Vladislav Inozemtsev: The Calm before the Storm

A common sight: first-floor commercial space for rent in downtown Petersburg
A common sight: first-floor commercial space for rent in downtown Petersburg.

The Calm before the Storm: Can We Avoid Economic Collapse in 2018?
Vladislav Inozemtsev
Slon.ru
August 1, 2016

Last week, Tatyana Nesterenko, one of Russia’s most experienced financiers and a person distant from politics, a person who has held the post of deputy finance minister and head of the Federal Treasury for almost twenty years, said the Russian economy should expect serious financial problems as early as next year, comparing the current situation with the “eye of a storm, [meaning] a condition in which everything [merely] looks quiet and safe.”

In my view, Nesterenko is undoubtedly right. The government has recently appeared to be the epitome of tranquility. It has even been drafting a new three-year budget, although in terms of revenues for 2016, the previous such plan (for 2014–2016) was off by 42%! Revenues were projected at 15.9 trillion rubles, but actual revenues in the first six months of the year were 4.6 trillion rubles. I don’t think the new draft budget will prove more accurate, if only because no sources of income for covering the deficit are envisioned after 2017. The president, who from time to time meets with economists and recommends developing a new development strategy for the country “roughly within a year,” meaning when the Finance Ministry’s reserves will run out and the budget’s huge social commitments will prove impracticable, has mainly been busy reshuffling the security forces, believing, apparently, that a sum changes by rearranging its components.

Coins tossed for good luck onto a stanchion in the Fontanka River
Coins tossed for good luck onto a cable spool anchored in the Fontanka River.

Today, Russia’s economy, to invoke Economic Development Minister Alexei Ulyukayev‘s maxim, really has hit rock bottom. The authorities are elated that the rate at which the GDP has been falling fell to 0.6% in the second quarter, but we should note this reduction took place in conjunction with an accelerating reduction of real incomes (by 6.2% in May, and 4.8% in June) and a considerable increase in inflationary expectations. Annual inflation was 7.5% as of June and showed no tendency toward decreasing.

Moreover, oil prices have fallen considerably. Brent fell by 15.2% during July, and, apparently, black gold is near a new equilibrium price ranging between 38.5 and 43 dollars a barrel. A 15–16% fall in the oil price will cost the Russian budget 430 to 460 billion rubles in the remaining five months of 2016, which is also no cause for optimism. Responding to it by “managing” the descent of the ruble will not be easy. Devaluing the national currency will no longer lead to a growth in exports, which this year has lagged behind last year’s figures by 30.5%. On the other hand, imports, which have basically not shrunk (they are down by only 10.4%) will inevitably become more expensive, dragging along with them the prices for a wide range of goods, thereby causing inflation and setting the tone for high interest rates.

Empty billboards are also not hard to come by in the city center.
Empty billboards are also not hard to come by in the city center.

In mid 2016, the Russian economy really is situated in the eye of a kind of storm. It is quite calm there at the moment: the authorities have become accustomed to the new circumstances. They have no hesitation in spending reserve funds. Generally, fears of popular discontent over lowing living standards have been overcome. Seemingly, a certain reduction in the degree of hostility toward western countries might do the trick of restoring relations with them.  There has been a glimmer of hope the EU’s problems will deepen with the UK’s exit. The possibility of Donald Trump winning the presidential race in the US has been taken seriously. Putin feels like a winner in his confrontation with Turkey. It is no wonder officials have dubbed the situation the “new normal.” It really is the new normal, so as long we take into account two factors: oil at 50 dollars a barrel and spending accumulated reserves at the rate of 600 billion rubles a quarter. That is around 8% of the overall amount in both sovereign wealth funds, the Reserve Fund and the National Wealth Fund.

Another empty billboard
Another empty billboard

However, the problem is not so much that sooner or later we will have to break back into the open sea through the hurricane’s eye wall, but the fact that the eye of the storm might move, and it would appear we have no instruments for tracking it. The country has not been trying to find the best place in this “quiet corner.” It has simply been drifting, humbling waiting for what happens next.

Evaluating the numerous programs and strategies that experts affiliated with one or another wing of the government are now trying to draft, one cannot help thinking that none of them is capable of boosting the Russian economy in view of two circumstances.

An elderly woman turning in scrap paper and other junk to supplement her pension.
An elderly woman turning in scrap paper and other junk to supplement her pension.

On the one hand, anti-crisis measures should have been implemented yesterday, rather than postponing their preliminary discussion to 2017. By the way, Russian Finance Minister Anton Siluanov warned in early 2016 that, at current oil prices, the Russian budget would be short 3 trillion rubles, which in turn would lead to spending the greater part of the National Wealth Fund. Little has changed since then. In the absence of reserve funds, the hole in the budget cannot be closed in 2018 either by raising funds on the international capital market (in this case, we would have to raise considerably more money than all the central government’s current international obligations) or by privatizing. (One year’s deficit could be papered over only by selling off the lion’s share of the state’s holdings in Gazprom and Rosneft.) Whatever economic development strategy the Kremlin approves a year from now, it will not prevent a large-scale collapse in 2018, with all the attendant consequences.

On the other hand, all the existing programs, however much Alexei Kudrin and Boris Titov stress their differences, are generally focused on the same thing: relaunching the economy on behalf of manufacturers. There is in fact only one difference between them. Titov’s Stolypin Club has suggested priming major enterprises with money through the earmarked and regulated distribution of cheap loans, subsidized by the Central Bank, while Kudrin’s Center for Strategic Research favors institutional reforms that could include reducing taxes on business and limiting the rights and opportunities of security services and the bureaucracy for extracting additional income from business. The assumption is that either by getting its hands on cheap money or ridding itself of the unbearable pressure of regulators, business will be reanimated, sparking life-saving economic growth.

More commercial real estate for rent in the city center.
More commercial real estate for rent in the city center.

I would love to be wrong, but I don’t think these measures will produce any meaningful outcomes, because the most important factor in the economic slowdown of 2014–2016 has been the crisis in consumer demand. The state has diligently performed its investment obligations, saturating heavy industry with funds via defense sector orders. It has not halted its sometimes pointless but expensive infrastructure projects. It has been encouraging state companies to build new pipelines and railways, but none of it can compensate the effect of declining consumer demand. Moreover, this demand has increasingly shifted towards the continuing flow of imports, while the share of domestic goods on the market has stopped growing. As I understand it, none of the economic development programs has so far offered a solution to this problem.

Therefore, in my opinion, we should introduce as least three new story lines into the ongoing debates.

First, we should stop regarding increases in wages for low-paid earners, pensions, allowances, and other payments to low-income Russians as “costly measures.” Saving money by reducing the incomes of doctors, teachers or pensioners is much more destructive than reducing costs at Gazprom or expenditures in the program for rearming the Russian army. These segments of the populace are most focused on purchasing domestic goods and services, and investing in them produces a multiplier effect in the sales and production of consumer goods. The crisis of 2008–2009 was negotiated much more successfully than the current crisis not only due to the relatively radical reversal in oil prices but also because the government considerably increased people’s incomes at the time, despite budget problems, whereas 41% of the population now say they lack money for food and clothing.

Second, we should think hard about a one-time credit and debt amnesty for people whose indebtedness to banks, the tax authorities or housing and utilities sector companies does not exceed, say, 30 thousand rubles.  Obligations of this amount now account for around 20% of the population’s entire debt burden, and a measure like this would affect 10 to 12 million people. The state would have to allocate up to 2 trillion rubles to implement the program, but both the social and political (why deny it) effect of such a measure would be incomparable with a Stolypin Club-style emission of a similar scale, which would completely vanish in the offshore accounts of executives of major companies in bed with the state and sympathetic officials. In my view, we cannot do without this measure now, but none of the people involved in the current discussion has deigned to mention it in their programs.

Third, direct measures for stimulating demand are necessary. They were adopted by all the governments of developed countries hit by the crisis of  2008–2009, but our officials were quite reluctant to copy them. I have in mind not only programs for encouraging purchases of new automobiles but also a system of issuing food stamps, analogous to the American one, to poor people. For example, pensioners could buy stamps nominally worth four to six thousand rubles for two to three thousand rubles at welfare offices. The stamps would be accepted in shops as payment for domestic food products only, with the exception of cigarettes and alcohol, and commercial outlets would then turn them in at banks at face value and have the amount credited to their accounts. This could be a powerful stimulus both to domestic manufacturers and commerce, not to mention the popularity of such a step among socially vulnerable groups themselves.

Ads like this one for a prostitute service are stenciled and pasted on every available surface in the city center.
Ads like this one for a prostitute service are stenciled and pasted on every available surface in the city center.

In other words, now it is not enough to say that Russia has sailed into a perfect storm. It must be understand that not only the captain and his mates will have to fight for our ship’s survival but absolutely all the passengers as well, and so the basis of an anti-crisis program should be attention to the general population, not to state corporations. And, of course, to be at least relatively prepared to fend off the mighty blows of the elements, we must stop postponing actual steps until tomorrow, and begin taking them today.

Source of original text: Worldcrisis.ru. Translated by the Russian Reader.

Nadezhda Tolokonnikova: “I Won’t Be Able to Forgive Myself If I Don’t Try and Change Something”

Nadezhda Tolokonnikova
Nadezhda Tolokonnikova

Nadezhda Tolokonnikova: “I won’t be able to forgive myself for the rest of my life if I don’t try and change at least something”
September 26, 2013
Vera Kichanova
Slon.Ru

On Monday, convicted Pussy Riot member Nadezhda Tolokonnikova said in an open letter she was going on hunger strike to draw attention to numerous violations at the penal colony where she is serving her sentence. According to her, the workday there lasts sixteen to seventeen hours, production quotas are constantly raised, and convicts are punished for not fulfilling quotas: they can be deprived of the right to go to the toilet, to eat, and to drink. Human rights activists who have visited the penal colony have essentially confirmed what she described. Tolokonnikova also claimed she has received death threats and asked to be provided with protection; she was then transferred to solitary confinement. In a telephone conversation with Slon.Ru, she explained why it had been necessary to complain, why all the other inmates are silent, and how, in her opinion, to fix the system.

Nadya, how do you feel?

So-so: I have aches, dizziness, a headache, and feel like I’ve been poisoned. In fact, this is from the hunger strike, but at Penal Colony No. 14 the conditions are such that a hunger strike is relatively easy to take, because there are so many psychological problems that physical problems somehow don’t bother you that much.

Are you really in solitary confinement?

As always happens, it turned out very funny: I’m in a solitary confinement cell to which this morning, before the inspection commission arrived, they attached a sign that read, “Provision of a safe place.” In fact, it differs from solitary confinement only in the sense I can have my personal belongings here, and after numerous complaints about the cold they have put a heater in here.

Did anything change after the human rights activists visited the penal colony?

I can’t tell you anything about the penal colony: I have simply been isolated in solitary confinement so that I wouldn’t be able to monitor the state of affairs in the penal colony. I have thus been put in a position where I cannot monitor the things I’m demanding in my own hunger strike. All my communication with the other prisoners has been cut off. I only know that they’re undergoing standard preparations for an inspection, preparations that involve eliminating all shortcomings and flaws. But as far as I know, most of the prisoners support me and they still have high hopes that things will change. However, my experience of dealing with the administration tells me this is totally unlikely.

You’ll be getting out soon, but you go and write this letter. Had it really become unbearable, or do you want to help the others you’ll leave behind?

The others are the reason. I realize that six months will elapse and I’ll leave. But these people will remain, and I won’t be able to forgive myself for the rest of my life if I don’t try and change at least something. I won’t guarantee that something will change for the better, but I need to do this.

Yevgenia Khasis [a Russian nationalist sentenced to eighteen years in prison for acting as an accomplice in the murders of Stanislav Markelov, a human rights lawyer, and Anastasia Baburova, a journalist and anti-fascist activist, in downtown Moscow in January 2009 – Trans.] has said to journalists that you’re exaggerating about the intolerable conditions, that you actually don’t have support, and—

You can stop right there. I’m not interested in talking about Yevgenia Khasis, because she has already shown herself in such an extremely negatively light, including in those criminal cases in which she was involved. She is a figure who deserves no respect, and her words mean nothing to me.

Did you really talk the other day with an archpriest [Russian Orthodox Archpriest Alexander Pelin – Trans.]? And he gave you an icon?

Yes, he gave me an icon and conveyed Patriarch Kirill’s blessing, which was very cute during a hunger strike.

He said that, in his opinion, you didn’t write the letter yourself and are even poorly informed about its contents. Did someone help you draft the letter?

I’m quite offended a question like that could occur to you. That was said to vilify me. In fact, I wrote the whole letter from beginning to end in a single passionate outpouring: I wanted to tell people what was going here. And I’m ready to take a lie detector test, if necessary, and prove everything I say there is true.

Has a doctor examined you during the hunger strike?

A doctor examined me today: he said my blood sugar level was 2.2. As far as I know, this is fairly low. He didn’t say anything else interesting. But I want to tell you about a strange incident that happened today and, frankly, shocked me somewhat. Tonight, the administration resorted to violence against me for the first time. The on-duty inspector entered my cell and demanded I surrender my water to him. As you know, I can drink water while on hunger strike. So I couldn’t understand why I had to give him the water that had been given to me by [journalist and Presidential Human Rights Council member] Elena Masyuk. I asked him to show me a warrant for confiscating the water. However, in response, he just snatched the water by force: he grabbed me by the arms and legs and pulled me away, while a convict who works as an orderly in the solitary confinement wing just made off with the water. I tried to get it through their heads that their actions were illegal, and they were confiscating my things without a warrant. However, they continued these actions until all the water I had in the cell had been confiscated.

You say the prisoners generally support you. How do they show their support?

After the letter was published, I was isolated. Our paths could cross only when people were going through the penal colony and could say a few words—“Nadya, you’re beautiful!” or something like that.

That has happened?

That has happened a number of times. Things like that happen quite often when I walk through the penal colony. People have hopes. Their hope doesn’t fade, although, of course, the mind makes them act differently, so when an inspection commission comes, they’re afraid to tell the truth. They would simply be destroyed in here for telling the truth. And yet they support me, hoping that I alone will pull them through. Although I know very well that without their help, without their testimony, my words do not mean much, as long as I am the only one. They really do fear for their health and their lives. It’s a stalemate, and I just can’t imagine how to get out of it. So I went on hunger strike.

This morning, human rights activist [Ilya] Shablinsky said he was shown new bathrooms and so forth in the penal colony, but that he had strong suspicions that everything had been prepared specially for the commission’s arrival. Could this be?

Those are in units where they really have new bathrooms, so naturally it’s not hard for them to take a human rights activist to those very units. In my dorm unit, the sewer periodically clogs up so that the shit—excuse my language—comes gushing out. There are no new bathrooms in my unit, and if the prisoners were not afraid of reprisals against them, they would have said the same thing.

Have you seen Archpriest Vsevolod Chaplin’s letter?

I know the gist of what he said. Let God be his judge. I am not going to make any judgments on this score.

Is there a church in the penal colony? Have you had talked with the priests?

There is a church here, but the priests are not particularly willing to talk to me. Honestly, there is no time for it. Vital issues—sleeping, eating, and working—occupy my attention. There are things that are on the front burner: I really want to help someone. But intellectual and spiritual issues have receded into the background. Now the question of survival is front and center.

Are there many believers in the penal colony? What have they said about your story?

These things are generally not discussed in the penal colony. It is not what is discussed. What gets discussed is whether we’ll be punished today by being forbidden from eating our own food, whether we’ll be able to drink tea today, whether we’ll work today until one in the morning or whether we’ll be let off work at eight in the evening once this week. There is no space here at all for intellectual dialogue.

Have they tried to talk you out of the hunger strike?

Of course, this happens all the time.

In what form?

They leave me food for two hours: it sits in the cell and stinks. Today, I wrote a complaint to the penal colony warden saying that I’m being tortured psychologically. I’ll see what fruit this complaint bears.

Do you and your fellow inmates know whom you’re sewing for? Today, [the newspaper Izvestia] wrote that you’re working for a former State Duma deputy.

I think that is not important in this case. If our production quotas are reduced and we’re given a decent amount of working hours, it won’t matter for whom we’re sewing. That is an ideological issue. Maybe it is not clear to you people on the outside, but here issues of survival are the priority.

How can all this be fixed? Are people the problem, or is it the whole system?

I think that solutions for all this can only be centralized, coming directly from the central authorities, because without great political will it is impossible to seriously reverse this. Discrete changes, great and small, are possible, but a rollback is inevitable, unfortunately, without great political will.

Meaning, if Putin says something about humanizing the penal system in his [upcoming state of the nation] address. . .

I think that until Putin is removed, nothing will change. He has a stake in this system’s being as punitive as possible.

But if he’s removed, no Stalinist wardens will be left in the penal colonies?

If he’s removed, there is a vast number of ways things could evolve. But I think that if we take matters into our own hand, we will be able to reform the system the right way.