Inland Empire: Life in Russia Without Visa and Mastercard

buyerThis woman is happy she doesn’t live in Russia, where Visa and Mastercard may soon be banned. Courtesy of Fluencia

Inland Empire: How Will Russians Live Without Visa and Mastercard?
Sergei Khestanov
Republic
July 12, 2019

The new attack by Russian lawmakers on the international payment systems Visa and Mastercard may come to a head, successfully or unsuccessfully, this summer. For the law bill’s sponsors success would mean the near-total financial isolation of Russians from the rest of the world. All that would remain would be to adopt restrictions on foreign currency.

Going Our Own Way
There had long been talk of the need to talk of a completely autonomous domestic payments system, but the events of 2014 and, especially, the imposition of sanctions visibly accelerated the process.

In fact, in the spring of 2014, MPs in the Russian State Duma drafted amendments to the law “On the National Payment System” that would have forced Mastercard and Visa, which had been obliged to observe the sanctions against a number of Russian banks, to deposit amounts of money equal to their two-day turnover in special accounts at the Russian Central Bank. Visa said it would stop doing business in Russia. Negotiations with the Russian government and Central Bank followed this announcement. The draft law was considerably softened. The amount of the obligatory deposit was removed from the bill, and it was decided that international payment systems would operate in Russia through specially established local subsidiaries.

After Mir bank cards were launched, they were quite unpopular among Russians for a long time. Russians preferred time-tested foreign bank cards. Besides, initially there were purely technical problems with Mir that caused their cards to be rejected, but after the Russian Central Bank issued stern warnings, banks updated the software of their ATMs and payment terminals, more or less solving the glitches.

Another problem is that Russian cards are nearly useless abroad since they are accepted almost nowhere. However, given the small percentage of Russians who travel abroad, this is not such a huge problem.

The breakthrough in promoting the domestic cards came in 2018. On July 1, 2018, the electronic wage payments of all state-sector workers were transferred by law to Russian bank cards. By January 1, 2019, they had taken a big bite out of the share of the Russian market controlled by their famous competitors. According to the Federal Anti-Monopoly Service, during the period from January 1, 2018, to January 1, 2019, the share of actively used Visa cards among the Russian populace fell from 45% to 39.5%, while Mastercard’s share fell from 42% to 36%. The reduction in the international payment systems’ share of the Russian market happened as Mir doubled its share of active card users, which rose from 12.5% to 24.5%.

This is not surprising. The traditional Russian principle of pushing certain things, ironically dubbed the “voluntary compulsory” method, is rather effective. Outcomes are achieved quickly, making such methods of promotion quite popular. We should say, in all fairness, that this happens not only in Russia.

Such aggressiveness has a price, however. Compulsory promotion of goods and services reduces competition, since the advantages of using a particular service or buying a certain product derive from the market’s absence. Over time, products and services pushed in this way lag behind their absent competitors in terms of their quality.

Striking examples of diminishing quality in a market in which competition was restricted were the Soviet automobile and electronics industries. The latter lagged behind the world especially disastrously. Remember the old joke, “Soviet handheld calculators are the biggest handheld calculators in the worlds”?

Rejecting the Outside World
But degradation as a consequence of pushing goods and services through non-market methods is only half the trouble. It is much more dangerous to ban and expel foreign products and services from the domestic market. The new regulations described in the draft law “On the National Payment System” could force international payment systems out of Russia since they would be unable to comply with the regulations. Once they leave, Russian bank cards would not be accepted for payment abroad, and cards issued by foreign banks would not be valid in Russia.

Mir cardholders who never travel abroad would not even notice this nastiness. Everyone else would soon voluntarily be forced to join them. Give the Russian state’s high and growing share in the Russian economy, the regulations would not provoke fatal disaffection with the leadership.

Russia’s policy of self-isolation was adopted long ago, and a large segment of the populace has no real objections to it, while people who use their bank cards within Russia mostly do not care what system processes their transactions. What matters is that everything works fine and does not cost too much. Mir’s reliability is now on a par with the international payment system, and so are its rates. Besides, if push came to shove, the Russian Central Bank and the Federal Anti-Monopoly Service could force it to reduce its rates.

There are no rational reasons for establishing a homegrown system when the duopoly of Visa and Mastercard serve the Russian market just fine. China’s UnionPay and Japan’s JBC have been processed by certain Russian banks, but they have never played a significant role. You cannot make money in a highly competitive, mature market, long dominated by world leaders like Visa and Mastercard, unless you employ non-market methods of competition. The market simply does not need new players.

The reason for the persistent promotion of Mir card is not commercial. It is an insurance policy of sorts, one that will have claims made on it if real, harsh Iranian-style sanctions are imposed on Russia. If you regarded this scenario as a serious possibility you would have cause to establish a national system, especially because Chinese banks (on whom great hopes were placed in 2014) have essentially supported US sanctions. In these circumstances, it is better to have a stunted system in terms of its international access than to witness a sudden collapse of cashless payments if harsh sanctions are imposed.

However, this non-competitive idea immediately inspires people who are willing to make money by destroying their competitors.

If regulations pushing the international payment systems out of the Russian market were adopted, it would deprive Russians of the ability to pay for things abroad without cash, and the logical next step of banning or restricting the export of foreign currency from the country would be easy as pie. Simultaneously, Russians would find it much harder to purchase foreign goods in foreign online shops, something that would be incredibly difficult without access to international payment systems.

A side effect of the ban would be the promotion of Russian-registered joint ventures for selling Chinese goods to Russians.  This would have a positive effect on the receipt of VAT from these purchases. VAT matters since VAT revenues constitute up to a third of Russian federal revenues, making them comparable to Russia’s export revenues.

The natural consequence of depriving Russians of access to foreign online shops would be a rise in prices. At first, the government would profit slightly because VAT revenues would grow—until people stopped buying things.

The policy of isolating the Russian economy from the world economy in terms of Russian nationals being unable to spend money outside Russia has been reasserted, and yet another step on the long road of restrictions and bans may soon be taken. The tendency towards restrictions on foreign currency has once again been confirmed. We might recall the recent discussion about restricting unqualified investors from opening foreign currency accounts.

The hope remains, of course, that, as in 2014, the international payment systems would reach an agreement with the Russian government, Russian MPs would be reined in, and cardholders would not feel the pain. Unlike 2014, however, the Russian Central Bank has supported the bill.

Sergei Khestanov is a macroeconomics adviser to the director of Open Broker and associate professor of financial markets and financial engineering at RANEPA. Translated by the Russian Reader

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Ivan Davydov: The New Greatness Trial

new greatness.jpegDmitry Poletayev, Vyacheslav Kryukov, Ruslan Kostylenkov, and Pyotr Karamzin, defendants in the New Greatness trial, during a court hearing. Photo by Pyotr Kassin. Courtesy of Kommersant and Republic

Russia’s Most Important Trial: The New Greatness Case as a Model of Relations between State and Society
Ivan Davydov
Republic
July 11, 2019

The term “hybrid war” has been in vogue for a while. The folks on Russian TV, who long ago unlearned how to do anything good or, maybe, never knew how to do anything good constantly mention the “hybrid war against Russia.” The term is infectious. At any rate, I have the sense you could not coin a better phrase for describing the Russian state’s attitude toward Russian society.

The Russian state has been waging a hybrid war against Russian society, and it has also been a guerrilla war. It is as if the state has been hiding on the edge of the woods, lying in ambush, sometimes leaving the woods on forays to do something nasty, like hitting someone over the head with a billy club, fining someone, passing a law that defies common sense and threatens the populace or just blurting out something terrifying and stupid. Then it goes to ground in the woods again. The sound of steady chomping is audible and, occasionally, peals of happy laughter.

Russian society sometimes tries to fight back, of course. Actually, society exists only when it tries to fight back. When there is no fightback, there is no society, only confused, atomized individuals whom the “guerrillas,” happily chomping their food in the woods, consider food. Society rarely tries to fight back, and it scores victories even more rarely. This summer, it managed to drag reporter Ivan Golunov out of jail before the guerrillas could chew him up. I cannot recall any other victories.

Although I am mistaken. Last summer, for example, society secured house arrest for the two teenaged girls, Maria Dubovik and Anna Pavlikova, accused in the New Greatness case. They were nearly killed in remand prison, but they were finally released. There was a tidal wave of articles in the press, an angry buzz on the social networks, and a March of Mothers that the authorities decided not to disperse.

It is not clear why: the riot cops would have made short work of the mothers. The tough guys who constitute the rank and file of the OMON would have enjoyed beating up women armed with stuffed animals.

Even Margarita Simonyan emerged from the woods to shout something about the “serious people” in the Kremlin who cut short their summer holidays to make the right decisions. Then it was back to the woods, whence the steady sound of chomping and slurping could be heard.

I still cannot get used to the fact that we in Russia consider house arrest for the victims of police lawlessness a victory for our side and incredibly good luck. I mean to say I understand why people think this way, but I cannot get used to it.

And now all of them—Maria Dubovik, Anna Pavlikova, Vyacheslav Kryukov, Ruslan Kostylenkov, Sergei Gavrilov, Pyotr Karamzin, Maxim Roshchin, and Dmitry Poletayev—are on trial.

Pavel Rebrovsky and Rustam Rustamov have already been convicted. They made a deal with investigators and prosecutors before the case went to trial. They were sentenced to two and a half years in prison and two years probation, respectively.

It is not as if there is no buzz in society about the case, but it amounts to background noise at most. Our society is short of breath: it has enough air in its lungs to make one attempt at resistance. Meanwhile, amazing things have been happening at the trial.

Courtroom Miracles
In brief, the story is that young people who were not entirely happy with their lives shared their thoughts in chat rooms. (By the way, have you ever seen young people who were completely satisfied with their lives? Didn’t you feel like going out of your way to avoid them?)

A nice man emerged in their midst. He suggested they organize a group to fight for everything good and oppose everything bad. They met in real life a couple of times. Prompted by the nice man, they drafted a charter for their movement. The nice man, it transpired, was a police provocateur, and the members of the so-called New Greatness movement were detained by police, not without a certain amount of pomp and ceremony, right before the 2016 presidential election.

And how could the security services get by without pomp and fanfare? They had apprehended dangerous criminals and exposed an entire group of “extremists.” If you believe the case investigators, New Greatness were planning “mandatory participation in popular uprisings, revolutionary actions, [and] clashes with authorities of the current Russian regime.”

Can you imagine someone using the phrase “voluntary participation in popular uprisings”? Security services officers who specialize in such matters have decided to destroy the lives of these unfortunate young people. In fact, they have already destroyed them. But these same security services officers have a slippery grasp of Russian and are not terribly worried whether what they write makes any sense. The takeaway message is that the New Greatness kids have to be sent to prison whatever the cost and the words used to do it play an auxiliary role.

The goings-on at their trial leave no one in doubt that this is the point. None of the defendants has pleaded guilty. Pavel Rebrovsky testified against his friends as part of the pretrial deal he made with prosecutors. In court, he testified he had been promised probation, and so he had agreed to say what state investigators wanted him to say, not tell the court what had actually happened.

“You call me. Do you have Whatsapp? I’ll send you the testimony you need to give in court,” Investigator Anton Malyugin had said to Rebrovsky to encourage him.

I don’t know how to judge Rebrovsky’s actions. It is easy to feign you are an honorable person when you are not locked up in remand prison. Rebrovsky was locked up in remand prison. Nevertheless, the investigator pulled the simplest trick in the book on him. Rebrovsky was sentenced to actual prison time, not probation, but he had the guts to tell the truth in court.

Except the court does not want the truth. Prosecutor Alexandra Andreyeva petitioned the court to examine the witness again, and Judge Alexander Maslov granted her motion. Investigators now have the time they need to explain clearly to the defenseless Rebrovsky how wrong he was to do what he did and what happens to people who pull what he pulled so everything goes smoothly the second time around.

It is vital we know the names of all these people. They should become household names. We should not think of them as generic investigators, judges, and prosecutors, but as Case Investigator Anton Malyugin, Judge Alexander Maslov, and Prosecutor Alexandra Andreyeva, who pulled out all the stops to send these young people down on trumped-up charges.

Rustam Rustamov, whose testimony is also vital to the investigation’s case, mysteriously vanished the day he was scheduled to testify in court. He was in the court building, but he did not appear in court. Apparently, the prosecution decided not to risk putting him on the stand. There are also ways of making a person on probation realize that the desire to tell the truth can be quite costly. It is better to coach the witness properly. There is no hurry.

The Russian State’s Self-Defense
The whole story is quite pointed. The case has been cobbled together haphazardly. This was already clear last year, but now it has become completely obvious. No one plans to retreat, however. When the Russian state’s guerrillas come out of the woods, they always bag their prey. Otherwise, their prey might get funny ideas.

This is a story about decay, you see. It is not that Russia’s law enforcement agencies have nothing else to do. Unfortunately, there are real criminals aplenty. Nor have the Kremlin’s military adventures abroad been a panacea for terrorists. But it has been harder and harder for Russia’s law enforcers to find the time to deal with real criminals and real terrorists.

Recently, a friend’s elderly mother was taken to the cleaners by scammers. When he went to the police, they worked hard to persuade him there was no point even trying to investigate the crime. Everyone remembers the case of the serial poisoner in Moscow, who was released by police after he was detained by passersby. He was apprehended again only when a scandal erupted, the press got involved, and the big bosses voiced their outrage.

Who has the time to work on silly cases like that if you have been ordered to take down a reporter who has been snooping around? And why should you bother when you can “solve” a terrible crime you concocted in the first place and you also had the good sense to detain your homemade “extremists” right before an election?

All you have to do is remove one rotten log from this house for the whole thing to come tumbling down immediately. The Golunov case, which cost several police commanders their jobs, was an excellent illustration of this fact.

By the way, there are no suspects in the new Golunov case, which has been entrusted to the Russian Investigative Committee. The drugs planted themselves on the reporter. They were treacherous drugs. No wonder they say drugs are bad.

The investigators, the judge, and the prosecutor handling the New Greatness case understand this perfectly well. They will use all the means at their disposal to put away the defendants, most of whom have been locked up in remand prison for over a year. As they themselves like to say, it is a matter of honor or, simply put, a matter of self-defense. The investigators, the judge, and the prosecutor are defending themselves: if the case comes unglued, a scandal would be inevitable, and a scandal could cost them their cushy jobs. It would also do irreparable damage to the system, to the fabled woods, because the more such unhappy endings there are, the less comfortable it will be for the guerrillas to chow down in the woods.

This is a curious aspect of what I have been describing. When the current Russian authorities engage in obvious wrongdoing, they do not experience discomfort. Of course, they don’t: when they defend themselves in this way they only aggravate the injustice. The lives of villagers who are raped and pillaged by brigands hiding in a forest mean nothing to the brigands, naturally. What the big men of the woods do not like is noise. The sound of their own slurping is music to their ears. If a hullabaloo arises, they could lose the little things that make life in the woods so pleasant.

So, I would like to write that the New Greatness case is the most important criminal case in Russia at the moment. The lawlessness and injustice evinced by the Russian authorities have been obvious and flagrant. But there is also the Network case, whose takeaway message is that the FSB can torture anyone it does not like, and it is nearly legal for them to do it.

There is also the case of the Khachaturian sisters, in which the lesson is that “traditional values” are interpreted in Russia in a way that can tear society apart.

There is also the war on environmentalists who have been trying to prevent the opening of a giant landfill for garbage from Moscow near the town of Shies in Arkhangelsk Region.

And there is the case of Pskov journalist Svetlana Prokopieva.

Finally, there is a mountain of smaller cases, which are no less terrifying even though they have generated less buzz or no buzz at all.

The menu of the forest brothers is too extensive, while Russian society is short of breath, as I wrote earlier. All arguments about Russia’s future boil down to a simple question: are their appetites hearty enough to eat all of us? None of them have complained about a lack of appetite so far.

And yet it would be unfair not to mention Anna Narinskaya, Tatyana Lazareva, and the other women involved in March of Mothers, who have been forcing their way into the courtroom and supplying accounts of what has been going on there. This is no easy task: the Lyublino District Court simply lacks room, but the judge has refused to have the trial moved to another court.

Then there are the musicians (Alexei Kortnev, Boris Grebenshchikov, Andrei Makarevich, Roma Zver, Pyotr Nalich, Vasya Oblomov, Maxim Leonidov, and MANIZHA) who recorded a video with Lazareva in which they performed an old song by the group Chizh & Co. about the “commissar contagion” as a way to draw attention to the case.

Finally, there is the website Mediazona, which has scrupulously chronicled the deeds of Russia’s law enforcers. It has also attempted to make the investigators, the prosecutor, and the judge in the New Greatness case household names.

It says a lot about Russia that a news website wholly devoted to covering the lawlessness of so-called law enforcers can function here and enjoy well-deserved popularity. Thank you, colleagues.

Translated by the Russian Reader

“I Felt Like Going Up to Him and Spitting in His Face”

“I Felt Like Going Up to Him and Spitting in His Face”
Yevgeny Karasyuk
Republic
July 2, 2019

Torrential rains began falling in the western part of the Irkutsk Region early last week. When they were over, there was no doubt the bad weather had caused local rivers to rise, producing a major flood involving human casualties and large-scale damage.

The flood, which affected over ninety towns and destroyed at least a thousand homes, has been declared the most powerful in the region in the one hundred some years since the weather there has been systematically observed and recorded.

The flood put a crimp in President Putin’s schedule, probably even as he was attending the G20 summit in Japan, which wrapped up on Saturday.

He visited the flooded region the same day, but he had no intention of staying there for long. He never left the airport in Bratsk, a city that had also suffered from the flood, but which had not been inundated as disastrously as other cities and towns.

Putin’s visit to Bratsk on his way home to Moscow from Osaka was a logistical opportunity he could not pass up, of course. The Russian regime’s personification has long ago reached the point the populace regards the president as morally responsible for any high-profile disaster anywhere in the country.

Going where disaster has struck is thus a matter of political instinct. The president last showed his trust in it only six months ago in Magnitogorsk. The critics can accuse Putin of arriving at the sites of tragedies after they are over and visiting fake patients with arms demonstratively in slings, but he knows what he is doing.

He still finds the strength to board a plane so that, a few hours later, he can appear, stern-faced, before the cameras and issue orders at emergency meetings of local and federal officials. This is exactly what the president did late at night in Bratsk.

The speed with which Putin arrives at the epicenter of events, like the amount of time he spends there, matches the alacrity with which Russia’s press reports the news.

“Putin instructed the head of the Emergencies Ministry to fly immediately to Kemerovo.”

“Putin was informed about the tragedy in Magnitogorsk immediately.”

“Putin demanded that immediately, as of today, compensation be paid to the victims [i.e., the residents of the affected districts in the Irkutsk Region] and that an action plan for rebuilding housing and doing it as quickly as possible be outlined without delay.”

All the fuss testifies not to the might of the so-called power vertical Putin has fashioned but, on the contrary, to its weakness. It produces nothing remotely resembling independence, flexibility, and responsibility on the part of local authorities, especially when it comes to the safety of ordinary Russians. Putin continues to run our vast country manually, but the outcome of his administration is quite deplorable, as we can see.

irkutsk.jpegA satellite image, provided by Roskosmos, shows the parts of the Irkutsk Region affected by the flooding. Courtesy of Republic

It does not matter a whit where and when the president arrives, and how long he stays there because it happens after the fact. Russian authorities usually do nothing at the most crucial moments. In a country run by the security services [siloviki], a country where there are more experts in security than anywhere else, a country with a whole emergencies ministry, it can easily happen that you would not be warned of impending disaster.

According to the Emergencies Ministry, four out of ten Russians are still not covered by the early warning system. Its absence goes a long way toward explaining the disaster in Krymsk in July 2012 in which entire houses and their sleeping owners were swept away by flood waters in the middle of the night. While Moscow was fiddling around with modernization and digitalization, towns in Krasnodar Territory did not have radio transmitters at their disposal to sound warning signals and inform residents of the approaching flood.

Seven years have passed since the disaster in Krymsk, and what happened there has happened again in Eastern Siberia. Residents of the town of Tulun, in the Irkutsk Region, have claimed they were not warned about the impending flood, and so they did not have time to gather their belongings and flee their homes. Local officials, however, assured Putin everyone had been warned.

“I watched our mayor giving his report to Putin and I felt like going up to him and spitting in his face,” a local woman who could not contain her emotions told journalists.

Officials now say they knew nothing. Irkutsk Region Governor Sergei Levchenko said regional authorities were not informed of the dangerous rise in the levels of water in local rivers, while the Emergencies Ministry has claimed the opposite.

Officials argue nature is capable of catching anyone by surprise, including the Russian state. At Irkutsk State University, scientists said global climate change had caused the flooding. Arctic and subtropical air masses had mixed with humid air from the Pacific Ocean, something quite rare for the region, to produce the atmospheric anomaly that led to the disaster.

In fact, all that is required in such circumstances is that officials pretend they sympathize with the populace in its plight and are ready to help. But the authorities, disinclined by habit from bowing to public pressure, could not make such a sacrifice.

“What do you want me to say? Do you want me to complain? I can complain to you, too,” Alexander Uss, head of Krasnoyarsk Territory, retorted to local residents upset by their governor’s passivity.

Krasnoyarsk Territory was next in the flood’s path after the Irkutsk Region, but the floodwaters have begun to subside.

You can relax. Putin will not be paying you a visit.

Translated by the Russian Reader