Issue 19

THE BRETON/GEROLNEWSLETTER

THE WINDOW ON THE WEST, BUT NOT ONLY

President Putin, Plenary Session of SPIEF, May 25th
© President of Russia Website

St. Petersburg is the city that Peter the Great built to give Russia a window to Europe. Nowaday the leaders of the city are adding a slightly different political touch to reflect their current mood: St. Petersburg was built to counter the European powers that wanted to restrain Russia and keep it a lesser kingdom without ready maritime access to the rest of Europe. President Putin himself did not go as far in his remarks and there was more self-confidence than defiance in his approach to this year’s late May St. Petersburg International Economic Forum (SPIEF). The moderators of the main plenary session noted that it looked as though Donald Trump had managed to get people together that would not normally meet on one open stage: Putin was hosting French President Macron, Japanese Prime Minister Abe, Chinese Vice President Wang Qishan as well as the Director General of the International Monetary Fund Christine Lagarde. Putin may have found the remark about Trump amusing, but would probably take the credit himself for bringing together in his home town  all that want to do business with Russia, thus comforting his own position in the world even in the company of some that have taken sanctions against Russia.

For a North American visitor the most striking thing at the SPIEF was probably the impression of onset of acute schizophrenia. The conversation in St. Petersburg was truly a world away from the issues that daily give Russia a bad press in Western Europe and North America. It was about how to engage Russia politically and economically. The attempt to belittle the significance of the consensus by suggesting it did not come together as a formal alliance misses the point: despite the serious disagreements over specific issues world leaders minus two maybe three are comfortable engaging in a political dialogue with Russia. Business leaders from virtually everywhere are keen to do business with Russia, including even those from the US, the UK or Canada whose leaders are not politically engaged with Russia at this time. The convergence of interests is perfectly sufficient in itself and does not need a formal instrument.

There was of course some discussion about sanctions against Russia. The only practical recommendation was that business interests in the US should lobby their government to review its position, in view of the fact that sanctions are disruptive, but do not achieve any of their announced goals. As for sanctions that target individual oligarchs allegedly belonging to Putin’s inner circle, the response is clear: Russia will protect its enterprises, oligarchs are on their own. From all appearances oligarchs will manage to survive one way or another, as Roman Abramovich’s timely acquisition of Israeli citizenship to counter British measures against him just shows.

SPIEF serves as a platform for discussing economic issues, delivering economic messages and for promoting economic cooperation in the form of investment and trade. In addition to the above-mentioned confidence displayed by President Putin, the other overall message was one of optimism, coming from the record number of attendants at this year Forum, over 17,000.

Not unexpectedly, this was also the time for Russia to receive very good marks from international observers, including from the IMF, for its macroeconomic management in the current difficult environment: Russia’s budgetary stance has been rigorous, its financial position is sound with good reserves and low liabilities. Furthermore, the economic consensus on which the president has based the orientation that he has given to the new government is that the focus for the next few years should be on investing in infrastructure. A few months ago the concern was that the funding for infrastructures investment might be difficult to generate. The conjuncture has changed: the recent rise in the price of oil is creating an unexpected surplus that the government is already setting aside precisely for infrastructure needs.

All in all, for Russia and for Putin himself, the event was a success. For a native of Russia’s Northern Capital, things could hardly have been better: the city of St. Petersburg came first on the annual Russian Regional Investment Climate Index competition.

JOURNALISM AND JOURNALISTS, AS VICTIMS OF WAR: UKRAINE UPDATE

President Poroshenko, Arkady Babchenko, Security Service Head Hrytsak, Prosecutor General Lutsenko
Kyiv, May 30th
©President of Ukraine Website

The May 29^th staged contract killing of Russian journalist Arkady Babchenko will most likely not win Kyiv any new friends. It may even lose some old friends for having resorted to an extreme tactic to procure the arrest of the single individual that is alleged to have received an advance payment for the killing of Babchenko. The day after Kyiv even drew sharp criticism from the OSCE and Reporters Without Borders for manipulation of information.

As expected, Kyiv will continue to blame Moscow for the whole incident, but by playing a game Kyiv has damaged its own credibility. Babchenko apparently did not tell his wife about the sting operation. One can speculate that she may not be the only one to have been kept in the dark about the plans for smoking out a Russian agent. As for Moscow, it initially called the whole affair idiotic, but reacted relatively calmly in the circumstances. Ultimately, it is difficult to believe that the operation was the only way to save Babchenko’s life and to arrest the potential killer.

Truth is often noted as the first casualty of war. Journalists are not far behind. Ukraine and Russia continue to arrest, detain and prosecute journalists and various artists from opposing sides. Kirill Vyshinsky, the chief RIA (Russian press agency) representative in Kyiv was arrested and charged with espionage while Ukrainian film producer Alexei Sentsov was sentenced by a Russian court to 20 years in prison on terrorism charges. Human rights organizations accuse Russian and Ukraine of what they call "hostage taking" in order to facilitate potential prisoner exchanges.

News stories can indeed have a major impact. The news that President Poroshenko seems to have arranged for the payment of somewhere around $400,000 to secure a longer meeting with President Trump during his June 2017 visit to Washington did more damage to Poroshenko’s reputation than any of the accusations leveled by his erstwhile ally Mikheil Saakashvili. The latter, in his usual egocentric manner, is now calling for Europe to take sanctions against Poroshenko for having violated his human rights. In any event, short of a war or some cataclysmic political development, Poroshenko is now firmly on track to join the group of former presidents of Ukraine. Rumours abound that he may be focusing on comforting his financial position as an oligarch, that of which Saakashvili has been accusing him for a while.

In the meantime, the war in Eastern Ukraine is acquiring all the features of a frozen conflict. In the absence of any solution in Ukraine itself, many Ukrainians seem to see some hope in the activity of Kurt Volker, the US Special Representative for Ukraine. This does not take into account that Volker as a hardliner on Ukraine seems to be in his current position mostly to show that President Trump is not under Russian influence. Real concern for Ukraine itself does not seem to be on Trump’s mind. A solution to the conflict is unlikely to come from Washington.

There are also rumours that, in a country where oligarchs have been calling the shots, some oligarchs may be considering re-aligning their interest with those of Moscow. One should not forget that Babchenko’s enemies may not only be in Moscow.

KOREAN ROLLER-COASTER

Presidents Kim Jung-un and Moon Jae-in
April 26th, Panmunjom

President Trump changed his views and expectations for his historic meeting with North Korean leader Kim Jong Un several times. In the beginning it was a traditional assortment of adjectives "brilliant", "excellent" and "tremendous". Suddenly it has changed to different definitions: "threatening", "insulting" and "rude". This was followed by a threat to use the immense American nuclear arsenal if things do not work diplomatically. Finally, all the accessories of a traditional business deal have been used in full, and the June 12 summit in Singapore is back on the agenda with teams from both countries hurriedly working on its planning. South Korean president Moon should be credited with putting June 12th meeting back on track by staying in touch with both sides while explaining to Trump, who evidently lacks in-depth understanding of North Korea and its psychology, the intricacies of Korean negotiating tactics.

According to South Korean sources, Kim Jung Un will agree to the main demand by the American president to fully denuclearize his country, under the formula of denuclearization of the whole Peninsula.

Most experts agree that the most challenging aspect of any future deal will the realistic verification of North Korean compliance.

Nobody needs this deal more than Kim. He promised his people to improve their desperate living conditions, improve the overall economy and the food supply. In order to introduce something similar to the Chinese-style reforms he has to deliver a diplomatic victory, as only the US, South Korea and Japan can be of real assistance.

THE KAZAKHSTAN MODEL

President Nazerbayev, May 17, Astana
Facebook

Kazakhstan does not often make headlines in international news, but its positive role and influence deserve mention.

Kazakhstan is a country with a Muslim majority population, but with a secular form of governance. Since it became independent in 1991, it has had only one president. Nursultan Nazerbayev has, however, managed to address the multiple challenges of a post-Soviet state in a manner that has earned him a relatively enviable reputation.  An illustration of his style of management and openness to the outside world is the convening every year of the Astana Economic Forum (now called the Global Challenges Conference).

Kazakhstan has also endeavoured to play a positive role in international affairs. Astana continues to host representatives of Syrian political and economic sectors plus delegations from Russia, Iran and Turkey in the search of a peaceful solution to the ongoing Syrian civil war, now in its 7th year. The US is not taking part in this 9th round of negotiations. Parallel UN-sponsored talks are going on in Geneva as well.

Kazakhstan has announced its new regional doctrine aimed at improving relations with all Central Asian countries in order to counter the powerful economic influence of China in the region. In this respect, the recent liberalisation efforts of the new President of neighbouring Uzbekistan are especially good news for Kazakhstan. Considering that Kazakhstan shares one of the longest borders in the world with China, Astana fears that the powerful economic sway of China could eventually lead to unpredictable political changes not exactly favorable to the political aspirations of Kazakhstan and of Russia, its other major neighbour and its associate in the Eurasian Economic Union. For many historical reasons, a more concerted approach among Central Asian countries has been difficult to generate. With the more open approach emerging in Uzbekistan, positive developments may be around the corner.

IRAN AND EURASIAN UNION

The new reformist government in Armenia confirmed its adherence to the Eurasian Economic Union. As Iran faces the threat of new, harsher economic sanctions and limitations by the United States, it looks at its border with Armenia border as a promising gateway for its products into Eurasian markets. Though not in the headlines of world events a conference is taking place in Yerevan with the participation of the Iranian business community and officials of the Eurasian Economic Union. One of the most significant issues discussed is a joint investment project for the restoration of the railway link from Armenia to Russia via Georgia. The implementation of this project would substantially increase the trade volume between Iran and Eurasian countries. In addition, on May 17 in Astana, on the margins of the Astana Global Challenges Conference, Iran had signed a provisional free trade zone agreement with the Eurasian Economic Union.

US MOVE AGAINST IRAN STRAINS THE TRANSATLANTIC ALLIANCE

President Trump and the Iran Executive Order, May 9

At the St. Petersburg Economic Forum, French President Macron said it better than anybody else. The only reason why Trump got out of the Iran deal is because it was concluded under Barack Obama’s presidency. There is nothing wrong with the deal itself. Secretary of State Pompeo’s recent demands to Iran regarding ballistic missiles, support to Hezbollah or military presence in Syria were not part of the original discussion.

Not since the 2003 controversial US invasion of Iraq the unity of Western allies was subjected to such a strain. This time however the rift is much more pronounced and the consequences maybe more serious than 15 years ago. The European reaction could summarized in the stern words of French foreign minister who said: "We are allies not vassals". Paris, London and Berlin would like you stay within the framework of the Iran treaty if some aspects like the Iranian ballistic missile program and the nuclear breakout timing could be re-negotiated. Moscow and Beijing are against any changes in the agreement.

What makes European position vulnerable, and Americans new that very well in advance, is that major European companies like Total, BP and Airbus go where the money is. That is why they have quickly announced cancellation of their multi-billion dollar projects with Iran not risking the wrath of American sanctions. In this situation European leaders are trying somewhat to stabilize their relations with Russia. Angela Merkel met Putin in Sochi in early May. Macron flew to St. Petersburg for the International Economic Forum where he held prolonged in-depth talks with the Russian President.  

President Trump openly disregards feeble European attempts to save the Iranian deal. In the short term Trump is having his way, but a long term prognosis may spell serious decline of the Western alliance that has dominated international politics for over seven decades.

PERSON OF THE MONTH: ANTON SILUANOV

Anton Siluanov
© Roscongress

The 55 year old soft-spoken professional financier and economist, Anton Siluanov was appointed by President Putin to be First Deputy Prime Minister responsible for economic reforms. He remains Russia's Finance Minister as in the previous Medvedev's government. For all his professional life Siluanov has worked in various branches of the Ministry of Finance or associated entities. He could be defined as a modern, Russian technocrat who has developed and sharpened his skills in the post-Soviet reality. He is at the top of the class of well-educated and well-qualified group of relatively young professionals who have taken over the Ministry of Finance. They uphold the standards set by Alexei Kudrin when he led the Ministry from 2000 to 2011. At the recent St. Petersburg International Economic Forum, Christine Lagarde, Director General of the IMF, heaped praise on Siluanov as an exemplary Minister of Finance.

The next six years of this government in Russia will demonstrate if this statement was correct.

BRIEFLY NOTED

OPEC-RUSSIA

On May 25th, in St. Petersburg, Russian minister of energy Aleksandr Novak met his Saudi counterpart Khaled-Al Fateh. They discussed the best way of implementing the OPEC initiative to gradually raise oil production in order to ease consumer worries over higher oil prices world-wide. Ongoing tensions between US and Iran endanger the Iranian oil supplies to markets while pushing prices up. Currently a barrel of crude trades on the London exchange close to $ 80.

BULGARIA

Rumen Radev, President of Bulgaria asked Vladimir Putin to come back to the idea of a pipeline supplying this Balkan country with Russian natural gas. The very same Bulgarian administration turned down this idea two years ago out of solidarity with its NATO allies. This time the economic realities prevailed.

BELARUS

#MeToo comes to Belarus. Olga Korbut, a household name in Europe and beyond as a world famous Soviet-era gymnast, presently residing in Belarus, has accused her former coach of sexual assault dating to the time when she was 14 years old. Some of her teammates support her allegations and have accusations of their own. The coach denies the wrongdoing.

AZERBAIJAN

The gas pipeline between Azerbaijan and Turkey became operational and construction of an additional link to Southern Europe should be completed in two years. Potentially this pipeline from Shah-Denis natural gas deposits represents serious competition for Russia’s Gazprom.

GEORGIA

The Republic of Georgia cut off diplomatic relations with Syria right after Damascus had extended its recognition to the two breakaway regions of Abkhazia and South Ossetia that split from Georgia in the aftermath of brief 2008 Russia-Georgian war. From now on Syria and Russia are establishing direct trade lines from Syria to ports in Abkhazia as well as Crimea.

MOLDOVA

Moldova obtained a status of "observer" within the Eurasian Economic Union. This paves the way for Moldova to gain better access to Eurasian markets including especially Russia, Kazakhstan and Belarus.

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.