From Volume 7, Issue 44 of EIR Online, Published Oct. 28, 2008
Russia and the CIS News Digest

Putin Addresses Systemic Crisis

Oct. 20 (EIRNS)—Russian Prime Minister Vladimir Putin continues a non-stop series of meetings related to the economic crisis. He has met with the board of Russia's GLONASS GPS program, held a conference on the priority National Programs for education, housing, and health care, met with the Consultative Council on Foreign Investment in Russia, and set off for a tour of Siberia. In his Oct. 20 speech to the investors' council, Putin laid out how he sees the global financial crisis.

Putin said he intends to bring Russia through the crisis, no matter what, including by mobilizing internal resources. At the same time, he signaled that he is paying close attention to international discussions of systemic solutions. Citing "serious systemic breakdowns," Putin said the crisis has demonstrated "the incompetence of all the basic elements of the system of regulating financial markets and institutions." Specifically, he said, "American, European, and British institutions, different as they might be, were all caught unprepared."

Putin particularly highlighted the role of the U.S. Federal Reserve, with its "unprecedented lowering of interest rates." This promoted the real estate bubble, and "the market underestimated the systemic risks." He stressed that the dollar is weaker than at any time since 1973, the U.S.A. is the epicenter of the crisis, and the U.S. crisis has infected the whole world.

While citing Russia's short-term stabilizing capabilities, like the large currency reserves accumulated thanks to high oil prices, he stressed that these do not represent a solution. Likewise, he said that international efforts to ease the banking liquidity crisis were welcome, but "the long-term effectiveness of these measures remains to be seen."

Putin said that his government will work towards "financing the development of our economy from domestic sources." He stressed the recently announced measures to rescue Russian companies that are heavily indebted abroad and cannot refinance. He said that he expects the BRIC (Brazil, Russia, India, China) countries to be "the locomotive of growth" in the immediate years ahead.

Putin discussed the negative side of the oil price bonanza Russia has enjoyed: It has attracted speculative capital to Russia. What Russia needs, said Putin, is "long money" for investment, which is insufficiently available due to the underdevelopment of financial institutions in Russia. He said that the Russian government will soon announce additional measures to support the banking sector, but especially the goods-producing sectors of industry. There will be tax breaks, including increased depreciation allowances to encourage investment in new technology.

Putin took note of the current worldwide discussion about the financial system. "In Russia and in other countries," he said, "the task must be posed of reshaping the financial system, and drawing lessons for the adoption of strategic solutions to develop our economies." Crises can mark the launching of a new upswing, he noted, and Russia wants to look to the new technologies that should mark the development of a new technological era.

Directed Credit and the Science-Driver Principle Emerge in Russian Debates

Oct. 21 (EIRNS)—A potentially productive discussion is percolating through Moscow economic policy-shaping layers, as economists and political figures grapple with saving the national economy, in the face of the global crisis. One highlight was an interview by former Central Bank chairman Victor Gerashchenko on Radio Ekho Moskvy, in which he advocated a directed-credit policy toward industry, and cited the science-driver effect of successful such programs in the United States in the past.

Gerashchenko gave a refreshingly accurate account of the roots of today's crisis. For more than 25 years after 1944, he said, there was the Bretton Woods system, with the dollar pegged to gold. "In 1971, the U.S.A. gave that up," he said, and from then on, "their growth was essentially inflation-driven."

Gerashchenko was asked about the recent crisis plan put forward by Academician Sergei Glazyev, who proposes that the Central Bank issue rubles based on credit applications from Russian producers, rather than on the current basis, where the money supply is increased through the conversion of dollar-denominated export earnings. He expanded this idea with reference to "the example of the U.S.A.—not the consequences today, but at how they did develop a huge country for over 50 years, and keep their level high for a long time." Yes, there was military spending, but "that very military spending also means, as a rule, technological breakthroughs in various areas simultaneously." If the U.S.A. enjoyed success by issuing "Treasury bonds, and even simply currency," for such earmarked purposes, said Gerashchenko, "why can't we do that?" It should work, he added, "as long as the money goes for productive purposes."

Putin: Space Program Achievements Must Get into the Economy

Oct. 21 (EIRNS)—Russian Prime Minister Vladimir Putin is speaking with increasing urgency about the threats to Russia's industrial and technological development. Today he arrived in Krasnoyarsk, Siberia, where he took a report from Gov. A.G. Khloponin, who said that the region's budget was holding up, but that there was concern about big projects like the Lower Angara program, co-financed by a state hydroelectric concern and Oleg Deripaska's Basic Element holding company, in case the latter's big losses were to cut off the financing.

In Krasnoyarsk, Putin held a conference on the Russian space program. He termed Russia's space industry, with its scientific, production, and manpower assets, "one of our competitive advantages, which must be preserved and developed." The subtitle of the conference was, "expanded use of space technologies for the socio-economic development of the country's regions."

Putin attacked "the old model," whereby "the space program existed as a thing in itself." He underscored that "the process of introducing the achievements of space research into the economy has still not been made systematic," and that this must change. Talking about Russia's regions, he mentioned transportation applications of space technologies, remote geological prospecting, and agriculture, forest, and water management, among other capabilities. In today's world, Putin said, "it is completely justified to have a special, accelerated program for the use of space technologies, especially for developing Russia's regions."

Putin Holds Meetings on Transport Infrastructure

Oct. 25 (EIRNS)—Prime Minister Putin met today in Moscow with members of his Cabinet who handle the transport infrastructure sector. The meeting capped off a week in which Putin toured Krasnoyarsk and Novosibirsk, Siberia, holding conferences on the space program's role in the economy and on transport, respectively. Conferring with Putin were Minister of Transport Igor Levitin, Minister of Industry and Trade Victor Khristenko, and CEO of the state-owned Russian Railways, Vladimir Yakunin.

Putin ordered them to implement Russia's transport infrastructure plans, despite the world financial crisis. Some of the programs have been hit directly, since they involved cooperation with foreign companies. Putin said his government was committed to continuing that cooperation, but in the current circumstances "we must start with Russian money, the money of Russian companies, and the government's money even more so, being put to work within the Russian economy."

The meeting Putin chaired Oct. 22 in Novosibirsk officially adopted Russia's transport development program for the period until 2030, a 175 trillion ruble ($6.3 trillion) package. "With all the necessary corrections and changes to be made," in view of the world crisis, "we should treat this project and this work as one strategically important for Russia's future," Putin said. "We must focus on its unconditional implementation."

Levitin told the press Oct. 22 that the ratio of public to private financing, for the transportation program overall, will rise in favor of more state funding.

Lavrov's Focus on Financial Crisis, in Delhi

Oct. 20 (EIRNS)—The world financial crisis is a leading issue in discussions between the leaders of India and visiting Russian Foreign Minister Sergei Lavrov, the Voice of Russia correspondent in New Delhi reported today. Lavrov told Indian External Affairs Minister Pranab Mukherjee that Russia sees India as a great world power which should participate in discussions of the G-8 nations and become a permanent member of the United Nations Security Council as soon as possible.

Lavrov is in New Delhi to discuss the visit of President Dmitri Medvedev to India in December. Medvedev is due to sign an agreement for Russia to build another four nuclear reactors at the Kudankulam nuclear power plant, where two units are already nearing completion.

"India is a new center of powerful economic growth and political influence. We believe India's participation in international organizations like the Group of Eight is natural," Lavrov told the press.

In Tense Ukraine, Tymoshenko Addresses Nation on Economic Crisis

Oct. 20 (EIRNS)—Ukrainian Prime Minister Yulia Tymoshenko made an address on national TV Oct. 19, as the country remains in turmoil under the combined pressures of the global financial crisis, and the latest breakdown of the ruling government coalition. "The huge wave of the crisis does not distinguish borders or nations," Tymoshenko said. She outlined the government's urgent efforts to restrain inflation and deal with a growing number of insolvent Ukrainian banks.

The setting for the speech was an escalating political crisis. Tymoshenko's parliamentary bloc broke its alliance with the party of President Victor Yushchenko. The latter's Our Ukraine party has been charging that Tymoshenko is a Russian agent, including because of her ongoing consultations with Russian Prime Minister Vladimir Putin. On Oct. 10, RIA Novosti reports, a Kiev court upheld the challenge by Tymoshenko's bloc against Yushchenko's attempt to hold Parliamentary elections on Dec. 7. In mid-October, representatives of Tymoshenko's party accused Yushchenko of preparing a coup.

Tymoshenko's speech came amid a collapse of the Ukrainian stock market, the bankruptcy or near-bankruptcy of many banks in the global liquidity crisis, skyrocketing inflation, and unemployment caused by plummeting construction and steel production. Former President Leonid Kuchma has proposed that Ukraine turn to Russia for financial assistance, instead of the IMF.

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