Page 52 - BNE_magazine_02_2020

52 Opinion
bne February 2020
this month of the 3,000km “Power of Siberia” gas pipeline from Siberia’s Lake Baikal to the Chinese border. This now sits alongside the “East-Siberia-Pacific-Ocean” Sino-Russian oil pipeline, operational since 2010. “There are no plans to issue sovereign Russia debt in China, but renminbi bonds will soon be issued in Moscow,” says Moiseev. “This is
a ground-breaking operation for Russian corporates – and the government supports these efforts”.
Since 2014, the US has barred transactions with many Russian individuals and businesses, while banning some exports to the country. Sanctions have also restricted Russian access to Western financial markets and services, while imposing few limitations on foreigners buying Russian stocks and bonds.
In January, Washington’s stance appeared to ease, as some sanctions were lifted. But in August, President Trump then barred US banks from lending foreign currencies to the Russian state and participating in primary market for non- ruble-denominated Russian sovereign bonds. “We simply cannot forecast the actions of the US administration,” says Moiseev, referring to this summer’s volte face. “We were surprised, but we always prepare for the worst – and sanctions are something we have to live with,” he says.
“We don’t want to separate ourselves from the US financial system – but the US financial system clearly wants to separate itself from us,” says Moiseev. “From the mid-nineteenth century, reliance on foreign funding have been troublesome for Russia – so we must heed those lessons, pursuing a policy of a strong budget, low inflation and low government debt”.
Oleg Vyugin, a First Deputy Minister from the 1990s, and
one of Russia’s most celebrated economic reformers, laments this cautious approach, but agrees it is necessary “Our macro policy is extremely conservative, but this is a domestic political reaction to the external environment,” he tells me, at the same London-based Renaissance Capital conference. “It is a policy of self-preservation against a possible worsening of some of our most important international relationships – and I think
it will continue”.
Vyugin argues government expenditure should now rise to boost growth but warns against this becoming a permanent feature. “This is not our strategic future,” he says. “The state should not substitute for the private sector, but it can help for now given the reaction of the domestic economy to the diplomatic environment”.
Looking back over almost three decades of post-Communist reforms, Vyugin’s emotions are mixed. “There has been much progress and our economy has been completely transformed since the early 1990s – but I am disappointed, given the hope there was back then,” he says.
“Some major reforms are still needed – particularly to the judicial system,” Vyugin argues. He also wonders aloud
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why his government initially detained the US businessman Michael Calvey, who remains under house arrest in Moscow. “There will be disputes and sometimes courts will rule the wrong way,” he says. “But pre-trial detention scares people and fixing this situation would have a big impact on our image overseas”.
Vyugin maintains, though, that blame for the breakdown in US-Russia relations should be split. “Over the years, Russia has made some big, generous offers to the West, which have been turned down – a gift to Russian isolationist lobbies,” he says. “But Russia, in turn, has sometimes over-reacted – so there is blame on both sides”.
Perhaps the most striking aspect of President Putin’s
recent press conference was that he dismissed the current impeachment process against Donald Trump on Capitol Hill as “far-fetched”, recognising his US counterpart will likely
be acquitted in the Senate. Putin likened this process to the earlier probe into Trump-Russia pre-election collusion, which Putin downplayed as groundless.
Despite this friendly gesture, or possibly because of it, Trump then responded by approving sanctions on firms involved
in the construction of Nord Stream 2, the second undersea gas pipeline between Russia and Germany. Being built at
a cost of $11bn, NS2 will allow increased gas exports to Western Europe’s largest economy. The White House claim the 1,225km pipeline is a “security risk”, possibly turning Germany “into a hostage of Russia”. As well as tightening Russia’s grip on Europe’s energy supply, this new pipeline will reduce the share of the lucrative European market for American liquefied natural gas.
There seems little chance that an improving international environment will help reboot the Russian economy anytime soon. Heightened trade and geopolitical tensions (above all, the trade war between the United States and China) could well cause a slowdown in global economic growth in 2020, lowering demand for Russia’s energy exports. And with the US facing ten months of campaigning ahead of the October White House vote, any talks between Russia and the US risk being interpreted as Moscow interference in the election.
In his annual press conference, Putin also said that when it comes to Eastern Ukraine, the 2015 peace agreement signed in Minsk, brokered by France and Germany and granting separatist-held areas self-rule, must be observed. Moscow clearly rejects Ukrainian President Volodymyr Zelenskiy's efforts to force renegotiation.
Putin wants an “economic breakthrough” and knows that becomes more likely if Russia is back in the international fold. But he can afford to be patient. “There is nothing but the Minsk agreement,” he said, as the world’s media looked on. “If we start revising it, there can only be more deadlock”.