From Platinum to Wood

The ruble last year was considered by some foreign analysts and by the majority of Russian economists as a symbol of the revival of multi-currency domination and a rise of emerging market economies. The $600+ billion of foreign exchange reserves backing it made it seem invincible to many.

Yet the bleeding continues. With the major world economies slipping into official recession, Russia's once vast currency reserves continue to dwindle at a weekly pace. As Bloomberg reported today, the Russian Central Bank has reportedly sold around $7.5 billion in foreign currency reserves to prop up, or rather prepare a spiraling down of the ruble. It is now become the norm for the ruble's trading corridor to be expanded by around one percent each day.

The ruble is not technically kept as a free-floating currency, rather it is pegged to a euro-dollar basket, at almost 50/50, meaning the central bank intervenes to prop up the ruble only if the ruble is trading above or below determined range to the basket. Now, the expansion of the corridor for the past month has meant that the ruble has been deflating toward the euro-dollar basket at around 1% each day, and many analyst expect the total currency fall to be around 20-30% by year-end. The Central Bank could let the currency slide, but this may spiral out of control requiring the bank to intervene at a later date with a commitment to purchase rubles in the tens of billions of dollars/euros over the course of a few hours. This is why the weekly slide in reserves now totals over $5billion. Over a week this seems marginal, but multiply that by 50, and you see the reserves shrinking from over $449 billion last week to less than $200 by end of next year.

Russia has suffered an investment outflow from the economy of around $190 billion since August, a staggering amount which has resulted in the stock market fall by over 75%. The future does not look any brighter. The Russian government now positions itself as the sole provider of liquidity to Russian corporations which are being shunned by foreign creditors or at best are facing borrowing rates in excess of 12-15% in dollars (couple that with the ruble's deflation - the companies earn money predominantly in rubles and you face interest and repayment rates at close to 25%+). Over the past months the Russian government has already provided multi-billion dollar loans to Rosneft via its Vnesheconombank of $4.5 billion. It has also committed similar amounts to Sberbank and most other financial and industrial institutions.

Unfortunately there is a sour link in the equation of the Russian state funding Russian companies, it is the former. While it is true that many investors wonder why Russian companies are costing pennies right now, even if you price in a fall in commodity prices and weak import expectations from developed economies and India and China, it still does not on paper necessitate a 75% drop in value. The reason is that questions abound on the companies' funding source - the Russian government. With oil closing today at less than $50 (Brent) and Urals trading as usual below that, the Russian government will dip into its rainy-day fund next year to maintain a balanced budget. If this continues so rapidly, and unexpectedly (none of these assumptions seem to have been priced into Kudrin's planning models, which have been revised last week by a factor of two - down) Russia's reserves will run out by early or mid-2010 and it will have to actively borrow from creditors. As of now, Russia has the ability but not the need to borrow. It is a question if Russia decides to begin the process in 2009.

The Central Bank must be praying the world economy will turnaround. What the majority of analysts believed was an "island of stability" when the year 2008 began is now drawing the most pessimistic conclusions. As Putin said today commenting on the market downfall and noting the inability of the government's measures to overcome the nervousness and panic on global exchanges he called it an "ugly" and "unfair" measure. The Kremlin unusually finds itself dealing not with governments but with investors - major investors who are shorting Russia. It is a truly invisible front, and one which has taken major banks and a few economies into bankruptcy. The economy is Russia's concern for 2009, and the ruling elite better prioritize.

Thoughts

- President to be elected for six years
- Vladimir Putin may step in for 2010 onwards
- Russia unbelievably for some rattled by financial crisis, losing 20% of its reserves in a mere three months
- Saakashvili being threatened to be "hung" be his balls (doubtful he has any left)
- Iskander in Kaliningrad and Belarus

Maybe this blog should revive at some point after a year of being shut down. At least a brief version of it.

Final note...

"For of men it may generally be affirmed, that they are thankless, fickle, false, studious to avoid danger, greedy of gain, devoted to you while you are able to confer benefits upon them, and ready, as I said before, while danger is distant, to shed their blood, and sacrifice their property, their lives, and their children for you; but in the hour of need they turn against you."

-Niccolo Machiavelli - "The Prince"

This Blog is now officially closed. I wish Vladimir Putin all the best in his next few months as Russian president. And I hope the next few decades will be less hectic than those fateful first decades of the previous century.

Thanks for reading, commenting, and thanks for writing about Russia. Continue to do so, I know of few other countries with more sphinx-like political systems than Russia. The real expert will notice when the sphinx is bluffing.

All the best!

-nikolay i.

Putin and Zubkov - Less complex than it seems

When things get complex and unpredictable in Russian politics, most political observers seem to want to go with the flow and tangle things up more and more. While looking for an elephant in a glass of water in the appointment of Viktor Zubkov for the post of Russian prime-minister, many forget the underlying facts of the current economic environment.

While it is undoubtedly true that Mr. Putin would like to leave for the next president a cabinet he himself approves of, and one that would somewhere deep down guarantee the continuity of his policies, Mr Zubkov's expertise is crucial to the problems that Mr. Putin values for the future - financial and economic security.

Russia has already seen the first phases of speculative capital outflow from its capital markets, which resulted in a slight but nevertheless decrease of 5.5 billion USD to its foreign currency reserves. Although, the expected outflow was almost two times less than expected, more withdrawals could be on the way, since it is still unclear if and when the US economy slides into a recession, and who it will pull along with. The amount of sepculative capital still floating in Russia is at a high level, with many investors waiting for results in their carry-trade positions (borrowing in low-interest currencies and buying higher-yielding ruble securities).

As an expert close to the Kremlin, journalist and editor of weekly Profile magazine Mikhail Lenotiev, stated in a recent interview with Ekho Mozkvy radio-station the previous economic bloc of the Russian cabinet did not concern itself enough with financial and economic security of the Russian market despite lobbying from the President's administration. As a result most of Russia's major banks now appear in very shaky positions. As a result of overly generous lending practices around the world and the massive credit boom in Russia, these banks (Russian Standard, MDM Bank, Alfa Bank) are 30% funded by foreign capital. Such a level is highly dangerous to the system according to the first deputy director of Russian Central Bank Gennadi Melikyan.

Add to that the ballooning debt of Russian firms, most of which is owned by foreign investors/banks, the rapidly expanding individual/small business credit market, and a small glitch in the world economy could result in the closure of two or three major banks. The consequences of such a move for the Russian economy will be very severe. Mr. Zubkov, is an expert in all of the above issues and resolving them will be one of his primary missions for the next year at least.

Vladimir Putin's recent statements about Viktor Zubkov's potential as a successor in 2008, and the existence of two more such candidates (besides Sergei Ivanov and Dmitri Medvedev) are his last attempts to throw mud in the water and postpone his decision-making until after the December elections. Even more so, Mr. Putin is reluctant to give an easy ride to the presidency to anyone of the top candidates (Ivanov or Medvedev) by giving one of them a seat as prime-minister. With all of the top seats in the government taken, it is likely that Mr. Ivanov and Mr. Medvedev will have to battle it out from equal positions, providing the elections in March with a substantial aura of "free-election status".

Any talk of Vladimir Putin playing a complex chess game to regain his seat in 2012 (and light the Sochi Olympic flame in 2014) are even more speculative than those about Mr. Zubkov's potential as Russian president. The very day Vladimir Putin loses his seat, he will lose air-time, he will lose his influence, and he will be slowly losing his popularity. Even if the next president has a weak power base behind him, the very fact of being a president is significant enough to battle all major powerbases withing the government and within the President's administration.

No one knows this fact better than Vladimir Putin, who in 2000 faced the entire "Family" (Boris Yeltsin's family members and their loyal supporters along with the oligrachs). Mr. Putin by 2004 managed to convert a cabinet and administration structure of 4:1 against him into a 4:1 for him by carefully utilizing the influences of siloviki bloc. The next president will surely not want to sit and wait four years until Mr. Putin rides into the Kremlin on top of a white horse with shining silver armor.

Test yourself in "new" Russian history

There have been many comments about the recent initiative of Russian president Vladimir Putin to "rewrite" Russian history. If you ever were curious of what would be written in the newly adopted (or as they are referred to "recommended") history texts (one of them is pictured), Kommersant's Vlast weekly magazine offers a test to check your knowledge (in Russian). Having taken the test, I am proud to have gotten 2 out of 8 answers correct, which hopefully implies I have some objectivity remaining in my knowledge. Below are some of the questions and the surprising answers:

1) Complete the phrase: the Soviet Union was ______:

Answer: an example and a guide of a just state for millions of people all over the world

(My answer was the SU was a social state, and etc. etc. - I was wrong)

2) Complete the phrase: The result of Stalin's repressions was _______:

Answer: the formation of a new administrative class that was adequate for the goal of modernization at a time of limited resources

(My answer was that the repressions shattered the ability of the SU to defend itself resulting in devastating losses in 1941 - wrong yet again)

3) Complete the phrase: The YUKOS trial buried all hopes of _______:

Answer: oligarchs to maintain their control over Russia's natural resources

(No surprise here)

4) Multiple choice: A sovereign state requires:

Answer: the ability to independently produce military armament

(My answer: the ability to carry out internal and external foreign policy independently - Wrong again)

In the end this "new" history is probably better than studying the History of Marxism or the History of the Communist party, but it is getting closer every year.

Sochi secures the 2014 Winter Games

Such an event I could not miss. Russia securing the 2014 Olympics in Sochi startled me. The entire proposal which two years ago seemed like a ridiculous government initiative (just think: Russia's warmest city hosting the Winter games!) turned into the most polished, hard-lobbied project not only to promote the candidate city but to promote Russia in the world. The 2014 olympics should, if all goes as planned, do just that.

Despite previous comments about Korea's advantages as another route to the booming economies of Asia, Russia's figuring in Ernst & Young's report as the #5 most attractive destination for investment if not beat out Korea's advantage, at least tied it.

The Russians put an impressive show of strength in Guatemala, by flying in their huge jumbo cargo airplane carrying the equipment needed to sustain an artifical ice rink. Not to mention the multitude of past Russian olympic champions and the "captain" of the team flying on the presidential jet Vladimir Putin himself (the Austrian chancellor took a regional flight to Guatemala). At least the Guatemelis were impressed by Russia's bidding.

Sochi 2014 means first of all a good image for Russia and a solid base for cultural expansion beyond its borders (again if all goes as planned). It also means a promotion of sports in Russia, and a healthy lifestyle, something needed for a population that is dying out fast. Of course, one can imagine the problems that will be associated with government funding, aka property wars, and plain vanilla looting; but I do not think China is much more efficient in its organizing of the summer games in 2008 (the difference is the harsher punishments).

Congratualtions to Sochi. Condolences to Pyongchang and Salzburg; but Korea and Austria have hosted the Winter Olympics before, Russia has not.

Photo of the Day

Vladimir Putin and NATO chief Jaap de Hoop Scheffer (Courtesy of Kommersant)

Russia cements its status as an economic powerhouse

The St. Petersburg International Forum came to a close today with a bang. Initial reports, as summarized by the Russian Economic Development and Trade minister German Gref, give a $13.5 billion figure to the amount of investment and intent deals signed at the forum, overshooting the initial estimate by four times. The simple overview of the attendees confirms the forum's success: 8,966 delegates from 65 countries, 54 official foreign delegations, nine presidents, four premiers, 44 ministers, 40 ambassadors, and coverage by 1,400 journalists.

The overall mood was all but negative, as was expected by some and as was attempted to be made by UK prime-minister Blair when he said last week that "unless there were shared values people in Europe will want to minimise the business they do with Russia”. It is rather a paradox that the Russian authorities several months ago did a lot to refocus attention from the usually bigger London Economic Forum for Russian companies to the St. Petersburg forum. Apparently their initiatives were successful. As CNN reports via Reuters:

"Putin gave a very reassuring speech about Russia's economic development going forward and underlined that Russia was open for investment outside a few strategic sectors of the economy," one of the CEOs told Reuters.

The forum saw attendance by CEOs of Deutsche Bank, BP, Royal Dutch Shell, Nestlé, Chevron, Siemens and Coca-Cola, all eager to do even more business in Russia. Russia's recent policy of revising energy deals singed in the 1990s, despite wide-scale concerns in the West did little to discourage investment. The Financial Times reported of the Royal Dutch Shell CEO, whose company was forced to sell a controlling stake in the $22 billion Sakhalin-2 energy project last year to Gazprom, as having stood up and personally thanked Putin for such a "satisfactory deal", and for taking action to "get the project to go forward".

Shell's colleague at BP probably viewed such unilateral applause with a great degree of sorrow, as his subsidiary company TNK-BP is facing a possible (and many say very likely) license suspension from the massive Kovykta gas field in Eastern Siberia. With Russia accounting for a quarter of BP's production, its newly appointed CEO Tony Hayward is forced to make very optimistic forward-looking statements on his business in Russia. BP has already pocketed close to $7 billion in dividends from the Russian joint venture and is very fearful of losing out on its positions. Meanwhile the only savior of BP will be, as many have predicted, the Russian monopoly Gazprom, whose deputy chief confirmed ongoing talks to sell a part of TNK-BP to Gazprom. Such a sale would "legitimize" BP's operations in the eyes of the Russian authorities.

Vladimir Putin was again a headline maker by proposing to overhaul existing economic institutions to reflect the ever-greater role of emerging market economies. Mr. Putin proposed to create a new financial architecture, presumably a substitute for the WTO, which has in his words become "archaic, undemocratic, and unwieldy". The Russian president criticized the WTO for helping to sustain protectionist barriers against developing economies, and for being unable for six years to come to an agreement in the Doha round of global trade talks, where again developed and rich economies are still unable to come to terms with poorer countries over eliminating barriers to farm trade. To this day, Russia is the biggest economy outside the WTO. Its southern neighbor Georgia is preventing Russia's entry into the organization largely for political reasons.

Summing up the Economic Forum, CNBC's Global energy expert Daniel Yergin noted the tremendous achievements by Vladimir Putin's administration at fueling the economic boom. In the past seven years the Russian economy quintupled, which many optimists in 2000 thought to be impossible. Today 25-30% of the population are in the so-called "consumer class", which amounts to a lot spending power. As an example, last year 1 million cars were sold in India, whereas Russia saw similar sales in the range of 2 million. Outside of the government-defined strategic sectors, foreign businesses are having little problems from government intervention as long as all laws are followed. Mr. Yergin also noted that Russia has learned a lot from its mistakes of 1998, and has summed up $600 billion worth of currency reserves and stabilization fund money which would be able to sustain Russia for two-three years in the case of a downturn. CNBC' expert noted that:

The Russians worked hard to separate the political disagreements and political issues from the business of economics. The perspective was was summed up by one of the senior people in a meeting with non-Russian CEOs. "Come to Russia with your capital, your money, your technology," he said. ""We're delighted to see you here." This time -- in contrast to earlier years -- he was talking to a very interested and receptive audience. Perhaps the mood was captured by another senior figure when he, as almost an afterthought, told the same audience, "We're very business-oriented nowadays." There was a hint that perhaps he himself was even a little surprised to find himself in that position.

Putin gives harsh opinion on Kosovo

Vladimir Putin at a press conference summarizing the G8 meeting in Germany made a very serious statement about the situation in Kosovo. He made it clear that if the Ahtisaari plan goes ahead with a recognition of Kosovo's independence without Serbia's approval, Russia will be ready to use such a precedent to solve the conflicts dimming on the post-Soviet landscape. These conflicts include the breakaway republics in Moldova and Georgia, where Russian peace-keepers are currently stationed to the great disdain of the local authorities but are highly approved of by the breakaway republics. The following is an excerpt from Vladimir Putin's press-conference on June 8th (the translation from Russian has been made by the blog's author):

It is necessary to abide by the current principles of international law, and to not impose one's will on other countries and other nations.

If we all come to a conclusion that in today's international situation the principle of a nation's right for self-determination is more important than the integrity of a country's borders, then we will have to use that principle in all regions of the world, and not where some of our partners like it. Thus, the national self-determination principle will have to be used by the peoples in the post-Soviet region, including smaller nations in the Caucasus, just as it will be used on the post-Yugoslav region.

We do not see any difference between the two situations whatsoever. Both situations have arisen as a result of a dissolution of Communist empires. Both saw an ethnic conflict. Such a conflict has very deep historic roots in both regions. Both regions saw violations of law and even crimes committed on both sides of the conflict. Both regions essentially have independently functioning state-like institutes.

No one can show us a single difference. This means that the applied principles in such situations must be universal.

Such statements although necessary to back the seriousness of the Russian position can backfire very dangerously for Russia itself, which has already fought two wars in the past thirteen years with the self-proclaimed Chechen republics. Despite the large amount of authority that has been brought back to the president in the past eight years away from the governors of Russia's 80+ regions, there are many regions within Russia who have eyed independence for quite some time. Stirring up that issue could be messy.

Vladimir and George talk about the Missile Shield : The "phony" Cold War draws to a close

Significant progress was made yesterday at the G8 summit in Germany during the meeting between George Bush and Vladimir Putin on the issue of the US plans for the deployment of an ABM system in Europe. But despite the relief that the discussion has caused by taking any "Cold War" analogies off the table, the US ABM shield issue is far from over, and many questions still remain which have little hope for an answer at the moment.

But the most important development is the fact that Russia now accepts the need for close cooperation on the US ABM deployment by its borders; it thus acknowledges that the US and Russia have common threats in the Middle East, particularly Iran. A cooperation with the US on missile defense from Iran, amongst others, also suggests that Russia is making more steps toward the US position on Iran's nuclear weapons development. A direction rooting for faster UN Security Council action against Iran.

With regard to Russia's offer to host the radar part of the system at its leased base in Azerbaijan, many questions still remain unanswered. The ABM system that the US is planning to deploy in Europe, apart from Navy-based US cruisers consists of a radar-base in the Czech Republic and a missile interceptor system to be installed in Poland. Russia opposes both of these bases. The Azerbaijan proposal offers to relocate the radar to a Russian-based radar system already in place there since 1985 under a long-term lease, under supervision from both the US and Russia. With regard to the missile interceptors, Russia's position is not entirely clear.

The New York Times reports Putin suggesting the missile interceptors could be located in US Aegis cruisers (presumably in the North Sea, or event the Baltic Sea). The US Aegis cruisers have recently been reequipped to host systems with the capabilities to shoot down short to medium range ballistic missiles (such as those that the US European shield is aimed against) as part of the US Global ABM shield system. Another proposal initiated by the US, as the Financial Times reports would be for the UK to host the missile interceptors. The newspaper reports that Russia has also expressed potential support for the UK option.

If the US does agree with a radar in Azerbaijan and missile interceptors in the UK, it would be too clear of a diplomatic victory for Russia, and it is highly unlikely that the US will give up its ideas of shield stations in Eastern Europe for any reasons whatsoever. But Russia has already offered to put all the recent heated rhetoric on the back burner if its proposals are accepted. For the US and NATO this a a sign of relief, as Russia's decision to aim missiles on Poland and the Czech Republic began to cause headaches about additional arms needed in those countries to protect them from Russia. Russia's attempted withdrawal from the CFE treaty and the intermediate range missiles treaty could also be halted, depending on the US interest in the Azerbaijan option.

For the first time the world is seeing Russia's thought-through diplomatic game being played out. It started in Munich, and the goal since then was to cause rifts within the EU and NATO, and generate the biggest amount of concerns among all of Russia's Western partners. The message from Russia was clear: "our opinion is not being noticed; if the situation continues, Russia will have to take action to get its opinion visible". By no means was this a "three-month" cold war; in the first meeting of the leaders of the confronting sides, significant progress was made, and the two were more than happy to continue constructive discussion.

The next meeting between the two in Main in early July will serve to hopefully finalize the details of the Russian-US cooperation on the US ABM shield in Europe. The proposals have not yet been fully analyzed by the two sides to make any forward-looking remarks. For now the ball is in the US court, and within time senior military experts and national security advisers should make clear statements with regard to the viability of the Russian proposal. As of today, the US has, in the words of George Bush and his national security adviser Steve Hadley only expressed "its interest" with the proposal. But it still is too soon to say the confrontation between Russia and the US is over on the ABM shields; not to forget the "diametrically opposed" positions with regard to Kosovo, and democracy.

For the recent developments of the US ABM story see this blog's earlier posts

Putin's press-conference making headlines

Vladimir Putin's quote of the month came during a press-conference he gave to journalists representing the G-8 countries at the eve of the summit on Friday, that has now been published or referred to in all of the top Western publications (Financial Times, The Times; The Guardian; The Wall Street Journal ). A full commentary will be published by this blog later on Monday. For now enjoy:

Q: Do you consider yourself a "dyed-in-the-wool democrat," as Gerhardt Schroeder once called you?

A: Of course I am. I am an absolutely pure democrat. The real tragedy is that I am the only one. Elsewhere in the world there just aren't any others. Let's look at what is happening in North America -- nothing but horror. Torture, homeless people, Guantanamo and the detention of people without trial. Let's look at what is happening in Europe. Look at how they deal with demonstrators. The use of tear gas in one capital or another, the murder of demonstrators in the street. Then look at the post-Soviet space. Ukraine, all our hopes were on the guys in Ukraine, but now they are drifting towards tyranny and a complete breach of the constitution.

Since Mahatma Gandhi died, there's just no one left to talk to.

The Change in Command is Russia's Biggest Problem

Russian daily newspaper Moskovskiy Komsomolets (MK) recently published an article by economist Nikita Krichevskiy (professor at Russia's State Social University) on the state of the government-sponsored national projects as well as the pace, structure, and funding of the new initiatives outlined in Putin's state address in April. The Russian economist speaks highly critically of virtually all sides of the way the funding is allocated and the projects are structured, and sees major risks associated with the change in political command and direction expected in 2008.

In his address to the state, President Putin for the first time clearly mapped out the spending amounts and areas where the excess government income will flow. The amount, which has been dubbed "Putin's trillion" (for the 1 trillion rubles or about 40 billion USD of government investments) will be allocated in the following ways:

• 250 billion for reforms of the housing system (the reform itself is set to spread over five years, and given the projections for a reduced budget surplus, this figure will be the bulk of the investment into housing)
• 300 billion for the fund whose aim will be to increase the well-being of the country's residents and sponsor economic initiatives to help current and future generations. As part of the project three new organizations (government-run) will be created: Bank of Development, Investment Fund, Russian Venture Company.
• 100 billion will head toward development of highways and transportation infrastructure, which has been Russia's incurable problem
• 180 billion (!) will be directed to the soon-to-be developed Russian Nanotechnological Corporation
• 56-89 billion will head to the sponsorship of Russian fundamental science development
• 20 billion (!) will be headed toward creation of a chain of libraries and academic information centers in the name of Boris Yeltsin, who recently passed away.

These projects by themselves envision the creation of six new governmental organizations at least, whose sole goal will be to attempt to ensure proper allocation of "Putin's trillion"; another giant leap to increase Russia's already ballooning bureaucratic titan. The Russian economist mentions that the funding for the housing reform (known in Russian as the Zh.K.Kh. (ЖКХ)) will come not from the current surplus but from tighter fiscal discipline, with its excesses and side-effects, as well as with the additional sale of government property or processes similar to the one pulled on YUKOS.

The rest of the funding, according to Mr. Krichevskiy will not come from the budget surplus but will come from unexpected inflows as a result of miscalculations in the budget prognosis. The current surplus of 1.5 trillion rubles for 2007 has already been allocated to either the stabilization fund or to unexpected funding. The head of the Ministry for Economic Development and Trade, Mr. Gref, has argued that the pace of capital spending, salary, and income growth is much higher than that calculated by the Economic Ministry, whose numbers are used in the budget. Mr Gref argues that the actual growth of the GDP in 2007 will likely surpass the forecast by 1.5% at least. If the Russian economist is right this means that the new initiatives will be funded by a best-case scenario of inflows; (aka) money that has not been received so far by the government; such a best-case scenario is also very highly correlated with the the price for a barrel of oil, revenues from which make up close to half of government revenues. Thus even before the problem of who will control the capital disbursement of "Putin's trillion" becomes a problem, the sourcing of the actual capital is unclear in the first place.

Another problem that Russia is facing, along with other developed and emerging economies, is that of the pension system funding. Mr. Krichevskiy argues that despite President Putin's speech not mentioning any real problems with the state-run pension system, the fact that 13% of government income will go toward funding the country's pensioners is an unhealthy sign for the economy. Every year the absolute amount of necessary funding (now at 918 billion rubles, just under 25 billion USD) will continue to grow, and the percentage figure may grow at a higher rate as the current budget's heavy oil revenue windfalls are not guaranteed. The pessimistic scenario is not due to volatile oil prices solely, but also due to the falling level of oil generation in Russia; the massive reallocations of ownership within Russia's oil and gas industry into the government's hands has played its role in reducing the efficiency of oil companies, with high oil prices acting as of a moral hazard.

The final problem highlighted by the Russian economist is ine of responsibility for the reforms and projects. With President Putin set to leave office, his economic staff has begun to slowly question and remove some of the funding initiatives (government pension matching initiatives have been reduced to fulfill the requirements for just 700,000 workers out of the current 67 million people workforce). To mitigate the likelihood of more of these scenarios, President Putin initiated a three-year budget mechanism, which once approved for 2007 will be a strict burden for the next Russian president until 2009.

However, the approaching change in command and the loss of power of the Yelstin clan of business owners and politicians (the structure of which is still a much debated topic among Russian political analysts) is set to see a new and very aggressive battle for Russia's assets. The YUKOS affair in 2003 was just one such example, but several credible sources, including the author of the article, Nikita Krichevskiy, predict that asset wars such as YUKOS will be numerous in the years to come. These processes will trigger, in the worst case scenario, fundamental changes to the "vertical of power" that was the cornerstone of President Putin's bureaucratic reforms. Side-effects of such changes will be either the return to power of regional leaders or a further concentration of economic and political power in the hands of the Moscow or St. Petersburg clans. Economic growth and the competitiveness of Russia's key corporate giants will be severely hampered if continuing arrests, flashy trials, and at worst asset sell-offs and shady restructuring processes occur. Depending on the harshness of such actions, Russian may well see and slip back to its chaotic times of the 1990-s.

Russian Journalists Fight Censorship

In the past days several journalists have left the Russian News Service (RSN - Русская Служба Новостей) protesting what they call very harsh censure coming from the new company executives, appointed in April from the state-run Channel One (Первый Канал). As Kommersant reported today, a former employee of RSN Artem Khan, has told the paper of key journalists leaving the radio service amid the developing scandal.

The RSN is part of a radio-holding Russian Media Group which owns a variety of radio stations, including the popular Russkoe Radio, Xit-FM, Maximum, and the Russian News Service radio station. The audience of Russkoe Radio is in the range of 7.5 million listeners. Adding the entire auditorium of all the radio stations of the Russian Media Group gives a substantial share of the entire Russian radio audience, at least in and around the Central-Russian area. Russian News Service provides news broadcasts for all the radio stations of the Russian Media Group, and used to operated live broadcasting for its news services.

The scandal began in mid-April, when the head of RSN, Mikhail Baklanov was fired from his post which he occupied since the company's inception twelve years ago. A team from the state-run Channel One replaced him and was quick to initiate its own rules regarding the news content of the radio station. According to Gazeta.ru, most of the political stories had to be devoted to the state-party United Russia and the Public Chamber. If human rights activists were to be mentioned in the commentaries, they had to be involved with the state (Vladimir Lukin, Ella Pamfilova). At least 50% of the news content had to be positive, and all the news broadcasts had to end on a positive note (this by itself is not that strict and gives leeway, but). The likes of opposition members such as Kasyanov, Ryzhkov, or Kasparov were to be mentioned only in extraordinary circumstances and referred to as "liberal-radicals".

Apart from the content censure, radio listeners noticed that all live broadcasts had vanished in late April from the radio waves of Russian Media Group stations, and according to employees of RSN all reports were being rigorously reviewed by the new radio executives. Soon after the change in command at RSN, the coverage of "Nashi" protests outside the Estonian embassy in Moscow was formatted due to the journalists seeking to "sympathize" with the Estonians. The journalists themselves claimed that they simply referred to the protests as "provocative". It is hard to find fault in the defense of the journalists, as the actual protests turned a bit violent when the "Nashi" members attacked the car of a Swedish ambassador coming out of the Estonian embassy.

Not much commentary has appeared from both sides of the conflict, even less has appeared in the Russian press (Kommersant, Gazeta.ru and Novaya Gazeta are the exceptions). The new head of RSN made a statement that the events are a natural occurrence when a change in the executive structure occurs, and that replacements for the journalists will be found. Some of the journalists who have departed from RSN referred to a previous agreement with the station itself rather than a sign of protest.

Such censure attempts on a scale as big as the Russian Media Group, which owns over 50 Russian radio stations has not happened for a long time. Most analysts suggest that the state or state-backed forces are trying to turn around the station's news team to provide news friendly to the United Russia party, especially given that the audience of the radio stations often includes listeners who get their news either from TV (essentially loyal to the state) or morning or evening radio shows while driving to work. The bulk of the audience lives in Moscow. The state essentially block any remaining opportunity for dissent in the case of an extraordinary scenario; the Ukrainian orange revolution is probably what the radio heads have in mind. Of course this may be an act of loyalty by mid-level administrators in the Russian Media and the Government who are doing this to prove their worthiness to the current and maybe future Russian state heads. This factor, which can be attributed to the side-effects of President Putin's newly constructed "vertical of power"; but given the size of the audience involved, this factor is most likely secondary.

The story adds another unflattering page to the book of the Russian state's fears of a Ukrainian-style scenario. It is unfortunate given the fact that the opposition in Russia fails to unite any credible personalities, aims to include a broad spectrum of parties, ranging from hard-core liberals of the 1990-s to the National Bolshevik Party. Similarly, whenever opposition leaders do appear on TV, or float around in internet blogs, they inspire little support, instead generating satirical commentary. Limiting the exposure of the so-called opposition in the face of the "Other Russia" will work to their advantage and will continue fueling anti-Russian feelings abroad.

Putin's Riddles

President Putin's speech at Wedensday's Victory Parade on Moscow's Red Square caused quite a stir in the foreign press. The New York Times interpreted the speech as having "obliquely compared the foreign policy of the United States to the Third Reich". The Financial Times found "renewed attacks on what he (Putin - Blog Author's note) calls US unilateralism, saying there were “new threats” based on “the same disregard for human life and the same pretensions to international exclusivity and diktat as in the Third Reich”.

The speech taken word-for-word from the Kremlin press-service, more specifically the excerpt that caused such an uproar, goes as following:

Victory Day not only unites the people of Russia but also unites our neighbours in the countries of the Commonwealth of Independent States. We are deeply grateful to the generation of people whose difficult fate it was to face this war. They have passed on to us their traditions of fraternity and solidarity and their truly hard-won experience of unity and mutual aid. We will preserve this sacred memory and historical legacy.

Those who attempt today to belittle this invaluable experience and defile the monuments to the heroes of this war are insulting their own people and spreading enmity and new distrust between countries and peoples.

We have a duty to remember that the causes of any war lie above all in the mistakes and miscalculations of peacetime, and that these causes have their roots in an ideology of confrontation and extremism.

It is all the more important that we remember this today, because these threats are not becoming fewer but are only transforming and changing their appearance. These new threats, just as under the Third Reich, show the same contempt for human life and the same aspiration to establish an exclusive dictate over the world.

It is my conviction that only common responsibility and equal partnership can counter these challenges and enable us to join forces in resisting any attempts to unleash new armed conflicts and undermine global security.

What is certain is the indirect reference to Estonia whose people "defile the monuments to the heroes of this war". That reference was very anticipated, since President Putin never made any public statements on the diplomatic conflict between Estonia and Russia, unlike the members of his "vertical of power", rooting for the escalation of a conflict that has hurt Russia more than Estonia.

It is far-fetched, however, to say that the phrase about some force or country out there that shows "contempt for human life and an aspiration to establish and exclusive dictate", the roots of which lie in an ideology of "confrontation" and "extremism", can be attributed to the US. Yet, what it actually refers to is unclear; if the speech were two or three years old, it would be most likely attributed to the extremism stemming from the Middle East. It is very unlikely that this topic could be brought up again, but the range of other meanings of this statement is very narrow (the US is not within the list).

With regard to misinterpretations, there is an euphemism in the Russian language, "The hat is always on fire on the thief's head" (referring to a guilty conscience speaking). The only way a link between Putin's speech and the United States foreign policy can be established is if there is inner belief in the minds of the journalists and political analysts that the US does resemble the mystery country President Putin mentioned.

Interpreting President Putin' speeches has been as easy as interpreting the Sphinx's riddles. Russian journalists and political analysts have for at least three years now been trying to discern who will lead the country after President Putin steps down, and whether he will step down after all. As a result there are at least five candidates for the Russian presidency, two of which most people think will be on the ballot, but not one of them has affirmed the start of the presidential campaign, neither has Putin given the green flag for the race for the presidency.

(FT) Heated words have no place in a post-cold war world

The Financial Times published a commentary by Sir Rodric Braithwaite, UK ambassador to the USSR and Russia from 1988-1992, and author of "Moscow 1941" (a very good read). The author focuses on the issues that have surfaced a lot among political commentators in Russia but have not found a solid foothold in the Western press. Sir Rodric blames the misunderstanding and the harsh language coming from US, European and primarily Russian governments and parliaments on the desire to stir "things up with intemperate language designed to please their own domestic audiences, regardless of the effect on the outside world." Here are a few more excerpts:

It is partly a matter of disappointed love. We have come a long way from the hopes that seemed to unite Russia and the west after the Soviet Union collapsed. Two years ago Mr Putin described that collapse as “the greatest geopolitical catastrophe of the cent­ury”. He was greeted by a storm of criticism in the west: was the Russian president really calling for the return of the old regime? Was the spectre of Stalin stalking Europe yet again?

It was more complicated than that. After 1991, the Russians lost in short order their ancient empire, military pride, political system, ideology and economy. Millions fell into such poverty that former enemies sent them food aid, accompanied by well-meant but often inappropriate advice about building a liberal market democracy from the ruins. This was an overwhelming trauma, even for Russians who were delighted to see communism go. After years of humiliation, most are glad that Mr Putin’s Russia has now recovered some of the respect to which they believe their country is entitled. <...>

<...>Most of Mr Putin’s countrymen thoroughly dislike the corruption, the antics of the super-rich, the arrogance of politicians and bureaucrats, the influence of the secret policemen, the abuse of the courts and the gross failure to enforce the law that disfigure their country’s domestic politics. They may know in their hearts that Mr Putin’s version of “stability” has come at a price. But they still resent the constant lectures from foreigners. Whether we like it or not, most Russians believe that events in Iraq and elsewhere have thoroughly undermined our democratic credentials and our right to give them lessons.

Compressing the Spring

The US plans to deploy its ABM systems have dominated in the posts for this blog, and rightfully so. This week was filled with related events, threats, interviews regarding the ABM deployment. I firmly believe that this issue will be the dominant issue in the diplomatic classic East-West confrontation in the months to come; with Putin extremely determined to end his presidency with a firm assertion that Russia has the ability to protect its interests, no matter what.

On Monday Robert Gates during his visit to Moscow met with President Putin and other officials to discuss US plans to deploy the ABM complex, and most importantly to offer cooperation on this issue: a potential linking of Russian and US systems and the ability for Russia to initiate inspection checks to the newly-built facilities. These plans were publicly rejected by Russia's newly-appointed Minister of Defense Anatoliy Serdyukov and Mr. Ivanov (Russia's first-vice-premier). Russia continues to remain skeptical that Iran posesses any type of threat to Russia and to Europe. Similarly, the US, in the face of Ms. Rice has called Russia's concerns over plans to deploy the ABM systems as "ludicrous", the New York Times reported.

In his annual address to parliament, President Putin made it clear that Russia will respond immediately to US plans by withdrawing from the Adapted Conventional Armed Forces Treaty in Europe, which was based on an earlier treaty of 1990 during the dissolution of the Cold War and the Soviet Union. Russia's claims are that it is the only nation to have fully ratified the treaty and refuses to continue to fulfill its obligations unless other members (specifically NATO members) ratify it. NATO today has declared its surprise over such actions as it believes Russia was never fulfilling its promises under the treaty.

Because of numerous confusions in the press, it is important to go back and determine the realities of the treaties. An adapted copy of both treaties (1990) and (1999) can be found on the Arms Control Association Websites. The New York Times reports today that:

The agreement in question, the Treaty on Conventional Armed Forces in Europe, known by the initials C.F.E., was signed in 1990 by the N.A.T.O. nations and the nations of the former Warsaw Pact, including Russia. It required the reduction and relocation of much of the main battle equipment then located along the former east-west dividing line, including tanks, artillery pieces, armored vehicles and attack aircraft. It also established an inspection regime.

Under the treaty, more than 50,000 pieces of military equipment were converted or destroyed by 1995. With its initial ambitions largely achieved, it was renegotiated in 1999, adding a requirement that Russia withdraw its forces from Georgia and Moldova, two former Soviet republics where tensions and intrigue with Moscow run high.

The fact of "force withdrawal" remains very controversial. NATO members in 2002 had accepted that Russia fulfilled all of its requirements under the treaty, specifically regarding the fact of the withdrawal of TPE (treaty prohibited weapons) from Georgia and Moldova and other territories. Russia claims that its obligations essentially stop here, and a withdrawal of forces is a gesture of goodwill; NATO members claim that Russia made promises to withdraw its troops also. The treaty was originally signed to ensure the collective security of Europe and security from a "blitzkrieg-type" attack when one state would concentrate a large number of weapons on another's border. Thus, severe caps on TPEs were implemented (specifically tanks, jet fighters, light-armored vehicles, cannons, etc.) From this, troop presence would not be an issue to collective security, neither would the US ABM bases (a clear missile deterrent system).

In addition to the above, Russia's attempt to withdraw from the treaty is set to completely confuse all negotiating processes, as the treaty seems to be read differently in every country. With Russia having ratified it but slow on implementation, and NATO, having not ratified it accusing Russia of slow progress. Even before Russia's announcement, the Guardian reports that:

The Bush administration has this week been struggling to convince sceptical European partners that the missile shield is a good idea.

In an interview yesterday, Germany's deputy foreign minister, Gernot Erler, revealed that at least six allies, including Germany, raised doubts about the project at a Nato meeting last week — amid fears of another cold war on European soil.

The CFE treaty is not the first treaty Russia has threatened to withdraw from. Russian officials initially opened up their protests by suggesting likely withdrawal from the treaty limiting production of medium-range missiles. It is a paradox that both treaties are virtually outdated, with Russia and US scrapping their medium-range missiles, while six other countries still possess them. With regard to the CFE treaty, the militarization and force-withdrawals have mostly been achieved already, and Russia remains the beneficiary under the treaty due to its massive territory. While other countries had to scrap their weapons, Russia shifted its TPEs beyond the limit-free Urals in Siberia. Yet the treaties are highly symbolic and are the essential foundations of collective security in the post Cold War period.

The Financial Times in its editorial reports that, the US was the first country that began breaking such treaties, through its 2001 unilateral withdrawal from the ABM treaty:

However, Thursday’s decision is strategically important because it signals Russia’s growing readiness to tear up the post-1990 diplomatic order. Moscow believes today’s strong Russia can revisit the deals done in the 1990s by a weak Russia. The Kremlin also argues the US has repeatedly acted unilaterally, including over Iraq and over recent plans for Czech and Polish missile defence bases. If the US can set aside bilateral or multilateral pacts, says Moscow, so can Russia.

These developments take the world into perilous waters. While there is no open ideological conflict between east and west, there are deep differences over democracy and the rule of law. It will be dangerous if these disputes prevent Russia, the European Union and the US co-operating on matters of mutual interest, including energy, the war against terrorism and nuclear non-proliferation.

The US is entitled to look after its own security. But it must accept security is often easier to build in partnership with others than alone. America, not Russia, was the first to pull out of a cold war arms pact when in 2001 it abandoned the 1972 Anti-Ballistic Missile Treaty. Washington’s recent effort to explain its missile defence plans to sceptical European states, including Russia, is long overdue.

Russia is behaving irresponsible in a diplomatic sense and is severely threatening collective security in Europe. But the US is doing the same, yet indirectly. Analysts have rightly pointed out that withdrawal from both treaties will make Russia's position worse: it has barely the right capital to finance development and deployment of medium-range ballistic missiles, and to engage in a large-scale rearmament of its European part. These capabilities are dwarfed by 10 times by the US military budget. But clearly Russia has no choice. Its policy of countering NATO's dominance must start now, at a time when relations are moderately cool. The fact of no ideological difference between the East and the Wets means no serious threat to confrontation will occur. Yet, it is worrisome if Russia and the US scrap its commitments to security in Europe, especially given the experience of the 20th century . We are living in a different world, but relations among countries sour easily, and alliances and counter-alliances form just as fast.

The end goal of its diplomatic game is not to scrap its commitment to European security, but to make the rest of Europe aware that such issues as the ABM deployment if pushed unilaterally by the US without NATO approval could bring instability. Yet, the threats that Russia has made show that it is engaged in almost full-scale bluff, the US knows and understands this, Germany understands this even better. This poker game is very long, and the stakes may rise with every day, unless serious negotiations start soon, Russia will turn its bluff into serious actions. If treaty withdrawal will occur, there is a marginal prospect of US rearmament in Europe, quite an unhappy prospect.

Final Words on Yeltsin

Boris Yeltsin's funeral in Moscow today has shown how much he has achieved for Russia and for the rest of the world. Despite the serious mistakes in leadership, his contribution can be measured by simply looking at the variety of those that attended the funeral. Most of them owed much to Yeltsin, and for most of them the death of Yeltsin became a uniting factor, a reconciliation of previous disputes and differences.

Mikhail Kasyanov and Vladimir Putin, now bitter opponents since the opposition of the former to the Kremlin through membership in the "Other Russia" were all seen expressing their deepest condolences, with Mr. Kasyanov visibly in tears. Ukrainian prime-minister Viktor Yanukovich, Belorussian President Lukashenko, former UK premier John Major, two former US presidents George H.W. Bush and Bill Clinton, the latter giving a hug to Yeltsin's wife Naina as if they were members of a family. All of Russia's dominant political parties, except for the Communists, were represented no matter how big their difference were with Yeltsin's presidency. They knew very well that they owed their existence as parties to Yeltsin.

Despite criticisms in the Russian and Western press that Putin did not express publicly his gratitude to Boris Yeltsin, to whom he owed his present position, it is clear that Mr. Putin did a lot to highlight in the most positive light the first Russian president's achievements and heroism. The unprecedented funeral procession followed by a similarly unprecedented media coverage all served to finish Boris Yeltsin's legacy with a bright, down to earth, honorable period, and to forever preserve his name in history as the person who brought Russia democracy. No matter what the cost, as is usual in Russia's "achievements". President Putin did what he had to do.

Putin's Legacy in the Face of Yeltsin's Death

Kommersant, one of the most influential Russian newspapers reporting on Boris Yeltsin's legacy has contrasted it with that of President Putin:

Vladimir Putin in his seven years as president has proved that a return to the past is possible: nationwide elections of governors were cancelled, rules of elections into the Lower House of Parliament were tightened, many rights of ordinary Russians were limited, practically all media networks were transferred to the government. Many opposition leaders believe Yeltsin's appointment of Vladimir Putin as his successor was the biggest mistake of the first president. But Boris Yeltsin has never admitted this. At least publicly.

This is one of the biggest open criticisms of President Putin in the media (outside of opposition newspapers and radio stations) thus far. Kommersant's Kremlin correspondent Andrey Kolesnikov wrote that Vladimir Putin should be held accountable for the liberties that Boris Yeltsin created that were later diminished.

Boris Yeltsin's Legacy

Boris Yeltsin was a man who tried to steer the rusting and almost broken country known as Russia onto a path of democracy. He gave the country the liberties it desired, but along with it his presidency was dominated by massive economic chaos, brutal use of force, and almost complete disregard for Russia's ordinary citizens. Mr. Yeltsin was a highly controversial figure: the extent to which he participated in Russia's downfall in the 1990-s is debatable and has no definite answer. Was it Mr. Gorbachev who wrongfully implemented the glasnost reforms, or was the destruction done before, with the giant Soviet Union moving to the end of the cliff, and Mr. Yeltsin taking the driving seat at the point of freefall?

Without a doubt Mr. Yeltsin was at his best in times of deep trouble. He was unbeatable at political sturuggles, playing off his opponents as if in a chess match. It is a miracle he managed to stay in power for almost ten years with the support for him largely gone after the 1994 Chechen crisis.

The Economist argues in its Obituary on Mr. Yeltsin that the:

reforms worked. Russia has a booming consumer-goods market. The robber barons were a lot better than the “red directors” they replaced, whose thinking and loyalties were still rooted in the Communist-run planned economy."

Yet it also admits that:

If the economic reforms now look better than they seemed at the time, his political failures look worse. Shelling Russia’s parliament in 1993, supposedly to dislodge Communist and other hardline deputies who had seized control there, reintroduced the virus of violence into Russian political life. So did the shameful Chechen war of 1994-96, which unleashed the might of the Russian war machine on the small breakaway republic. His rigged victory over the Communist Gennady Zyuganov in the 1996 presidential election spawned a habit of official vote-rigging that has largely destroyed the credibility of Russian elections.

His mistakes were greatest when prompted by his family and their cronies. While keeping the old man topped up with vodka, they hijacked Russia’s political and economic destiny, enriching themselves and discrediting both democracy and capitalism in the eyes of millions of outraged and contemptuous citizens.

Though I believe the economic reforms implemented by the "Chicago Boys" in 1991 under leadership of Yegor Gaidar were flawed from the start, they may have been the only ones. The privatization schemes, and the creation of an oligarchy whose fights spilled into the free press, which they controlled would ultimately bring disbelief among the many Russians about the way freedom was given to them. This is why the fall of an "independent" NTV channel in 2000-2001 was followed by minuscule protests and complaints by the people. This is why the major oligarch of Yeltsin's time Mr. Khodorkovskiy spends his time in jail, with the majority of the population more happy about it than not. This is why so many misalignments have occurred between the view of Russians on democracy and the view of the West on Democracy in Russia. And this may be the reason that Russia has an almost all powerful desire to become a dominant empire again.

The question that stands now is what will be the official statement coming from President Putin, how will the death of Mr. Yeltsin be portrayed in the Russian media, and on what scale will the funeral be held for Russia's first president? Will the secret agreement that many believe is in place between the Yeltsin family and the Kremlin of non-interference into each other's relations be changed? These are questions that will be answered in the current weeks.

Update: The New York TImes on US ABM in Europe

In Friday's issue, the New York Times discusses the plans of the US to engage in closer talks with Russia about a linking of US and Russian ABM systems in the future:

The package includes American offers to cooperate on developing defense technology and to share intelligence about common threats, as well as to permit Russian officials to inspect the future missile bases.

American officials said the initiatives were proposed at least in part at the urging of European allies, and reflected an acknowledgment at the highest levels of the Bush administration that it had not been agile in dealing with Russia — and with some NATO allies — on its plan to place defensive missiles and radar in Poland and the Czech Republic.

The offers of cooperation will be laid out for Russian officials in the coming weeks in a series of high-level meetings being scheduled by senior American officials, in particular Defense Secretary Robert M. Gates and Secretary of State Condoleezza Rice. If those talks go well, they will continue over the summer and fall between President Bush and President Vladimir V. Putin.

However the New York Times continues to note the ultimate reasons behind Polish and Czech motivation to so readily accept the systems on their territory:

The missile defense proposals for central Europe also have become a proxy issue for Russian officials who still rankle at American and NATO expansion east after the collapse of the Soviet Union.

Yet even among some officials in Poland and the Czech Republic, support for the two missile defense bases has more to do with binding the United States closer to their capitals against a future Russian threat than about deterring a future Iranian missile threat.

American officials have not announced the timetable for the coming talks. But in Moscow, Igor Ivanov, the secretary of Russia’s Security Council, said that Mr. Gates was due there for Kremlin meetings on Monday and that Ms. Rice would visit in May.

It is also clear that the US initially played on Polish and Czech wishes when choosing th location of the system. The US places its ABM system not where it would most likely yield the best "defensive" results from the start: the system will not be able to protect new EU members, such as Romania and Bulgaria, and long-term partners of NATO and the EU - Belgium (it is a paradox that NATO headquarters are located in Brussels).

It is far-fetched that Russia will follow the US's attempt to further promote its system which traces its start from a call Mr. Bush made to Mr. Putin several weeks ago. Russia has no threats that would be deterred by the US ABM system, the US undoubtedly has. And with all honesty, Poland and the Czech Republic do not share those threats.

The US is acting accordingly in building up credibility for its system by attempting to explore all the options on the table. If it continues to do so, then it will most likely accomplish its task. It is also evident that Russia is succeeding at its favorite game of all-out bluff by threatening to start burning bridges with Europe and the US. It is very difficult for the US State Department to discern what is really the opinion of the Kremlin and how far it is likely to go. The approaching presidential elections are being followed by an aggressive anti-American campaign in the media. Add on top of that Iran, where Russia's true position continues to balance on the wire between pure-play business interests and the real pursuit of building an Iran-Syrian foundation in the region, and the situation become too darn confusing.

The US must be extremely careful. Such issues have the ability to bring outrage in the eyes of key Russian MPs and most importantly key Kremlin administration officials. As for Russia, its only hope is to continue to stir the feelings of the Europeans, who have been placed in the very uncomfortable position of mediator. German social-democrats and a possible victory of Ms. Royal in France could add more eggs in Russia's basket when negotiating with the US on the issue. It is clear, however, that the US ABM question will be active for the next six months at least, thanks to Russia's diplomatic strategy.