Thursday, October 23, 2014


Russia

Can Russia Unplug From The World?

Teenage girls work on laptop computers while wating for a public bus in Moscow. After decades of of foreign travel, imported goods, and access to the Internet, it remains to be seen if ordinary Russians would welcome being cut off from the rest of the world.
Teenage girls work on laptop computers while wating for a public bus in Moscow. After decades of of foreign travel, imported goods, and access to the Internet, it remains to be seen if ordinary Russians would welcome being cut off from the rest of the world.
By Daisy Sindelar
When a Moscow official, bemoaning the state of Russian childhood, recently called for a return to the days of the Iron Curtain, she put her finger on the precise dilemma faced by Kremlin strategists looking to persuade their 21st-century citizenry that it's time to turn back the clock.
 
"The West is a terrible garbage dump," said Irina Medvedeva, who works in the office of the children's rights ombudsman, the driving force behind Russia's foreign-adoption ban last year. She then added: "Even though it smells of various delicious things."
 
After weeks of U.S. and EU censure and sanctions over its intervention in Ukraine, Russia has relegated a number of once-delicious Western goods and services to banana-peel status. Moscow has variously threatened to divest itself of everything from the World Wide Web, GPS, Visa and MasterCard, rating agencies, space cooperation with the United States, and even the Eurovision Song Contest  -- replacing all of it with homegrown, and still largely theoretical, alternatives built to accommodate the increasingly conservative, great-nation values embraced by Vladimir Putin's Kremlin.
 
Nearly 25 years after the fall of the Iron Curtain, however, not everyone is convinced that Russia can transform itself into a do-it-yourself nation without radically rethinking its philosophy on oligarchs, capital flight, domestic investment, and a newly acquired territory, Crimea, set to suck up at least $7 billion from the federal budget. With economic growth forecast at less than 0.5 percent, some observers say now is not the time for Moscow to exert its independence. 
 
"Russia's folly in its response to the Ukraine conflict is that it assumes the existence of some national autonomy on how to engage with the rest of the world," says Jesse Heath, a U.S. lawyer who writes regularly on Russian politics and business. "There's no alternate reality waiting for Russia where it is a self-sufficient great power. They're just outside."
 
Unplug, Replug
 
Putin's two-day China visit comes at a critical juncture for Russia, which is eager to hold up evidence that Moscow is not merely turning away from toxic partners in the West, but toward a more fruitful relationship in the East. The Russian president, who met in Shanghai on May 20 with his Chinese counterpart, Xi Jinping, is looking to seal a multibillion-dollar gas-supply deal, which could see Gazprom delivering nearly a quarter of China's current consumption by the end of the decade.
 
The agreement, which has spent nearly a decade in negotiations, represents just a fraction of Gazprom's current sales to Europe. But Putin, who travels to France next month to attend ceremonies marking the 70th anniversary of D-Day --  a major turning point in World War II, when the Allies landed at Normandy -- will most certainly be looking to show Europe that Russia is no longer solely dependent on its custom.
 
To Putin, a well-timed gesture of defiance would be a fitting end to a period that has seen Moscow on the receiving end of Western finger-wagging.
 
After months of largely ineffectual diplomacy aimed at defusing the Ukraine crisis, the United States and European Union have each imposed several rounds of sanctions on high-ranking Russian officials, pro-Russian separatists, and, to a lesser degree, Russian companies.
 
The sanctions, which began mildly, targeting figures outside Putin's innermost circle, have since broadened to include several key Kremlin allies, including Gennady Timchenko, Igor Sechin, and Arkady and Boris Rotenberg. They have also placed restrictions on U.S. high-technology transfers, which officials have acknowledged will put a strain on Russia's satellite industry and other high-tech enterprises dependent on foreign components.
 
Russia has retaliated, in part, by cutting off U.S. shuttle service to the International Space Station past the year 2020. (Deputy Prime Minister Dmitry Rogozin, who has provided some of the most colorful commentary on the Western sanctions, suggested U.S. astronauts use a trampoline instead.) But Russia still comes out on the losing end, with the high-tech bans adding up to billions of dollars of lost revenue and a humbling reminder of the country's continued reliance on Western know-how. A number of Western companies -- including Siemens, E.ON, Morgan Stanley, and PepsiCo -- have also pulled out of the May 22-24 St. Petersburg economic forum, where the Kremlin's business minds had hoped to drum up $4 billion in investments.
 
Some observers, however, see such affronts as giving Russia the adrenalin it needs to ramp up its own game without cutting off ties to the West. "I don't believe that there's any serious intent to cut Russia off from the rest of the world, or to pursue isolationism," says Moscow-based economic consultant Chris Weafer, who downplays Kremlin threats to disengage as a "knee-jerk reaction."
 
"I think the more serious outcome will be that Russia will address some areas, such as financial transactions, technology, and perhaps food and agriculture," Weafer adds. "And these are all areas that are long overdue for development."
 
De-Dollarization
 
Russian Prime Minister Dmitry Medvedev, who has spent years calling for economic diversification and institution-building, urged lawmakers last month to view the sanctions as a chance to improve government efficiency and create "a new foundation for the national economy based on domestic production."
 
Close Putin allies have raised the stakes even higher, with Vladimir Yakunin, the president of Russian Railways, proposing a massive project to develop transportation and infrastructure in Siberia.
 
Sergei Glazyev, Putin's regional economic chief, has also proposed an elaborate "de-dollarization" scheme. The plan, in part, would convert state assets to an unspecified "neutral" currency, suspend exports of gold and precious metals, and create interbank payments and credit-card systems throughout the customs union with Belarus and Kazakhstan, the Commonwealth of Independent States, and other "partner countries."
 
While some of Glazyev's strategy points have been dismissed even by Russian journalists, the country appears prepared to move quickly on the issue of payment cards. The Kremlin was infuriated when U.S.-based Visa and MasterCard blocked credit-card services at some Russian banks linked to sanctioned officials. Since then, Russia has fast-tracked a law obligating the two companies to pay hundreds of millions of dollars in new regulation fees and has cleared the way for a national card payment system.
 
Pavel Medvedev, the former chair of the Duma banking subcommittee who now serves as Russia's financial ombudsman, says a national card system would be a welcome jolt to a market where Visa and MasterCard currently hold nearly 90 percent of all business. Even so, he says, finding a domestic solution will require foreign advice -- and lots of it.
 
"We'll get other people's computers, other people's software. We'll hold consultations, as we already do regularly, with other people's experts. But then it'll be our business, and that's wonderful. It will compete with Visa, and that will make Visa make its services cheaper," says Medvedev.
 
"If that's what we're talking about, then I can only welcome it," he adds. "But if we simply want to take on Visa and the rest of the world to show how tough we are, then I think we're going to overexert ourselves very quickly and end up disappointed."
 
Back On The Farm?
 
The prospect of a Russia unplugged from the Western world dovetails neatly with Putin's stated vision of a resurrected U.S.S.R., which he has stealthily pursued, via land-grabs in Georgia and Ukraine, as well as through post-Soviet groupings like the aforementioned Eurasian customs union and the Collective Security Treaty Organization (CSTO), which groups six former republics in an intergovernmental military alliance.
 
While in China, Putin will also attend security talks with leaders from Iran, Iraq, Afghanistan, Mongolia, and Central Asia, reflecting the Kremlin's long-term aim of establishing a new global alliance to serve as an effective counter to NATO. Russia's Asian pivot may even extend to North Korea, where right-wing journalist and Kremlin mouthpiece Aleksandr Prokhanov enthused he felt entirely "at home" following a recent visit. 
 
Notions of self-sufficiency and restored superpower status play well in Russia, where Putin enjoyed a sharp rise in popularity following the annexation of Crimea. But for all his success at home, the Russian president still must balance his iron-fisted impulses against the sobering reality that the Russian public has grown used to a certain level of economic comfort. Opinion polls have already begun to reflect growing anxiety about the economy, at a time when Western sanctions have only started to bite.
 
In Moscow, Weafer says the Kremlin, for all its isolationist rhetoric, may quietly be looking to avoid any further round of sanctions by scaling back some of its aggression. It has already stepped back from openly endorsing separatist referendums in eastern Ukraine; Russian Defense Minister Sergei Shoigu on May 20 ordered Russian troops amassed along the Ukrainian border to return to their bases. But with Ukraine's presidential elections still ahead on May 25, Moscow's reaction -- and the world's reaction to that -- still remain to be seen.
 
If such backtracking means a quiet end to threats of Russia unplugging from the world, Weafer says that's just as well. After 25 years of foreign travel, imported goods, and access to the Internet, he says very few Russians have any interest in turning back. "I think the genie is not only out of the bottle, it's already gone," he says. "There's no way to reverse the consumer habits and lifestyle that Russians now have. So much has changed since the 1998 crisis and the arrival of President Putin. You could almost say that it's a completely different country."
 
Sergei Seninsky of RFE/RL's Russian Service contributed to this report

Daisy Sindelar

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