Welcome to our new column, Russia Update, where we will be closely following day-to-day developments in Russia, including the Russian government’s foreign and domestic policies.
The previous issue is here, and see also our Russia This Week.
A Russian MP has called for banning iPhones for use by parliamentarians, and a once-revered statute of Steve Jobs in St. Petersburg is now being auctioned off because of anti-gay sentiment and fears of NSA surveillance.
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UPDATES BELOW
Russia’s Ministry of Finance will grab more than a trillion rubles ($18.4 billion) out of bank deposits before the end of December to fill the gaps in the state budget, RBC reported.
The banks can replace these funds by borrowing rubles form the Bank of Russia. The plan is for the Finance Ministry to take the funds, leaving only 60 billion rubles ($1.1 billion) for a period of three weeks to cover payments that are traditionally greater at the end of the year.
MinFin (as the Ministry is known in Russian) has taken deposits before, for a period of two months; this time it will be for 20 days. Banks may lose up to 1.06 trillion rubles ($19.6 billion) during the two-week hiatus and will have to turn to the Bank of Russia, the only institution capable of handling such large sums in loans. Regulators may also limit the offering of rubles of banks to control speculation on hard currency sales.
With the economic crisis and the drop of the ruble, many banks have used up a good portion of their deposits to attract ruble loans from the Central Bank and convert these rubles to foreign currency, says economist Vladimir Tikhomirov. The Bank of Russia may take a harder position and will not compensate banks for the funds MinFin is going to take to provide liquidity to the banks. Says Tikhomirov (translation by The Interpreter):
“If the Central Bank does this, we will see substantial movements on the currency market, actually independent of the price of oil, simply because there won’t be enough rubles in the system.”
Oleg Kuzmin of Renaissance Capital, chief economist for Russia and the CIS, said a shortage of ruble liquidity could emerge if MinFin holds the deposits for a time and only later spends them (translation by The Interpreter):
“MinFin does not always simultaneously pay off deposits and spend the budget funds. Meanwhile, the ruble liquidity for banks should pressure the Central Bank. Taking into account that now the central Bank is behaving more conservatively in providing ruble liquidity, the ruble’s cost may grow, which might support it.”
MinFin is also contemplating borrowing 500 billion rubles ($9.3 billion) from Russia’s Reserve Fund to cover budget needs in 2015, Maxim Oreshkin, director of the Ministry’s long-term strtegic planning department told reporters today.
That figure was the same amount ($9.3 billion) that a “tax maneuver” on Gazprom was supposed to bring in, reducing some tariffs and adding others, while freeing the Strength of Siberia pipeline completely from taxes.
The ruble plunged further today to 53.98 to the dollar at 6:54 pm Moscow time, after weakening to 54.01 earlier in the day, Bloomberg reported.
— Catherine A. Fitzpatrick
About 25 people have been detained in Moscow today, December 2, at a lecture on Ukraine’s Maidan protest movement, OVDinfo.org, the police monitoring group reported. All the detainees are currently held at the Danilovsky police station.
The lecture was held on Pyatnitskaya Street near the opposition party RPR-PARNAS (Republican Party/Popular Freedom Party) offices, grani. ru reported.
Activists from the National Liberation Movement (NOD), whose leader Yevgeny Fyodorov is an influential member of the State Duma, came to picket the lecturing and kept trying to hand cookies to people as they arrived. The cookies are a frequent propaganda meme based on a demonstrative delivery of pastries last year on Maidan Square in Kiev by US Deputy Secretary of State for Europe Victoria Nuland. The implication is that people interested in learning about Maidan are some sort of “foreign agents” or “fifth columnists.”
The picketers also told the lecture-goers that they were “LGBT” or “Right Sector,” an ultranationalist Ukrainian group.
Attendees said police in plainclothes came into the hall and sat quietly
listening to the lecture, then OMON riot police arrived, OVDInfo
reported. Some NOD members and other young protesters who were against
the “Russian World” idea got into a fight outside on the street, but had
not been allowed into the building by the lecture organizers.
Police wound up detaining some of the NOD activists along with those who had come to hear the lecture, and told the NOD people to stop their picket.
Free School lecture attendees in police van. Photo by grani.ru.
OMON put the two dozen people in buses at the Avtozavodskaya metro stop
and told them that they would be required to write a written explanation
of their activities at the police station.
The Free School of Resistance has given a number of lectures on the situation in Ukraine, Iran, Iraq, and other places of armed conflict. The event today included a telebridge to Kiev where there was a
discussion of experience in organizing a resistance, grani.ru reported.
Other recent topics include “How to Preserve Inner Freedom in the Conditions of Modern Russia”; “Buddhism in Russia”; “Society and Government in Russia from the 17th-19th Centuries”; “Results of the Moscow City Duma 2014 Elections” and “The Political Situation in Turkey.”
Mikhail Svetov, a Tokyo-based Russian blogger had an interesting comment to make about what Russian President Vladimir Putin is doing to cope with the economic crisis — reward the state gas monopoly Gazprom and squeeze small businesses.
Translation: Putin freed Gazprom from taxes for 15 years (InfoResist) Putin raised taxes on small business by 7.5% (RBC).
This seemed in keeping with Putin’s quiet meeting with economic advisers last month where he looked at different proposals for climbing out of the crisis and opted for a crackdown on corrupt business practices and taxation rather than providing state funding of large projects, like the Sochi Olympics,
With sanctions seeming to bite — although really the drop in oil prices and the fall of the ruble are more pertinent — what about Putin’s measures for the Russian economy that don’t involve trying to attract foreigners to big sports events or warming relations with Turkey to counter the EU?
The first link in Svetov’s tweet is to the Ukrainian war analyst InfoResist which naturally saw the relevance in a Russian media article about the tax holiday for the gas giant — which has been such a harsh bargainer regarding Ukraine’s gas bill (some $400 million of which is for the unpaid electric bills of the Donbass, where Russian-backed rebels have shelled infrastructure and caused workers to flee.)
The way the tax break — the Russian media is calling it a “maneuver” — works is that export tariffs on oil will be dropped by a factor of 1.7 and petroleum products by 1.75 depending on their type for a period of three years. Meanwhile, the mineral extraction tax rate on oil will be raised 1.7 times and natural gas condensate will be raised 6.5 times. Excise taxes will be gradually reduced to minimize price hikes on petroleum products in the domestic market and the accompanying shock to industry.
Then, other fiddling will be done to lower the tax burden on extraction of preferential types of oil by 5.24%.
In 2015, the excise tax on fourth-class gasoline will be 7,300 rubles per ton, 7,530 rubles in 2016 and 5,830 in 2017, with similar reductions on fifth-class oil and diesel fuel. Natural gas is to be subject to excise taxes if provided for under Russia’s international agreements. There is also a plan to tax Blue Stream gas to Turkey which Gazprom will have to pass on to the purchaser. In the recent talks in Turkey, this apparently wasn’t covered, although a small reduction in price was provided.
Most important, there will be zero tax on extracted minerals for 15 years and on property related to the Strength of Siberia pipeline to China for 20 years.
Yet Igor Sechin, head of Rosneft, asked Putin to reject the “tax maneuver” which had been already approved in the State Duma in the first reading, Kommersant reported.
The tax adjustments were supposed to bring 500 billion rubles ($9.2 billion) into the state coffers in 2016-2017 but also reduce the profitability of the oil industry. Rosneft proposed leaving the tax systems as it is, but lowering the tariff on heavy petroleum products. Sources in the government and the oil industry say that so far, Sechin has no allies in this plan, as the government needs the cash.
Meanwhile, small business is going to face a tax hike of 7.5% in 2015, says RBC.
There are about 2.3 million entrepreneurs in Russia who can opt to pay what is known as the unified tax on imputed earnings. According to RBC’s calculations, that means a store owner with a 50-square meter space will pay about 20,000 rubles per year ($1,168).
The unified tax replaces nearly all other taxes, but only for certain types of businesses, usually food and services. According to the Federal Treasury, the business owners paid 56.46 billion rubles in taxes in 2014 or about $1.01 billion. This is one of the chief sources of revenue for municipalities. The tax is calculated on the basis of the square meters of the business space or by the number of employees.
The tax, calculated with a formula called the “deflator coefficient” is said to be justified as a need to correct inflation and is due to slow economic growth, said experts.
The owner of a constructional materials business in Samara told RBC that his accountant had recommended that he forgo the unified tax and pay the other forms of taxes as this would work out to be less expensive for him.
Olga Kosets, president of an interregional civic group called Delovyye Lyudi [Business People] believes that the constantly-rising taxes indicate bureaucratic inefficiency and a stereotype that small businesses were very profitable. “Yet in the majority of cases, this is not the case. Nevertheless a sales tax and property tax is imposed on us, and the unified tax is raised.”
Yekaterina Gribkova a clothing store owner in the Moscow suburb of Istra said that business wasn’t growing, but the taxes were. She pointed out that selling bread or clothing was left profitable than jewelry, yet the taxes were identical. Unable to figure out how to change the system, Gribkova said she would simply
A Russian MP is calling once again for a ban on iPhones — and Russians are concerned that this could lead to a ban on all Apple products and even other Western-made electronics upon which people increasingly depend for communication.
Russians have had a mixed attitude to Apple products, notably the smart phones, and periodically reactionaries will denounce Apple and all its works. But as we wrote in September, even as a member of parliament was calling for a ban on Apple, it was a Russian tech blogger who was the first to publish a review of the sought-after phone.
Translation: Let’s impose #sanctions. Let’s ban the import of the iPhone6 to Russia. I am preparing an appeal to the State Duma.
Muscovites largely ignored this call, as Russia is a land of tech experts and lots of them eagerly awaited the appearance of the iPhone and wrote about it, as Rozetked did.
Then Apple CEO Tim Cook announced that he was gay and proud, and some homophobic Russians reacted by removing the statue to Steve Jobs — in the form of an iPhone — from a courtyard of a St. Petersburg IT university. The founder of the university, Maxim Dolgopolov also “alleges that the US security services can use
Apple technology to monitor private communications worldwide,” BBC reported.
Photo via Fortune
Predictably, there were implications that RFE/RL, the US-funded radio station, first to cover the statue removal, somehow deliberately left out the concerns about the NSA in their report. In fact, we saw the early Russian-language reports of the removal and they focused only on the invocation of a Russian law used against LGBT, and not the NSA angle — which came later.
There was even, as RFE/RL reported, a disclaimer — as often happens when the government or reactionary forces are actually cracking down — that the statue was merely ordered to be removed “for repairs” even before Cook’s announcement.
In fact, the owner is now auctioning the statue off to anyone who will remove the statue from the country, starting the bid at $95,000, PRI.org reported December 1. So much for the “repairs” story — and the efforts of a “Save Steve” group on Vkontakte.
The reality is that since day one of the Snowden affair, the Russian
government has whipped up public fears of US surveillance. The docile Russian parliament immediately summoned Google for a thrashing
— to which Google’s European representative dutifully submitted. There
remains still the tricky issue of how IT giants like Google, Twitter
and Facebook will comply with new restrictive Internet legislation
requiring all companies with Russian customer data to maintain servers
on Russian territory.
There have been constant calls to ban Western technology —
sometimes tweeted or posted on Facebook — American inventions — with
tell-tale “sent from my iPhone” trails even within the post, drawing
ridicule.
The call in September was made by Aleksey Lisovenko, a deputy in the Moscow municipal legislature — and it came to nothing.
But now there’s a demand from Dmitry Gorovtsov, a member of the
State Duma in the leftist Just Russia party, who has already drafted a
bill “recommending all MPs
to stop using iPhones and iPads to protect themselves from eavesdropping
by foreign special services,” RT.com reported, citing Interfax.
This ban “applied primarily to
politicians who had access to classified information — but that would be enough to start a more widespread scare.
Gorovtsov also put in a dig against MPs with expensive life-styles
— the target of anti-corruption bloggers such as Alexey Navalny —
because the iPhone would be expensive even for parliamentarians:
“In principle, the MPs know that using the most primitive
mobile phones, those that cost no more than $20, is a guarantee
not only against the theft of your own financial data or spying
on your e-mail, but also against bugging.
Of course he says nothing about the more primitive bugging on
domestic phones that could occur by the Federal Security Service (FSB),
the KGB’s successor that monitors electronic communications on demand
and has even more of a windfall lately now under new legislation
requiring Internet providers to keep communications for at least six
months.
The fears of surveillance seem to be uninformed about the actual technology of the
iPhone, especially the latest version, iPhone6. In fact, there is a
controversy in the US over iPhone6 being so
well-encrypted now that the government cannot gain access to it via the company or telecom providers, even with a judge’s warrant for a wire tap.
The FBI’s director James Comey has complained about this lack of access
as the “post-Snowden pendulum swing,” and Tim Cook has coolly referred
the government “to the user” — who may not comply. An old US law from 1789 is now being invoked to
try to require the company to provide this access — which it says it
cannot, without violating users’ privacy. This will remain a debate for
some time to come in the latest round of the “crypto wars.”
We wonder if the FSB may not like the MPs to have the
iPhone6 because they themselves can’t tap it, given the strong
encryption even Apple itself cannot break. RT.com didn’t report this
distinct possibility.
RT.com also reported
that there were rumors that the Defense Ministry was going to ban
soldiers from using smart phones. That seemed likely, given all the
information that activists have been mining from VKontakte and other
social media that “outs” the deployment — and sometimes killing — of
Russian soldiers in Ukraine and their armor and weapons.
But the Defense Ministry actually denied this rumor later,
says RT.com — although they didn’t comment on whether they remove
phones before missions or have any social media restrictions — and
RT.com didn’t think to probe this evasive answer further:
In the Russian
armed forces there are no bans on using the mobile services of
one certain manufacturer,” said Russia’s Defense Minister
Igor Konashenkov.“The emergence of such information in one of the leading
national newspapers only shows the lack of technical competence
of its authors, as the capacity of modern smartphones from
Western companies are almost identical, regardless of their
software,” he added.
Electronics are a big business, and it’s hard to see that Russia would cut off this important source of revenue for re-sellers. Rosneft, the state oil giant run by Igor Sechin, a close associate of President Vladimir Putin just announced that it was buying up Apple and other Western chargers and accessories for phones and tablets (translation by The Interpreter):.
As the state purchase site announced, the company [Rosneft] intends to acquire approximately 600 chargers, 400 Apple Lightning adapters, four Apple TV media players and several dozen USB adapters.
That makes sense, as Apple has raised its prices with the drop in the ruble’s value:
It doesn’t seem likely that the Russian government will be able to institute a ban on Apple specifically or all foreign smartphone companies in general, however because there is a substantial demand for them among middle and upper classes mainly loyal to the Putin regime.
But consumers will watch these developments nervously and look for any sign that Russia may look to Asia instead of America for consumer electronics:
Actually, at the link is a Russian-language article that talks merely about Japanese Prime Minister Shinzō Abe’s determination to get a peace treaty signed during his term. It is still far off from signing due to the Kurile Islands dispute and other issues — but watch this space.
— Catherine A. Fitzpatrick