Thursday, January 31, 2019

Issue 27

THE BRETON/GEROL NEWSLETTER


THE WALL THAT DIVIDES AMERICA, OR THE ICONOCLAST’S BROKEN IMAGE




President Trump's failure to obtain from Congress the funding that would allow for the construction of a border wall with Mexico, that, in theory, would stop the influx of illegal immigrants, drugs and criminals, is his first major political defeat. Yet, despite his own superficial understanding of complex issues and regardless of several high profile resignations within the White House and his Cabinet, Trump still managed to carry out some of his election promises, or at least, give the appearance of doing so. Here is a short list: he forced Canada and Mexico to renegotiate and signed a new, more American oriented NAFTA agreement, reduced taxes on business, relaxed financial regulations, appointed conservative judges to the highest courts as well as catered to the evangelical right on pro-life issues. As well, he kept his promise and moved the US embassy from Tel-Aviv to Jerusalem. He also claims to have contributed greatly to lowering unemployment to a record low since 1967. He also, as promised, took a hard line towards China in an attempt to improve the trade imbalance which heavily favored China. The result of that last move is, however, admittedly uncertain.

At the same time the polarization of American political life has reached a rarely seen level, under this most "un-presidential" president. On the international scene, Trump quickly claimed that his objurgating made NATO allies raise their financial contributions, but on the down side there has been a loss of reliability that has started to undermine the US reputation and position in the world.

This has been felt especially in the Middle East where a somewhat premature announcement of the withdrawal of US troops from Syria has left Trump’s own team scrambling for ways of backtracking. Trump’s inability to deal with Turkish President Erdogan on the Kurdish issue even made him issue unheard economic threats against a NATO ally.

On the matter of security in the Korean peninsula, the prospect of another Trump-Kim Jong-un summit probably makes Koreans more nervous than happy. High-ranking members of the US security establishment are probably even more nervous, especially after having been rebuffed by Trump himself over their assessment of international threats. After having made the world fear for another major conflict, Trump’s quick decision to see Kim Jong-un opened the door to a welcome rapprochement between the two Koreas. What he might do next is unclear. How he will handle his next encounter with the North Korean leader is, as almost always with Trump’s meetings, cause for trepidation.

On the most recent matter of Venezuela, despite the “America first” article of faith, Trump chose to say that “all options are on the table”, letting some to believe he also had military options in mind, making a lot more people nervous.

The longest shutdown in US history fiasco and the loss of face before the Democratic-controlled House of Representatives have weakened the President and bruised his large ego, probably setting the stage for more bluster and unpredictability. There are rumours that the Mueller inquiry could wrap up soon. From what we have seen so far, one can expect that the Mueller report will be embarrassing for Trump and his entourage, but may well stop short of providing compelling evidence to start an impeachment process. The debate around Trump himself will nevertheless go on, leaving little time for anything else.

--o--

“PAINSTAKING WORK” REQUIRED BEFORE PEACE DEAL WITH JAPAN


PM Abe, President Putin, January 22nd, Moscow
©President of Russia Website

Japanese Prime Minister Shinzo Abe Russian President Vladimir Putin in Moscow on January 22nd, for the 25th time. In this respect, it is worth observing the stark contrast between Abe and most of his fellow G7 leaders. Putin and Abe met at the Kremlin for about two hours of face-to-face talks that were followed by a broader meeting including more officials from the two countries. Russian President Vladimir Putin stated that "painstaking work" remains before Russia can conclude a peace treaty with Japan to formally end World War II. The two countries' foreign ministers are to meet again in February to continue the discussions about a possible deal.

Prime Minister Abe said President Putin confirmed their determination to find a solution to the main obstacle to the peace treaty, the dispute over the four southernmost islands in the Kurill chain, which runs from Hokkaido in Japan to Russia's Kamchatka Peninsula. Putin also confirmed that Moscow was still interested in building the negotiating process on the 1956 Soviet proposal to return the two less populated islands, Shikotan and a group of islets called Habomai.

Russia-Japan Consultations
22 January, Moscow
©President of Russia Website


There are several issues that stand in the way. Since Soviet troops seized the disputed islands during the final days of World War II, Russian sovereignty over them is regarded by Russia as an outcome of the war, and somehow legally confirmed by Article 107 of the UN Charter (the so-called enemy state clause). Tokyo has nevertheless consistently refused to recognize Russian sovereignty over the islands that are known in Japan as the Northern Territories.

The most difficult issue is probably overcoming public opinion objections on both sides. After the meeting with PM Abe, Putin observed: "Of course, solutions proposed by negotiators should be acceptable for the peoples of Russia and Japan, supported by the societies of both our countries”. There may be some movement among Japanese people side towards accepting a compromise. It is less clear that there would be a similar movement in Russian public opinion. Russian state media are clearly working on trying to change this, but in a low-key indirect way.

The 1960 Japan-US Security Agreement allows for American bases in Japan. It led to the cancellation by the Soviet Union of its 1956 proposal. The Soviet Union then stated that no territory could be given back to Japan until it removed all foreign forces from its national territory. It looks as though this time Russia may settle for the prohibition of foreign forces to be limited to the specific areas given back to Japan.

In the meantime a number of specific measures have been agreed in order to "enhance the atmosphere of mutual trust,". They range from local economic cooperation projects to the traditional visits by Japanese families to the cemeteries where their ancestors are buried.

--o--

NO SHORTAGE OF CANDIDATES FOR THE PRESIDENCY OF UKRAINE


Yulia Tymoshenko

Volodymyr Zelensky

Ihor Smeshko


The Ukrainian Presidential campaign officially opened on December 31st. The first round will be held on March 31st. The second round, most likely needed, will be held on April 21st.
The only sure thing at this time is that here will be ample choice. There are already 27 registered candidates, including President Poroshenko, with a few more expected to register before the February 3rd deadline.

As expected, with a rating that is around 19%, the only candidate that emerges from the pack is former Prime Minister Yulia Tymoshenko. Volodymyr Zelensky, a well-known actor, comes in a surprising second, but his recent admission that he has commercial interests in Russia may cost him support, despite his promise to divest himself of these interests "in the near future."

Other candidates, hovering around the 9 to 11% mark include Yuriy Boyko, a pro-Russia candidate, and President Poroshenko. A note of caution is warranted. For other than the leading candidate, polling results can substantially vary depending on the entity conducting the survey.

The only other candidate who is making an unexpected and possibly successful entry is Ihor Smeshko, the head of the Ukrainian Security Service from 2003 to 2005. What first distinguishes Smeshko from the rest is that he is the candidate backed by Dmitry Gordon, an influential electronic media journalist. What also distinguishes him is that he is a candidate who has openly refused to receive money from oligarchs whose influence continues to be a feature of Ukrainian political life. A few serious candidates are either closely associated with one or another oligarch. Poroshenko is his own oligarch.

The most likely scenario now is for Tymoshenko to make it to the second round. She would then be expected to win relatively easily, especially against either Poroshenko or the pro-Russia candidate. Winning against a candidate like Smeshko could be more difficult. There being so many candidates to divide the non-Tymoshenko votes in the first round, a “dark horse” candidate might have a chance. Smeshko, despite having less public recognition, could well emerge as offering a new option among nationalist candidates. Smeshko who has professed to take a pragmatic approach might well be perceived as one who could engage in a significant discussion with Vladimir Putin on the contentious issues between Ukraine and Russia. Fact that they share a common background in the security apparat might strengthen that perception. In the current context, and as is often the case the world over, voters may not make their choice so much on policy issues, but on the believability and the reputation of the individuals, With an unusually large field of candidates almost everything is possible.

--o--

 UKRAINE, THE GAS PIPELINES, AGAIN


The Russian promoters of the Nord Stream 2 undersea pipeline are confidently announcing that their pipeline will be operational by the beginning of 2020. Nord Stream 2 will double the volume of gas that transits directly through the Baltic Sea from Russia to Germany, thus decreasing the importance of land transit through either Poland or Ukraine and avoiding the payment of transit fees that get passed on to Western European customers.

In principle, the EU would like for some Russian gas to continue transiting through Ukraine and., through trilateral discussions, is trying to convince Russia to come to a workable arrangement with Ukraine in this respect. Two elements that were hitherto not widely mentioned have recently emerged from the public discussions surrounding this issue. First, the loss of the fees for the transit of Russian gas would inflict a loss of 2 to 3% to Ukraine’s GDP. The continuation of the gas transit through Ukraine would also require some maintenance and modernization of the infrastructure in Ukraine, an issue that has until recently not been addressed. Who would invest in that infrastructure is a big question.

Russian officials have publicly stated that they would not object to the continuation of gas transit through Ukraine, but with Nord Stream 2 as well as Turkish Stream, its southern equivalent, on the horizon, they are in a strong negotiating position.

The outcome of the law suits by Naftogaz, the national gas company in Ukraine, against Gazprom, its Russian counterpart, would also have to be factored. Whatever awards it may ultimately gain Naftogaz could bring to the negotiating table to obtain a more favourable deal with Gazprom.


©Naftogaz


Ukraine no longer buys gas directly from Russia, but buys it indirectly from neighbouring countries that get it from Russia. As a few other countries, it is also looking to get supplies from other sources. It also hopes to develop its own gas deposits. The above-mentioned loss of transit fees, coupled with the need to procure gas from potentially more expensive sources would put a serious damper on economic growth at least in the short to medium term. Many presidential candidates’ promises of renewed prosperity in the short term would be very difficult to fulfill.

--o--

 
BELARUS TO JOIN RUSSIA, NOT REALLY


















"I call these suggestions very stupid and far-fetched for discussion in our society," Belarusian President Alexander Lukashenko said on January 10th. He was referring to persistent rumors and suggestions of late that Russia was ready to incorporate Belarus into its Federation.

Speculation that the merger of Russia and Belarus is just over the horizon has become so prevalent in recent weeks that top officials in both countries have made repeated efforts to refute it. "As for the Union State between Russia and Belarus I am simply surprised by the inflated uproar about this topic," Russian Foreign Minister Sergei Lavrov said during his annual results-of-the-last-year press conference in Moscow on January 16th.

Several insiders close to both governments also denied any serious movement towards such a resolution citing the ongoing war in Ukraine, Russian political and economic circumstances as well as the overall uneasy equilibrium in international relations, all that simply would not allow Russia to calmly move in and digest Belarus. Most realistically Russia simply wants to have a reliable ally to the west and Lukashenko has basically been that.

Besides, anyone familiar with Russia and its dynamics, the country is often daring, as operations to annex Crimea and wipe out of Syrian opposition clearly show, but Russia is not reckless. To try to absorb Belarus would be definitely reckless.

Already for a long time Putin has tried to keep Lukashenko on a short leash. Lately it did not go unnoticed by the Kremlin that Lukashenko was taking advantage of Putin’s preoccupations on the international stage and that the Belarusian strongman was trying his best to gain more latitude.

The current bone of contention between the two strong leaders is a Russian tax reform that began to take effect at the beginning of the year. In an effort to end de facto internal energy subsidies, Russia is phasing out export duties for oil and instead imposing an extraction tax. Since Belarus has been importing Russian oil duty-free under the common economic space and subsequently exporting it with its own duties tacked on, it now stands to lose a major subsidy.

Under the plan, Belarus could come up $300 million short this year and lose up to $12 billion by 2024. The squeeze comes with Belarus facing about $5 billion in international debt payments due in 2019. The Russian subsidy, even several hundred million dollars, is decisive for the Belarus economy and for Lukashenko.

The Belarusian president has leverage too in a relationship that has come to be known as “oil-for-kisses”. Russia counts on Belarus as a reliable political ally, particularly in its confrontation with NATO. The two countries hold joint military exercises that regularly engage the West's attention.
This situation was correctly summed up by Russian political analyst Kirill Rogov: "Russia is in a position of pretty serious international isolation, and this gives Lukashenko some room for maneuver. Belarus is the last bastion. Considering the sharp conflict with the West, Moscow understands that at any moment the West could start pulling Belarus toward its sphere of influence and this creates some uncertainty. In the isolation that Russia is now experiencing, it is losing some of its influence, including over Belarus."

Earlier this month, Belarus was said to have unexpectedly lifted a long-standing limit on the number of U.S. diplomats allowed in the country, a symbolic gesture that contrasts sharply with the reduced diplomatic relations between Russia and the United States as a result of tit-for-tat expulsions. Belarusian Foreign Ministry spokesman Anatol Hlaz announced early in the New Year that senior officials from Belarus and the United States have been discussing other ways of improving bilateral relations.

Rather than eyeing the incorporation of Belarus into Russia, Moscow or some Kremlin-connected oligarchs could be seeking a stake in Belarus' oil-refining industry, which remains one of last family jewels left to Lukashenko. Giving that up would represent a major loss of sovereignty for a country of some 10 million people. Moreover, refining accounts for about 20 percent of the Belarus state budget, so surrendering that sector could create as many problems as it solves for Minsk.

Ironically, Belarus' traditional economy could be the main defense of its sovereignty against Russia. When Lukashenko met with Putin on December 29, his Christmas gift consisted of four sacks of potatoes and a tub of lard, possibly a symbolic representation of how little Russia stands to gain in a merger with Belarus.

Many analysts see the current activity as part of a larger pattern spanning the two countries' entire post-Soviet history, in which Lukashenko deftly offers or withholds his support for Moscow in complex bargaining for the Russian economic subsidies on which his country relies.


President Lukashenko, President Putin
December 29th, Moscow
©President of Russia Website


--o--

PERSON OF THE MONTH: HOWARD SCHULTZ


©Wikipedia


Born in Brooklyn New York in 1953 to a Jewish family of modest means, Howard Schultz graduated from Northern Michigan University with a bachelor's degree in communications before becoming director of retail operations and marketing for the Starbucks Coffee Company in 1982. After founding the coffee company Il Giornale in 1987, he purchased Starbucks and became CEO and chairman of the company.

Schultz publicly announced that he was resigning as Starbucks' CEO in 2000, though he returned to head the company from 2008 to 2018. In 2006, Howard Schultz was ranked No. 359 on Forbes magazine's "Forbes 400" list. In 2013, he was ranked No. 311 on the same list, as well as No. 931 on Forbes's list of billionaires around the globe.

He just revealed his intention to run for president in 2020."For some time now, I have been deeply concerned about our country, the growing division at home and our standing in the world," he told The New York Times. He announced he will run as an independent.

In a recent interview with CBS he said that his strength as a candidate would come from his middle of the road position of a social liberal and fiscal conservative. However, some commentators, including former New York mayor Bloomberg believe that his run would only help Trump. Not for his accomplishments, in a month when accomplishments were scarce, but for his potential impact on US politics, Schultz is the person of the month.

--o--

BRIEFLY NOTED


UNITED STATES


The U.S. Navy says guided-missile destroyer USS Donald Cook is heading to the Black Sea to conduct maritime security operations and enhance maritime stability with NATO allies in the region. The missile destroyer was navigating the Dardanelles Strait in Turkey on January 19th as it headed north toward the Black Sea, the U.S. Navy said in a statement. It did not say when it expected the ship to reach the Black Sea, but the TASS news agency quoted the Russian Defense Ministry’s Defense Control Center as saying it is “tracking the movements” of the Donald Cook, which according to international convention may stay in the Black Sea for no longer than 21 days.

Tensions in the region have been heightened since November 25 when Russian security forces fired on, boarded, and then seized three, armed Ukrainian navy vessels near the Kerch Strait, which links the Black Sea and the Sea of Azov.

"The United States and the U.S. Navy continue to stand alongside our allies in defense of shared regional interests and maritime stability," Commander Matthew J. Powell, commanding officer of Donald Cook, said in the Navy statement. "Our arrival into the Black Sea will showcase the Navy's interoperability in pursuit of common security objectives, enabling us to respond effectively to future crises or deterring aggression," he added.

KYRGYZSTAN


Hundreds of activists in the Kyrgyz capital of Bishkek gathered to protest against what they called the increasing number of Chinese migrants in Kyrgyzstan. During the January 17 demonstration at Bishkek’s Ala-Too Square, the participants urged the authorities to deport illegal Chinese migrants back to their country and stop granting citizenship to them.

The demonstrators also expressed support for ethnic Kyrgyz who they said were being persecuted in re-education camps in China's northwestern province of Xinjiang.

Foreign Ministry officials met with the demonstrators and told them that all migrants from China were residing and working in Kyrgyzstan legally.

However, the demonstrators disagreed and said that all Chinese businesses in the Central Asian country should be checked in an effort to locate illegal immigrants. Following similar protests in Bishkek in recent months, President Sooronbay Jeenbekov warned recently that "those trying to disrupt Kyrgyz-Chinese partnership" will face legal prosecution.

BULGARIA


Bulgarian Prime Minister Boyko Borisov says U.S. F-16 fighter jets are the best choice to replace the Balkan NATO member’s aging fleet of Soviet-designed MiG-29s. Bulgaria has budgeted 900 million euros ($1 billion) for the purchase of at least eight fighter jets. The Defense Ministry is reviewing offers from the United States for new Lockheed Martin F-16s and Boeing F-18s, new Gripen jets from Sweden, and used Eurofighters from Italy.

Borisov told reporters he did not want to influence the process, but he said that "from what I have heard from the pilots, a new F-16 is a significantly better aircraft than all the rest that are on offer." As a consolation gesture towards Russia, PM Borisov informed Moscow that his country would like to join the Turkish Stream Gas Pipeline in order to be supplied with Russian natural gas.

SERBIA


Vladimir Putin visited Serbia making his first official trip to the country since 2014 and fourth since coming to power twenty years ago. During a several-hour program, he met with Serbia’s President Aleksandar Vucic and other government officials and discussed mutual cooperation and the process of the normalisation of relations between Kosovo and Serbia. Putin’s popularity in Serbia is among the highest in the Western Balkans, and it is often exploited by the ruling parties, who present themselves as having close ties with the Russian President.

On the other hand, Russia is also using its historic and cultural ties with Serbia, as well as the negative sentiment towards NATO present in the country since the 1990s wars, to maintain some influence in the region, which is increasingly turning to Euro-Atlantic integration.

As was expected the visit was rich with symbolism. Putin awarded Vucic with the Order of Alexander Nevsky, and they jointly visited both the graveyard of the Russian soldiers who participated in the liberation of Belgrade during the Second World War, and the Europe’s largest Orthodox Church built with Russia’s assistance (named after Saint Sava), where they put the final pieces in a new mosaic.



BELARUS


The first online cryptocurrency exchange, based on block chain technology, has been launched in Belarus. Media reports in Belarus said on January 15th that what they called the "world's first regulated tokenized securities exchange" at Currency.com was financially supported by a London-based Belarusian entrepreneur Viktor Prakapenya and Russian businessman Said Gutseriyev. The online service would allow users to exchange different types of cryptocurrencies as well to sell and buy them for national currencies. Tokenization, the process of substituting a sensitive data element with a nonsensitive equivalent, referred to as a token, may be used to safeguard sensitive data such as bank accounts or financial statements.

The project is launched more than a year after Belarusian President Lukashenko legalized transactions in cryptocurrencies such as Bitcoin. Lukashenko signed the decree on December 22, 2017. He said at the time that the move was aimed at attracting foreign investors and turn Belarus into a regional center for blockchain technology.

Minsk wanted to create conditions to encourage global IT firms to set up branches, research centers, and production facilities inside Belarus. The decree makes initial coin offerings and transactions in cryptocurrencies legal and all such trades will not be taxed until January 1st, 2023.

The IT industry is one of the booming sectors of the Belarusian economy. The High-Tech Park was already created in Minsk in 2006 to spur growth in the IT industry.


--o--

THE AUTHORS

Ilya Gerol, former foreign editor of the Citizen in Ottawa, syndicated columnist in Canadian, US and European media specializing in international affairs. His particular area of expertise includes Russia, Eurasian Economic Union, Eastern and Central Europe.  Ilya Gerol has written several books, one of them, The Manipulators, had become a textbook on relations of media and society.

During his career in the Canadian Foreign Service, Gilles Breton had three assignments at the Canadian Embassy in Moscow. His first posting there began during the Soviet period, in 1983. His last was from 2008 to 2012 as Minister-Counsellor and Deputy Head of Mission. He also served as Deputy Director responsible for Canada’s relations with Russia from 2000 to 2008. As an international civil servant, he was Deputy Director of the OSCE Office for Democratic Institutions and Human Rights in Warsaw from 1994 to 1997.


Gilles Breton also currently serves as Chairman of the National Board of the Canada-Eurasia-Russia Business Association. The views expressed in this newsletter exclusively reflect the opinion of the authors.

Thursday, December 27, 2018

Issue 26


THE BRETON/GEROL NEWSLETTER


HAPPY NEW YEAR TO OUR LOYAL READERS!

LONELINESS AT THE TOP, TRUMP’S SOLITUDE




One day, as the good old fable goes, right before the New Year, the King realizes that he is alone at the Palace. In some way this story reminds one of the situation in the White House. One resignation follows another and only the famous (or notorious) intuition of the most unusual president in US history continues to amaze the country and the world. Trump's decision to withdraw American troops from Syria angered the Pentagon and Washington allies in Europe and the Middle East. The Justice Department opted to cooperate with the Mueller investigation. The trade war against China started to hurt the US economy. The US government's shutdown showed the President's inability to reach a compromise with Democrats. The ghost of impeachment is back into political vocabulary of Washington. Even the long-awaited visit to US troops in Iraq failed to change anything, but served as a pretext to remind the public that the occupant of the White House managed to avoid military service on doubtful grounds.

It looks that some old fairy tales are more real than one would like them to be.

--o--

 
SANCTIONS, WHAT FOR?


Economic and financial sanctions have become a major policy tool, especially since the early 1990's. Usually the sanctions are leveled against countries that are deemed militarily powerful. The US has managed to turn many of these sanctions into international ones by using its influence at the UN Security Council.

The question is: were the sanctions against Moscow effective so far or not? The answer is a simple and emphatic no. The proof is the March 2018 presidential election, as imperfect as it was, which Putin won by a large margin. Putin and the direction he charted for Russia still enjoy widespread popularity in his country (though lately some cracks in his popularity are appearing) and, what is more significant and surprising, in many countries around the world from South America to Hungary. 

Red Square Christmas Scene


NATO analysts are currently debating this very issue. Some within the organization tend to believe that sanctions against Russia are counter-productive. The Russian military under various sanctions managed to significantly upgrade its military, flawlessly complete the demolition of the anti-Assad insurgency and, according to the facts on the ground, have ongoing military and economic superiority in the simmering conflict with unstable and largely ineffective Ukraine.

At the same time Moscow has not given up and is still competing with the West in Africa, Asia, and elsewhere in the Middle East. Russia remains a massive nuclear superpower and according to virtually all military assessments remains solidly Number 2 militarily in the world.

There is also an economic angle. The Russian economy is nothing to write home about, but it is holding its own with 2% annual growth. The targeted sanctions have affected the Russian economy to some extent. The mega deals between Russia and China (as well as between Russia and some of its energy clients like Germany and Turkey) have, however, to some degree compensated for the big losses incurred due to these sanctions. China and Russia signed their $400 billion gas deal in May 2014.

The effect of sanctions also contributes a great deal to the Kremlin's narrative that the West, NATO, especially its Anglo-Saxon block along with historically anti-Russian Poland and Baltic states, keep Russia under siege. The result of this is the ongoing pursuit of self-reliance. It is obvious that Russian national sentiment aligns with Russian government goals. The wrath of the average Russian is largely directed at the West, not at its own government.

As the result Russian agriculture, avionics, military industrial complex and obviously energy conglomerates and many others have done well since the sanctions (and Russian counter sanctions) were introduced.

Obviously the less powerful countries (like Iraq under Saddam Hussein or Serbia in the 1990's, and there are other examples) could be crushed by economic sanctions. Even current day Iran may suffer serious hardships. This is not the case with the Russian Federation. 

The failure of sanctions against Russia underlines not only the West's superficial analysis of the Russian realities, its place in the world and processes that were going on this country for the last 100 years, but also betrays an overly simplistic evaluation of such intricate conflicts as the one in Ukraine, Syria and even Russian attempts to meddle in the US elections.

One more point on why sanctions against Russia are misguided is the problem of inevitable double standards as, for example, Saudi Arabia or China have a basically free ticket to commit ever greater violations of international law and expect no more than a slap on the wrist. Canada is a perfect example. Trade with China and Saudi Arabia continues without interruption even as Canadian diplomats are kidnapped in broad daylight and the horror of the Khashoggi hacksaw massacre and its grizzly details still hang in the air.

--o--

IT IS THE ECONOMY…


The confrontation with Russia over access to the Azov sea ports and the creation of an autocephalous Ukrainian Orthodox Church receive relatively important international media attention. The two issues indeed have major long-term implications. They may not however have the same impact on the upcoming March 2019 Presidential election as a less publicized issue, Ukraine’s need for international financial assistance to make it through 2019.

On December 18th the International Monetary Fund (IMF) approved a 14-month Stand-By Arrangement (SBA) for Ukraine. The arrangement amounts to the equivalent of about US$3.9 billion. The approval of the SBA enables the immediate disbursement of about US$1.4 billion. The remainder will be available upon completion of semi-annual reviews. This follows the November 30th approval by the EU of the disbursement of the first €500 million of the new Macro-Financial Assistance (MFA) programme to Ukraine.

President Poroshenko receiving the President of the European Bank for Reconstruction and Development Suma Chakrabarti
Kyiv, December 17th
©President of Ukraine Website


The above announcements are good news in themselves. The underlying message is, however, not so good. Without international financial assistance and because of relatively high payments that are due in 2019, there was a risk that Ukraine might find itself in a default situation during the course of an election year. The EU and the US could not let that happen. It could be ironic, but is rather sad that Ukraine under Poroshenko receives in 2018 a loan in roughly the same amount as Yanukovych received from Russia at the end of 2013. That 2013 loan allegedly made Yanukovych refuse to sign the proposed agreement with the EU, a move that to a large extent precipitated his downfall.

The funds provided by the IMF also come with a considerable number of strings attached. In short, under the guise of “fiscal consolidation”, the Ukrainian government will have to run a very tight ship. It will understandably also have to continue its commitment to structural reforms. There is no dispute on that. It will, however, also have to stick to the policy of raising gas and heating tariffs. In an electoral year, the incumbent President can only hope that the negative social impact of these last measures, especially on low fixed-income segments of the population, will be felt mostly after Election Day, sometime in March. The further implication is that whoever the next President of Ukraine is, he or she may well be left with a rather difficult financial and social situation with a limited marge de manoeuvre.

After the economic decline of 2014 and 2015, the Ukrainian authorities have managed to restore macro-economic stability and produce some modest growth. Yet the poverty level, though currently decreasing, is still higher than in 2014. Per capita income is still only at approximately 65% of its 2013 maximum and, in October 2018, Ukraine was ranked by the IMF as the poorest country in Europe. The further problem is that there are few signs that Ukraine is on the way to reach the “tremendous potential” which the prudent World Bank mentioned in its April 2017 analysis. The difficult business climate, including the nagging issue of widespread corruption and the ensuing lack of appetite of foreign investors still hamper more rapid growth. 

Ukraine’s GDP per person is now estimated at USD 2,640, that of neighbouring Poland at USD 13,812. This has a direct impact of labour migration with working age Ukrainians finding employment in Poland as well as in other neighbouring EU countries and in Russia. The latest statistics confirm this and show a 36% yearly growth in remittances from Ukrainians working abroad. From a short-term financial point of view remittances are helpful. In the long term, a decreasing work force has negative implications for an early qualitative transformation of the Ukrainian economy.

In the meantime, President Poroshenko’s net worth seems to hover slightly above USD 1 billion, but that only makes him the 5th wealthiest Ukrainian oligarch. In fact, as a general rule, Ukrainian oligarchs have in the last few years fared much better than the national economy. In these circumstances, it is rather difficult for the Ukrainian electorate to believe that the current leadership is truly committed to increasing national wealth rather than the private fortunes of the oligarchs.

--o--

CANADIAN FOREIGN POLICY, IN CRISIS?


In general, Canadian foreign policy has operated largely in sync with that of America and Europe, with the Canadian government acting as a loyal partner in the dominant Western alliances of the day.

At the same time, Canadian foreign policy-makers have long championed the idea that Canada should always behave cautiously and pragmatically in its deeds and rhetoric, and shy away from overly divisive or belligerent actions that could compromise the country’s reputation as a calm, conciliatory, friendly nation, or threaten the stability of its economy.

This type of predictable and safe order was thrown out of whack mainly by factors like the election of a highly unpredictable, eccentric and politically incorrect president in 2016, Russia's annexation of Crimean peninsula and its not so covert support of the Russian speaking separatists in the Eastern Ukraine (a conflict that has already claimed 12,000 lives) and the rapid ascent of China into a global economic superpower, fueled by unprecedented political, military and economic growth.

President Putin and PM Trudeau at the Peace Forum
Paris, November 11th
By electing an idealistic, young Prime Minister Justin Trudeau, who right from the beginning sounded more like the president of the student union of an Ivy League university than a leader of a major country, Canada found itself increasingly confused by the events around the world. Justin Trudeau and his Foreign Minister Freeland are more at home by repeating a collection of positive soft messages on subjects of gender equality, ethnic diversity, tolerance and economic prosperity. Canada found itself face to face with Trump who pulled out NAFTA, brushing aside any attempts by Canada to reason with him. The deal was renegotiated mainly on American terms. The Canadian reaction to the complex and not at all black and white conflict of Russia and Ukraine elicited a predictable, but not very subtle response by Canada. In utter disregard of geopolitical realities Canada backed Ukraine unconditionally to the point of rejecting a sustained high-level political dialogue with Russia. This simplistic and unproductive approach betrays either complete lack of understanding of that part of the world or pure domestic reasoning aimed at securing the significant Ukrainian vote. Every Western country, especially the Europeans, understands perfectly well that the Russian-Ukrainian rift is extremely complicated. This is what happens when empires collapse: not only phantom pain, but real pain can linger for decades or even longer.  Europeans and Americans are more realistic about the importance of Russia as a major world power which borders 15 other countries and one of the 5 founding permanent members of the UN Security Council. Russia is not a country you should ignore. History's verdict is clear on this point. Eventually Canada will have to accept this reality. Besides, Canada is rather capable of practicing similar realism when it comes to countries like China, Saudi Arabia and even the United States. We do not live in an idealistic utopia. No matter how you slice, Russia may be part of the problem, but it also has to be part of the solution to major world crises.

--o--

PUTIN EXPLAINS HIMSELF, ONE MORE TIME


Before the Presidential Press Conference
Moscow, December 20th
©President of Russia Website


This has become a tradition. Once a year Vladimir Putin holds a marathon press conference and pretends that he talks directly to his nation. Actually he talks to journalists, mostly the Russian ones and occasionally to their foreign colleagues. This time his performance had been designed predominantly for internal use.

He had to clarify actions, that was clearly uncomfortable for him, such as an unpopular pension reform that increased the age of retirement. He realized that his rating in Russia went drastically down and the very fact of him being in power for so long finally makes the nation annoyed. That is why he stressed that his administration and government had radically changed in recent years by including more young educated and progressive people who will bring with them the rapid growth of technology and a digitally oriented economy. Putin said that Russia must break into a "new economic league" in terms of size and quality adding that "if we don't set ambitious goals, nothing will be achieved."

Internationally Putin’s rhetoric sounded rather unchanged. He insisted that Russia had been unfairly blamed for its involvement in the US and other elections. Putin had plenty of harsh words for the West and for Ukraine's government. He noted however that Moscow welcomed president Trump’s decision to withdraw American troops from Syria. Putin signalled his country’s readiness to improve relations with Great Britain.

Was this Putin’s annual press conference the last one in his almost twenty-year long rule? Some skeptics would answer positively. We believe however that Putin had not said his last word yet.

During the Presidential Press Conference
Moscow, December 20th
©President of Russia Website


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THE GRAND LADY OF HUMAN RIGHTS




91-year old Lyudmila Alexeeva, a central figure in the Russian human rights movement for more than 40 years, passed away on December 8th in Moscow. Although she never stopped publicly challenging Kremlin authorities about human rights violations, she had agreed in recent years to serve on Russia's presidential council of human rights. This allowed her to have direct exchanges with the President himself without damaging her impeccable human rights credentials.






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THE WRITER FROM THE GULAG



Natalya Solzhenitsyn at the unveiling of the monument to her husband
Moscow December 11th
©President of Russia Website





















On December 11th, President Putin attended the unveiling of the monument to Alexander  Solzhenitsyn, on the occasion of the centenary of the famous writer’s birth. Solzhenitsyn’s widow, with whom Putin has met on a few occasions, was also in attendance. Solzhenitsyn’s writings have now become mandatory reading in Russian schools. One should not see too much into this, but only observe that the Russian perception of the Stalinist era is far more complex than is generally described in Western media and certainly not without its paradoxes.

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PERSON OF THE MONTH: ANNEGRET KRAMP-KARRENBAUER


©Wikimedia Commons


Annegret Kramp Karrenbauer, a strongly Catholic conservative career politician, has been elected as the successor to Angela Merkel as leader of Germany’s Christian Democrats. Kramp-Karrenbauer won by just 25 votes following an almost photo finish in the second round run-off against her main opponent, the multi-millionaire businessman Friedrich Merz.

When she won, she cried, and said she would accept the post, and thanked the party for its support and trust in her, insisting she would give new impetus to the party as it seeks to claw back the millions of voters it has lost to right wing populists and the Greens in recent years.

Dubbed a mini-Merkel , a title she is determined to discard, Kramp-Karrenbauer was not officially endorsed by the chancellor, but was clearly her favourite.

In fact, Merkel made a point of praising Kramp-Karrenbauer for her contribution to the CDU’s electoral success during her own speech to the party.

The result is seen as making it more likely that Merkel will be able to see out her fourth term until 2021. She has expressed her determination to stay on as chancellor for the remaining three years of her term in office. Polls show 56% of Germans support her decision.

In due course, if political difficulties persist and make France’s Macron a one-term president, Kramp-Karrenbauer could well be the next major European leader in the post-Brexit environment. In that respect, as Merkel, she would be the main European interlocutor on the international scene.

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ARMENIA



Acting PM Pashinian at the Kremlin
Moscow, December 27th
©President of Russia Website
As expected there was a landslide victory of acting Prime Minister Nikol Pashinian's of My Step alliance in the December 9 snap parliamentary elections. On December 16th the Electoral Commission Chairman published final official results showing that Pashinian's alliance won just over 70.42 percent of the vote. 

The former ruling Republican Party of ex-President Serzh Sarkisian failed to clear the 5 percent threshold needed to make it into the 101-seat parliament. Final official results show the Republican Party won just 4.7 percent of the vote. It acknowledged its loss on the basis of a preliminary vote count and has said it would not challenge the results.

About 49 percent of eligible voters cast a ballot. My Step's closest rival, the Prosperous Armenia Party (BHK) of businessman Gagik Tsarukian, won just over 8 percent of the vote. The liberal, pro-Western Bright Armenia, a party led by former Pashinian ally Edmon Marukian, was in third place with just over 6 percent. Another rival of Pashinian's alliance, the Dashnaktsutyun party, also failed to clear the 5 percent threshold needed to secure parliamentary seats. It won just 3.9 percent of the vote.

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RUSSIA-JAPAN


There have been lately very regular meetings between Russian President Vladimir Putin and Japanese Prime Minister Shinzo Abe. In September in Vladivostok , Putin had said that he was ready to sign a peace deal with Japan "without any preconditions" to end hostilities from World War II. "We've been trying to solve the territorial dispute for 70 years. We've been holding talks for 70 years," Putin said at the time. Putin added: "Let's conclude a peace agreement, not now but by year's end without any preconditions," Putin said, referring to Prime Shinzo Abe.

PM Abe and President Putin at the G20 Summit
Buenos Aires, December 1st
©President of Russia Website


It does look like Putin's deadline will be met. There may be some incremental progress, but the extreme sensitivity of territorial concessions on either side makes the negotiations over the disputed Kurill Islands a virtually unresolvable problem. Although the dispute formally prevents the signing of a Peace Agreement, even 73 years after the end of World War II in the Pacific, Japan and Russia are fully committed to the further development of their economic relationship, somehow as if sanctions did not exist.






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A NEW PRISON FOR RUSSIA


Butyrka Prison

Moscow's notorious Butyrka detention center will be shut down by its 250th anniversary, the deputy chief of the Federal Penitentiary Service (FPS) Valery Maksimenko has announced. He said on December 17th that Moscow city authorities had made an offer to the FPS to build a new detention center for 2,000 inmates near Moscow instead of Butyrka and another detention center in the Moscow Krasnaya Presnaya  neighbourhood. According to Maksimenko, Moscow authorities could build the new jail with cells which offer seven square meters of space per inmate, which is close to European standards, in one or two years.

Many prominent Russian and Soviet men and women as well foreign nationals were among those held or killed at Butyrka. Russian anti corruption lawyer and whistle-blower Sergei Magnitsky spent almost a year in Butyrka before he was transferred to another detention center in Moscow, where he died in November 2009. Before the Bolsheviks came to power in 1917, one of the inmates was Feliks Dzerzhinsky, the founder of the Cheka, the secret police organization that preceded Dictator Josef Stalin's NKVD, the KGB, and post-Soviet Russia's FSB.

Prominent inmates include Sergei Korolyov, the  Soviet rocket and spacecraft designer, writers and poets Vladimir Mayakovski, Isaak Babel, Osip Mandelshtam, Yevgenia Ginzburg, Varlam Shalamov, as well as Alikhan Bukeikhanov, the founder of the first independent Kazakh government, and many others.

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BRIEFLY NOTED


AZERBAIJAN

Azerbaijan joined an agreement with OPEC to lower oil out planning to produce 760.000 barrels instead of current 784.000. This move was in the planning for some time and has been confirmed as part of the Azerbaijan's annual budget framework.


MOLDOVA


President Igor Dodon entered another conflict with the Constitutional Court of his country and parliament. He refused to sign a law proposed by right wing parties banning Soviet era holidays such as Victory Day of May 9 and others. Parliament in its turn introduced a temporary ban on Mr. Dodon's fulfilling his presidential functions. The Government's structural crisis in Moldova's political system became a chronic phenomenon.

ESTONIA


Tallinn's Christmas Fair was voted the best fair in Europe. 200.000 European citizens took part. 30 thousand voted for Tallinn. Second and third places were taken by Budapest and Strasbourg. Politics aside, Tallinn remains a top foreign destination for Russian tourists.


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THE AUTHORS

Ilya Gerol, former foreign editor of the Citizen in Ottawa, syndicated columnist in Canadian, US and European media specializing in international affairs. His particular area of expertise includes Russia, Eurasian Economic Union, Eastern and Central Europe.  Ilya Gerol has written several books, one of them, The Manipulators, had become a textbook on relations of media and society.

During his career in the Canadian Foreign Service, Gilles Breton had three assignments at the Canadian Embassy in Moscow. His first posting there began during the Soviet period, in 1983. His last was from 2008 to 2012 as Minister-Counsellor and Deputy Head of Mission. He also served as Deputy Director responsible for Canada’s relations with Russia from 2000 to 2008. As an international civil servant, he was Deputy Director of the OSCE Office for Democratic Institutions and Human Rights in Warsaw from 1994 to 1997.

Gilles Breton also currently serves as Chairman of the National Board of the Canada-Eurasia-Russia Business Association. The views expressed in this newsletter exclusively reflect the opinion of the authors.