make even one step forward. And for that, I think we must build a relationship between the top leaders of both countries in which we can say our frank opinions." Japan and Russia never signed a peace treaty after the end of World War II, due to still-unresolved questions about possession of four of the Kurile Islands.

Russia To End Food Price Controls

April 22 (EIRNS)—Russian domestic food prices will rise after May 1, when the government price moratorium expires, Kommersant) reported today. Prime Minister Viktor Zubkov, who enacted the measures in late October, warned that the poor will be hardest hit, RosbusinessConsulting reported. Deputy Economic Development Minister Andrei Klepach has declared that the price freezes have not worked, and that it is not expedient for Russia to continue them. Russia's biggest food chains are no longer willing "to work on the edge of breakeven," according to Kommersant.

One big food processor said that the controlled price it had to charge for bottled sunflower oil (which generates 33% of their revenue) "is below the price for unbottled and unrefined oil—48 rubles a liter vs. 53 rubles a liter." The agreement covered freezing prices for bread, milk, kefir, oil, and eggs. While retailers were not so affected, since they could raise prices by up to 10%, the big processing companies have been hit with losses, or at least lack of profits, due to the measures. But the retailers also oppose continuing the controls. "The political reasons that justified this measure no longer exist, and there is no point in extending it," RBC quoted one retailer.

Klepach also said that the Economics Ministry opposes any new measures to restrict the export of food products or to extend protective duties on grain after July 2008. "There is no point in this, given harvest forecasts for this year," Klepach said. "The anti-inflation program envisages several new measures, including encouragement of savings deposits by individuals," since overall personal bank deposits began to decrease in the beginning of the year. Klepach claimed that inflation is triggered by people taking money from accounts to spend it.

Agriculture Minister Alexei Gordeyev did say that a pending trade bill would "allow the government, under certain conditions, to limit markups on socially important [food] products," but the bill has not yet been submitted to the government. Finance Minister Alexei Kudrin has opposed the control measures, RBC reported. He said that any policy to limit markups on basic food prices would be "unacceptable," since gasoline and other materials farmers need continue to rise in price. Most Russian producer prices are rising, RBC reported. While oil and gas prices went down, there was a 10.4% increase in the prices of flour, cereals, starch, and starch products, as well as a 7.8% rise in prepared animal feed prices. Electricity prices were up 3%.

'Hot Debate' in Russia on Economic Investment

April 22 (EIRNS)—There is a "hot political debate" in Russia about how to invest the $32 billion National Welfare Fund (NWF), Russian Deputy Minister of Finance Dmitri Pankin told the Times of London in an interview published today. The NWF is one portion of Russia's nearly half-trillion-dollar sovereign wealth fund, previously called the Stabilization Fund, which is derived from oil and gas export earnings, and has been kept out of engagement in the domestic economy. In London for the two-day "Russian Investment Roadshow," Pankin repeated the monetarist mantra that internal investment is "not possible," because it would worsen inflation.

The Roadshow was a follow-up to the annual Russian Economic Forum in London, which was boycotted by Russian government officials and some entrepreneurs, due to Russian-British political clashes. The Roadshow opened with speeches by U.K. Secretary of State for Business John Hutton and Pankin, but, despite Britain's status as the biggest foreign investor in Russia, attendance was sparse this year, the Moscow Times reported.

Inflation and the global crisis were on the agenda. According to the Times, Russia is limiting government infrastructure spending, despite enormous need, due to inflation. Pankin said that there is great pressure to invest domestically, as "the roads are terrible and the healthcare is in a dire state," but, "it is not possible now to invest more money in Russia. In that case, inflation will grow and that will be very serious for our economy." Pankin attributed the high level of inflation to "the overheating of the economy and an extremely high pace of budgetary spending." Budgetary spending was 12% of GDP in 2006 and almost 25% in 2007.

Pankin told the Roadshow that Russia has enough financial resources to support not only the banking sector, but the entire economy. "With our gold and foreign exchange reserves of more than $500 billion, an outflow of about $10 billion [sic] a quarter is not critical," Pankin said. Actually, total capital outflow for the first quarter of 2008 was $22.8 billion, but Finance Minister Alexei Kudrin has promised that second-quarter results will show a reversal of this trend. Pankin added that the Russian banking system has no problems in refinancing its foreign loans, and that authorities are ready to support banking system liquidity and to budget for replacing foreign loans with internal sources of refinancing, RBC reported. Earlier this month, Alexei Ulyukayev, senior deputy chairman of the central bank, said that the central bank had loaned commercial banks 40 billion rubles, or approximately $1.7 billion, short-term.

The Roadshow was also attended by central bank deputy chairman Konstantin Korishenko; Alfa Bank president Pyotr Aven; Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs; vice president of the European Bank for Reconstruction and Development, Varel Freeman; and the chairman of the London Stock Exchange, Chris Gibson-Smith. While Aven told the Roadshow that Russia's nearly $500 billion in reserves would be enough to weather any crisis, Alexei Gurin, president and CEO of CentreInvest Group, asserted that inflation in Russia is so serious that it could wipe out even that amount, the Moscow Times reported. A spokesman for Barclay's Bank told the meeting that Russia ought to curb economic growth, in order to stem inflation.

Cheney, Estonian President Hold Anti-Russia Talks

April 19 (EIRNS)—U.S. Vice-President Dick Cheney, in his capacity of manager of the Baltic region portfolio of "Ring Around Russia" confrontationism, yesterday received President Toomas Hendrik Ilves of Estonia, who is in the United States for a meeting of the Baltic Foundation. According to Ilves's spokesman, he and Cheney focussed on "energy security," the Iraq and Afghanistan deployments, and a condemnation of Russia for the latest developments in its relations with autonomous regions within the Republic of Georgia.

Referring to Moscow's decision, announced April 16, to upgrade its direct relations with those regions, Estonian spokesman Crystel Peterson said: "It is the opinion of President Ilves and Vice President Cheney that the decision of the President of Russia to develop direct contacts with the separatist regimes in South Ossetia and Abkhazia is counterproductive and absolutely unacceptable."

Ilves is a Swedish-born, U.S.-raised, longtime Radio Free Europe/Radio Liberty employee, who was elected President of Estonia in the Autumn of 2006. A nominal leftist, he was backed by the right-wing opposition. Soon after formation of a coalition government of the Reformist, Fatherland, and Social Democratic parties, Estonia began to push on issues of greatest sensitivity to Russia. (See "Putin Moves To Outflank 'Ring Around Russia' Provocations," EIR, June 15, 2007.)

All rights reserved © 2008 EIRNS