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Volume 72, Number 17 (April 20-26, 2020)
FEATURED NEWS STORIES
COVID-19 Continues to Take Toll on Daily Life Click here to read more
THE RUSSIAN FEDERATION
State and Law
Aptekar, Ruvinsky: Authorities Expanding Powers Amid Coronavirus Outbreak
Golts: Russian Military Woefully Unprepared to Combat COVID-19 Epidemic
Yakoreva: Sale of Vedomosti in Jeopardy as Newspaper Rocked by Scandal
Kremlin Downplays Any Speculation of Censorship of Vedomosti
Reports Emerging of Growing Domestic Violence in Russia Amid Coronavirus Lockdown
OTHER POST-SOVIET STATES
Tbilisi Concerned Russia Will Use Coronavirus as Pretext to Launch Invasion From Abkhazia
Lavnikevich: COVID‑19 Dings Ratings of President, His Party as Regional Leaders Score Gains
Averbukh: Saudi Oil Cuts Following OPEC+ Deal Will Strain Russian Economy
Arms Control and Nonproliferation
Yermakov: Open Skies Treaty Still Useful for Russia Despite US Intent to Withdraw From It
Zhebin: Russia Playing Far More Productive Role Than US in Denuclearizing Korean Peninsula
Skosyrev: US Preparing to Weaponize Space to Counter Russia, China
Pumpyansky: Trump Scapegoating WHO to Distract From His Bungled Coronavirus Response
Author: Olga Solovyova
Kremlin Promises Crisis Countermeasures That Meet People's Interests
By Olga Solovyova. Nezavisimaya gazeta, April 15, 2020, p. 4. Condensed text:
Russian President Vladimir Putin began a meeting on economic issues on Tuesday [April 14] by proposing to evaluate the new economic trends that have emerged because of the coronavirus pandemic. Russia’s economic situation is currently not all that rosy. After panic purchases of food and essential goods, Russians are switching to austerity [consumer habits], according to business surveys. That is not surprising: Many citizens expect either to lose their job or take a pay cut this year.
“The situation today is certainly unusual; that is completely obvious,” the president said at the start of Tuesday’s meeting. “So we will have to look at and carefully analyze the economic trends that have emerged in recent weeks, as well as talk about forecasts for the situation’s further development,” he added.
The head of state said the coronavirus epidemic has already impacted and continues to negatively affect business and entrepreneurial activity, as well as labor market trends. “Many cooperative, trade and economic ties were broken. Necessary restrictive measures forced enterprises to change their usual work schedule. The situation is especially difficult for small and medium-sized businesses and the service sector,” the president said.
In particular, he continued, retail trade in Russia dropped more than 35% in April. “This indicates how sharply, almost instantaneously, the market contracted,” Vladimir Putin said.
Another indicator of the worsening economy is energy consumption. “Unfortunately, this trend is also negative,” the country’s leader said during Tuesday’s meeting. In the first 12 days of April alone, electricity consumption decreased in annual terms by 5%. In other words, enterprises have started to use less power,” Putin said.
The head of state also noted the stagnation of lending to the real sector of the economy, which ultimately negatively affects companies’ investment plans, development programs and renovations.
He recalled that several measures to support the economy and businesses are already being implemented. In particular, the president commented that the total amount of funds allocated to minimize the negative effects of the coronavirus is approaching 1.2% of Russia’s gross domestic product. “At the same time, to prevent capital outflow, the tax rate on gains transferred to foreign accounts has been increased to 15%,” Putin said. . . .
But besides existing measures, new, additional steps are needed that can meet the new challenges, the head of state added. He recalled that last week, he instructed the government to prepare a business support program, putting particular emphasis on maintaining employment and personal incomes. . . .
Obviously, such measures are vital. For example, according to the forecasts of the Center for Strategic Planning (CSP), real wages in Russia could fall at least 12% in 2020. Experts base their conclusions on a survey of 1,300 companies from various sectors of the economy. “According to the results of a third wave of monitoring (which the CSP has been conducting since March – NG), businesses’ economic expectations are worsening throughout Russia in the context of the spread of the coronavirus in Russia and the extension of the self-isolation regime for a month, until April 30,” the experts emphasize. . . .
As noted, pay is already being cut, mainly at companies that have their employees now working from home. The CSP notes that in a week, the share of such companies increased from 26% to 38%. . . .
Russians are facing not only pay cuts but layoffs, the CSP says. According to the center’s estimates made on the basis of business expectations, the total number of unemployed workers in Russia will top 9 million in 2020. For comparison: Russia had about 3.5 million unemployed people in 2019. The overall unemployment rate will jump to 12% in 2020 from a modest 4.6% at the end of 2019, the CSP predicts. Incidentally, more chilling forecasts were discussed. For example, according to job recruiters, the unemployment figure could jump to a whopping 25 million if the quarantine is extended. . . .
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Author: Yulia Latynina
Sechin and China
By staff commentator Yulia Latynina, Novaya gazeta, April 3, 2020, p. 4. Complete text:
There is one country that benefited immensely when Rosneft CEO Igor Sechin decided to walk away from talks with OPEC. Cheap oil is a godsend for China as it recovers from the coronavirus epidemic and tries to jump-start its economy. For all the other countries, the decision was a disaster. Oil crashed, bringing the ruble down as well. Russia’s Urals crude blend is trading $4 to $5 below Brent. (In better times, the price differential was only $2.) Yet Urals is not selling well even at such athat discount, because Saudi Arabia is aggressively squeezing Russia out of European markets, offering its crude at fire-sale prices. Nigeria, too, has now jumped into the game. Its oil is even better quality than Saudi Arabia’s in the spring and summer months.
Storage capacity is exhausted. In the US, the Mercuria Energy trading house bids a negative price on crude, effectively asking oil producers to pay it to take away their output. Saudi Arabia reportedly has asked the UAE to help it uncover secret [illicit bank] accounts of Putin’s friends in Dubai for the purpose of reporting them to the US. The Kremlin is bombarding the White House with phone calls, cajoling and begging Trump to talk some sense into the Saudi crown prince. But the prince refuses to play ball and rejects any idea of having a “meeting of experts,” let alone high-level talks.
There are no oil storage facilities left – especially in Russia, because, unlike Western countries, Russia does not have a large network of big storage tanks. In the West, the situation is not much better because oil terminals are at capacity. Sometimes, companies use oil tankers as floating storage, but freight rates for tankers have more than doubled recently. Back when oil prices were high, freight expenses were only a small fraction of the price, but now that, after oil has crashed and tanker rates have soared, keeping your crude in a tanker is a costly option.
This whole situation is terrible for Russia, bad for Saudi Arabia, and not great for the US, either. At first, Trump hailed low prices (cheap gas is great news for drivers at the pump), but eventually he got so nervous he called [Saudi Crown Prince] Mohammed bin Salman at 5 a.m. Washington time.
There is only one country that has benefited greatly from Igor Sechin’s inexplicable decision: China. Taking advantage of rock- bottom prices and a collapse in demand in Europe, China bought a record 1.5 million [metric] tons of Russian oil dirt cheap.
That is exactly what China needs right now. Having declared victory over the coronavirus, China is reopening its economy, and cheap oil is very handy. China is stocking up on crude. Analysts from Wood Mackenzie estimate that China’s petroleum reserves could reach 1.15 billion barrels this year, equivalent to 83 days of oil demand, up from 900 million barrels in 2019 and just 200 million in 2014.
Sechin’s decision sent oil prices tumbling right when China needed to recover from the epidemic. It gave China’s economy a major boost at the expense of 140 million Russians, whose income dropped by a 5% in US dollars as a result. For debt-laden Rosneft, it is nice to have a friend in China who owes you one.
In fact, Rosneft itself did not lose that much in the debacle. On the contrary, the company got a chance to get rid itself of toxic investment projects, swapping them for valuable assets (which, by the way, it may offer to China later on).
I am referring to the surreal Venezuela deal, of course.
Rosneft had invested about $9 billion in Venezuela, according to Reuters. An investigation by Reuters reporters, based on Rosneft’s internal memos, reveals that this money had largely vanished by 2015. Russian money sank into Venezuelan quicksand. Oil output turned out to be far lower than projected. Our Venezuelan partners struggled to procure even basic drilling equipment, yet wasted millions of dollars on “social projects” in a remote area inhabited by only a few hundred people.
Things haven’t gotten much better since 2015. As we all know, instead of paying his petroleum engineers, President Maduro chose to put his military in charge of the oil industry. As a result, crude production plummeted again, because – surprise, surprise – Venezuelan soldiers are not petroleum engineers.
Any private company would be in big trouble after making a $9 billion investment like that. Not Rosneft. Last week, it dumped its Venezuelan assets onto the Russian state under the pretext of seeking protection from US sanctions. The thing is, when oil exports didn’t quite work out, Maduro switched to cocaine, which got him in trouble with US law enforcement. Yet Rosneft did not just write off its assets in Venezuela. Instead return, Rosneft got a 9.6% stake from the government for one of its subsidiaries.
The very idea of this deal is mind- boggling. Usually, people pay to have their garbage picked up; nobody gets paid by their waste collection company. Can you imagine a situation where you pump 20 barrels of shit from your septic tank and dump it in your boss’s driveway, and then your boss comes to you in the morning and pays you for such a nice surprise?
What’s even more remarkable is that the state has lost its controlling interest in Rosneft as a result of this deal, and now Rosneft can easily sell these shares to some opaque investors – just as it sold 19.5% of its stock to Glencore and Qatar’s sovereign wealth fund a few years back [see Vol. 68, No. 50, pp. 13 14].
Currently (as of March 27), this 9.6% stake in Rosneft has lost much of its value and is only worth 306 billion rubles – again, because of Sechin’s decision-making. So now would be a good time to sell it off to some good old friend, citing the company’s weak cash position. Come to think of it, getting those shares from the state may have been the real purpose of this whole deal, while getting rid of Venezuelan assets was merely a nice bonus.
Venezuela is not Rosneft’s only disastrous project. The company wasted another $3 billion to $4 billion on Iraqi Kurdistan. But hey, the founder of Kurdistan’s ruling clan, Mustafa Barzani, spent 12 years in Joseph Stalin’s USSR and posed for photos in a Red Army uniform. As Bloomberg found out recently, Rosneft forked out $250 million to a mystery consultant for this deal.
So, let’s recap. The decision to walk away from talks with OPEC sent oil and the ruble plummeting right as the coronavirus was wreaking havoc in Russia and around the world. Russian people lost a quarter of their income in dollars, and the Kremlin was left without the cash cow it usually relies on for helping people – right when people desperately needed this help.
Putin was hoping for a triumphant victory over the US and Saudi Arabia, but instead he is now going to Trump for help and bringing him Maduro’s head on a platter – and Saudi Arabia is still refusing to talk! China is the only winner here – along with Rosneft, which in this difficult moment got rid of dead weight and even freed itself from state control.
This business model seems to be working nicely: The more problems a state company faces, the easier it is to get rid of state control. Now, what do we call the people who do such things? Right, we call them patriots who stand up for their country. I mean, you wouldn’t call them businesspeople, would you?
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Author: Ivan Davydov
Putin as the Problem: New Regionalism and the Totally Other Russia
By Ivan Davydov. Republic.ru, April 7, 2020, https://republic.ru/posts/96375. Condensed text:
lives, we could be in isolation for two weeks or two months; all kinds of tough
measures could be put in place. People in [penal] colonies live for years [under
such conditions] and do not die. We will take pains to keep the infection from
coming here and sick people in the Chechen Republic from going to other
regions. If we are all fighting in the name of Russia, we must do this
together, make prompt decisions, act in manual control mode and not mislead
high-level leaders. So I ask you once again to bring all issues that crop up to
the attention of the head of the Chechen Republic and the crisis task force. We
will certainly not be letting people who do not have [local] residence permits
into the Chechen Republic. Negative experience already exists.”
That was Chechen leader Ramzan Kadyrov’s response to Russian Prime Minister Mikhail Mishustin, who said that regional leaders needlessly rushed to close internal borders. Incidentally, he responded calmly and politely but could have made his point curtly and rudely. He could have simply told him to take a hike.
Yes, Chechnya is clearly not your average Russian region, but the news from other parts of Russia is just as bad. “Kurgan Province governor warns residents against wanting to burn Muscovites at the stake.” “Ivanovo Province authorities urge residents not to rent housing to Muscovites.” The regions are closed to the outside world, but there are reports here and there that local factories, and even cafés and restaurants, are “greeting,” as it were, [Russian President Vladimir] Putin’s [declared] “nonworking days” by opening their doors. People need to survive, and it is not just the coronavirus that is a threat, but also federal government decisions that could bring economic disaster.
You read this and wonder: What is this? Is the Russian Federation breaking up, or is a federation emerging in the place of a unitary state that called dubiously called itself a federation for many years? After [Russian President Vladimir] Putin’s first address [to the nation], when he announced a nonworking week, citizens went to [the countryside] to grill shashlyk. After the second address, when the regions were offered as much COVID sovereignty as they could swallow [see the first feature, above], the governors began to act at their own risk and peril.
And while citizens can be scolded on federal TV channels, denigrated and fined, for some reason it doesn’t work with governors. The president is silent, but his spokesman has started to talk about “tweaking the border shutdown” and “urged not to dramatize the panic in some regions.” He is treading gently and carefully, because he is afraid to speak tougher.
Rise of regional leaders.
Putin’s first address about the work break was, in a sense, a response to [Moscow Mayor Sergei] Sobyanin’s alarmist statements. Many people noticed that. The second address, about extending the break, sounded like a response to what Ramzan Kadyrov said (not jokingly) on April 1: “On April 5, we will no longer receive flights or passenger trains, and we will deny entry to vehicles. An exception is made for emergency vehicles, and food and drug deliveries. And starting that same day, we will begin to disinfect cities, settlements and buildings. Some may find these measures too stringent. But I am convinced of the opposite! Every local leader has a better grasp of the situation, knows how to deal with a problem, and is obliged to assume full accountability before the law and Russian President Vladimir Putin – to act promptly and decisively! This is the only way we will defeat the coronavirus!” What is important here is not the yada yada about accountability to the president but the brief declaration of pandemic independence for regional leaders: “Every local leader has a better grasp of the situation.”
Putin got the message: You do, do you? Well, do what you want! That was the gist of the leader’s second coronavirus speech. And the leader missed the boat. The most decisive regional leaders had already begun to act without regard to the limits of their own powers (and in disregard of citizens’ constitutional rights, but that is a trifle; they didn’t particularly consider our rights even in peacetime).
Putin’s address looked like a lame attempt to save face, as if to say: Now they are acting arbitrarily in the regions not just on their own initiative, but because I’m ordering them to. Of course, I do not control anything, but I control everything!
Governors became politicians overnight – and most (including, I daresay, the Moscow mayor) whether they wanted to or not. And this is more significant than it might seem. This is an incident with very serious (and very long-term) consequences.
I sincerely hope Vladimir Vladimirovich Putin is in good health: In autocracies like ours, the leader’s health problems can create a mess of epic proportion, and I still have to live here. But I can’t help but notice that Putin the politician seems to have picked up some kind of political COVID. Experts say loss of smell is a sign of the coronavirus. Well, Putin has clearly lost his political sense of smell.
You can see this even in small things: The paltry plane with masks and medical equipment that Russia partially sold and partially donated to the US certainly would not have solved any of Russia’s domestic problems. Who knows which of Russia’s international problems he was addressing. I’d be willing to grant (albeit with a probability of 1.5%) that Putin was guided exclusively by the ideas of lofty humanism when he decided to help [US President Donald] Trump. But it is absolutely impossible not to sense that most ordinary citizens will interpret the decision loud and clear. At a time when masks are hard to come by in Russia and it’s unclear whether we have enough ventilators for ourselves, we are sending all these things to the US – the same US that we have been taught for years to regard as an enemy. And many people took that lesson to heart.
You can’t but get that sense. But Putin didn’t. . . .
A totally different Russia.
I don’t buy into conspiracy theories and catastrophic predictions. I’m not saying Russia will collapse immediately or that tomorrow Russia will split into 85 small Russias, and Kostroma will raid Yaroslavl for masks and buckwheat. Of course not. The center will try to bounce back – and it will be able to recoup a lot. It has the security and defense forces behind it. Although, of course, it is also significant that right now some security forces are rehearsing for the [Victory Day] parade, while others are turning a group of airsoft enthusiasts into a “terrorist community.” Apparently they don’t have any more important cases right now.
But the question has been asked, and the search for the answer to it has begun. The center is no longer the absolute master nor the universal arbiter. It is impossible to first cede power and oblige (!) previously disempowered subordinates to act independently, and then pretend that nothing happened. Regional power brokers will take the main lesson to heart: They can exist independently, they can pressure the center, [and then] they can rebuild relations with the center. The center is not omnipotent, and most importantly, the center all too easily shrinks back when the going gets tough. Perhaps it can even be blackmailed if necessary.
Before, only Kadyrov knew this secret. Now Putin has let the cat out of the bag, and the whole country knows it.
We are now about to open a new chapter in Russian history. After the epidemic, the slow and painful construction of a completely different Russia will begin.
Incidentally, it will be built – and we must be prepared for this – not by freedom-loving political activists but by regional leaders: People with archaic mindsets who are prone to arbitrariness and are definitely not concerned about protecting citizens’ rights. The beautiful Russia of the future will not be beautiful. Or homey. Or free. But it sure will be different. . . .
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Author: Olga Ageyeva, Anna Galcheva, Yulia Koshkina, Yevgenia Chernyshova, Timofei Dzyadko, Alina Fadeyeva and Svetlana Burmistrova
Coronavirus Paid Leave
By Olga Ageyeva, Anna Galcheva, Yulia Koshkina, Yevgenia Chernyshova, Timofei Dzyadko, Alina Fadeyeva and Svetlana Burmistrova. RBC Daily, March 26, 2020, p. 2. Condensed text:
In his special address to the nation over the pandemic, the [Russian] president presented a package of measures to support the business sector and the population. [The measures] are to be funded with a new tax on [bank] deposit interest, as well as through the cancellation of dividend tax breaks. . . .
RBC analyzed whether the president’s anticrisis program can help the Russian economy survive the pandemic and the plummeting oil prices.
Open-ended deferral on social security contributions.
Most of the support measures Putin promised would apply to small and medium-sized businesses, which are experiencing declining orders and revenues due to shrinking consumer demand amid coronavirus quarantine measures. “We should help these companies continue operating in a stable way, which means keeping their employees,” the president said. The main goal is to “avoid a surge in unemployment.”
In order for such enterprises to have additional resources, the president proposed halving their insurance contributions on salaries above the minimum wage (12,130 rubles [a month] in 2020) from 30% to 15%. The rate will remain the same on salaries at or below the minimum wage. The president said that the reduced rate is being introduced not only as an anticrisis measure, but also as a long-term incentive for raising wages.
Reduced insurance payment rates would automatically mean a shortfall in revenues for the Pension Fund, the Mandatory Medical Insurance Fund and the Social Insurance Fund: The shortfall would have to be met from the federal budget. The funds may lose 300 billion to 400 billion rubles a year as a result, Alfa Bank chief economist Natalia Orlova told RBC. She believes the shortfall could be bridged with 100 billion rubles generated by the tax on bank deposit interest, with the remaining 200 billion to 300 billion rubles coming from the tax on dividend income that goes into overseas accounts. “That would help balance the budget,” she said.
The federal budget will be able to cover the shortfall in the social funding revenues, says Aleksandra Suslina, head of the fiscal policy department at the Expert Economics Group. Reduced insurance payment rates could help small businesses stay afloat and keep going. “Right now, this is not so much about maintaining employment levels but about the very existence of small and medium-sized businesses. If they don’t get support now, by the time the coronavirus [epidemic] is over, there will simply be none left to restore the economy,” she stressed.
Six-month tax deferral.
Small and medium-sized businesses will get a six-month deferral on all taxes except the VAT, and microbusinesses will also get an insurance payment deferral, the president said. Currently, to get a tax deferral, it is necessary to present a bank guarantee or collateral, which is difficult to get under the present circumstances, said Aleksandr Kalinin, president of Opora Rossii [an association of small and medium-sized businesses – Trans.]. Providing the deferral will take time, since it requires amending the Tax Code and Federal Tax Service regulations. . . .
The measures to support small and medium-sized businesses proposed by the president are insufficient, says Aleksandr Chepurenko, professor in the sociology department at the National Research University Higher School of Economics. “The deferral does not apply to the VAT – the most onerous tax for small and medium-sized businesses. Profit tax breaks during a crisis make little sense because the overwhelming majority of small and medium-sized enterprises will sustain losses,” the expert explained.
The mandatory paid leave will become a “banquet at the employers’ expense,” Chepurenko said. “Forcing small enterprises, which are already on their last legs, to pay wages to employees during the week-long mandatory leave is yet another step toward ruining them.” . . .
Moratorium on bankruptcies and debt collection.
Putin has imposed a six-month moratorium on filing bankruptcy claims against indebted companies and on the recovery of debts and fines. He said the bankruptcy moratorium will apply to sectors most affected by “these difficult times” as the government expands [and] reviews the list of industries in need of support.
According to the [Russian] Chamber of Commerce and Industry, about 3 million entrepreneurs could go bankrupt if the coronavirus situation goes on for a long time. “There will be nonpayments by enterprises closed by the authorities, but they have obligations to landlords and creditors, who may file a bankruptcy claim and simply finish off a business,” Kalinin warned.
A blow to depositors.
Along with business support measures, the president announced a 13% tax on income (meaning interest) earned from bank deposits worth more than 1 million rubles. Taxing bank deposit interest is a long-standing initiative that the Finance Ministry endorsed several years ago, but it has not been publicly discussed of late. According to Putin, it “will only affect about 1% of deposit holders.”
Based on [Russian] Deposit Insurance Agency data and the maximum deposit interest rate (5.15% at the top 10 banks), the potential tax on deposits exceeding 1 million rubles would total about 110 billion rubles a year, said Aleksandr Proklov, senior managing director at the NKR ratings agency. By comparison, the VAT increase in 2018 generated about 600 billion rubles a year for the federal budget. Personal income tax revenues do not go to the federal budget, but to regional and local budgets at a ratio of 85% and 15%, respectively. . . .
One measure that aims to directly stem the spread of the coronavirus is the decision to declare a week-long national paid holiday from Saturday, March 28, to Sunday, April 5. “The purpose of this holiday is to slow the spread of the disease,” Putin said.
All vital services, including health care facilities, pharmacies, stores, banks, transport providers and government agencies at all levels will continue operating. [Russian] Industry and Trade Minister Denis Manturov said the week would be “nonworking” for industrial enterprises except those producing protective gear and equipment for the coronavirus infection. “The question is, what would this week do? The virus has already been on Russian territory for a long time, which explains the surge in pneumonia cases,” Patient Protection League president Aleksandr Saversky told RBC. He presumes the weeklong holiday is necessary to avoid an influx of patients and to alleviate pressure on health care facilities. He added that it takes time to deliver ventilators and provide [medical] staff with personal protective equipment.
The additional nonworking week is bound to negatively affect the Russian economy, said Kirill Tremasov, director of analysis at Loko-Invest. “The economic decline will intensify. It is already clear that our economy will go into recession along with the rest of the world. The nonworking week will only intensify the decline,” he told RBC.
Sofya Donets, Russia and CIS economist at Renaissance Capital, expected the president to introduce tougher quarantine restrictions. “This is a halfway measure. I would say it’s just the beginning,” she told RBC. Donets does not think it makes much sense to assess the economic impact of one nonworking week because the “downtime” would clearly go beyond that and quarantine measures would be toughened. “Because of that, we are currently reevaluating our positive scenario. We are assuming that a global recession is just around the corner, and in that recession scenario, Russia would show negative growth at a rate of 0.8%,” the analyst said. . . .
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Author: Yevgeny Karasyuk
State Capitalism Chronicles: The Rainy Day Has Arrived for Most People in Russia
By Yevgeny Karasyuk. Republic.ru, April 20, 2020, https://republic.ru/posts/96475. Condensed text:
Last week, [Russian] President [Vladimir] Putin said “truly extraordinary” measures were necessary to combat the [coronavirus] pandemic and its effects. The Kremlin is not impressed with what has been done so far, including in the economy. This is part of the reason why we are seeing all sorts of people bombarding the Russian leadership with numerous ideas on how to best deal with the crisis. One such proposal came from a group of leading Russian economists as a result of a brainstorming session organized by the Liberal Mission Foundation.
The experts believe it is unwise to shift the burden of lockdown losses onto private companies and households. Instead, they suggest boosting the economic stimulus package from the current 2%-2.5% of gross domestic product to 4%-6% as a moderate response or 8%-10% as a more vigorous one. Given the bleak job market outlook, the economists recommend that a significant part of this money go directly to households.
“This is because, first, Russia’s labor market and social welfare system are organized in such a way that there is no effective mechanism for supporting people who have temporarily lost their jobs – and it is impossible to fix this flaw under the current circumstances, with unemployment skyrocketing. It is better to give money even to those who can do without it than to face a situation where unemployment figures double (or worse), especially when the usual ways of mitigating the problem (various informal temporary jobs) are unavailable. Second, it is extremely important to bolster people’s spending power when stay-at-home orders are lifted, so the economy can bounce back quickly. At the same time, whether the government can afford these measures given the sharp drop in its oil, gas and other kinds of revenue is still up for discussion, including the best way to get this money to people,” the report reads.
The proposal did trigger lively public debate. Central Bank head Elvira Nabiullina said that the idea of “helicopter money” was a desperate demand-stimulating measure proposed by [economist] Milton Friedman 60 years ago (to be fair, Friedman only considered it a purely hypothetical scenario), and that it should not be confused with direct yet targeted payouts. While the government does support certain categories of people in a targeted way, she said, it has no intention of dropping money from the sky.
“We absolutely should use direct payouts as a social support mechanism under the current circumstances. But ‘helicopter money’***is something entirely different. There is absolutely no need for that in our case,” Nabiullina said.
Yet calls for direct financial support for households, including from the National Welfare Fund (NWF), are growing louder. Opposition activist Aleksei Navalny has endorsed the idea. He was echoed by rock musician Sergei Shnurov, who recently became the most recognizable face of the Party of Growth. Shnurov thinks that the 57 million Russian adults who earn less than five times the minimum wage should all receive a one-off payout of double the minimum wage, and the 33 million minors should get one minimum wage payment each. That would require an estimated 2.2 trillion rubles. Usually, it is hard to imagine Russian Federation Communist Party Deputy Valery Rashkin and University of Chicago professor Konstantin Sonin in the same room, let alone putting forward a joint initiative. Yet today, they are both proposing paying 10,000 rubles to every Russian citizen – even though I suspect they have different expectations for what such a measure will achieve.
“Paying each Russian citizen 10,000 rubles would require roughly 1 trillion to 1.5 trillion rubles, or $15 billion to $20 billion. The NWF has enough money for that. In fact, it has five times that amount, so we can do the same thing again in the summer or in the fall. This amount only seems huge. The government spent much, much more fighting the crises of 2008-2009 and 2014-2015,” Sonin wrote. (As of April 1, there was over 11 trillion rubles in the NWF, or almost $143 billion.)
On Friday [April 17], a group of opposition Moscow City Duma members together with some members of regional legislative assemblies urged the president and the prime minister to support all citizens without exception. They thought it fair to give 25,000 rubles to every adult and 15,000 rubles per child. A similar demand was made by the Association of Independent Councilmembers in its petition titled “On the Government’s Responsibility.”
“The state has amassed a huge rainy day fund. That rainy day has arrived for most people in Russia. It is absolutely necessary to support people and the economy today. Otherwise, people deprived of their income will violate the stay-at-home order en masse, going out and looking for ways to make a living. This will make fighting the epidemic extremely difficult,” the document reads.
The government could start borrowing more to avoid a gaping hole in the budget while ramping up social spending. Accounting Office head Aleksei Kudrin suggested using funds from deposit accounts for this purpose. This is not the first time Kudrin complained that tens of trillions of rubles are sitting in deposit accounts in Russian banks instead of fueling the Russian economy. Kudrin’s idea was misinterpreted and caused an uproar on social media. He had to issue a clarification.
“In my interview with RBC, I mentioned a standard practice by banks in all the countries – investing free cash, including money from deposit accounts, into government bonds. Some people misinterpreted that as a proposal to confiscate people’s savings, which is absurd. That is certainly not what I meant. Governments often borrow more at a time of crisis. By the way, considering how low Russia’s sovereign debt is, this would be the safest investment,” Kudrin wrote on Twitter. (As of April 1, Russia’s foreign debt was $450 billion, according to the Central Bank. In the fall 2019, it was reported that Russia’s overall government debt – i.e., the federal government’s external and internal debts plus the debts of regions municipalities – was less than the liquid assets controlled by the federal government, regions and extrabudgetary funds.)
So far, however, the Kremlin seems reluctant to resort to radical economic measures. The current crisis management strategy does not involve anything of the kind. Kudrin expects unemployment to reach 8 million in Russia because of the coronavirus. In other words, almost one out of 10 working-age people will be left without a job, which means going back to 2000 (in 2000, 10.6% of the working-age population was unemployed). But after years of expanding the public sector and maintaining an informal ban on shutting down unprofitable production plants, the Kremlin can hardly imagine that.
Just five months ago, Vladimir Putin triumphantly announced at the plenary session of the “Russia Calling!” investment forum that “unemployment is down. The average rate for the months from January through September was 4.6% of the working-age population. I’d like to stress that it is an all-time low in Russia’s modern history.” (However, the authors of Sberbank CIB’s Ivanov Index say their poll indicates that the actual unemployment figures may be almost three times higher than the official one.)
Technically speaking, the official unemployment rate was calculated by Rosstat [Federal Statistics Service] according to the International Labour Organization guidelines. But that figure did not reflect the actual situation. Previously under Putin, the unemployment benefit was much lower than the living wage, so for many people, it was not worth it to jump through all the hoops [and apply for unemployment]. Now, the situation is different. On Friday, the federal government decided that people who lost their jobs after March 1 will get the maximum benefit amount of 12,130 rubles, which equals the recently raised minimum wage (at the same time, the minimum amount was left unchanged, equaling a ridiculous 1,500 rubles).
This level of support for the people who have lost their jobs can hardly be described as adequate. Yet even this was enough to create bottlenecks at local unemployment offices. In St. Petersburg, the official number of unemployment applications is growing by 1,000 claims daily, and even that is probably just the number of jobless claims that officials have time to process. In Moscow, where the mayor set the benefit at 19,500 rubles a month, 10,000 people filed claims on the very first day. The Moscow Employment Service’s Web site crashed after the number of visitors increased 10-fold in the days that followed.
Yet it is too early at this point to draw conclusions about the unemployment situation. If the federal government extends the quarantine until the summer, as several provinces already have, the job market may run into problems we can’t even fathom yet. . . .
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