From Volume 8, Issue 8 of EIR Online, Published Feb. 24, 2009
Russia and the CIS News Digest

Moscow Mayor Luzhkov: 'Move Away from Monetarism'

Feb. 18 (EIRNS)—Moscow Mayor Yuri Luzhkov, a powerful figure on the Russian scene for over a decade, gave an interview for yesterday's issue of the Kommersant daily under the headline "We Need To Get Away from Monetarism." Russia's foreign currency reserves have turned out to be inadequate protection, he said, for an economy now threatened by the $570 billion debt of its companies, which borrowed abroad because Russia's monetary authorities made credit prohibitively expensive at home. Luzhkov blamed Finance Minister Alexei Kudrin, who "decided to save money and accumulate it in a reserve fund, the Stabilization Fund, but the money in this fund wasn't doing anything to develop our economy."

Unless "monetarism" is abandoned, Luzhkov warned, Russia faces "mass bankruptcies." He called for drastic action to save "the real sector," moving to "a form of capitalism that would establish a full-fledged domestic market, including production of our own products," as against today's import-dependency levels, such as 90% for pharmaceuticals. For example, he said, the state could temporarily nationalize some sectors of industry and handle the companies' debts, to allow them to keep operating, with the intention of reprivatizing them at fair prices later.

Another sign of dawning realization in leading Russian circles that the current London rule-book policies of Kudrin and others in the government won't work, was the lead editorial in Expert magazine of Feb. 16. Titled, "Who Will Pay for Globalization?", it accompanied a package called "Worse Than the Great Depression," and declared bluntly: "The Western financial system is bankrupt." Expert attacked the orgy of derivatives expansion for having let companies "transfer their own risks to the system as a whole." The magazine editorialized that bailout plans, including the latest version offered by U.S. Treasury Secretary Tim Geithner, will not work because the entire system is sick. People now call for Keynesianism, says Expert, but the past quarter-century has seen nothing but "financial Keynesianism." Expert decries the "evident dearth of new ideas," while attacking George Soros's phony "new idea"—the use of IMF Special Drawing Rights as a world unit of account—which Soros presented in a Russian newspaper last week.

Yakunin Hits Financial Authorities, Calls for Exchange Controls

Feb. 19 (EIRNS)—Vladimir Yakunin, head of Russian Railways and a long-time associate of Prime Minister Vladimir Putin, has called for the immediate imposition of exchange controls, as Russia's vaunted foreign currency reserves are being rapidly eroded. Yakunin pointed the finger at "the fiscal authorities"—shorthand for Deputy Prime Minister Alexei Kudrin's Finance Ministry and the Central Bank of Russia under Sergei Ignatyev—for shelling out trillions of rubles in bank bailouts, which were promptly converted to dollars and left the country. He was quoted by the Feb. 18 Financial Times of London, where Yakunin attended the annual Russian Business Week. Kudrin had been in London the previous week, to coordinate the Russian and British positions for the April G20 summit.

According to the FT, Yakunin said that temporary curbs on taking money out of the country should have been imposed last year, when the Central Bank began to draw down $200 billion (so far) in reserves to support the ruble. It wasn't done then, Yakunin said, but should be done now: "Better late, than never."

In Slovo weekly dated Feb. 20, Prof. Stanislav Menshikov notes that the additional $50 billion in capital flight from Russia during January must have been almost totally due to Russia's own banks taking money out of the country, since the majority of foreign speculative investment had already fled Russia in November-December. Thus, Russian banks, likely including state-owned institutions, are taking the bailout money they receive from the state, converting it to dollars, and sending it abroad. Russia's foreign currency reserves have dropped from a high of $597 billion last Summer, to $383 billion in February 2009.

The Financial Times linked Yakunin's implicit attack on Kudrin to Moscow Mayor Yuri Luzhkov's call to abandon "monetarism" in order to restore investment in industry and infrastructure.

In October 2008, Yakunin notably told Kommersant daily that he had known about the coming crisis for some years, because American economist Lyndon LaRouche personally warned him, "Vladimir, I can tell you with certainty that the economic crisis is already under way." He quoted LaRouche on the crisis being caused by the sacrifice of the real economy to the "virtual" economy of speculative finance.

Soros Hit in Russia as Dope-Promoter

Feb. 17 (EIRNS)—The Russian Anti-Drug Front has included speculator George Soros in a rogues gallery of pro-dope figures, publishing a profile on Soros's financing of drug-legalization efforts and his interaction with the Colombian dope cartels. The Anti-Drug Front website notes Soros's establishment and funding of the pro-legalization Lindesmith Center, housed at his Open Society Institute beginning in the 1990s. Additionally, the Front quotes a 1997 publication in the Russian magazine Who Is Who: "Directly behind the criminal takeover of Colombia is George Soros and the London financial apparatus he represents. Soros has invested not only in Colombian financial institutions which handle drug money, but also in armed organizations in that country, which when they're not busy with terrorism provide guard forces for the dope crops and labs."

During February, Soros himself has gone overboard in publishing attacks on Russia, in the Russian press. His Feb. 10 article in the daily Vedomosti, proposing a massive emission of IMF Special Drawing Rights as a world currency, was the first of a series of Soros articles from Project Syndicate. Vedomosti, which is linked to the Financial Times of London and the Wall Street Journal, went on to carry articles by Soros on Feb. 12 and Feb. 16, each of which laid out a scenario for playing on Russia's weaknesses after the drop in oil prices.

In "An Alternative to Geopolitics: the Russian Problem," Soros proposed that Europe defend itself against "the geopolitical threat from Russia, which has once again become aggressive and active," by abandoning national energy-development programs in favor of "a supranational regulator," to handle all dealings with Russia in the energy field. Soros followed up with "A Crisis Landscape: the Geopolitics of Cheap Oil," writing that lower oil prices have made Iran less dangerous to the world, but Russia more so. According to him, Moscow is run by "adventurists" who are likely to launch military adventures abroad and repression at home.

Russian media coverage was swift and extensive, with Interfax's headline, "Soros Tries To Persuade the World To Fear Russia," being typical. Speaking in Odessa, Ukraine, Russian TV personality Mikhail Leontyev dubbed Soros "a very clever, very competent bitch, who has been instructing all of us how to live, through his 'democratic' institutions," Rosbalt news service reported Feb. 19. "In reality," Leontyev continued, "Soros is a major, typical 'manure fly' on the turd-pile of American liberal finance capitalism. What he preaches as an ideological propagandist, and finances worldwide as a philanthropist, is not mere demagogy." Leontyev charged that Soros believes that "provoking a serious, big war" would be the only way out of the world crisis.

Soaring Unemployment in Russia

Feb. 19 (EIRNS)—Unemployment in Russia is soaring, with the number of registered unemployed persons shooting up by 1.1 million from October 2008 to February 2009, to some 1.8 million. The official figure is only a fraction of real unemployment, since, as Novosti reports today, the state statistics office, Rosstat, acknowledged that, according to figures calculated to International Labor Organization (ILO) standards, 6.1 million people, or 8.1% of Russia's workforce, were jobless as of late January. This is an increase of 5.2% over December.

On top of the surge of unemployment, many of those who remain employed are not getting paid, as wage arrears,– a huge problem during the shock therapy fiasco of the 1990s, have risen by 50%.

Russian and Japanese Leaders Meet

Feb. 18 (EIRNS)—Japanese Prime Minister Taro Aso met Russian President Dmitri Medvedev on the Russian Pacific coast island of Sakhalin today, the first time that a Japanese prime minister was on Sakhalin since 1945. The meeting was brief, taking place between Aso's meeting with visiting U.S. Secretary of State Hillary Clinton, and his just-announced visit to Washington Feb. 24, when he will be the first foreign leader to be received by President Obama.

The two leaders reportedly discussed developing Eastern Siberia and relations around North Korea, and Medvedev told Aso that Russia is ready to expand relations between Tokyo and Moscow, Kyodo reported. There was no breakthrough on the continuing territorial dispute over Japanese claims to four of the Kurile Islands—Japan and Russia have yet to sign a formal peace treaty to end World War II, because of the dispute—but, Kyodo reported, Aso said that the two agreed to "accelerate our efforts in seeking an original and unconventional approach toward solving the sovereignty dispute during our generation."

The formal reason for the meeting was the opening of the new Russian LNG plant, part of the Sakhalin-2 oil and gas development, which was built with a great deal of investment from Japan, which will be its biggest customer.

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