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U.S.-Russia Policy Recommendations to the Obama Administration

The U.S.-Russia Business Council has just submitted its recommendations to the Obama Administration regarding U.S. policy toward Russia. In an effort to create a more productive and lasting partnership between the two countries, the USRBC’s recommendations focus on the development of the commercial relationship as a foundation for moving forward on the geopolitical agenda.

Many experts agree that closer business and finance relations are key to resetting the downward trend initiated by the Bush administration and creating a more productive bilateral relationship.

The Council’s recommendations include the following:

  • The establishment of a bilateral commission to facilitate regular exchanges on commercial issues. Such an interagency commission, led at the highest levels of the U.S. and Russian governments, should have a strong private sector component.
  • The revival of a commercial energy dialogue to promote shared objectives in energy security and efficiency.
  • The Obama Administration’s support for the repeal of the Jackson-Vanik amendment for Russia. This would recognize actions taken by Russia more than a decade ago and would be a notable symbolic gesture of goodwill. At the same time, the Obama Administration must make it clear that a good faith effort to repeal Jackson-Vanik for Russia will not compromise bilateral and multilateral objectives in negotiating Russia’s accession to the World Trade Organization on commercially meaningful terms.
  • A focus on matters that advance the interests of both countries: support for economic diversification, rule of law, and even-handedness in regulation should guide the discussions.

Full report by the USRBC


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Russian Big Four oil companies accused of price fixing

The Russian Federal Anti-Monopoly Service (FAS) has launched a suit against the country’s leading oil companies, Rosneft, Lukoil, Gazpromneft and TNK-BP,  accusing them of price fixing on the petrol market in late 2008 and early 2009.

FAS director Igor Artemyev says all four companies have failed to lower fuel prices to consumers despite the three-fold collapse in the oil price. “In my opinion the companies have challenged the government by increasing wholesale price by 30-60% in February. As the governments representative, today we accept this challenge” Artemyev says.

In December 2008 the FAS fined the four companies for setting high prices for petrol. On that occasion the fines were the lowest possible (Rosneft was fined 1.5 billion roubles, Lukoil 1.44 billon roubles, Gazpromneft 1.3 billion roubles and TNK-BP 1.1 billion roubles). The FAS warned the Big Four that if petrol prices increase again, new cases would follow immediately and penalties will be many times more.

The slump in oil prices in 2008 led to the oil price falling from US$147 in July to just US$40 in December, but petrol prices in Russia did not fall at the same speed, recording the biggest decline in the first month of winter – by 7.3%.


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Market downgrades Evraz on cashflow concerns

Evraz shares fall 6.4 percent in London as it announces shareholders can receive part of div in new shares.

Shares in Evraz Group fell on Wednesday after the company said stockholders could receive part of their interim dividend in discounted shares to enable the Russian steel maker to preserve cash.

At 1453 GMT the London-listed GDRs were off 6.4 percent at $10.2 having earlier fallen as much as 18.9 percent as analysts voiced concerns about Evraz’s cash flow.

The new shares will be issued at $22.50 each, or $7.50 per GDR, about 31.2 percent below the closing prices on Dec. 16.

Michael Kavanagh, a metals and mining analyst with Uralsib, calculated that if all investors accept the shares the total number of GDRs could increase by 10 percent.

“On one hand, the part shares offer, saving $276 million in cash could imply that cash is in short supply and raise some concerns,” Kavanagh said.

“On the other, the fact that the company is paying a $750 million cash dividend in this environment is a very positive sign regarding the health of the balance sheet and cash position of the company.”

The original first half dividend, announced on Aug. 26, proposed a cash payout of $8.25 per share or $2.25 per GDR.

Under the new proposal, shareholders will still receive $6.00 per share or $2.00 per GDR in cash by Dec. 18 with the remaining $2.25 per share or $0.75 per global depository receipt (GDR) available in the new shares.

“The board believes that the proposal offers shareholders an attractive partial scrip dividend alternative,” Evraz said in a statement on Wednesday.

“Any resultant cash saving will further strengthen the company’s financial position in the current challenging economic and market environment.”

All shareholders of record as of Sept. 18 are eligible for the dividend. They will be asked to vote on the proposal at a Jan. 30, 2009 extraordinary general meeting (EGM).

The company did not say when shareholders will receive the remaining portion of the payout.

Evraz built up considerable debt in recent years through acquisitions in Africa, Europe and North America. Its $2.3 billion purchase of Canadian steel pipe maker IPSCO earlier this year has saddled the company with a sizeable short term debt load.

The group in November obtained $1.8 billion in credits from state-owned VEB to refinance debt.

VEB, or Vnesheconombank, has been entrusted by the Kremlin to distribute a $50 billion rescue package to help Russian companies refinance a total of $120 billion in Western loans by the end of 2009. (Reporting by Alfred Kueppers; Editing by David Cowell and Elaine Hardcastle)


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Russia Pharmaceuticals and Healthcare in Q4 2008

Despite a bruising a few months for the Russian economy as a whole, BMI broadly maintains an optimistic growth outlook for the Russian pharmaceutical market for the period 2008 to 2012. We have lowered our US dollar growth rate estimates based on updated exchange-rate forecasts. With the precipitous fall in oil and gas prices in recent months and foreign-investment outflows, both the ruble short- and longer-term position has weakened. Nonetheless, we see strong average annual US dollar growth of 10.6% for the period and 10.3% for the ruble. Market growth is forecast at 22.0% for 2008, in line with 2007 levels, with the market cooling from 2009.

We expect 2012 market value to reach US$23.6bn. It would be going too far to describe the pharmaceutical industry as immune to the current instability, in particular the lack of access to capital for expansion and worries about a weakening currency are substantial worries. Anecdotal evidence suggests that the damage to date from the broader crisis has been limited. Domestic producer Valenta (formerly Otechestvennye Lekarstva) has reportedly had problems refinancing existing debt. It has halted investment projects and has moved to sell its Krasfarma production subsidiary in Krasnodar Region.

Leading wholesaler Protek has announced and then shelved its latest initial public offering (IPO) plans in the face of tumbling stock markets. Unlike the banking or retail sectors, however, there have been no high-profile company defaults . yet. Arguably, the local sector is mired in a longer-term crisis.

Local research group Pharmexpert estimates that around 50% of the country.s 525 registered producers are unprofitable.

In July, Prime Minister Vladimir Putin described the sector as only capable of producing “last century’s drugs”. Hence the industry is closely watching the development of the Conception for the Development of the Russian Pharmaceutical Industry to 2020, a draft of which was submitted to the government in August 2008. Unsurprisingly the plan calls for the development of both modern generics and innovative drugs by the domestic industry in order to lead five-fold growth in the sector as whole by 2020. Like Brazil, Russia sees import substitution of vaccines “a traditional strength of the Soviet-era industry” and insulin as a vital first step. With the exception of a long-rumoured plant project by Nycomed, the bulk of new investments in recent months have come from domestic players, including new players intent on raising capital from domestic and foreign markets.

One example is Gerofarm, which is building a contract-research focused factory in Moscow Region using both Danish and UK expertise for a EUR15mn. Meanwhile, some attractive production assets are reportedly in play. A powerful shareholder in local market leader Pharmstandart is reportedly pursuing Verofarm, controlled by Pharmacy Chain 36.6 and a modern player in oncology generics.

The belated collapse of a 2007 deal by Gedeon Richter for Polpharma and its Russian subsidiary Akrikhin could see bids for the latter firm. The prices paid will be indicative, a study by PriceWaterhouseCoopers suggests that asset prices for mid-sized Russian companies may be off by between 10 and 20% from their peak.


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Russian Mining Sector in Q4 2008

The global credit crunch is having a significant impact on the Russian mining industry, particularly among the oligarchs who control many Russian miners. In late October 2008, Russia’s richest man, Oleg Deripaska, was the recipient of a US$4.5bn loan from state-owned Vnesheconombank, which enabled his company United Company RUSAL (UC RUSAL) to maintain its 25% stake in Norilsk Nickel. The money will be used to repay the syndicated loan from foreign lenders used by Deripaska to buy the Norilsk stake in April 2008, it was reported on Reuters.

The motivation behind the loan was arguably political, with Russia keen to maintain control of strategic mining assets. Deripaska has already lost control of other non-mining assets around the world as a result of the credit crunch and Russia would not have wanted to see the 25% stake in Norilsk fall into Western hands. Russia has already stated that is ready to lend up to US$50bn to any domestic company having trouble refinancing existing loans with the West.

Where this leaves the recent trend towards consolidation among Russian mining players remains unclear.

Earlier in 2008, there was a spate of M&A activity among Russian miners. This was tacitly encouraged by the Kremlin as it would strengthen the position of Russian companies on world markets. An asset swap deal in late May 2008 between Alisher Usmanov and Vladimir Potanin allowed Usmanov to acquire 10% of Russian palladium and nickel giant MMC Norilsk Nickel, while Vladimir Potanin gained a 25% stake plus one share of Russian iron ore and steel producer Metalloinvest. In April, Mikhail Prokhorov’s ONEXIM Group bought a 14% stake in aluminium local UC RUSAL, as part of a deal in which UC RUSAL, controlled by Oleg Deripaska, acquired 25% plus one share of Norilsk Nickel. A three-way merger of Norilsk Nickel, Metalloinvest and UC RUSAL had been seen as a possibility earlier in 2008, although short-term economic difficulties may now preclude this.

Looking at foreign players active in the Russian mining sector, Canadian miner High River Gold’s future was in severe jeopardy as this report went to press. The company has said that its Berezitovy Rudnik subsidiary does not currently have enough funding to make a scheduled US$15.2mn payment to Nomos Bank due on November 21.

In terms of both area as well as the sheer variety of endowments, Russia figures as a major mining nation of the world. It is home to an array of minerals and metals including nickel, platinum, bauxite, cobalt, coal and tin. Siberia hosts the bulk of Russia’s nickel, platinum and diamond deposits, and despite the harsh geography and weather conditions, it remains an attractive destination for mining players from around the world. Russia-based Norilsk Nickel, ALROSA, UC RUSAL and Polyus Gold are some of the major local mining players that have established a strong presence.

However, in order to leverage these opportunities fully, Russia needs to improve its stance on certain parameters. Topping the list are bureaucratic delays and instances of corruption that substantially escalate the costs of doing business. On the mining front, safety issues and environmental standards continue to challenge the industry, in spite of the government’s efforts to review mines for compliance with technological documentation, estimated project capacity and safety regulations.

The Russian state holds rights over all mineral endowments. Historically, mineral resources have been auctioned to mining companies for development. However, a new methodology is on the anvil, whereby the decision to grant licences will be based on the applicant’s processing capacity. As mentioned above, the government also plans to stiffen regulations concerning foreign participation in the mining industry.

Industry forecast owing to its large metal and mineral base, Russia can continue to derive benefits from the boom in the global metal prices. Diamond mining augers a healthy outlook for the Russian mining industry.

The domestic mining industry is forecast to register an average growth of 7.7% a year over 2008-2012, reaching a total value of US$216.1bn.


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Putin: Obama may ease Russia-US relations

Diplomatic relations between Moscow and Washington should improve once Barack Obama takes office, Vladimir Putin today suggested.

Speaking before an invited audience at a live, televised question and answer session, the Russian prime minister welcomed the imminent handover at the White House.

“Usually… when there is a change of power in any country, and even more so in a superpower such as the United States, some changes occur,” Putin observed.

“We very much hope that these changes will be positive. We are now seeing these positive signals.

“If it’s not just words, if they are transformed into practical policy, we will respond accordingly, and our American partners will immediately feel that.”

The broadcast, from a Moscow film studio, was the seventh phone-in session staged by the former Russian president. Most of the questions were submitted in advance through a government website.

The annual event is always analysed closely by foreign observers for hints about the future direction of Putin’s political aims. It is significant that Putin has continued hosting these shows despite no longer being president.

Recent constitutional changes to extend the presidential term from four to six years have increased speculation that President Dmitry Medvedev could step down early to let his mentor reclaim the presidency.

Among policy shifts Putin signaled during the interview, was a warning that Russia would cut gas supplies to Ukraine if its neighbour siphons off gas intended to be delivered to Europe.

He also suggested the state could take major stakes in large Russian companies as a means of helping them through the crisis.

“We will use different tools… Other instruments, for example, include the entrance of the state into the capital of big companies, which are fundamental for the economy of the Russia Federation,” Putin explained.

Both Medvedev and Putin have expressed hope that Obama’s administration will scrap the US’s new missile plan, warning that it threatens Russia’s nuclear forces. The Bush administration has insisted it poses no threat to Russia and is meant to protect Europe from possible attacks from the Middle East.

The day after Obama’s election victory, Medvedev warned that Russia would respond to the US plans for missile defence sites in Europe by deploying short-range missiles to its westernmost region of Kaliningrad, near Poland.

The US and the EU had criticised Russia for disproportionate use of force during the war, and for recognising Georgia’s breakaway regions as independent states afterwards.


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U.S. Ambassador Beyrl to improve business from Vladivistok

United States Ambassador to Russian Federation John Beyrle Arrives in Vladivostok
During the meeting John BEYRLE and Viktor GORCHAKOV discussed the plan of APEC Forum

VLADIVOSTOK, November 17, vladivostoktimes.com. The United States Ambassador Extraordinary and Plenipotentiary to the Russian Federation John BEYRLE arrived in Vladivostok. This visit, which will last from 16th to 19th of November and will include Vladivostok and Yuzhno-Sakhalinsk, is BEYRLE’s first trip to the Far East since his assignment in May 2008, the public relations department of the US Consulate General in the Russian Far East reports. “I already visited the Far East when I was the US vice-Ambassador to the Russian Federation,” Jonh BEYRLE said. “And I tried to come back here as soon as possible after my assignment.

Relations between our countries depend very much on relations between Moscow and Washington. In my opinion, however, relations between nations form at the regional level. One of this visit’s main tasks is to look at the region’s current situation in order to understand how we can improve and develop relations between the Russian Far East and American states such as California, Washington, Alaska.” Right after arriving in Vladivostok on Sunday, on November 16 John BEYERLE went to “Leopard’s Land”, the World Wildlife Fund (WWF) visitor center in Barabash. After that he visited the final concert of the Fifth International Jazz Festival– again this year American party was glad to cooperate with the Primorsky Territory Philharmonic Society and helped Alvin Atkinson’s quartet to come to Vladivostok. As Mr BEYRLE noted in his welcoming speech, although the US is the home of jazz, it was Russia where he started taking great interest in jazz. Mr BEYRLE saw the exhibition “Eleanor Pray: “Letters from Vladivostok,” that had been recently opened in Arsenyev Museum: the city history is told in letters written by Eleanor Pray, the wife of “Smith’s American Store” manager, who spent 36 years in Vladivostok. John BEYRLE met the Chairman of the Legislative Assembly of the Primorsky Territory Viktor GORCHAKOV.

One of the questions discussed during the meeting was the plan of APEC Forum in Vladivostok. On the same day John BEYRLE held a meeting with representatives of the Russian companies cooperating with American partners. The agenda for November 17 includes visiting the Vladivostok commercial port and meeting the participants of the Russian-American exchange programs.


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Andrew Sommers on U.S.-Russian Business

Speaking to Business Today Mr. Andrew Sommers, President of the American Chamber of Commerce maintained that American companies continue to be very interested in Russia, but that the problems stemming from the global credit crisis are impacting on Russian operations.

AS: I’ve heard of no one who has written off the Russian market or feels that the Russian market is somehow a different animal. But the situation is different right now. Its true all around the world and there’s an amount of uncertainty, and when there’s uncertainty people tend to hesitate.
RT: Is there an indication that the U.S. companies operating in Russia are experiencing difficulties because of the effect the current crisis is having on the Russian market?
AS: Because of the difficulty of access to credit, not by these companies, but by their Russian distributors, their Russian retailers, the Russian companies who purchase equipment and resell them to the Russian consumer, those companies, and they are substantial companies, are having trouble getting credit. Either the interest rates are higher now, or they can’t get as much credit as they wanted. The result has been that a number of companies are selling less goods in volume to the distributors because the distributors can’t get enough credit to purchase the original amount that they would have bought.
RT: Many argue that the current crisis doesn’t have the far reaching consequences that many say it does. Do you agree with that?
AS: I tend to agree with it. I think that the analysis of the so called crisis in the States has over emphasized the role of banks because it was the investment banks – a certain type of bank – that is viewed as being he ones which kind of went too far. There has been an impact on credit though, but probably not as severe, if this study, I am sure this study is done professionally the impact on credit has been less. But, at the same time, the consumers in the States are getting much more conservative, and maybe that’s somewhat of a good thing, even though it slows growth down, because Americans don’t save.
RT: Do you expect the U.S. sanctions against the Russian state owned arms trader, Rosoboronexport, to hurt the two countries bilateral ties?
A.S.: The damper on the business relations. If you look at these regulations they are pointed only at U.S. Government agencies. It doesn’t forbid U.S. companies from dealing with Rosoboronexport. But, companies get nervous when they see this, so that they kind of hold off. So I think you will have a temporary decline in the business of several, what I would call strategic, American companies, with Rosoboronexport.


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FSU and Baltic News on Russia

ESTONIA

Local media sources point out that both Tallinn’s anti-Russian rhetoric and Moscow’s response are highly damaging to bilateral economic contacts.

“Russia has declined proposals of many Estonian entrepreneurs wishing to implement joint business projects. Every time a business leader has a major idea about doing business with Russia, they start hissing in his ear: Estonia must abandon its Russo-phobic policy in favor of a friendly one. Estonia would only benefit if its hostile slogans were replaced with more creative ones. Otherwise, Estonia will only be left with two conflicting options, both unproductive: either sell itself to Russia, or unleash a pointless war, like [Georgian President Mikheil] Saakashvili.” (Erileht, October 15)

Analysts believe that the fear of potential Russian aggression against Estonia has led to an excessive militarization of the country.

“Estonia is trying to arm itself. It wants to purchase 40 tanks and invest 60 billion EEK in defense over the next decade. And we have chosen a perfect time, too. Russia is our largest, and only, adversary. Estonia must arm itself to be able to withstand an invasion until NATO forces arrive. However, this massive armament campaign leaves the impression that Estonia is a highly militarized country. Even if we take a small portion of the 60 billion and spend it on education and healthcare, and reduce anti-Russia rhetoric, it would do us much more good than tanks.” (Ohtuleht, October 17)

Commentators claim that Moscow is capable of using capital for political ends.

“The financial market turmoil has forced Iceland’s government to ask Moscow for a loan. It has long been known that nowadays, countries are conquered by money, not tanks. We can only hope that Iceland will prevent Russians from including ambiguous, open-ended clauses, or insisting on political support for Moscow’s policies instead of loan interest. Business is business, even when done by Russia. Although Iceland cannot be bought for 60 billion kronas, this amount may be enough to make it dependent on Russia.” (Ohtuleht, October 16)

LATVIA

Russian-language media sources indignantly condemn officials in Riga for their anti-Russian stance, which, they argue, prevents Latvia’s mutually beneficial cooperation with former Soviet republics in Central Asia.

“Central Asia opens incredible prospects for Latvia. However, to embrace those prospects, we’ll first need to befriend Russia, but our government is doing its utmost to spoil relations with our eastern neighbor… It isn’t clear why [President Valdis] Zatlers chose to criticize Russia with such impertinence [during his visit to the region]. Does he really think he can get away with this sort of behavior in Central Asian countries, which are all long-standing and faithful partners of Moscow?” (Vesti Segodnya, October 16)

LITHUANIA

Some writers believe that during the financial crisis, Moscow will definitely take advantage of Iceland’s request for a 4 billion euro loan.

“It is strange that Russia, which is itself suffering from the crisis, would be the first to offer help to this small country. Moscow makes no secret of the fact that its help will not be selfless. Moscow will try to occupy a NATO base in Iceland that was abandoned in 2006, and Russia is also interested in Keflavik International Airport, which was closed after American troops left the base. Russia sees Iceland as a good springboard for its further expansion into the Arctic region. Presence in Iceland would allow Moscow to compete for Arctic oil and gas more effectively. Experts say that the Arctic has a one-fourth of the global oil and gas reserves. By helping Iceland, Russia mocks at solidarity declared by the West and NATO, and says: ‘We have been acting aggressively toward Georgia, but at the same time we are extending a helping hand to a NATO member-country.’ This means that the West has lost again - maybe not the war, but a small battle for influence in the modern world.” (Runet.lt, October 19)

BELARUS

Opposition media laughed at Alexander Lukashenko’s speech at a meeting of the National Security Council, where he emotionally spoke about the possibility of a NATO attack on Minsk.

“Lukashenko’s speech…could have been a good screenplay for an apocalyptical thriller. The world is on the brink of catastrophe, all countries are preparing weapons of mass destruction, NATO stands at the Belarusian border, and what is most important - the Union State of Russia and Belarus is under threat. The enemy, of course, is creeping from the West. The Apocalypse is near. According to Lukashenko, ‘the growing role of Moscow on the international scene was one of the things that irritated the West.’ To give battle to the enemy, Lukashenko considers it necessary to discuss ‘Russia’s offer to create a united air defense system against the West.’ We are lucky to have a leader who can oppose this all-powerful evil.” (”Solidarnost,” October 16).

Political scientists are discussing a thaw in relations between Minsk and the European Union. However, most remain skeptical about a possible alliance with Europe, recalling the experience of the Union State of Russia and Belarus.

“We need investments and technologies, we need western support in the fight against Russian pressure. We became expert in marking time during the ‘brotherly integration with Russia.’ There were certain ‘road maps,’ for example, for adopting a common currency. But in the meantime, Minsk was milking Moscow while feeding it a rhetoric of unity. You can be sure, Brussels will experience this, too. Belarus will not push Europe away, but turn the formal Euro-integration into something like a viscous joint project with Russia. Europe needs to establish a safe cordon against unpredictable Russia. After this, things will change for the better, European strategists think.” (”Belorusskie Novosti,” October 16)

UKRAINE

The press traditionally writes about Prime Minister Yulia Tymoshenko’s dependence on Moscow. “They count on Tymoshenko. First of all, because she is considered to be the winner of the Ukrainian politic struggle, and it is very profitable to be a winner. Besides this, she can speak to the Russian leaders in their business language.” (”Segodnya,” October 17)

Political scientists connect Russia’s unexpected decision to subsidize Iceland’s economy with the Kremlin’s intention to attract a new exotic ally - a NATO member that opposes the bloc’s military initiatives.

“Iceland is one of the few European countries which keeps neutrality and adheres to the friendship policy toward all civilized countries, including Russia. Few people know that it closed NATO bases in Greenland and on its own territory, and de-facto abandoned the protectorship of pro-NATO countries. Of course, it would be absurd to say that the country’s economy was ruined intentionally as a punishment for its “peace dove” policy, but one cannot deny the political component of the financial crisis. Moscow not only rewards Reykjavik for the eviction of bases, but also hopes for a long-lasting friendship. Well, we shall live and see. It is said that Russian bases may appear in Venezuela, so why not in Greenland?” (”Kiyevsky Telegraf,” October 17)

MOLDOVA

Tiraspol’s media do not doubt that Russia is ready to defend Transdnestr from any political or economic outside interventions.

“In terms of selling its products in Europe, Transdnestr welcomes the involvement of the EU in such aspects of its life. As for issues related to the settling of differences between Tiraspol and Chisinau, it is clear that the deciding vote belongs to Moscow. During the standoff, Tiraspol has never shown any disagreement with Moscow’s views on ways of settling the conflict, as well as its interest in EU’s involvement in the settlement. It is unlikely that Moscow will react to Chisinau’s intention to take part in the “harsh politic and economic pressure on Tiraspol.” Moscow will most likely say that it welcomes joint actions, but only if the interests of people living in Transdnestr are taken into account, including Russian citizens.” (IA “Lenta PMR,” October 16).

Chisinau experts believe that President Vladimir Voronin will play the “Russian card” before the parliamentary election. “Voronin’s reconciliation with Moscow was made to let the ruling Communist party win the 2009 election with Moscow’s help. The Russian-speaking population of the Republic (one third of the whole population), which was disappointed with Voronin and his party’s policy, will face a choice - either not to vote at all, or support Voronin and his party. There are no other big leftist parties in Moldova, and the Russian-speaking electorate traditionally supports left-wing politicians.” (”Press-Obozrenie,” October 21)

ARMENIA

Local journalists write that Armenia is a pawn in the international political game.

“Russia is trying to restore its former influence, while the West is resisting Russia’s efforts. Russian President Dmitry Medvedev visited Armenia not only to promote bilateral relations, but also to strengthen Moscow’s stance in the regional struggle.” (Azg, October 21)

“After the Russian president’s visit, yet another American politician will come to the republic for routine ‘consultations’ with the Armenian president.” (ArmInfo, October 20)

Some publications think Russia will lose interest in Armenia as a political ally as soon as NATO becomes established in Georgia.

“Russia no longer needs Armenia; it has become a surplus territory now that [Moscow] has recognized Abkhazia and South Ossetia. Moscow is now bargaining with the West as a shareholder. The West has ceded Abkhazia and South Ossetia as payment for Armenia. Besides, Russia owns nearly everything in Armenia. In this sense, Armenia is the same as Bulgaria and Montenegro, where Russian capital is particularly broadly represented. In the 1990s, we received money from the West and security from the North, but now the situation is becoming the exact opposite.” (Eter, October 16)

GEORGIA

The Georgian media write that the military conflict has complicated the already unstable situation on the Russian market.

“The Russian economy has recently suffered considerable damage, although not only because of the events in Georgia. Even before the Russian aggression in Georgia, the Russian economy was moving towards a recession and demonstrated other negative trends, largely because of a sharp drop in global oil prices. Against that backdrop, the aggression in Georgia only served to aggravate the Russian economic crisis. Prices of Russian stock started falling, and investment inflow into the country slackened. Russia has sacrificed economic prosperity to attain military goals, but it miscalculated the economic consequences of the aggression.” (Biznesi, October 16)

AZERBAIJAN

Analysts doubt that the Nagorno Karabakh problem can be solved soon, as the intermediaries - the West and Russia - still need to convince the sides to consider a compromise.

“Like us, Armenians have pinned their hopes on Russia as a co-chair of the OSCE Minsk group. But Russia and the EU have their own interests. After the events in Georgia, Moscow does not want to become involved in a large-scale conflict with the West, which is possible over Karabakh. Europe, in the meantime, is not at all willing to move from one powder keg to another.” (Novoye Vremya, October 21)

Commentators believe that despite Moscow and Yerevan’s declarations on promoting mutually beneficial cooperation, Russia is pursuing a policy of tough economic expansion against its strategic ally.

“The reality of the situation bears little resemblance to cooperation. Moscow is controlling Armenia’s economy and is pursuing a policy of economic expansion against its outpost. The largest Russian companies - Gazprom, InterRAO, VTB, RusAl, VimpelCom, Sistema, RZD and Alrosa - control all the strategic assets in the Armenian economy.” (Express, October 21)

KAZAKHSTAN

Analysts believe that Russia, which is trying to compensate for its geopolitical losses after the collapse of the Soviet Union, needs to maintain the viability of the CIS and other post-Soviet integration organizations to ensure self-preservation.

“Relations within EurAsEC and among Central Asian countries are harmonious because this suits Russia, which has set the parameters for integration and is reuniting the CIS on the basis of economic pragmatism. Russia will not be an ideological center like the Soviet Union, but will take into account the interests of all member states. Russia is trying to grow stronger through economic integration; this is the lesson it has learned in the Caucasus. Alienation of Central Asian states, as was the case with Georgia, will result in total isolation of and a subsequent split within Russia.” (Delovaya Nedelya, October 17)

TAJIKISTAN

Analysts write that Tajikistan is an unwilling participant in the age-old struggle between the West and Russia for geopolitical influence in the region, with Moscow’s behavior in bilateral relations marked by extreme ambitiousness and egotism.

“Tajikistan has huge military-political and geopolitical importance for Russia. This means that the deployment of [military] bases is a ’sacred cow’ for Russia, just as the issue of labor migrants is a ’sacred cow’ for Tajikistan, and sacred cows are never sacrificed because of the potentially damaging effect on bilateral relations. Moscow and Dushanbe are aware of this, which is why the efforts of some political groups in Russia to force Tajikistan to take a stand in the ‘divorce’ of Russia and the U.S. seem odd, to put it mildly.” (FK Capital, October 8)


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Russian Professor Predicts End of U.S. by 2010

For a decade, Russian academic Igor Panarin has been predicting the U.S. will fall apart in 2010. For most of that time, he admits, few took his argument — that an economic and moral collapse will trigger a civil war and the eventual breakup of the U.S. — very seriously. Now he’s found an eager audience: Russian state media.

In recent weeks, he’s been interviewed as much as twice a day about his predictions. “It’s a record,” says Prof. Panarin. “But I think the attention is going to grow even stronger.”

Prof. Panarin, 50 years old, is not a fringe figure. A former KGB analyst, he is dean of the Russian Foreign Ministry’s academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.

But it’s his bleak forecast for the U.S. that is music to the ears of the Kremlin, which in recent years has blamed Washington for everything from instability in the Middle East to the global financial crisis. Mr. Panarin’s views also fit neatly with the Kremlin’s narrative that Russia is returning to its rightful place on the world stage after the weakness of the 1990s, when many feared that the country would go economically and politically bankrupt and break into separate territories.

A polite and cheerful man with a buzz cut, Mr. Panarin insists he does not dislike Americans. But he warns that the outlook for them is dire.

“There’s a 55-45% chance right now that disintegration will occur,” he says. “One could rejoice in that process,” he adds, poker-faced. “But if we’re talking reasonably, it’s not the best scenario — for Russia.” Though Russia would become more powerful on the global stage, he says, its economy would suffer because it currently depends heavily on the dollar and on trade with the U.S.

Mr. Panarin posits, in brief, that mass immigration, economic decline, and moral degradation will trigger a civil war next fall and the collapse of the dollar. Around the end of June 2010, or early July, he says, the U.S. will break into six pieces — with Alaska reverting to Russian control.

In addition to increasing coverage in state media, which are tightly controlled by the Kremlin, Mr. Panarin’s ideas are now being widely discussed among local experts. He presented his theory at a recent roundtable discussion at the Foreign Ministry. The country’s top international relations school has hosted him as a keynote speaker. During an appearance on the state TV channel Rossiya, the station cut between his comments and TV footage of lines at soup kitchens and crowds of homeless people in the U.S. The professor has also been featured on the Kremlin’s English-language propaganda channel, Russia Today.

Mr. Panarin’s apocalyptic vision “reflects a very pronounced degree of anti-Americanism in Russia today,” says Vladimir Pozner, a prominent TV journalist in Russia. “It’s much stronger than it was in the Soviet Union.”

Mr. Pozner and other Russian commentators and experts on the U.S. dismiss Mr. Panarin’s predictions. “Crazy ideas are not usually discussed by serious people,” says Sergei Rogov, director of the government-run Institute for U.S. and Canadian Studies, who thinks Mr. Panarin’s theories don’t hold water.

Mr. Panarin’s résumé includes many years in the Soviet KGB, an experience shared by other top Russian officials. His office, in downtown Moscow, shows his national pride, with pennants on the wall bearing the emblem of the FSB, the KGB’s successor agency. It is also full of statuettes of eagles; a double-headed eagle was the symbol of czarist Russia.

The professor says he began his career in the KGB in 1976. In post-Soviet Russia, he got a doctorate in political science, studied U.S. economics, and worked for FAPSI, then the Russian equivalent of the U.S. National Security Agency. He says he did strategy forecasts for then-President Boris Yeltsin, adding that the details are “classified.”

In September 1998, he attended a conference in Linz, Austria, devoted to information warfare, the use of data to get an edge over a rival. It was there, in front of 400 fellow delegates, that he first presented his theory about the collapse of the U.S. in 2010.

“When I pushed the button on my computer and the map of the United States disintegrated, hundreds of people cried out in surprise,” he remembers. He says most in the audience were skeptical. “They didn’t believe me.”

At the end of the presentation, he says many delegates asked him to autograph copies of the map showing a dismembered U.S.

He based the forecast on classified data supplied to him by FAPSI analysts, he says. He predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.

California will form the nucleus of what he calls “The Californian Republic,” and will be part of China or under Chinese influence. Texas will be the heart of “The Texas Republic,” a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an “Atlantic America” that may join the European Union. Canada will grab a group of Northern states Prof. Panarin calls “The Central North American Republic.” Hawaii, he suggests, will be a protectorate of Japan or China, and Alaska will be subsumed into Russia.

“It would be reasonable for Russia to lay claim to Alaska; it was part of the Russian Empire for a long time.” A framed satellite image of the Bering Strait that separates Alaska from Russia like a thread hangs from his office wall. “It’s not there for no reason,” he says with a sly grin.

Interest in his forecast revived this fall when he published an article in Izvestia, one of Russia’s biggest national dailies. In it, he reiterated his theory, called U.S. foreign debt “a pyramid scheme,” and predicted China and Russia would usurp Washington’s role as a global financial regulator.

Americans hope President-elect Barack Obama “can work miracles,” he wrote. “But when spring comes, it will be clear that there are no miracles.”

The article prompted a question about the White House’s reaction to Prof. Panarin’s forecast at a December news conference. “I’ll have to decline to comment,” spokeswoman Dana Perino said amid much laughter.

For Prof. Panarin, Ms. Perino’s response was significant. “The way the answer was phrased was an indication that my views are being listened to very carefully,” he says.

The professor says he’s convinced that people are taking his theory more seriously. People like him have forecast similar cataclysms before, he says, and been right. He cites French political scientist Emmanuel Todd. Mr. Todd is famous for having rightly forecast the demise of the Soviet Union — 15 years beforehand. “When he forecast the collapse of the Soviet Union in 1976, people laughed at him,” says Prof. Panarin.


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