Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @ianbremmer.
"U.S. Blames China's Military Directly for
David E. Sanger, New York Times
For the first time, Barack Obama's administration explicitly accused China's military of responsibility for cyberattacks on U.S. government computer systems. By some estimates, 90 percent of the cyber-espionage in the United States originates in China.
"Russia's Energy Bully Takes a Fall"
Alexandros Petersen, Foreign Policy
Is Russia's coercive use of natural gas exports to bully its neighbors finally unraveling? Will cheaper gas worldwide exacerbate Russia's "reverse dependence" on European markets?
"Japan's leading exporters say the weak
yen is helping them, to a point"
Gwynn Guilford, Quartz
Is Abenomics for real? It certainly had an impact on many exporters' first-quarter bottom line. The weaker yen accounted for 43.2 billion yen of Nissan's 174.4 billion yen operating profit (up almost 50 percent from the same period last year).
"In China, Power Is Arrogant"
Yu Hua, New York Times
In 2001, hospital officials in Shenzhen stipulated that nurses should "show precisely eight teeth when smiling." This piece addresses the "wacky and arbitrary nature" of many Chinese regulations.
"This Is The World's First Entirely
Andy Greenberg, Forbes
What happens when rapidly evolving technologies meet an age-old political debate? Twenty-five-year-old Cody Wilson is utilizing 3-D printers to print guns -- and is sharing the blueprints in downloadable open-source format on his website in a bid to undermine gun control efforts. Here is a disturbing documentary from Vice on the process and its implications.
A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.
It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.
Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates.
It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.
But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.
These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.
Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.
Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.
Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.
Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.
Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.
Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested?
All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.
Willis Sparks is director in Eurasia Group's global macro practice.
ALEXANDER JOE/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
David Horowitz, The Times of Israel
Israel's quantity of natural water per capita is the lowest in its entire region. But it seems Israel's water crisis may be a thing of the past. Why? More than 80 percent of Israel's purified sewage is reused for agriculture. The next best in the OECD? Spain, at 18 percent.
Stephen Brown and Holger Hansen, Reuters
Yes, Spain's unemployment rate is over 26 percent. But elsewhere in the Eurozone, it's a different story. Germany's unemployment rate is at its lowest since reunification in 1990 -- and Berlin is actively recruiting certain skilled labor.
In Italian elections this week, voters set a post-war record ... for lowest turnout.
Simon Shuster, TIME
In a recent study, a group of academics analyzed a random sampling of 25 dissertations from the history department of Moscow Pedagogical State University. They found that all but one had been "at least 50 percent plagiarized." So how high up the ranks does plagiarism go? Perhaps more to the point, how high up the ranks will Medvedev's campaign to weed out plagiarism be permitted to go?
Kenneth G. Lieberthal, Brookings
This piece takes a realistic approach to highlighting potential common ground on cybersecurity between the United States and China.
Katherine Maher, Foreign Policy
Have you ever thought of the internet as unclaimed territory, awaiting a basic framework for division of sovereignty? You're not the only one -- a lot of nations have, too.
MENAHEM KAHANA/AFP/Getty Images
Note: Today is the first in a series of posts that detail Eurasia Group's Top Risks for 2013.
Since the onset of the financial crisis in 2008, investors and companies have focused mainly on risks in developed world markets. But as conditions in the U.S. and Europe continue to improve in 2013, the most worrisome risks will again come from emerging market countries. These countries are fundamentally less stable than their developed world counterparts, and some of their governments used a period of favorable commodities prices and the benefits from earlier reform to avoid the tough choices needed to reach the next stage of their political and economic development.
Some of these emerging market nations face more difficult challenges than others, and much depends on the degree of political capital each leader will have in order to make unpopular but necessary changes. These countries can be divided into three broad categories according to the complexity and immediacy of the risks they face and the longer-term upside they offer.
The first category includes the best bets:
The second category of emerging market economies are at risk of considerable volatility.
Lastly, there are the underperformers, those countries where risks will overshadow returns.
On Friday, we'll profile Risk #2: China vs Information.
HOANG DINH NAM/AFP/Getty Images
Today, The Call presents our top risks for 2013. Click HERE for Eurasia Group's complete report.
1. Emerging markets -- The era of emerging market abundance is
finished. As the United States and Europe slowly regain their economic footing, the
political risk focus will return to the emerging market world, where
differences among the largest players will become more obvious. Slower growth
and rising expectations from larger and more demanding middle classes will
create public pressure on governments, meaning that emerging markets -- including
the increasingly suspect BRICs -- should no longer be treated as an asset class
for outsized growth. Consideration instead should shift toward which
developing country governments have enough political capital to remain on track
to a more advanced stage of development.
2. China vs. information -- China's new leadership faces many challenges in 2013, most importantly the state's growing inability to control the flow of ideas and information across borders and within the country. Until now Beijing has been largely effective in isolating online discourse to focus on discrete issues without culminating in real challenges to the government's decision-making or policy. But every corruption scandal and example of official malfeasance makes the next event more difficult to navigate, and the risk is that a broad-based social movement for change will gain momentum in China in 2013, distracting the government from its domestic and foreign policy priorities and potentially weakening investor confidence in the stability of the mainland market.
3. Arab Summer -- We are far beyond the Arab Spring, and an Arab Winter, where dictators rebound and consolidate power, has not materialized. Instead we are approaching an Arab Summer, whereby the region will witness radicalized movements -- both sectarian and Islamist -- playing a much more important role. As outside powers look to avoid direct involvement in the region's risks, local powers -- Iran, Turkey, Saudi Arabia and others -- will compete for influence and play out their rivalries. At the center of this lies Syria, whose civil war now has implications that extend far beyond the humanitarian. Syria has become a proxy conflict for Shiite and Sunni powers, as well as a magnet for jihadists, increasing the geopolitical risk overall and sparking further insecurity throughout the region, most notably in Iraq, Jordan, and Turkey.
4. United States -- Every silver lining has a dark cloud. While the fiscal cliff was averted, the process by which the deal was reached casts a large shadow over hopes that the election might create a more conducive environment for cooperation, and dysfunctional American politics will weigh on both the U.S. economic recovery and President Obama's legislative agenda. This is not about a politically induced new recession, let alone a major financial crisis. But political uncertainty over corporate taxes and a series of noisy brinkmanship episodes will generate a modest but real drag on growth.
5. JIBs (Japan, Israel, Britain) -- These are the three current global trends that matter most: China is rising, the Middle East is exploding, and Europe is muddling through. Set against a G-zero backdrop, the structural losers of these trends are the JIBs (Japan, Israel and Britain): countries influenced most directly and problematically by changes now underway in the geopolitical order. All three countries are now in a similar position for three reasons: their special relationships with the United States are no longer quite as important; they sit just outside the major geopolitical changes underway, without the means to play a constructive role; and key domestic constraints in all three countries (political, social, historic, and otherwise) make it particularly difficult for them to respond effectively to the challenges posed by a shifting global order.
6. Europe -- There will be no grand implosion, but the muddle-through approach to crisis management carries risks of its own. The eurozone is headed for neither breakup nor resolution, and in 2013 the risks shift from a threat of financial crisis to a loss of momentum in creating the institutional and policy frameworks for a redesigned union. The weak economic outlook and the politics of crisis-fighting will also remain sources of uncertainty. Simultaneously, euro-skepticism is on the rise and resistance to reforms is increasing in the face of protracted austerity and few prospects for an economic turnaround.
7. Asian geopolitics -- In 2013, geopolitical risk will continue growing in East Asia in a new and potentially more dangerous way. Facing increased nationalism in China and Japan, the United States will look to play a larger role, giving oxygen to the hedging strategies of many regional states seeking closer American ties. Territorial disputes over the East China and South China Seas will also create new friction, and at risk overall is East Asia's decades-long distinction as a zone where positive-sum commerce and economics trumps zero-sum geopolitical tension.
8. Iran -- The significant risk in Iran this year is not the one everyone's thinking about. A strike on the country's nuclear program is unlikely, but biting sanctions, other forms of international pressure, and leadership tensions make Iran less predictable and heighten the stakes of an ongoing shadow conflict with Israel and the United States -- one with the potential to rattle markets and put upward pressure on oil prices.
9. India -- India in 2013 will be one of the prime examples of the intrusion of political factors into what had until recently been seen as a long-term economic success story. The country's dysfunctional politics and looming elections feed the risk of an economic shock, and in 2013 the ability of the government to implement robust economic policies will decline even further, perpetuating India's "stalling or falling" outlook.
10. South Africa -- In aggregate growth terms, Africa as a whole looks to be on a trajectory to continue its recent position of positive performance. But in South Africa -- one of the continent's largest and most sophisticated economies -- the outlook is far less rosy. Populism, spearheaded by the ruling ANC party, is on the rise, and it is hard to see any real movement on labor, education, and budgetary reforms. Coming retrenchments in mining will almost certainly spur another bout of labor unrest, which has the potential to spread into other sectors as well. Taken together, all these factors increase the risk of further credit downgrades.
In addition to these, Eurasia Group's red herrings for 2013 include:
The geopolitics of energy -- 2013 isn't the year to get overly concerned about geopolitical risk spiking energy prices. For one thing, most of the Middle East risk in the coming year isn't about energy -- it's about everything else -- and the energy revolution happening in the Western Hemisphere will be a boon for consumers across the globe.
Global protectionism -- The G-20 can afford to agree on protectionism because there's less of a threat here than meets the eye. The trend in fact is toward hints of competitive trade liberalization, especially within the European Union, which is generating a strong internal consensus on the need for a new major transatlantic economic cooperation package.
Radicalism in the developed world -- Many fear the growing gap between rich and poor will instigate class warfare and cause significant instability across the developed world. We think not. For much the same reason that emerging markets are the top risk this year, it's the underlying stability of advanced industrialized democracies that will come through in 2013.
European separatism -- There is no doubt that there are very real separatist pressures building in Catalonia and in Scotland, and national unity remains fragile in Belgium. However -- as much as we all would love to watch Barca field its own team in the World Cup -- there is almost no chance that any of these issues will grow into an actual crisis leading to separation in 2013.
? - North Korea -- Sometimes, you just can't know what's happening, and with North Korea in 2013 that's really the case. In the face of a sudden leadership transition in the world's most totalitarian state -- now run by an untested 28-year-old -- it's almost impossible to assess whether North Korea is becoming more stable. All signs point to the country remaining a perilous bet, but what causes trouble and when? It's hard not to lose sleep over it, but at the same time working harder to assess what exactly is going bump in the night doesn't feel very purposeful. Sorry.
Over the next three weeks, we'll be posting more ideas and information on each of these risks.
SAJJAD HUSSAIN/AFP/Getty Images
By Ian Bremmer
A few days ago, I took a quick, informal survey around Eurasia Group on power and global politics. The question: Who are the world's most powerful people? We're defining power as "a measure of an individual's ability to (singlehandedly) bring about change that significantly affects the lives and fortunes of large numbers of people."
Here's what we came up with:
1. Nobody -- In a G-Zero world, everyone is waiting for someone else to shoulder responsibility for the world's toughest and most dangerous challenges. The leaders you'll see named further down this list are preoccupied with local and regional problems and don't have the interest and leverage needed to take on a growing list of transnational problems.
2. Vladimir Putin -- In Russia's personalized system, this is still the person who counts. He isn't as popular as he used to be, and his country has no Soviet-scale clout or influence, but no one on the planet has consolidated more domestic and regional power than Putin.
3. Ben Bernanke -- The world's largest economy is still struggling to find its footing. To help, no one has more levers to pull and buttons to push. The world needs the U.S. economy back on its feet, and Bernanke has more direct influence than anyone else on when and how that happens.
4. Angela Merkel -- For the moment, her commitments are the glue that binds Europe. Merkel's ability to bankroll Europe's emergency funds, win concessions from the governments of cash-strapped peripherals, and maintain solid popularity at home continues to be a remarkable political and policy achievement.
5. Barack Obama -- Even at a time when Washington is focused almost entirely on Washington, the elected leader of the world's most powerful and influential country carries a lot of water. The Obama administration will watch the eurozone from the sidelines and keep commitments in the Middle East to a minimum, but America will continue to broaden and deepen security and commercial relationships in East Asia, and Obama's decisions on how far and how fast to move will be crucial.
6. Mario Draghi -- Europe's backstop. Europe's Central Bank has kept the continent's blood flowing at a crucial moment in its history, and his work is far from done.
7. Xi Jinping -- China's forward progress is the world's most important variable, and Xi Jinping is now the man behind the wheel. Over the next decade, economic and political reforms will be needed to keep China on track, and Xi will make some difficult (and profoundly important) decisions.
8 (tie). Ayatollah Khamenei -- The supreme spiritual and political authority in a country at the heart of a volatile region. Halfway through 2013, Ahmadinejad will give way to a new president, but it is still Khamenei who will decide how the international fight over Iran's nuclear program plays out -- and what the future holds for the Islamic Republic.
8 (tie). Christine Lagarde -- The world's fire marshal. Here is that rare leader whose contribution will be crucial in multiple regions at once. But nowhere will the IMF's work be more important than in keeping Europe on track.
10. King Abdullah Bin Abd al-Aziz -- King of a kingdom with a unique power to move markets. The Saudi monarch is not in the best of health, but the choices he makes in determining who lead the world's hydrocarbon powerhouse into the next generation will help shape the entire global economy for many years to come.
What do you think?
Ian Bremmer is president of Eurasia Group.
ALEXEI NIKOLSKY/AFP/Getty Images
Eurasia Group's weekly selection of essential reading for the political risk junkie-presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.
Must-Reads1. "South Korea's Presidential Election: A Homecoming"
Banyan Asia blog, The Economist
On Wednesday, Park Geun-hye was named president of South Korea by a small margin, making her the first woman to hold the post in the nation's history. How will her presidency differ from Lee Myung-bak's? What are the implications for North-South relations?2. "The Importance of Shinzo Abe"
Sanjaya Baru, The Hindu
A much more momentous Asian election took place this past weekend, as Shinzo Abe and the LDP returned to power. Many are focusing on the possible conflicts that the election could provoke between China and Japan, but this piece asks: Are Japan and India the "natural partners in Asia?" In light of the conflict over the Senkaku/Diaoyu islands, it seems Japan is pursuing an ABC policy (Anybody But China). Why not India?3. "Pakistan: Mullahs and Militants Keep Polio Alive"
Sami Yousafzai, The Daily Beast
The eradication of polio has been tantalizingly within reach, as its presence has dwindled to just a handful of countries. But wiping the disease out of Pakistan comes with substantial risks. This piece focuses on the dangers to the anti-polio mission in the wake of Bin Laden's death and the role that vaccinations played in gathering intelligence for the operation.4. "Slavery's Global Comeback"
J.J. Gould, The Atlantic
Another atrocity that hasn't disappeared: human trafficking and forced labor. These are new terms for what Gould still dubs 'slavery.' Even by conservative estimates, there are more people enslaved today than at any point in history. This is an epidemic that needs global attention.5. "The Putin Show"
Brian Whitmore, Power Vertical Blog
If there were a foreign-policy edition of People magazine, Putin would fill the pages. Why all the hype for his most recent press conference? Consider analysis of his performance as our guilty pleasure political risk story.
Longer Reads6. "Utopia for Beginners: an amateur linguist loses control of the language he invented"
Joshua Foer, The New Yorker
This piece is not political per se, but the treatment of language as an art -- communicable and easily repurposed the world over -- has global as well as philosophical implications. Foer follows a man who spent 34 years inventing a language designed to more precisely mirror reality. The story of who ended up co-opting it -- for political purposes no less -- makes for a fascinating read.
By Carroll Colley
Washington is on the verge of completing an improbable trifecta in U.S.-Russian relations. In August, the Obama administration helped guide Russia across the finish line for World Trade Organization membership. Congress is now fast tracking an end to the Jackson-Vanik amendment, a piece of Cold War-era legislation that ties trade policy to human rights, and one that has remained a bone of contention between Moscow and Washington for more than twenty years. Finally, Congress is also about to establish "permanent normalized trade relations" with Russia.
So why are relations on the verge of a potentially serious turn for the worse-and perhaps a reassessment of the "reset" in U.S.-Russian relations? Because this legislation will also include the so-called Magnitsky Act, which publicly rebukes the Kremlin for its poor human rights record.
Sergei Magnitsky, an attorney investigating a corruption case involving tax fraud charges against a UK-based investment firm, announced he had uncovered evidence of collusion among police, organized crime figures, bankers, and the Russian judiciary to push the company out of business. In November 2008, Magnitsky was arrested on corruption charges and held for 11 months without trial. He then died in prison under disputed circumstances. An independent human rights organization, Moscow Helsinki Group, has accused Russian security of torturing him. Magnitsky's death provoked international criticism, but a defiant Russian government continues with a posthumous criminal case against him.
The Magnitsky Act will publicly name and shame Russian officials involved in the case, bar them from receiving US visas, and freeze any assets they hold in the United States. Moscow, as you might imagine, is incensed. The Kremlin sees the bill as evidence of continued anti-Russian sentiment in the United States - -Mitt Romney's campaign comments about Russia were grist for this mill -- and as an intrusion by the U.S. into Russia's domestic affairs. The House looks set to vote on the legislation tomorrow, the third anniversary of Magnitsky's death. The Kremlin promises to respond to the bill's passage by retaliating in kind.
The Magnitsky Act won't damage President Vladimir Putin inside Russia. He remains Russia's dominant political figure, his approval numbers are strong, and few Russians closely followed details of this case. Yet, Moscow remains extremely sensitive to international charges of human rights abuses and corruption of government officials. That leaders of Russia's nascent opposition movement have endorsed the Magnitsky Act aggravates the Kremlin even more.
Moscow has already floated suggestions for a 'black list' of US officials, including those connected with the extradition and trial of convicted arms dealer Viktor Bout or with the prison at Guantanamo Bay. Of more concern is the likelihood of increased pressure on U.S. industry operating in Russia, including, for example, unannounced tax inspections of U.S. companies, delayed or denied licensing or registration procedures, and other bureaucratic complications.
While the Magnitsky Act will punish those involved in the case, it won't do much to improve Russia's human rights regime in the near term. Several incidents since Putin's inauguration in May demonstrate that the state continues to use force to weaken the political opposition. Russian officials recently announced the arrest of political activist Leonid Razvozzhayev on charges of orchestrating a series of riots. Razvozzhayev insists that Russian security officials kidnapped him in Ukraine where he was applying for political asylum, transported him back to Russia, and gained a confession from him by torturing him and threatening his children. Politically connected murders of journalists and human rights activists are no closer to being resolved.
U.S.-Russian relations are now likely to enter a period of strain and recrimination, though pragmatism on both sides will prevent a total collapse. The U.S.-Russian "reset" was a good idea at the time and produced significant results, but there is only so much it can accomplish with so much continuing mistrust on both sides.
Carroll Colley is an analyst in Eurasia Group's Eurasia practice.
By Carroll Colley
While Russia will enter the WTO in late August, U.S. industry will be left on the sidelines until Congress removes the Cold War-era impediment to greater trade between the former foes. But it's a safe bet that Congress won't graduate Russia from the Jackson-Vanik amendment, which is necessary to grant permanent normal trade relations to Russia and take advantage of its accession to the WTO, before the November election. The reason? Russia is perpetually steeped in controversy, and U.S.-Russia relations have become a campaign issue in the race between Republican Mitt Romney and President Barack Obama. U.S. industry likely won't be able to take advantage of greater market access in Russia until the lame-duck session at the end of the year, and possibly later.
The White House is much more focused on November 6 (Election Day) than August 23 (the approximate date of Russia's WTO entry). Only after repeated requests from Republican lawmakers for senior level officials to testify on the Hill -- widely viewed as a Republican maneuver to force the administration to speak on the record about its Russian policy -- did the administration relent by sending the duo of Deputy Secretary of State William Burns and U.S. Trade Representative Ron Kirk to testify before the House Ways and Means Committee and the Senate Finance Committee. The White House calculates that a "yes" vote on graduating Russia from Jackson-Vanik (a 1974 provision that ties trade relations to freedom of emigration and other human rights considerations) would have little electoral upside, and might even harm Obama before the election.
Obama's meeting on June 18 with President Vladimir Putin on the margins of the G20 in Los Cabos seemingly failed to produce a breakthrough on Syrian policy. Headlines about ongoing arms shipments bound for Syria and the potential for continued Russian intransigence at the U.N. Security Council also represent potential political liabilities during the election home stretch, not to mention a host of domestic political issues. Romney, meanwhile, has called Russia the U.S.'s greatest political "enemy" -- and later changing that description to "foe" -- because he senses a potential weakness in an Obama foreign policy that has otherwise produced several notable successes.
It would be much simpler, politically, if supporters of graduating Russia from Jackson-Vanik could cast it as a vote for American business, as Secretary of State Hillary Clinton did in a recent opinion piece. But they can't. Passage is complicated by the Magnitsky bill, human rights legislation that targets government officials involved in the case of Sergei Magnitsky, a Russian lawyer who died in police custody in 2009. Largely viewed as a replacement for Jackson-Vanik, the stated aim of the bill is to deny visas to corrupt officials, freeze any U.S. accounts they have, and publish their names. The reality is that the Obama administration last summer instituted its own visa ban and any potential offenders have long ago transferred any funds from the U.S.. The net effect of the bill, therefore, is the "naming of names," which would represent a significant embarrassment to the Putin regime. The bill enjoys broad bipartisan support, with a number of lawmakers stating publicly that passage of the Magnitsky bill is a prerequisite for their vote on Jackson-Vanik.
The Obama administration has sent contradictory messages about its support for the Magnitsky bill. While originally opposing the bill, the administration seems to have accepted the inevitable and has been working with its primary author, Democratic Sen. Ben Cardin of Maryland. One recent Senate version provides for the public list as well as a confidential annex, which would largely allow the administration to circumvent the thrust of the bill by invoking national security exemptions. This is strongly opposed by a number of senior lawmakers, including Sen. John McCain, who was a co-sponsor of the effort to repeal Jackson-Vanik on the caveat of corresponding passage of the Magnitsky bill.
As the August recess rapidly approaches, the window for graduating Russia from Jackson-Vanik prior to its WTO accession closes. Obama appears to have little room to maneuver in expending political capital on the matter without raising the risk of elevating Russia-and its collateral baggage including Syria, Georgia, Iran, and domestic protests-to a legitimate campaign issue. Unless Congress moves forward on its own prerogative-which appears unlikely-the repeal of Jackson-Vanik won't get passed before November, or later, leaving the world's largest economy unable to take advantage of the accession of the WTO's newest member.
Carroll Colley is the director of Eurasia Group’s Eurasia practice.
By Alexander Kliment
Russian President Vladimir Putin's last minute decision to skip a G8 summit with President Barack Obama is a snub to Washington, but the Russian president's no-show may in fact increase the chances for a constructive relationship between the two countries.
Last week, just days after his inauguration, Putin let it be known that he would not attend the upcoming G8 summit at Camp David, where he and Obama were set for a one on one meeting.
The White House, in turn, said Obama wouldn't attend the 2012 Asia Pacific Economic Conference (APEC) summit this fall in Vladivostok, Russia -- though it was always hard to imagine Obama skipping the Democratic National Convention.
According to the Kremlin's official explanation, Putin can't leave Russia right now because approving the cabinet nominations submitted to him by Prime Minister Dmitry Medvedev is too sensitive a task for Putin to oversee by phone from Maryland. So Medvedev will send the list to Putin and head to the summit himself.
Putin's decision is a breach of G8 protocol, which expects that sitting heads of state will attend the group's summits. French President Francois Hollande, for example, will attend, just days after his 15 May inauguration. And by sending his number two to an organization in which Russia is already something of a second fiddle, Putin is raising questions about the wisdom of keeping Russia in the group at all.
Accordingly, many analysts have cast the move as a brazen rebuke to the U.S., which Putin alleges is behind the unprecedented street protests that have become a feature of Moscow life since last December.
It's true that the Kremlin's official explanation isn't wholly credible. Most cabinet decisions have likely been agreed upon already, Putin's re-election was never in doubt, and the G8 summit's date has been known for some time. That said, he reassumes the presidency amid rising popular opposition, which has sowed fresh doubts about his legitimacy. Keen to prevent infighting or, worse, insubordination among Russia's powerful elites, Putin could well be preoccupied with some last minute horse-trading at home.
The timing may, in fact, be no better in Washington than it is in Moscow.
Obama is entering a challenging re-election campaign in which he has already drawn fire from his Republican opponent Mitt Romney about the pursuit of a reset with Russia and his broader foreign policy track record. U.S.-Russia ties have deteriorated recently -- on account of disagreements over Syria, continuing friction over missile defense, and Putin's allegations of U.S. complicity in the protest movement -- meaning the U.S. president would be under pressure to take a hard line with Putin.
But that could risk an unpredictable flare-up with the notoriously sharp-tongued and pugnacious Putin. At the very least, it might complicate White House attempts to secure congressional support for granting Russia normal trade relations status so that U.S. companies can benefit from Russia's WTO accession.
In short, with both men facing heightened domestic concerns and pressures, Obama's meeting with Medvedev, who has warmer relations with Obama and who is seen chiefly as a messenger for Putin, carries much less political significance, but also much lower political risk. The practical result is that it leaves open the chance of greater flexibility between Washington and Moscow that could help maintain a pragmatic relationship in the medium term.
Alexander Kliment is an analyst with Eurasia Group's Eurasia practice.
JEWEL SAMAD/AFP/Getty Images
By Alexander Kliment
Vladimir Putin thinks that Russia's elections are over, and that it's time to move on with business as usual. The trouble for him -- and the system of "managed democracy" he has built -- is that Russia's season of elections is just beginning.
In his final address as Prime Minister to Russia's State Duma (the lower house of parliament) on Wednesday, Putin, who will return to the presidency on May 7, explained that in a "mature democracy, after elections are concluded there begins a more important phase of work." He called for unity and an end to the "heightened emotions" that have recently taken hold of Russia's politics.
So much for that. A few minutes later, the entire faction of the left-leaning Kremlin-created opposition party A Just Russia walked out of the hall in response to Putin's defiantly tin-eared response to a question about the disputed mayoral election in Astrakhan. In that city, the largest administrative center in Russia's Caspian littoral, A Just Russia member Oleg Shein has now entered the third week of a widely-publicized hunger strike to protest well-documented fraud in a mayoral vote that he lost on March 4, the very day that Putin was returned to the Kremlin.
The battle in Astrakhan, which anti-corruption crusader Alexey Navalny and other opposition figures have joined, follows a mayoral election in the northern city of Yaroslavl, where a former member of Putin's United Russia (UR) party ran as an independent, built unified support from several opposition groups, shrugged off scathing coverage from local media, and trounced the government's preferred candidate. More than a thousand election observers, mainly from Moscow, arrived to monitor the vote.
The controversies in Astrakhan and Yaroslavl have mainly to do with local issues, and Putin still has pre-eminent control of the country. United Russia, however tarnished by its new sobriquet as the "party of crooks and thieves," maintains its chokehold on the legislative and executive branches at all levels of Russian politics. But these local episodes underscore an emerging national reality: Opposition politics is taking root in Russia, and the regions will be the most fertile ground.
Despite Putin's wishful thinking, election season is far from finished. Later this year, regional legislative elections will be held in a half dozen localities. A similar number will vote in 2013 and 2014. By then, Russia's opposition forces may well have coalesced into a coherent national force, and voters will choose a new city council for Moscow, a city that Putin actually lost in last month's election.
Moreover, the Duma is expected to approve a bill in coming weeks that will reintroduce direct election of regional governors, though the president can still "filter" the candidates. Several regions could elect new leaders as early as this fall.
These elections will take place at a moment of unprecedented civil society activism, a trend that will cast a bright light on Russia's brand of democracy. Candidates for posts ultimately beholden to the Kremlin for their authority and resources must court an electorate increasingly skeptical of the prevailing power elite. Putin's "vertical of power," the system he has used to maintain political control across the country, already brittle thanks to the weakness of Russia's governing institutions, could begin to show real signs of stress as an increasingly restive public watches election results with new interest.
If so, the country's nascent opposition will have to begin to build a much broader infrastructure to help its leaders speak to a national audience about local problems. Change won't come quickly. Putin's approval rating stands at 68 percent, and Russia's economy is performing reasonably well. Moreover, few key regions face legislative or possible gubernatorial elections in coming months. But at the regional level, increased activism and attention from civil society and opposition groups, coupled with a threatening crisis of legitimacy for United Russia, could introduce a new element of unpredictability into local politics and, by extension, into center-regional relations.
Russia's opposition has a lot of building to do, but at least it now knows that a growing number of Russians are paying attention.
Alexander Kliment is an analyst in Eurasia Group's Eurasia practice.
ALEXEY DRUZHININ/AFP/Getty Images
By Jenia Ustinova
Before the December 4th, 2011 elections in Russia, no one could have imagined an anti-government rally in Moscow could attract tens of thousands of mainstream middle class students and professionals to march alongside socialists and nationalists. But the election results and the perception of fraud and irregularities spurred massive demonstrations. Those protests have brought politics back into the open after a decade in which President-elect Vladimir Putin was granted almost complete political freedom by Russians who wanted little more in return than stability and rising standards of living. Criticism of the turnout at the March 10 opposition rally (20,000 attended) underscores the dramatic shift in the Russian political context over the last three months.
It was inevitable that the turnout at the opposition rallies would decline from the estimated peak of more than 100,000 who showed up on February 4 in subfreezing temperatures. With Putin scoring a clear win in the March 4 presidential election, the protests lost momentum. After the initial outburst it's hard to maintain enthusiasm, especially when most protesters are asking for greater accountability and transparency, and less corruption. These people want an evolution not a revolution that will disrupt their lives. Like it or not, these are people who have other plans for the weekend than attending protests.
Putin's calculus on how to govern Russia for the next six years will in part assume that the opposition will once again be marginalized as protest numbers dissipate and the Kremlin adopts a divide and conquer strategy. Putin may consider some concessions on electoral reform (for the middle class), and will likely provide additional social spending (for the poor and the regions) before hoping to return to business as usual in Moscow.
But the genie is out of the bottle. The opposition will continue to challenge Putin and the regime. The rallies have already raised questions about Putin's legitimacy that will linger with the general public and with the political elite, weakening Putin. Opposition leaders meanwhile have grown stronger and can now attempt to channel their support into formal organizations and challenge system's hold on power at the local and regional levels.
Meanwhile, the Kremlin's room for maneuver has shrunk considerably. It will attempt to shore up its declining popularity with additional pension and salary hikes, but discontent is now sufficiently strong that any policy misstep or miscalculation by the authorities could spark a powerful public reaction. Any number of events from a national tragedy (such as the sinking of the nuclear submarine Kursk) to prolonged economic dislocation (like the recent financial crisis) could set off new protests.
Jenia Ustinova is an analyst with Eurasia Group's Russia practice.
KIRILL KUDRYAVTSEV/AFP/Getty Images)
By Alexander Kliment
The upcoming Russian presidential election is a bore. There is a certain novel excitement in predicting whether Vladimir Putin -- facing unprecedented but still-manageable protests -- will win the first round this Sunday or take the election in a runoff three weeks later, but the outcome is certain: Putin will be Russia's next president. Again.
That said, how he wins the election could shape the way he is viewed, both at home and abroad, and shape the political landscape that he encounters once he takes office in early May. Here there's room for a bit of intrigue -- even a bit of conspiracy.
Right now, Putin is poised to win in the first round. Most polling places him above -- or within mild fraud's reach of -- the 50 percent threshold required to avoid a runoff. Even if the authorities don't explicitly order vote-rigging, Russia's Kremlin-appointed governors have a natural incentive to pad Putin's numbers, and so do their local bureaucracies.
But with protests set to grow after his election, it might behoove Putin to pick up the phone and order a few ballot boxes stuffed...for the opposition.
True, it would be a gambit without much precedent in the annals of electoral manipulation, but by orchestrating a tactical defeat within a larger contest that he is sure to win, Putin could tranquilize several tigers with one dart.
On the face of it, a victory after two rounds of balloting and potentially a few head-on debates could help shore up Putin's electoral legitimacy, even if critics and protesters would rightly point out that the lack of genuine electoral competition makes elections -- even cleaner ones -- procedural at best.
Equally importantly, a second round would enable Putin to make a stark après moi le deluge argument at home and abroad.
In a runoff, Putin would face -- and defeat -- a familiar foil: Gennady Zyuganov, the bellowing, broad-browed leader of Russia's Communist Party (KPRF) and perennial runner-up in the country's presidential votes.
Putin is rightly criticized for presiding over a system in which political accountability is weak, corruption is rife, rule of law is spotty, and the overlap between political and economic power is unseemly.
But in a direct faceoff with Zyuganov, whose platform calls for the outright nationalization of the economy and a latter-day reconstitution of the USSR, Putin could easily ask protesters -- and foreign critics -- to pick their poison. There are protest votes and there are protest votes: few Russians would cast their lot with Zyuganov in hopes of improving the current system, and what foreign capital would really prefer Zyuganov to Putin?
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By Jenia Ustinova
The Occupy Wall Street campaign is spreading from New York to other American cities, Europe, and Asia. But Vladimir Putin says there will be no Occupy Moscow. Speaking this month to foreign investors, the presumptive president elect of Russia downplayed the likelihood of protests emerging in his country. His argument was simple: such protests develop when citizens don't feel the impact of government largesse in their everyday lives, and Moscow will maintain ample spending on pensions, salaries, and social welfare to keep its people off the streets. The state's already burgeoning social expenditures -- typically about one third of the budget is allocated for social welfare-are therefore set to go up by 20% year-on-year, nearing $125 billion in 2012.
Putin's argument makes some sense. Judging by independent opinion polls, the government is genuinely popular, likely due in no small part to the trickling down of oil wealth to the masses. Average per capita monthly income rose by more than 700 percent in the past decade, from $81 to more than $614.
The problem with Putin's socio-economic arithmetic is that the budget is growing unwieldy and there's no clear path back to the modest pre-crisis days, when the country posted a surplus every year. The draft budget that Moscow just approved for 2012 assumes that global oil prices of more than $100 per barrel will hold steady, and so it will only balance if oil prices average higher than $117 per barrel. Given that the average per barrel price of oil was only $60 or so over the last 10 years and hit a low of $34 per barrel in December 2008, Moscow is entering risky territory. If the eurozone crisis magnifies and a second global downturn ensues, the country's leaders will have to make some tough choices.
Worse yet, last month's budget spat between Russia's ruling tandem and the fiscally conservative then-finance minister Alexei Kudrin culminated in Kudrin's ouster. The well-respected former minister, who oversaw the country's economic renaissance, had been railing against record-high spending, taking particular aim at benefits for civil and military employees. Despite his departure, his argument remains salient: Where will Russia turn if the price of oil plummets and risk-averse markets withhold credit from emerging market economies? When asked whether Moscow would be able to right its economic course before it was too late, Kudrin replied: "fifty-fifty."
Maybe he was being too brazen, failing to factor in the risk of an Occupy Moscow movement, which Russia's leadership is of course all too aware of. As Putin's comments to foreign investors illustrate, the government still courts public opinion (authoritarian tendencies notwithstanding), and there's a deep-seated fear among officials at all levels of a public backlash that would undermine the system. But the likelihood of such an uprising is very low, particularly without Kudrin to keep spending in check. And with the premium Moscow is paying for social stability, Kudrin's concern -- the health of the Russian economy -- is the more worrisome one.
Jenia Ustinova is an analyst in Eurasia Group's Eurasia practice.
NATALIA KOLESNIKOVA/AFP/Getty Images
By Yael Levine
On Sept. 16, the Kremlin's latest experiment in "managed democracy" ended in disaster when Russia's third-richest man, Nets owner and oligarch Mikhail Prokhorov, made his dramatic exit from the Right Cause party and exposed Russia's behind-the-scenes political dealings. In an abruptly called press conference replete with zingy one-liners, Prokhorov declared that representatives of the president's administration had mounted a raid on Right Cause. Cameras flashed and journalists tweeted as Prokhorov signed and displayed a document ordering the party's executive committee dissolved and its most prominent members fired. Less than a day later, he resigned. But far from auguring change, the hubbub will likely only encourage the Kremlin to consolidate around Prime Minister Vladimir Putin's United Russia party and forgo building even the façade of a multiparty system.
Right Cause was born in 2008 as the product of three liberal parties that had watched their popular support dwindle to 1 percent or less of the voting population by the end of Putin's presidency. When Prokhorov unexpectedly stepped up to head Right Cause in June, everyone assumed he was part of a Kremlin ploy to reinvigorate the party as an avenue for disaffected liberals to let off steam-harmlessly. As poster boy, Prokhorov's job was merely to provide the funds and cache the party required to mount a respectable campaign for the Duma elections this December.
So it was surprising to many when Prokhorov seemed to take being an opposition leader seriously. A Right Cause manifesto he published last month on the party's website (which has been "in reconstruction" since last week) and on his blog was harshly critical of Russia's authoritarian political system and hollow judicial one. He was likewise insistent about adding Yevgeny Roizman, a controversial anti-drug activist and former Duma deputy that the Kremlin disapproved of, to the party's ranks. And he reportedly planned to organize some sort of tent camp for Right Cause supporters -- a throwback to Ukraine's Orange Revolution and to what is probably Putin's worst nightmare. By the time the party congress came around, the Kremlin, it would seem, had had enough. During the first day of the party congress, a split emerged between the pro-Prokhorov faction (some of whom were literally locked out of the day's meetings) and the anti-Prokhorov faction (who seemed to have been sent expressly to hijack Right Cause).
The height of the drama came when Prokhorov called Vladislav Surkov (Russia's answer to Karl Rove) a puppet-master and said that he blocked real political competition. This affront to Russia's democracy "manager" likely went unnoticed by the bulk of the population, since only a sanitized version aired on television. But those who followed the events closely were among Russia's newspaper- and blog-reading elite -- precisely the constituency Right Cause was designed to placate. They watched as a Kremlin that thought it could have its cake and eat it too was chastened. And the Kremlin itself was surely paying attention as Right Cause, a party it had co-opted for public consumption, morphed into an embarrassment that needed covering up. Shaken by the fiasco, the Kremlin will be careful to limit its electioneering efforts in the run up to the Duma elections and to the presidential race in March to pumping up United Russia.
Yael Levine is a member of Eurasia Group's Eurasia practice.
NATALIA KOLESNIKOVA/AFP/Getty Images
By Jenia Ustinova
On 25 June, Mikhail Prokhorov, the charismatic Russian billionaire of global fame (his 2009 purchase of the New Jersey Nets should ring a bell) was elected the head of Right Cause, a center-right, pro-business political party. At 46, Prokhorov has had a wildly successful career (Forbes estimates his net worth at $18 billion) and has set himself up nicely for a foray into politics. In his speech at the Right Cause party congress, where he assumed the leadership reigns, Prokhorov promised to make Right Cause Russia's second "party of power" -- a tall order, considering that Right Cause currently has no representation in the State Duma. As anyone watching the new Nets stadium going up in Brooklyn knows, Prokhorov is used to having his way. But while he may well succeed in propelling Right Cause into second place, don't expect him to shake up the system once the electoral dust settles.
Some observers hope that Prokhorov's business background will lead to profound changes in Russian politics. But the most important ingredient for success in Russia today -- in both business and politics -- is working within and, if possible, with the system. Along with a handful of other oligarchs, Prokhorov made a seamless transition from the Yeltsin era to the Putin regime and, since then, has stayed largely in good graces with Moscow. His one bump came in 2007, when it was alleged that he procured escorts for friends at a French luxury ski resort. The scandal reportedly did not go over well with the Kremlin. Since then, the young mogul has kept a lower profile, taking charge of a number of sports teams (Prokhorov has created a charitable foundation to oversee the development of sports and culture in Russia, and he serves as the president of the Russian Biathlon Union), pursuing investments in high-technology (he sits on the Government Forum for Nanotechnology), and pioneering Yo-mobile, the Russian-made hybrid car that Prime Minister Vladimir Putin and President Dmitry Medvedev took for a highly publicized spin earlier this year.
Prokhorov's good standing with Putin and Medvedev is reportedly what landed him the Right Cause gig. He by no means volunteered himself for the post, and most likely was asked to take it by one or both of Russia's top dogs. And in advance of the December 4th Duma elections, Right Cause will likely have access to crucial public resources, including televised airtime, to make its presence known. (Right Cause currently barely registers on voters' radars. Only 2% would back the party at the ballot box, according to a June 29th opinion survey, while 17% plan to cast ballots for the Communists, Russia's second most popular party after the ruling United Russia.) The Right Cause party congress was televised, and within two days of it, in his capacity as party leader, Prokhorov met with Medvedev, who expressed his approval of Right Cause's party platform. That's only the second time the president has met with the head of a political party not represented in the Duma.
Prokhorov's potential success won't depend only on the state. His fame, personal wealth, good looks, and charisma also should help him score some election points. At the end of the day, though -- and to the disappointment of pro-business, progressive elites who have been expressing growing dissatisfaction with Russia's stifled political structure -- Right Cause is a regime-sanctioned outlet for those who disapprove of United Russia's populist bent, not a serious movement for structural change. Prokhorov is part of the establishment and knows that it will hold his personal and business assets hostage should he try to break with it. So while he may be shaking up the Nets, Right Cause should be seen as no more than a new chapter in Russia's old playbook of co-opting the opposition.
Jenia Ustinova is a member of Eurasia Group's Eurasia practice.
VLADIMIR RODIONOV/AFP/Getty Images
By Scott Rosenstein
Saving lives is an easy policy to defend. And advocating saving lives is an easy way to roll out policies that might otherwise be considered opportunistic. The ongoing E. coli outbreak in northern Germany is no exception. To be sure, the situation is grave. To date, 24 people have died and more than 2,400 have gotten sick. The outbreak has also destroyed livelihoods: Spanish cucumber farmers, wrongly identified as the source of the outbreak, have estimated losses of $280 million per week, while vegetable sales throughout Europe have plunged. The source of the outbreak has yet to be identified, spawning further anxiety and economic dislocation. But official responses to the crisis may be more self-serving than well-guided.
On 2 June, Russia announced that it was banning imports of fresh vegetables from the entire EU region. The Russian ambassador to the EU defended the move, saying: "I can certainly understand the grievances of EU farmers and I sympathize, but you can certainly understand no material loss is comparable to the loss of human life." His plea is hard to bicker with, but from an epidemiological standpoint the ban is provocative. All the E. coli cases recorded in the past month can be traced to northern Germany, suggesting that the contaminated food (regardless of where it originated) has been confined to that region.
So why is Russia taking such an aggressive stance? While health
concerns may be part of the story, the primary drivers are likely economic
Russia's ban may or may not work itself. The country's vegetable trade imbalance with the EU is partly attributable to the generous agricultural subsidies that EU farmers enjoy and that stifle competition from abroad. The ban will do little to convince EU policymakers to rethink those subsidies, and in fact, may reinforce support for them. The EU just announced a $210 million aid package for farmers affected by the E. coli outbreak, and more money may get passed around if farmers continue to suffer. Moreover, if the outbreak is past its peak, as some German officials are cautiously suggesting, and if Russia's ban threatens to distract from the upcoming Russia-EU summit, starts to jeopardize Russia's hopes of joining the WTO, or bumps up the price of vegetables at home, Moscow will likely backtrack.
Nevertheless, the world's convoluted food supply chain will continue to create complicated, costly, and sometimes deadly food safety scandals. And while some responses will be grounded in caution and scientific rigor, officials will also continue to take the opportunity to curry favor with domestic constituencies. In the coming weeks, particularly if the outbreak continues spreading, both tactics will likely be on display. Keep an eye on:
Scott Rosenstein is an analyst in Eurasia Group's global health practice.
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By Kim Iskyan
The Russian government says that it wants to turn Moscow into an international financial center. But such hopes face many obstacles -- not the least of which are the government's own efforts to encourage the development of national champion banks.
In March, the government announced the creation of a high-profile advisory committee consisting of the heads of a number of powerhouse global banks to advise President Dmitry Medvedev on the project. This will bolster the series of working groups supporting the initiative headed by Alexander Voloshin, a savvy government insider with a reputation for competency. The government also announced it would create a $10 billion investment fund that will be managed by state-controlled development bank Vnesheconombank.
The needed regulatory and market infrastructure is also progressing. Two key regulatory bodies are merging, allowing for a more efficient oversight. Efforts to require large private companies to adopt international financial reporting and accounting standards should substantially improve transparency. Also, the pending purchase of RTS, Russia's second-largest trading floor, by the MICEX exchange would result in a larger Russian exchange with greater visibility and credibility.
Yet obstacles to such a goal will probably limit Moscow's future role in global financial markets. Among the chief short-term roadblocks is the crowding out caused by the ongoing privatization program that will primarily raise funds on the London and New York markets rather than Moscow's. That decision of course also reflects that lack of depth in local capital markets. On another front, domestic pension reform would mark a big step toward developing more local expertise but it's been delayed for years and appears unlikely to be placed on the agenda well until after the 2012 presidential election.
Another factor is the rise of state-owned national champion banks Sberbank and VTB. Moscow's efforts will further reduce the level of competition throughout the banking sector and make the market less attractive to private (including foreign) banks. The late April news that HSBC is pulling out of retail operations in Russia underscores this dynamic.
There are also problems with the broader investment environment, ranging from endemic corruption and weak rule of law to a stifling bureaucracy and personalized politics. Progress on these fronts is critical if Moscow is to make any real headway in establishing itself as an international financial center. Russia's investment environment will benefit from some of the changes, but it remains unclear whether the government will be willing to launch the comprehensive reform program needed to address the economy's underlying weakness.
Kim Iskyan is a director with Eurasia Group's Eurasia practice.
MISHA JAPARIDZE/AFP/Getty Images
By Jenia Ustinova
Alexey Navalny is living the blogger's dream. A lawyer by training, the 34-year-old Russian media darling is both famous and audacious. Last year he sunk the competition in a virtual election for Moscow city mayor, and the Russian and international press have since published numerous profiles about his online anti-corruption crusade. His live journal blog boasted one million unique visitors when he unveiled his report on Transneft, a government pipeline monopoly that he alleges embezzled $4 billion from government coffers. Navalny is effective, too: Transneft is currently under investigation, ordered by none other than Prime Minister Vladimir Putin.
All the success has launched frenzied speculation about Navalny's political potential, with a few observers suggesting that he could rise to the presidency. Navalny is associated with what's known as the "internet party" -- a catch-all term for educated elites who use the internet regularly and are critical of the regime. The regime, in turn, is aligned with the "television party" -- a reference to the bland news coverage and extensive reportage about Putin and President Dmitri Medvedev that Russia's three state-run channels churn out. In response to the hubbub, Navalny has said that he won't participate in corrupt elections. But, as others have pointed out, he hasn't said he doesn't want to be president, only that he won't participate in elections as they are currently organized.
So should the regime be concerned? After all, the stars seem to be aligned in Navalny's favor. Annual opinion polls by the well-respected Levada Center show that corruption is one of the electorate's top concerns. And the ruling tandem's ratings have been on the decline. Meanwhile, buzz is building that the Russian internet-often billed as the country's "last free speech platform" -- just might beget a viable opposition to the soft-authoritarian system currently in place.
But the stats tell a different story. Russia is, and for the foreseeable future will remain, firmly in the grip of the television party. Levada finds that while 28-30 percent of Russians use the internet regularly, an overwhelming 8 in 10 watch television on a daily basis. And when it comes to current events, more than 90 percent of Russians reach for their remotes. Only 11 percent start up their computers to read the news. More to the point, a separate Levada poll found that 95 percent of Russia's self-identified internet users couldn't name a blogger whose political opinion they admired. Navalny was cited by less than one percent of the respondents. Two percent went with Medvedev and another 2 percent named Putin -- who doesn't blog.
Navalny's anti-corruption crusade is flourishing on the internet, and may even bring real accountability and transparency to Russian businesses. But that hardly guarantees real-deal political success. No doubt Putin was well aware of that fact when he declared in a televised speech last week that there would be no restrictions on Russia's internet.
Jenia Ustinova is a member of Eurasia Group's Eurasia practice.
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By Eurasia Group's Eurasia practice
It looks like a relatively calm year for Eurasia, the area encompassing the former Soviet successor states at the crossroads of Europe and Asia. For the most part, the region is politically stable and countries will continue to see slow but steady economic growth. Russia and Kazakhstan face elections in 2012, but both are governed by well entrenched soft-authoritarian regimes. Ukraine is stabilizing, but risks remain in Georgia.
The ruling Putin-Medvedev tandem in Russia continues to govern with a minimum of internal friction, and the risk of social instability that rose following the financial crisis has now receded. Russian politics in 2011 will be defined largely by two events: the State Duma elections, scheduled for December, and the run-up to the presidential election set for March 2012. Russia's regional influence is strong enough that it may be exercised more subtly than in the past. Russia's GDP is expected to grow by 3 percent to 5 percent. Policy will be molded by two competing goals: the populist impulse to increase social and military spending ahead of elections and the finance ministry's push to slash deficits and impose fiscal discipline. To shrink its budget deficit, Russia will turn to international capital markets, raise taxes, and embark on a massive privatization program. In terms of foreign policy, Moscow will work to improve relations with the West, the United States in particular, as part of a general strategy to draw more foreign investment.
In Kazakhstan, aging President Nursultan Nazarbayev remains firmly in charge and is expected to run for reelection in 2012 -- unless a referendum is passed that extends his rule until 2020. But he will eventually need to groom a successor who is acceptable to the country's various elite groups. In the meantime, political and business leaders will throw a few more elbows without destabilizing the current system. Most forecasts put Kazakh growth between 3 percent and 4 percent for 2011. The country will probably follow Russia's lead on trying to shrink its budget deficit, raising taxes on oil and gas producers, and implementing measures to cut spending.
The implementation of IMF-mandated reforms in Ukraine may hurt the popularity of Viktor Yanukovych's government, but the country's perennially turbulent politics promise to stabilize next year. Popular anger could trigger protests against the government in 2011, and this could pose a longer-term threat to stability, particularly if Yanukovych's popularity declines and the opposition is able to regroup. It also presents a risk to the implementation of measures required by Ukraine's IMF loan. Regionally, there is also still a risk of a natural gas crisis between Ukraine and Russia that could affect supplies in 2011. Recently improved ties between Moscow and Kyiv are a major factor in containing the danger.
The major exception to Eurasia's general sense of tranquility is in Georgia, where relations with Russia remain tense. It's possible that another limited military flare-up between the neighbors could occur at some point in 2011. This would have an immediate negative effect on markets and the investment climate and cast a shadow over the rest of the region.
This post was written by analysts in Eurasia Group's Eurasia practice.
DMITRY ASTAKHOV/AFP/Getty Images
By Alexander Kliment
"Today Russia has a new agenda, one that incorporates sustainable development and the modernization of key economic sectors. I believe we stand a good chance of seeing these plans materialize."
-Prime Minister Vladimir Putin, Oct. 5, 2010
"Modernization and the introduction of high technology is a key feature of our activity. I repeat that this is key."
-Putin Oct. 18, 2010
"The modernization of Russian democracy and establishment of a new economy will, in my opinion, only be possible if we use the intellectual resources of post-industrial societies. And we should do so without any complexes, openly and pragmatically."
-President Dmitry Medvedev, in "Go, Russia!"Sept. 10, 2009
The idea of "modernization" is hardly new to Russian politics. From Peter the Great to Stalin to Putin, Russia's leaders have always been obsessed with "catching up" to a more modernized Europe. But over the past two years, the word has become a kind of magical catch-all term in the Russian political lexicon. The word is on the lips of just about every mayor, governor, minister and businessman in the country. A flurry of high level governmental commissions has been formed to address the issue. Moscow has even contracted a New York PR firm to gin up a website that shows -- depending on your point of view -- how "modern" Russia is or how far the country has to go.
The trouble with all this is that it's still very hard to understand what modernization really means for the people who use it and what it would actually take to "modernize" Russia.
DMITRY ASTAKHOV/AFP/Getty Images
If you read Julia Ioffe's recent piece on Yuri Luzhkov, you know that Moscow's long-time mayor is currently embroiled in a serious fight with the Kremlin. A dispute between Luzhkov and the administration of President Dmitry Medvedev over control of a highway project linking Moscow and St. Petersburg has sparked an uncharacteristically public conflict over control of Moscow itself.
But the real problem it exposed is that Luzhkov plays in his own ballpark in a country where the Kremlin wants monopoly control of politics. Luzhkov was already mayor of Moscow in June 1992 when Medvedev was still a junior staffer (working for Vladimir Putin) inside the St. Petersburg mayor's office. Over the years, Luzhkov has constructed the only patronage network in Russia that exists (at least partially) outside the Kremlin's "power vertical," the carefully constructed top-down hierarchy that ensures that every provincial official answers directly to someone who answers to senior officials in Moscow. Luzhkov's control of Moscow is possible only because Russia is still run by personalities rather than institutions, and because he remains the key player in a network of political and commercial relationships that impose order on Russia's most important city.
Over the years, Russia's power players have kept Luzhkov on a relatively long leash -- with the occasional tug to remind him the leash is still there. Yet, given the tone of some of his recent public complaining, someone in the Kremlin has decided that enough is enough. State-dominated television stations have run a series of surprisingly harsh attacks on Luzhkov's character and integrity, a clear signal in today's Russia -- as in the Soviet Union -- that a political career is coming to an end.
It's not a surprise that Luzhkov's time has come. His recent criticism of Medvedev is just the latest act of gross insubordination in a system where hierarchy is everything. Medvedev has the power to fire Luzhkov on the spot.
So why hasn't Russia's president already retired Moscow's mayor? Because he doesn't yet have permission from Russia's prime minister.
Vladimir Putin has not yet gone on camera to address this fight directly, though the televised assault on Luzhkov could not have come without his explicit blessing. But there are probably two reasons why Putin hasn't yet given Medvedev the nod to remove Luzhkov.
First, with parliamentary elections coming late next year and a presidential vote in the first few weeks of 2012, Putin wants to preserve the appearance of a united Russia. Luzhkov looks on Medvedev with the disdain that guys like Jimmy Hoffa reserve for guys like Robert Kennedy. Allowing Medvedev to summarily fire him might provoke Luzhkov to make a stink that can't be contained. Better to allow him to resign, as long as he does it soon.
Second, though Luzhkov WILL be pushed aside -- the media assault on him commits the Kremlin to action -- Putin needs time to co-opt enough of Luzhkov's allies and clients to ensure that things remain quiet as the mayor is replaced.
The larger problem for Russia is that Moscow's mayor has demonstrated publicly that the president can't take a tough political decision without a nod from the prime minister, further undermining the fiction that Putin and Medvedev are governing partners. This episode pushes Medvedev much closer to lame-duck status, and Putin will have fewer options when it comes to the 2012 presidential election.
It's one more sign that only Putin has the chops to play Russia's headline role.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations?
Alexey SAZONOV/AFP/Getty Images
By Willis Sparks
Vladimir Putin is an amazing man. You may have seen him co-piloting an aircraft recently and dumping 12 tons of water to extinguish two of the many wildfires raging across Western Russia. But did you know that in 2008 he used a tranquilizer gun to save a group of scientists and a television camera crew from a charging tiger? In 2009, he saved Russian shoppers from high prices by ordering a grocery store executive to put sausages on sale, forced one of the world's richest men to restore laid off workers to their jobs by reopening a cement plant, taught judo to the Russian national judo team, and went to the bottom of the world's deepest lake in a submarine. In April, he hugged a polar bear. He swims Siberian rivers for exercise and enjoys bare-chested summer horseback rides. Without question, women love him. It's said that he will never have a heart attack, because his heart isn't foolish enough to attack him. Or maybe that's somebody else.
What's all this about? Yes, Putin's approval numbers have fallen to their lowest levels in four years as next year's Duma elections loom. President Dmitry Medvedev, his handpicked successor, has dropped ten percentage points since January. Suicide bombings in March and a mining disaster in May haven't helped. The Kremlin is only now containing the wildfires, which have killed dozens of people and left thousands homeless. The worst drought in 100 years and fears of food inflation have forced the government to ban the export of grain.
To some extent, Putin's penchant for action-man poses reflects recognition of past mistakes. Ten years ago this month, the Russian submarine Kursk sank to the bottom of the Barents Sea. At a time when it appeared a rescue mission might still save the 118 crew members aboard, Russia's newly inaugurated president famously refused to cut short his vacation at a Black Sea resort, inviting a firestorm of criticism. Just as the loss to folksy populist Kent Hance for a House seat in 1978 taught George W. Bush that he must never be "out-Christianed or out-good-old-boyed again," so Putin appears ready to prove he is the ultimate man of the people. He has been constantly on television during the wildfire crisis, even as other officials, including Moscow Mayor Yuri Luzhkov, appeared reluctant to admit that anything's amiss.
Yet, all these stunts reveal less about Putin's strength than his country's weakness. Russia remains a nation not of laws but of men, and the public is losing confidence that the men in charge are willing and able to improve their lot. Recent polls have found that 43 percent of Russians don't expect "anything positive" from their prime minister. 56 percent are "unsatisfied with what's happening in the country." As president, Putin eliminated direct election of regional governors in favor of Kremlin appointments. 59 percent of Russians surveyed would like to see that decision reversed. A poll from another agency found that 82 percent say state officials don't respect the law.
Nor do Russians have much reason for faith in the integrity of public institutions. United Russia, the party that holds more than two-thirds of Duma seats, represents little beyond loyalty to Putin. Courts inspire minimal confidence. Russia's media remains far from free.
Putin has enjoyed strong popularity for more than a decade. Though his numbers have fallen, the end of a long hot summer will likely offer him a boost. He'll probably get most of what he wants from next year's legislative elections, and there is no coherent opposition in Russia to block his plans for the presidential vote in 2012 -- whatever those plans may be. Perhaps he'll want his old job back.
But over the longer term, outsiders are left to wonder what a Russia without Putin might look like. Even Russia's resident superhero can't live forever, and it's not at all clear what personality or institution will have the public credibility to take his place.
Willis Sparks is an analyst in Eurasia Group’s Global Macro practice.
ALEXEY DRUZHININ/AFP/Getty Images
The 11 people arrested and accused of spying for Russia have titillated the tabloids and reminded Cold War veterans of the good old days. But they won't do much damage to U.S.-Russian relations. In fact, the two governments are getting along much better at the moment. There are three major reasons for this, and all of them have to do with the view from the Kremlin.
recently ailing economy is now feeling much better. The financial crisis
inflicted more damage on Russia
than on most other emerging markets, in part because of a steep drop in oil
prices. When Obama first proposed a "reset" in U.S.-Russian relations, Moscow was hemorrhaging
reserves, and Kremlin officials hadn't arrived at any clear idea on what to do
about it. Prime Minister Vladimir Putin was traveling the country assuring local workers
that complacent oligarchs, not state officials, were to blame for the
volatility, and that their government would ensure that all would again be
well. President Dmitry Medvedev and his more western-oriented advisors were
beginning to look like convenient scapegoats should the public become restive
and Putin run out of businessmen to punish.
Things have changed. The economy has picked up thanks to some skillful economic management and a rise in oil prices out of the danger zone.
is feeling much better about its neighborhood. The Orange Revolution is now a
distant memory. In 2004, a presidential election in Ukraine lifted the Putin-endorsed
Viktor Yanukovych over Viktor Yushchenko. But Ukrainian nationalists and
several Western governments charged fraud, and the race was re-run. Yushchenko
won the do-over, fueling suspicion and hostility in Moscow. But his leadership earned little
public confidence during his five-year tenure, and Ukraine's latest election elevated
Yanukovych, who has now taken his country's bid to join NATO off the table for the foreseeable future.
Alex Wong/Getty Images
By Ana Jelenkovic and Willis Sparks
You may not have heard much about the growing violence in Kyrgyzstan, an impoverished and corruption-plagued former Soviet republic that's home to 5.5 million people and a delicate ethnic balance that has now completely broken down. But the deteriorating security situation and growing ethnic conflict there matters-for the people who live there, for the region, for Russia, and for the United States.
Kyrgyzstan has been in turmoil since April, when a bloody confrontation between an increasingly unpopular government and opposition activists ousted President Kurmanbek Bakiev, who is now in exile in Belarus. A government led by interim president Roza Otunbaeva took power, but it hasn't been able to establish full control in the south of the country, home to most of Bakiyev's supporters and much of the country's Uzbek minority.
There's a long history of ethnic tension in the region -- the current unrest is reminiscent of a 1990 bloody conflict which was resolved with Soviet troops -- and the power vacuum that emerged in the region in the wake of Bakiyev's ouster in April has helped reignite ethnic resentment.
Last weekend, Kyrgyz gangs, began attacking ethnic Uzbeks in house-to-house raids. The interim government was unable to contain the violence, which quickly spiraled out of control. Reports of large-scale rape and murder have drawn the attention of neighboring governments, international institutions, Washington, and Moscow.
Why should the world be watching more closely?
First, what began as thuggery reached ethnic cleansing levels of violence. While the situation appears to have calmed down somewhat after a nasty weekend, violence is likely to continue. Under attack, huge numbers of the country's Uzbeks have fled in fear for their lives. U.N. officials have called on Kyrgyzstan's interim government to provide refugees with safe passage. It remains unclear if state officials can or will do that.
Second, the current violence is starting to look a bit like the oil spill in the Gulf of Mexico: It won't stop until someone stops it. The new Kyrgyz government appears to believe that only Russian soldiers can accomplish that and has called on the Kremlin for help. Though interim leader Otunbaeva today says that international peacekeepers are no longer needed, it is clear that international support is necessary to ensure the safe passage of refugees and the delivery of humanitarian aid to all communities in need.
Third, Russia remains reluctant to wade into a conflict that might turn into a quagmire. But the risks generated by violence so close to Russia's borders and the fear that the country could become a safe haven for anti-Russian militants/terrorists will probably compel Moscow to move forward.
Fourth, to persuade a reluctant Russia, the Kyrgyz foreign minister has now suggested that his government might be willing to revisit a decision to extend the lease on an airbase used by U.S. forces as a vital line of supply for NATO forces in Afghanistan. Moscow holds the cards and could insist that the Americans leave. In what has become typical for the provisional government, individual leaders are sending mixed signals. Otunbaeva, for instance, insists that the lease will be extended, and Russia and the U.S. share an interest in the stability of Afghanistan.
Finally, the governments of the largest of the Central Asia republics-Uzbekistan and energy-rich Kazakhstan and Turkmenistan have done well for themselves politically and economically by playing Russia, America and China off one another. If Russian troops enter Kyrgyz territory in large numbers, that delicate balance could be overthrown in Russia's favor. At the very least, the leaders of countries neighboring Kyrgyzstan will have to weigh Russia's capacity for mischief with each decision of regional importance.
Things are looking up for those in Moscow who would like to rebuild Russian influence across former Soviet territory. A brief war with Georgia in August 2008 proved that Russia could assert itself with a minimum of lasting international outcry. The most recent presidential election in Ukraine produced a more Moscow-friendly government in Kiev. Now a Central Asian government is offering the Kremlin concessions in return for an armed intervention in its territory.
Obscure though the players may be, this conflict is one to watch.
Ana Jelenkovic is an analyst in Eurasia Group's Europe and Eurasia practice. Willis Sparks is a global macro analyst.
VIKTOR DRACHEV/AFP/Getty Images
Remember the "colored revolutions," the mostly peaceful uprisings that were said to mark a turning point in the history of the post-Soviet space? In 2003, we had Georgia's Rose Revolution, which replaced President (and former Soviet foreign minister) Edvard Shevardnadze with a young U.S.-educated lawyer named Mikhail Saakashvili. In 2004, a fraudulent presidential election result was overturned by popular outrage in Ukraine, lifting Viktor Yushchenko past Viktor Yanukovych. In 2005, Kyrgyzstan's Tulip Revolution elevated Kurmanbek Bakiyev to the presidency. Georgia and Ukraine have since talked of joining NATO. Kyrgyzstan continues to allow American forces to use an air force base in its territory as a line of resupply for troops in Afghanistan.
Western media celebrated these events as victories for democracy, and the Kremlin fumed over what it considered further Western encroachment into Russia's sphere of influence.
Since then, Saakashvili has stumbled into a brief but costly war with Russia, and he faces a rising chorus of complaints at home. Yushchenko left the presidency with a single-digit approval rating, and Ukrainian voters have elected Yanukovych president. And now Kyrgyzstan's Bakiyev has come face to face with a depth of fury he was not prepared to handle.
We shouldn't be surprised by the trouble in the Kyrgyz Republic. Half the population lives below the poverty line. Remittances from Kyrgyz working abroad, a vital source of revenue, have not recovered from the global slowdown. Rising fuel and utility prices, a crackdown on media, and public anger over widespread corruption and nepotism add to the list of grievances. Bakiyev won elections widely considered fraudulent in 2007 and again in 2009. In 2007, he claimed his party had won every seat in parliament.
Whatever the cause of this latest bout of post-Soviet turmoil, we've reached an important point: The last of the colored revolutions has gone south, and Russia may soon regain more of its lost influence across this strategically important region.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio, May 2010)
VYACHESLAV OSELEDKO/AFP/Getty Images
I'm seeing a lot of Russians in Davos this year, but surprisingly little Russia. It's hard to say if it's a conscious decision by the Russian government, but if so, it strikes me as a pretty sound strategy. After all, Russia as a topic generally comes across as a negative in global circles--revisionist geopolitics, resource nationalism, and strongly authoritarian (albeit charismatic, in a fashion) domestic leadership. Instead, there are a healthy number of Russian executives going about their business, presenting on panels along with colleagues from other countries, and generally integrating well. It's probably their best Davos in a good long while.
The Russians have nothing on the Japanese execs, who are here in serious force. Though absolutely none of whom are actually talking about Japan. Indeed, the only attendee I could find giving a bullish Japan story is Pepsi CEO Indra Nooyi, who apparently is making money there cans over fist. For everyone else, it's a story of a dwindling population and flat consumption, but world-class technology, strong regulatory structure, and top-notch management. Japan's model apparently is to become a bigger Singapore.
Speaking of Singapore, a sad piece of trivia I just heard: after lots of lobbying and prodding, an Armenian friend of mine (full disclosure: my mum's also Armenian) recently got Singaporean minister and mentor Lee Kuan Yew to spend three days in Armenia. But the Armenian government initially didn't want to meet with him because they didn't know who he was. Land-locked, no resources to speak of, and apparently they don't read the paper. Oy.
Ian Bremmer will be blogging from Davos this week sending reports and commentary from inside the World Economic Forum.
PIERRE VERDY/AFP/Getty Images
By Ian Bremmer and David Gordon
Now for the red
herrings, the places and problems where
we think there is less risk than meets the eye.
In Iraq, elections in March will spark violence as foreign militants try to undermine the transition to Iraqi national sovereignty. A U.S. troop withdrawal beginning right after the elections will invite more violence. We could see a Sunni election boycott. But compared to what we've seen before, and what might have happened, the overall story is remarkably positive. For the markets, Iraq is suddenly an opportunity. The institutions are becoming legitimate (even with the unresolved Kurdish issue), the army is starting to work, and most importantly, political leaders from all communities are beginning to recognize the value of Iraq's tremendous natural resource base from which all can benefit if they make the compromises to maintain stability in the country. For all their basic governance problems, there's very little chance of Iraq actually becoming a failed state at this point -- a meaningful risk even a year ago. It's not a place we're ready to vacation in, but we're bullish on Iraq.
Iraq is also moving in a positive geopolitical direction. Ties with Turkey have grown particularly quickly -- not just in the Kurdish region in the north, but in Baghdad. That's one of the few positive stories for Ankara this year. Arab states in the region are still hesitant to build ties with Iraq as they wait for clarity on its next government. Maliki hasn't been a popular figure with neighboring gulf Arabs, but they recognize that Iraq's economic consolidation won't wait for another four years, and they'll start making political overtures to Baghdad if Maliki's mandate is extended. And if the Iraqi prime minister isn't returned (which is certainly plausible), we'll see a stream of head of state visits to place relations with a new leader on a more solid footing. So whatever the electoral outcome in March, we're likely to see Iraq on a faster path to integration with regional political and economic infrastructure next year. Meanwhile, Iran's role in Iraq has quietly receded. Iran's controversial presidential election and subsequent state violence did nothing to improve Tehran's influence among Iraq's Shia population, where Iraqi nationalism has been steadily growing.
The headlines for Iraq next year will undoubtedly be the timing/delays/pace of the US troop withdrawal. But the real story is going to be a moderate government, growing geopolitical influence, and the most exciting new investment opportunities the region has seen in a decade.
AHMAD AL-RUBAYE/AFP/Getty Images
By Kim Iskyan
There's a reason for the popular perception that Russians like their drink: The average Russian citizen consumes 18 liters of pure alcohol per year, compared with about 11 liters per year in Western Europe. But if President Dmitry Medvedev's new anti-drinking campaign is a success, Russians will be toasting a lot less often.
Russian history is littered with failed attempts by imperious leaders with a social engineering streak to interfere in Russians' tippling habits. The most recent effort, the mid-1980s anti-drinking campaign spearheaded by Mikhail Gorbachev, was abandoned in part because it was hugely unpopular.
But the Kremlin has good reason to try again. Russia's drinking problem, which Medvedev has called a "national disaster," has long been cited as a key cause of Russia's ongoing demographic collapse. Alcohol abuse is a key reason why Russian men have a life expectancy of just 60 years, on par with North Korea and Papua New Guinea. In no small part due to alcohol abuse, the U.N. forecasts that Russia's population will fall from the current 142 million to 131 million by 2025, endangering economic growth and national security over the long term.
Medvedev has charged the government with developing an anti-drinking strategy by Dec. 1. Media reports suggest it may include new restrictions on advertising for alcoholic beverages; tightened regulations for low-alcohol content beverages; limitations on the times and locations at which alcoholic beverages can be sold; and price floors for and increased taxes on vodka. The plan will include additional measures to reduce Russia's gray alcohol market. The government is also contemplating whether to re-establish its monopoly on distilled spirits used to make vodka.
The campaign's chances of success may be better than previous Russian battles with the bottle. Some polls have suggested broad support for a temperance campaign. From a fiscal perspective, the relative contribution to the federal budget of alcohol taxation is a small fraction today of what it was during previous attempts to crack down on alcohol consumption, ensuring that lower consumption wouldn't dramatically decrease government revenue. It might even boost government coffers via higher taxes. Finally, the apparent success in the government's effort to eradicate legalized gambling -- as of July 1, all casinos and slot machine parlors operating outside four specified zones were closed -- reflects considerable political will to engineer positive social change, which could be channeled into an anti-alcohol effort.
Russia's anti-alcohol campaign is still in its very early stages. The politically powerful alcohol lobby, wary of higher taxes, could dilute the effort. And there are a lot more Russians drinking than gambling.
Kim Iskyan is a Europe and Eurasia analyst at Eurasia Group
ALEXANDER NEMENOV/AFP/Getty Images
By Eurasia Group analyst Alexander Kliment
The Obama administration's decision last Thursday to radically rework Washington's missile defense plans may have had more to do with reassuring Tel Aviv than placating Moscow. But when it comes to resetting U.S.-Russia ties, the move placed the ball squarely in the Kremlin's court.
One of the key goals of the Obama administration's "reset" with Russia has been to enlist Russian support for more robust multilateral sanctions against Iran. In recent years, the Bush administration's missile defense plan emerged as a key irritant in the U.S.-Russia relationship. Russian elites saw it as further evidence of a sinister Western plot of encirclement and feared, despite U.S. assurances, that the missile defense system could eventually be used against Russia's nuclear arsenal. In recent months, top Russian officials, including both Putin and Medvedev, have called on Washington to augment the reset rhetoric with concrete action. With its announcement on missile defense this month, Washington did just that.
In Moscow, the news was appreciated -- though perhaps with a somewhat inflated sense of the Russian dimension in Obama's thinking on the question -- but Russia's top generals are already screaming again about the unacceptability of any missile defense plan that does not explicitly include Russian participation. On Iran, Russia will likely show support during the engagement phase of U.S. and EU diplomacy with the Islamic Republic, but any Kremlin backing for harsher sanctions would reflect a significant, and very unlikely, change of heart. Russian Foreign Minister Sergey Lavrov has repeatedly said, flatly, that Russia opposes harsher sanctions against Iran.
Russia is unlikely to respond to the missile defense shift with any grand gesture as part of a "reset." The problem goes beyond missile defense -- Russia and the United States have fundamentally different views of what a reset means. For Washington, improved ties with Moscow are a foundation on which each country can work to accommodate the other's goal. In particular, Washington would like to see some flexibility in Moscow's position on key disputed issues: NATO expansion, Eurasian energy politics, and, crucially, Iran.
But the Russian elite, for its part, is divided. While some members of the liberal camp view Washington's overtures with cautious optimism, Putin and other important figures in the defense and military establishments see U.S. acceptance of Russia's position on these issues as a prerequisite for "hitting the reset button." In other words, Moscow thinks that a reset means Washington will reverse or change policies that the Kremlin considers antagonistic to Russia's interests. At the same time, Putin has made it clear that any moves by the United States to reverse perceived slights against Russia should not carry an expectation of reciprocity. The danger, then, is that Russia will simply view Washington's decision on missile defense as a welcome step, but not one that requires any similar moves by Russia. If Russia chooses to respond this way, any chance of a lasting reset will grind to a swift halt.
When Secretary of State Hillary Clinton visited Moscow earlier this year to begin work on a reset in relations, the occasion was largely overshadowed by the translation gaffe in which the "reset" button she presented to Lavrov actually carried the Russian word for "overload." But the risk that Washington now faces in its Russia policy is not that the Kremlin will be "overloaded," but that its actions will, in fact, be underwhelming.
The Call, from Ian Bremmer, uses cutting-edge political science to predict the political future -- and how it will shape the global economy.