Russia Now in European Voice 2011-06 by Russia Beyond

Security

Economy

NATO chief’s tirade has Russia asking what went wrong with co-operation on missile defence

After the transition period is over, when is the right moment for a state to end the Big Push?

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A paid supplement from Rossiyskaya Gazeta (Moscow, Russia), which takes sole responsibility for the contents

Distributed with European Voice

Thursday, 30 JUNE 2011

Innovation Planners see technology hub as fulcrum for fundamental shift in Russian economy

Skolkovo: The future starts here The ‘city of innovation’ on the outskirts of Moscow is derided by some as a pipe dream, but embraced by Russia’s leadership as an engine of modernisation.

Medvedev to take risk out of content sharing The Kremlin moves to facilitate the exchange of ideas online through free licensing. tai adelaja

Russia profile

Alexander Vostrov, Dmitry rodionov

More and more, ‘Skolkovo’ is the buzz-word whenever people talk about the Kremlin’s modernisation programme – the best indicator yet that the country is focusing seriously on moving away from its traditional role as an exporter of raw materials. Rising outside Moscow, the centre for innovation and high-tech industry is intended to reflect the needs and hopes of Russia in the 21st century. The state has covered about two-thirds of the €700 million cost, according to Stanislav Naumov, vice-president of the project’s overseers, the Skolkovo Foundation.

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russia now

Dmitry Medvedev likes what he sees at Skolkovo, but much work remains to be done.

continued on PAGE 4

Summit Little on the table except vegetables

Immigration New Russians

Chilling out in Nizhny Novgorod

Growth depends on migrant labour

No sensations or breakthrough decisions marked the EU-Russia summit. No news is good news, Russian officials are saying. Alexander mineev

My colleagues in Brussels ironically nicknamed the 27th Russia-EU summit in Nizhny Novgorod ‘the vegetable summit’. The ban on imports of EU-grown vegetables to Russia made headlines ahead of the meeting and also figured prominently in discussions among the participants. Of course, the summiteers also discussed Russia’s accession

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SPECIAL TO RUSSIA NOW

Barroso reflects on the EURussia relationship.

to the World Trade Organization (which, by the way, would have allowed the parties to eliminate the ‘manual mode’ in trade relations), the road-maps for the ‘four Russia-EU common spaces’ (economics, domestic security, foreign security, science and education), a new basic agreement, the outlook for visa-free travel, and the settlement of frozen conflicts in the CIS. All those subjects have been migrating from summit to summit for years, yet the outcome has been poor. Some say that for Russia no news is good news and the dialogue goes on as it should. Others suppose that the format of the meetings, relevant years ago, is now is obsolete and must be changed. continued on PAGE 2

Monthly supplement about Politics, economics, business, comment and analysis

From the streets and markets to the building sites, migrants help keep Russia running. But new immigrants also face hostility. Galina Masterova

Special to Russia Now

Grab one of Moscow’s ubiquitous ‘gypsy cabs’ and there is a good chance the driver will be a young cent r a l A s i a n , m ay b e a Moldovan, who is completely new to the city and has to be shown the route to Red Square or just about anywhere else. Migrants from former Soviet republics, who do not need visas, have rushed in

the millions to find work in Russia. The Federal Migration Service (FMS) estimates that about 1.7 million foreigners will enter Russia to work legally in 2011, and that at least another three or four million working in the country are undocumented.They are the young men who sweep the snow and pick up the garbage, and the hardhats who build the city’s new high-rises. They are the young women who sell produce in the markets, clean public toilets and push strollers in city parks. Moscow can hardly do without them. continued on PAGE 8

President Dmitry Medvedev has set a goal to make it easier for to access and redistribute copyrighted materials. In what looks like an end-run around the country’s complicated civil code, the Russian president instructed Communications Minister Igor Shchyogolev and presidential legal adviser Veniamin Yakovlev to prepare legislative amendments to the copyright law that would pave the way for the introduction of royaltyfree licences. The amendments must be ready by 1 August, he said. The idea is to draft new legal provisions that will protect consumers of intellectual products so that they cannot be held liable for any copyright infringement or violations of owners’ commercial interests unless they were directly involved in the distribution of content, presidential aide Arkady Dvorkovich said. The president hopes that a free licensing regime will give a new impulse for knowledge-sharing. continued on PAGE 4

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A lesson for debtors niyaz karim

Russia’s debt crisis in 1998 may be an object lesson for EU leaders who now face the same problems. see page 7

modern Russia Every last Thursday in European Voice

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Politics

30 JUNE 2011 Russia now www.rbth.ru section sponsored by rossiyskaya gazeta, russia

Russia, EU make little progress at summit

Years ago Russia banned meat from Poland, causing wags to dub the meeting with the EU soon thereafter the vegetarian summit.

getty images/fotobank

When I began covering the European Union in the mid1990s, every summit was an important event, a milestone, a climax of anticipation and an opportunity to advance new initiatives. Russia’s view was that before long it would become just as successful and, eventually, prosperous as Europe. President BorisYeltsin, not quite having mastered the appropriate terminology, used to state that Russia was “at the moment an associated EU member”, leaving Hans van den Broek, then European commissioner for foreign affairs, scrambling for the right words when answering my questions, trying to avoid a rude “No”. These days, ranking officials and diplomats claim that the lack of any sensations or breakthroughs is good news: Russia-EU relations have become routine and a domain for experts, which means they are up and running successfully – similar, for example, to EU-US relations, which also have some wrinkles to iron out. That said, few volunteer comments about differences in ideology and the role of values in the relationship. Russia today is perhaps a strategic partner for the EU not unlike China, albeit smaller in scale. Russia is the only EU partner with which the union holds bilateral summits twice a year. This is more of a legacy of their 1990s ‘honeymoon’ than a sign of real closeness. Could it be time to cut down on the frequency of these costly affairs? European Parliament Member Alexander Graf Lambsdorff and Fraser Cameron, director of the EU-Russia Centre in Brussels, recently raised this subject. Vladimir Chizhov, Russia’s envoy to the European Union, has taken to answering this increasingly frequently asked question by referring to a formality: This is what the Partnership and Co-operation Agreement, signed by PresidentYeltsin with EU leaders on the island of Corfu in 1994, provides for. The implication of this is that as soon as we complete negotiations on a new basic agreement, we will be able to revisit the issue of how often summits are held. Apparently, both sides are happy with the present state

of relations. Today, relations are better than at any point over the past several years. Poland and the Baltic states, which used to initiate any kind of veto possible in the European Council, are determined to maintain no less good relations with Russia than Germany, and trade between Russia and the EU exceeded €200 billion last year. Russia sells mainly energy and commodities to Europe and Moscow does not like the fact that the EU’s energy liberalisation scheme, or ‘Third Energy Package’, has placed Gazprom in a notso-favourable position. But this is survivable so long as there is an actual commodity to trade. Relations could be described as being in standby mode ahead of Russia’s accession to the World Trade Organization. Should Russia eventually join the trade body, the expansive trade

Visas and trade are the recurrent headaches of every EU-Russia summit.

section of any future basic a g re e m e n t wo u l d b e scrapped. Nevertheless, the participants in Nizhny Novgorod noted progress in certain areas of the partnership program. However, Euro-

pean Commission President José Manuel Barroso reaffirmed the goal as not only Russia’s technological advancement but also unlocking its entrepreneurial and creative potential. Doing so is impossible to achieve

without democratic freedoms and an active civil society. The rule of law, he said, is a crucial condition for a rapprochement. While commending President Dmitry Medvedev on his efforts in human rights, Eu-

ropean Council President Herman Van Rompuy said that the situation still leaves much to be desired. In the foreseeable future the EU will continue to perceive Russia in as an unattractive, undemocratic and unfriendly country. Yes, they need to work with Russia pragmatically, but without any illusions. This lack of an intangible ‘partnership spirit’ is likely to count among its victims a potential Russia-EU free-trade zone and, most definitely, the dreams of visa-free travel to Europe so cherished by Russian urbanites. The partners at this bargaining table are not equal. From the standpoint of the Europeans, visa-free travel to Russia does not have the same value as moving the opposite direction does for Russians. Even leaving aside hypothetical and possibly far-fetched fears, it all boils down to the country’s appeal. The outlook may thus remain long-term for years to come. That is, unless Russia offers Europeans something extremely important in exchange.

Vegetable ban was ‘linked’ to visas and gas Observers see Russia’s tested tactic of using food bans as an instrument of political pressure as the reason for vegetable ban. Roman moguchiy Russia now

At this month’s EU-Russia summit, President Dmitry Medvedev‘rehabilitated’European vegetables.The Russian president actually gave the green light to vegetable imports from the European Union several days before scientists placed the blame for the latest bout with intestinal infection on bean sprouts grown in Lower Saxony. Gennady Onishchenko, Russia’s chief sanitary inspector, did not baulk at Medvedev’s decision. The running joke among political scientists is that his concern for citizens’ health has never contradicted state policy. “Onishchenko remembers about harmful products only when there are foreign-policy issues to be resolved,”said Nikolai Troitsky, an analyst with the state news agency RIA Novosti. The 2006 ban on Latvian canned sprats came at a time of frequent verbal clashes between the Kremlin and the Baltic countries over Soviet operations on their territories

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THE numbers

Onishchenko’s diet: no European vegetables, Moldovan wine or Georgian mineral water.

Iranian and Turkish cucumber exports to Russia exceed the EU share tenfold. during the Second World War. At about the same time, the consumer protection agency ordered Georgian mineral water off the shelves in an apparent response to a sharp deterioration in relations with Tbilisi. That same year the Russian market was left without popular Moldovan wine as a way to put pressure on President Vladimir Voronin, who had refused to recognise the legitimacy of the breakaway region of Transdnistria. Bans

on Polish meat imports have coincided with political crises between Moscow and Warsaw; difficulties in relations with the United States have led to regular halts of frozen chicken imports.This year, a ban on imports of Indian potatoes happened to coincide with Russia’s loss of a tender to supply combat jets to New Delhi. Troitsky is confident that Medvedev’s failure to secure visa-free travel for Russians as well as recurring statements by second-tier European politicians on the need to search for non-Gazprom sources of natural-gas supplies led to the ban on European vegetables. Nina Ostanina, an opposition deputy in the lower cham-

ber of Russia’s parliament, adds the World Trade Organization talks to this list. As a matter of fact, Medvedev announced progress in the negotiations immediately after he lifted the ban on European products. Business leaders, on the other hand, say there is no point in looking for political implications in the vegetable scandal. Blocking imports of Moldovan wines and Polish meat could indeed hurt foreign exporters, but the latest embargo was unable to achieve a similar effect, said Ilya Belonovsky, executive director of the Retail Companies’ Association. Market researchers Global Reach Consulting report that

Russia imports 12.5% of its cucumbers and 24% of its tomatoes.Although the numbers may seem rather high, the EU supplies only 5%-6% of imported cucumbers. “A ban on cucumber and tomato imports from Spain and Germany cannot possibly lead to a shortage of these products on the market,” GRC analysts said. Belonovsky argues that Russian companies bore the brunt of the ban.“The consumer-rights protection agency didn’t give any advance warning of the ban, so we had to destroy the products that were already in warehouses,” he said. The cucumber scandal did, however, benefit Russian agriculture indirectly. Shortly afterward, the State Duma passed a law to eliminate double taxation of small farmers. According to the bill’s sponsors, small farmers and private vegetable gardens now produce more than 50% of total agricultural output, with their share exceeding 80% of potatoes, vegetables and fruit. “The bill made its way through the Duma quickly thanks to the cucumber scandal,” Ostanina said. Whether farmers are grateful to Onishchenko remains to be seen.

Politics

30 JUNE 2011 Russia now www.rbth.ru section sponsored by rossiyskaya gazeta, russia

Economic Forum Russian membership of the WTO could hinge on patching up relations with Brussels

Europeans left behind in St. Petersburg Russia is disappointed with what it sees as the EU’s dithering on closer ties and is turning to partners in the US and China. Ben aris

Thousands of top executives from the international business community joined political leaders in Russia’s imperial capital in the middle of June for the annual Kremlin-sponsored St. Petersburg International Economic Forum. The results of the forum underlined the Kremlin’s main foreign-policy initiative – promoting a multipolar world – and left some European delegations disappointed with the EU’s low profile at the meeting in terms of initiatives and deals. The plaintive remarks from Bob Dudley, CEO of British oil major BP, were typical. Dudley told delegates that his company’s failed deal to explore the Arctic with Russia’s state-owned Rosneft “was in everyone’s interests” at about the same time that Rosneft announced that it will find another partner. Overall, one of the big messages coming out of the meeting was that Russia is disappointed with Europe and is working towards

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Special to russia now

Delegates from beyond Europe walked tallest at the annual economic talking shop.

closer co-operation with the United States and China. European leaders were invited to the forum, but the presence of China’s President Hu Jintao was a stark reminder of Russia’s increasingly close ties with its neighbours to the east – as difficult as those relations remain. “The global financial crisis created big financial imbalances in a number of coun-

tries, including in Europe and the US. New ‘bubbles’ can form in almost any market, as we have seen clearly, and with the global financial system the way it is, when they break, the whole world feels the effects,” President Dmitry Medvedev said in his keynote speech.“There can be no doubt as to Russia’s continued integration into the global economy. We have no

choice here.” While closer integration with Europe, which is by far Russia’s largest trade partner, remains important, Medvedev emphasised that joining the World Trade Organization (WTO) is Russia’s top priority for external trade relations. “I think we can realistically complete the process [of joining the WTO] by the end of the year, if, of course, po-

litical games do not start up again,” Medvedev said. Medvedev blamed these “political games” for Russia’s long delay in joining the global trade club, but also took a sideways swipe at the EU for playing similar games, particularly on easing visa requirements. “We seek to introduce visafree travel with the European Union and other countries, but much here depends on our partners. We are ready to demonstrate our good will on this matter by taking concrete steps,” he said. The visa question has become a sticking point in further developing ties between Russia and the EU, and was largely responsible for the lack of any results at the Russia-EU summit in Nizhny Novgorod on 9-10 June, where WTO accession and visa regimes topped the agenda. The two sides are so far apart on the visa question that they cannot even agree on a date to start the discussion. The deadline to start talking about action on introducing a visa-free regime between Russia and the EU was delayed again to the end of July. Nor was there any movement on Russia’s membership of the WTO, which is a pre-condition to starting

talks on a badly needed new basic agreement between Russia and the EU. Russia’s prospects for acceding to the WTO before the end of this year are looking cloudy, despite the palpable optimism of the Kremlin and Russian commentators. And little progress was made on the ‘Partnership for Modernisation’ program of economic and technical co-operation: the European Investment Bank and Russ i a ’s s t a t e - o w n e d Vnesheconombank only signed a memorandum of understanding to mutually consider funding projects that are part of this program with up to €500 million coming from each side. The lack of progress in visa talks with the EU was thrown into greater relief by an announcement on the first day of the forum by the US ambassador to Russia, John Beyrle. The American diplomat confirmed that a new agreement to give citizens of Russia and the United States three-year multipleentry visas had been agreed upon and should take effect soon – a significant easing of rules and a significant gesture. “Three years is just the first step,” Beyrle promised a packed room of delegates.

Security Alliance pulls back from closer co-operation with Russia

Justice Chechen strongman beaten

NATO veers off-course

Kadyrov defeated in slander case

sergei strokan kommersant

When NATO’s secretarygeneral, Anders Fogh Rasmussen, made harsh statements toward Russia at a missile-defence conference at the Royal United Services Institute in London, his words stood in sharp contrast to previous pronouncements he has made on Russia since he became the alliance’s civilian chief in 2008. Just days prior to his 15 June comments he had spoken of“a unique opportunity to build greater security and stability across the entire Euro-Atlantic area”, provided, according to him, by “even closer cooperation” with Russia. This time around, Rasmussen rolled out a long list of grievances against Moscow, virtually blaming it for the lack of progress in co-operation with NATO on European missile defence. He insisted that it was not the West but Moscow, by “spending billions of rou-

On paper, incoming missiles would not stand a chance.

Russia has fewer missiles and warheads than entitled to by the SALT treaty. bles on new offensive weapons targeting the West”,that was provoking an arms race. He was referring to the Russian defence ministry’s plans to almost double the output of ballistic missiles by 2013 at a cost of 15 billion roubles (€375 million).

Russia’s envoy to NATO, Dmitry Rogozin, was quick to respond to Rasmussen’s criticism by stating that Moscow was not going to heed the secretary-general’s words. “NATO doesn’t think of itself as Russia’s adversary but still doesn’t want to sign legally binding documents with Russia,”military analyst Viktor Litovkin said. He added that Russia has fewer missiles and warheads today than it is entitled to under the SALT treaty: “Around half of our weapons consist

Memorial head found not guilty of slandering the Chechen president. On 14 June a Moscow court ruled that the human-rights activist Oleg Orlov was not guilty in a slander case involving the Chechen leader, Ramzan Kadyrov. Orlov, the head of the Memorial human-rights group, was charged with defamation last July after he publicly accused Kadyrov, formerly a Chechen gunman, of being behind the murder of Chechen rights activist Natalia Estemirova in 2009. Kadyrov, 34, who called Estemirova a “woman without honour or shame”shortly before her death, has denied the allegations. Estemirova, 51, was kidnapped on 15 July 2009 in Grozny, the capital of Chechnya, and her body was found later in the neighbouring north Caucasusian republic of Ingushetia. Estemirova recorded hundreds of cases of alleged abuse against civilians by the militia under control of ex-militant turned Kremlin loyalist Kadyrov. Last year, investigators said

itar-tass

Experts attribute NATO chief’s stern speech to his growing irritation over the deadlock in negotiations on a joint missile-defence system.

of obsolete missile models that we are trying to replace with new missiles.” Russian political observers say that Rasmussen’s latest speech was all the more unexpected given that he is due to pay a visit to Moscow as soon as July. “I was unpleasantly surprised by his statements, given that since his first steps as NATO’s chief, Anders Fogh Rasmussen has placed a large political bet on co-operation with Russia,” said Dmitry Trenin, the director of the Carnegie Moscow Centre. Trenin speculated that the secretary-general’s words reflected a“certain frustration reigning in Brussels” after the NATO-Russia Council defence ministers meeting earlier in June had failed to achieve progress on joint missile defence. “As a politician, Rasmussen must understand that his hopes for co-operation with Moscow have been dashed,” Trenin said. Rasmussen in the past has often been seen as “too lenient” towards Russia, he said, and the NATO chief’s increasingly rigid tone on Russia may have to do with an increasingly critical approach to Moscow in the West as Russian parliamentary and presidential elections draw near.

Oleg Orlov: victor’s smile.

that Estemirova was killed by a militant named Alkhazur Bashayev, who was allegedly angry at what she wrote about his armed group. Kadyrov’s lawyers said they would appeal the ruling. Orlov said of the court ruling, “It is not just my victory, it is a victory for everyone, for journalists and the whole of civil society, because I defended the right to freedom of expression in court.” Orlov said he was ready to contest Kadyrov’s appeal. Originally published by RIA Novosti

Innovation

30 JUNE 2011 Russia now www.rbth.ru section sponsored by rossiyskaya gazeta, russia

Medvedev widens information highway CONTINUED from PAGE 1

THE numbers

69%

of Russians believe that protection of intellectualproperty rights encourages creativity and technological advances

65%

of software used in Russia is pirated. The average piracly level in the EU is about 35%.

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photoxpress

Legislative amendments to the copyright law, experts say, would allow the widely recognised Creative Commons licences to be used under current Russian law and take the wind out of the sails of the country’s audacious copyright pirates. Winning the hearts and minds of some of Russia's 60 million internet users may also be uplifting for the president, who may be seeking a second term in 2012. “The president’s move may be a vote-winning gimmick, but all the same, it is the right step in the right direction,”Pavel Rassudov, the leader of Russia’s Pirate Party, said. Rassudov, a social-media consultant and lecturer, believes that if knowledge sharing is constrained by copyright, both innovation and modernisation – Medvedev’s pet projects – are likely to grind to a halt. “Copyright, licences, patents, and other restrictions are hindering progress,” Rassudov said. “A nascent high-tech nation like Russia needs the freedom to build on its past experiences, including on original works previously created by different authors.”

Gimmick or not, the president’s bill could make life easier for Russian web-surfers.

terials while their distribution is protected by copyright, Syb Groeneveld, the former head of Creative Commons in Russia, said. Sporadic attempts were made in the past to amend the civil code to accommodate Creative Commons licences, but they all ended up in a stalemate, said Louisa Ryzmanova, director of international co-operation at the non-profit Institute

A major problem with free licensing here is how to finetune the permission process so that Russian rights holders can grant permission for certain uses of their work under limited conditions. In Russia, this inevitably requires tweaking the part of the civil code that deals with copyright issues, experts say. Some provisions in the law currently do not permit digitisation of ma-

of the Information Society. “In principle, all that is needed is to change the approach to understanding in what forms such licensing agreements should be made,” Ryzmanova said.“A lot will depend on the way licensing rules are applied in practice, so as to avoid conflicts of interest. And if conflict arises, it is essential that judges correctly interpret and enforce licens-

billion: total retail price of pirated software that Russians installed on their computers in 2010

ing agreements.” Azamat Shapiyev, the head of the legal department at the Russian Society for Allied Rights (RSAR), described Medvedev’s move as progressive, adding, however, that a lack of competent intellectual-property rights judges is a major problem.“The laws look fine and require only minor tinkering,” Shapiyev said. “What requires urgent fix-

CONTINUED from PAGE 1

sant kommer

The centre will repay the government in full in seven or eight years, Naumov said. The promise of independent financing is important for Skolkovo Foundation members, who fear that the project will be viewed as yet another opportunity for graft by Russian government officials. They hope instead that Skolkovo will establish a new, if slightly Utopian, model for investment in a country known as a big risk. “Skolkovo should spawn a Gazprom of its own,” Naumov said, referring to Russia’s largest company. “[It] will become the conductor of an orchestra consisting of start-ups and investors.” Skolkovo is something of a

pet project of President Dmitry Medvedev. “I hope the whole world comes to know this brand, not as the only place where investors should put their money”, he said at the centre recently, “but because any big development undertaking needs to have its main engines that drive the whole process.” The president announced the project in February 2010, just before leaving on a tour through the United States. During that trip, Medvedev made a point of stopping in California’s Silicon Valley, to see what elements could be borrowed for his innograd — Russian slang for ‘innovation city’. Medvedev also enlisted big names from both Russia and the United States to help guide the

New opposition: Russians prefer men of action even if they do not belong to a political party

ria novosti

Skolkovo: The future starts at ‘Innograd’

The campus of the Skolkovo School of Management outside Moscow.

project: The former chief executive of Intel, Craig Barrett; Nobel laureates R o g e r Ko r n b e rg a n d Zhores Alferov; and bill i o n a i r e Vi k t o r Ve k selberg. At the moment, the Skolkovo centre hosts companies working in pharmacology, physics and IT, and is recruiting more businesses. The plan for Skolk-

ovo envisions more than 40,000 people living on the centre’s four square kilometres. Designers used the latest technology and ecological principles in creating the centre. Innovative businesses interested in getting into the centre apply online for space at Skolkovo, and may receive grants from a special commission to make their

start-up easier. While not all companies will receive funding, all Skolkovo residents are eligible for tax breaks, including an exemption from paying income tax. Founders claim that ideas developed at Skolkovo are already having an impact on the outside: as an example, they c i t e a b i o t e ch n o l o g y project dealing with the

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ing is the way they are implemented.”Medvedev conceded as much during a 25 April meeting of the Commission on Modernisation, when he proposed that Russia should consider creating a special court for intellectual-property rights within the existing system of arbitration courts. Russian rights holders, he said, would lose nothing if free licensing were to be introduced. “In essence, this will simply be legalising the status quo,” Rassudov said. “Russian writers and musicians have long been using the intellectual creations of other people. This may be illegal, but they nonetheless do it if only to show others how to use such works under reasonable conditions.” The free licensing law could also be up against powerful music and arts interest groups, which have always kicked against any royaltyfree distribution of content. “Groups like the Russian Society of Authors [RAO] and the Russian Union of Rights-holders [RUR] still rely on old business models to claim royalties for themselves on behalf of the artists they try to rip off,” Rassudov said.“I just can’t imagine them giving up without a fight.”

safety of public transportation. Skolkovo will be the home of a scientific university as of 2014 and already boasts the Skolkovo School of Management. The school, which offers a unique MBA focusing on emerging markets, graduated its first class last year. The group included students from the United States and India as well as Russia. To get the whole country excited about the project, the Skolkovo Foundation has hired renowned director Timur Bekmambetov produce an animated series based on stories by the famous Soviet sci-fi writer Kir Bulychev. His protagonist, Alisa, will live in modern Skolkovo and make scientific discoveries together with her parents, according to Naumov. Former Intel CEO Barrett says linking business and research is Russia’s real chance at a technological leap forward. “It’s necessary to be confident in the righteousness of one’s cause,” Barrett said, “even if stable guarantees are lacking.”

Finance

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Economy In an emerging market, lack of creative destruction is the short road to stagnation

Russia is now a middleincome country and the state needs to start withdrawing from the economy, but it is not an easy turn to make. BEN ARIS

Business New europe

How much state in an economy is good for an emerging market? Looking around the world today, most countries have opted for an awful lot of state ownership, but none has fully rejected it. “During the initial ‘big push’ phase of transition having a few dominant business groups – owned by either the state or the private sector, it doesn’t matter which – is not a problem, it is crucial,” Professor Bernard Yeung of the National University of Singapore said in May during a presentation at the European Bank for Reconstruction and Development annual general meeting in Kazakhstan. Where is the dividing line? Clearly low- and middle-income countries like China and India are still in the ‘big push’ phase of growth. In these largely agricultural economies with large parts of their populations living close to or under the poverty line, the government needs to spend heavily to kick-start commerce. “All emerging markets follow a similar pattern,”Yeung said, speaking at the forum held in the wind-swept capital of Astana.“At the start of the process the state has to engage in a ‘big push’ to get the wheels of commerce turning, simply because it is the only entity with the money or resources to do anything. However, once the economy is up and running, at some point it must change to a ‘nurture’ strategy and step back. If it doesn’t, then there is a danger of strangling the growth it started, and stagnation.” In the ‘big push’, government has to invest heavily to pump liquidity into the economy and prime economic activity. The Chinese economy hasn not faced a collapse like Russia’s did in the 1990s, but it needs a massive amount of investment to lay the groundwork for a market economy to function properly. Sergei Guriev, the director of the New Economic School in Moscow, says once the economy is working the key is for the state to disengage and hand over the job of driving economic growth to the entrepreneurs and small and medium-sized enterprises.Yeung adds that once the economy starts to function, it also starts to use up its resources, so a key element of nurturing is ‘crea-

tive destruction’: companies that are not efficient must go bust to allow their resources to be put to better use elsewhere. A lack of creative destruction is the short road to stagnation. According to the latest United Nations Development Index Russia is already a middle-income country and the state needs to start withdrawing from the economy to nurture its nascent businesses, but it is not an easy transition to make. During the big push, governments set up powerful lobbies and vested interests that don’t want to see their companies downgraded or sold off. In the inevitable political tussle that comes with a decision to change from pushing to nurturing a lot of very powerful voices emerge to argue the time is not right. Moreover, not all sectors or regions are ready for nurturing at the same time. “You have to understand that the transition from one phase to the next is not uniform,” Guriev said. Still, the Kremlin seems to have got the message, and the two stages are personified in Prime Minister Vladimir Putin and President Dmitry Medvedev, each of whom will be up for reelection in the next ten months.

reuters/vostock-photo

When to let go: Working out the state’s role in transition economies

All emerging markets may follow a similar pattern, but Russia and China are at different stages of development.

Putin is in charge of the dayto-day running of the government. There are regular meetings between the prime minister and business leaders when they need to get the state to sign off on their investment plans. At the same time Putin has set up and oversees the running of several industrial national champions. On the other side of the fence is Medvedev, who has begun judicial reforms, launched the first real campaign against corruption and recently sacked a raft of senior state officials from

their seats on the boards of Russia’s biggest state-owned companies. And the state has committed itself to getting out of business and relaunched the privatisation process, which is planned to raise up to 1 trillion roubles (€25 billion) in the next three years. But the stakes are high. Russia used up a lot of its spare capacity in the economic crisis and slower growth of about 4% is not enough to prevent things like infrastructure slowly crumbling away. Even assuming the government

State role during transition period

stays on course after this autumn’s elections to the State Duma, and with Putin at its head, it still has to

navigate uncharted waters from big push to nurturing the economy and that will not be easy to do.

Financial markets Deal aims to lure foreign investors to the Russian market

Russian stock exchanges planning to join forces Government officials believe merger of RTS and MICEX will help turn Moscow into an international financial hub; traders are not so sure. ANTON MAKHROV Russia now

Two Russian exchanges, MICEX (Moscow Interbank Currency Exchange) and RTS (Russian Trading Systems), have competed fiercely for 15 years. But according to market players, by the end of this year, MICEX will have swallowed its principal rival, buying roughly 35% of RTS in cash and picking up the rest with MICEX shares at a rate of 3 to 1. The deal is expected to be closed by late July. RTS has been valued at 34.5 billion rubles (€860 million). Proponents of the merger maintain that the deal will make the Russian market

more attractive to foreign er, fairly sceptical about the investors, who were put off merger.“The only way to atby the system of two ex- tract Western investors is to changes. The united stock raise the quality of the servexchange is expected even- ices we offer,” trader Dmittually to make an initial public offering (IPO), and also to attract investors Market such as the European Bank for Reconstruction and De- capitalisation, € velopment and the International Finance Corporation, which will receive some shares in the unified exchange from Russia’s central bank. “The merger of RTS and Deutsche Börse MICEX, the creation of a united structure, raising its standards of corporate management and holding an IPO, a quality IPO, will help raise the organisation’s capitalisation and increase the liquidity of the Russian market,” MICEX + said Alexei Ulyukaev, RTS NYSE Euronext the central bank’s first deputy chairman. Market players are, howev-

11 bn

6.8 bn

4-5 bn

fotobank

ry Belchenko said. “Development is impossible without competition.” “The only thing pushing the market to develop was the competition between MICEX and RTS,”said Anatoly Gavrilenko, the board chairman of Alor Group.“All new products appeared on the market thanks to competition.The market worked fast because RTS had to compete with the developing MICEX market.” RTS launched the RTS Standard spot market with its sophisticated trading technology to fend off the pressure from MICEX, Gavrilenko said. Proponents of the merger

counter by arguing that the London Stock Exchange has not been hindered from developing by the absence of domestic competitors. Private traders are unhappy about the impending changes in the trading system and talk of the abandonment of free-market principles. They are worried about the creation of a single market index, possible increases of tariffs, and reductions in lines of products and services. At the same time, the heads of MICEX have so far said nothing about the specifics of the merger, and interested parties can only guess how the stock market will look next year.

Comment

30 JUNE 2011 Russia now www.rbth.ru section sponsored by rossiyskaya gazeta, russia

Greg Thielmann

THE MOSCOW TIMES

n principle, both Russia and the United States have endorsed co-operation on missile defence. Absent cooperation, the two countries are unlikely to make further progress on reducing their still bloated nuclear arsenals. Senior officials from both countries and from NATO have been engaged in discussions, but concrete agreements have so far been elusive. If president s Dmitry Medvedev and Barack Obama show the necessary political will and leadership, it is still possible to provide mutual guarantees that any future strategic missile defence deployments will not be directed at the other. They can also develop a joint data centre to track missile launches by third countries that could pose a threat to Russia, Europe and perhaps the United States. Unfortunately, opponents of arms control in the US Congress have been trying to limit the extent of missile defence co-operation through legislation. At the same time, some portions of Russia’s military have been undermining the trust necessary to institutionalise cooperation by misrepresenting the facts. Even in this post-Cold War

and financially constrained era, arms-control efforts are still encumbered by the dynamics of worst-case scenario thinking and parochial advocacy of high defence budgets. US politicians and commentators regularly exaggerate the contribution of missile defences against a nuclear-armed missile threat and the progress of the Iranian and North Korean ballistic missile forces against which US missile defences are directed. Their Russian counterparts exag-

fensive nuclear capabilities. But some recent Russian commentary on missile defence is equally distorted and unhelpful to finding a mutually satisfactory path. In 2009, Obama cancelled the illogical plans of President George W. Bush to deploy strategic missile interceptors in Poland and a powerful radar in the Czech Republic by 2015, meanwhile leaving south-eastern Europe unprotected against Iran’s existing medium-

South-eastern Europe remains unprotected against Iran’s mediumrange missile threat.

Some in the US exaggerate the prowess of Iranian and North Korean missile forces.

gerate the potential of future US missile defences to threaten Moscow’s sophisticated strategic nuclear forces. Given lingering suspicions and the inherently subjective nature of estimating future capabilities, it may be too much to expect more realism in the discussion. But it is perfectly reasonable to expect national leaders — and the experts who advise them — to avoid wilful misstatements and fatuous logic. I have taken opponents of New START to task for distortions about Russian of-

range missile threat. In its place he announced a programme known as EPAA, which is much more closely oriented toward the actual and emerging threats. In combination with New START, the Obama approach constituted an opportunity to“re-set”the USRussian relationship. The new timetable bought several more years to resolve differences. Only during the third phase of EPAA, starting in 2018, would enlarged SM-3 interceptors be deployed against a potential intermediaterange ballistic missile threat

from the Middle East. Only in the fourth phase would additional refinements give the SM-3 a capability to enhance existing US-based defences against a handful of potential ICBMs from the Middle East. Yet official Russian spokesmen have repeatedly made inaccurate or misleading statements about US plans. In May, Andrei Tretyak, the deputy chief of the General Staff, claimed that Russian strategic nuclear weapons would be threatened by the third phase of EPAA, erroneously stating that this phase would start in 2015. General Staff spokesman Vyacheslav Kondrashov asserted that neither Iran nor North Korea“presently possesses ballistic missiles capable of striking the United States or any NATO nation”.Yet NATO member Turkey shares a border with Iran and is therefore within range of the numerous short- and medium-range ballistic missiles deployed by Iran. While it might be easy to dismiss Russian official statements as careless but harmless hyperbole, on 20 May, during the International Legal Forum in St. Petersburg, Medvedev himself cited 2015 as “the beginning of the threat to Russia’s security”. Russia insisted on including a preamble to New START stipulating that current strategic defensive sys-

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missile defence hawks miss the real targetS

tems should not“undermine the viability and effectiveness of the strategic offensive arms of the parties”. Today, the United States has deployed 30 ground-based strategic interceptors in Alaska and California, designed to protect against limited ICBM attack. Deputy Foreign Minister Sergei Ryabkov confirmed this on 16 May, when he said “existing US missile defence elements do not pose a threat to Russia”. Similar realism is very much needed from both sides in the delicate negotiations to achieve a level of co-operation on missile defences. This will help Moscow and Washington address the mutual threat from emerging nuclear pro-

liferators in the Middle East while satisfying Russia’s legitimate concerns about protecting the credibility of its nuclear deterrent. For Russian officials to exaggerate the perceived threat by misrepresenting US plans and capabilities is destructive. It misleads the Russian public and fosters distrust in the United States about Moscow’s motives, wasting the window of opportunity afforded by the Obama administration’s policies to reduce nuclear arsenals and engage other nuclear-armed states in the nuclear disarmament process. Greg Thielmann is senior fellow at the independent Arms Control Association. in Washington.

Sergei Guriev

The Moscow Times

he global economy is facing new challenges. These challenges are certainly less troublesome that those of 2008 when the global financial system seemed to be falling apart, or 2009 when the global economy declined for the first time in a decade. Yet, for the first time in its peace-time history, US debt is about to reach 100% of gross domestic product. The largest European economies, France and Germany, are also way past the threshold of 60% of GDP set in the Maastricht criteria. Rating agencies are now talking about downgrading US and French debt.This would have been unthinkable in 2008. In the United States, a sizable fiscal consolidation, either through a massive reduction in government spending or through a tax increase, cannot happen be-

fore the 2012 presidential election. But even if the newly elected president manages to push through such a package, it will substantially slow down economic growth in the US, and therefore globally. Another new challenge is that, despite massive monetary expansion, the Federal Reserve cannot genera t e p o s i t ive n o m i n a l interest rates that would help break the vicious circle and provide incentives to invest liquidity in the United States. The free cash printed by the Federal Reserve is now being invested all around the world, most importantly in the emerging markets. Once again, this is a new challenge. The textbooks do not tell the policymakers what to do when emerging markets become the hope for global economic growth, while the developed economies continue to be a drag on growth. If emerging markets were certain to keep growing, this

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russia’s economy is unhappy in a special way

Rather than investing at home, Russians prefer the US, despite zero interest rates. would possibly justify the convictions of the global optimists who believe that whatever happens in the developed world, the global

economy would keep growing strongly. Economic history, however, abounds with examples of economic miracles that ran out of steam at a very unexpected moment. Just as “happy families are all alike”,in Leo Tolstoy’s words, so as long as emerging markets are growing, they are all content. Each emerging market, however, may stumble and falter in its own way. China will have to somehow meet

the challenge of the newly emerging middle class requesting political liberalisation. India will have to mobilise resources to invest in modern infrastructure. Brazil will have to address the issue of inequality. All these risks are low-probability events at any given moment, but the long run is a different matter. On top of the idiosyncratic risks, the emerging markets also share a problem caused by the Federal Reserve’s printing hot money that is then invested around the world. This may create bubbles in developing countries’ asset markets. Like the bubble in the US sub-prime markets, these bubbles may burst unexpectedly with very painful implications for the whole world. Interestingly, Russia is very different from both developed and developing markets, or as Tolstoy would say, “unhappy in its own way”. It is not a developing country in terms of per-capita GDP and thus does have

very high growth potential. Nor does it face a sovereigndebt crisis, as its current debt level is spectacularly low — about 10% of GDP. It is still very dependent on the oil price and therefore should be doing very well given the price is above $100 per barrel. Yet what is most puzzling is that Russia is actually not attracting investment. Starting in September 2010, Russia’s capital account became negative. It looks as though both Russian and foreign investors prefer not to invest in Russia, where the investment opportunities are indeed plentiful, and instead pick the United States, despite zero interest rates. President Dmitry Medvedev gave the only plausible explanation of this puzzle when he said Russia is suffering from chronic corruption and has a very bad investment climate. Sergei Guriev is dean of the New Economic School in Moscow.

Opinion

30 JUNE 2011 Russia now www.rbth.ru section sponsored by rossiyskaya gazeta, russia

ELECToral hurly-burly begins special to russia Now

ix months ahead of Russia’s next parliamentary elections, as the political parties plan their electoral campaigns, there are only two parties that no one is speculating about. The Communist Party, headed by Gennady Zyuganov, can count on winning approximately 15% of the vote. Senior citizens make up the traditional electorate of this party, and even though the number of older people with kind words for the Soviet Union is rapidly declining, the Communist Party continues to take its standard share of the vote. The departing pensioners are being replaced by middle-aged and younger voters who see a vote for the Communists as a protest vote. Although the number of Russians who are put out with the ruling elite continues to increase, the number of those who throw their votes in with the Communists is unlikely to rise much further.This is primarily because Zyuganov himself has clearly become obsolete. He makes too many compromises to hold on to the protest electorate, and has not come up with any new ideas in a long time.The Communist Party has stagnated, and no regeneration is expected in this election cycle. The same is true of the Lib-

eral Democratic Party of Russia whose leader,Vladimir Zhirinovsky, has looked very tired in recent years. His old nationalist fervour has subsided; he does not look like an extremist anymore. Instead, he looks like a perfectly sane and even constructive politician who from time to time shines in the fairly lacklustre sky of Russian politics – a sphere where there is too little excitement. Will Zhirinovsky have the energy to drag his party over the threshold into the Duma? At this point, it is too soon to tell with any certainty, but there is a chance. The other parties vying for Duma seats at least provide some intrigue. The ruling United Russia, headed by Vladimir Putin (who is not a member of the party, but is its leader nonetheless), plans to go into the elections renewed. The party’s leadership sensed that voters were tired of certain old faces and increasingly irritated by their general lack of attention to the concerns of the voters. Many Russians worry that the country is not coming out of the financial crisis more quickly, and others feel that there is no progress towards solving the many social and economic problems. United Russia is trying to channel this expectation of accelerated development and modernisation into a constructive course. At the end of May, Putin announced the creation of a pre-election

People’s Front to allow nonparty candidates (up to a quarter of the total) to run for the Duma on the United Russia roster. This reflects the party’s desire to attract fresh faces. It is also expected that ahead of the December elections, United Russia

will propose a raft of new ideas. The party machinery and sympathetic think-tanks are now actively working on an ambitious campaign program. For his part, the still extremely popular Putin will try to convince voters to believe in all these plans. The other pro-Kremlin parties have also gone through a shake-up in recent weeks ostensibly to improve their election prospects. Centreright Just Russia appeared to take a blow when party leader Sergei Mironov had a falling out with his local governor, St. Petersburg’s Valentina Matviyenko. Matviyenko, a member of United Russia, subsequently engineered Mironov’s removal from his post as speaker of the Federation Council – the third most important post in government. Ironically, this move is likely to benefit Just Russia: Mironov’s ‘persecution by the authorities’ lends the party a more oppositionist image. The party currently attracts only about 5% support in polls, but Mironov has yet to play his highest trump card – Dmitry Rogozin, Russia’s permanent representative to NATO. In the last Duma elections, Rogozin’s nationalist Rodina party easily won 15% of the vote. But then it was swallowed up by Just Russia, while Rogozin was sent for ‘re-education’ to the capital of European bureaucracy. It is likely that Rogozin will return to Russian politics this

autumn as a member of Just Russia. And on the centre-left, Right Cause, whose electoral prospects were looking very bad, will have a new leader by the end of June: billionaire M i k h a i l P r o k h o r o v. Prokhorov is a controversial and colourful figure. His reputation as an international playboy is well known, and there is speculation that he wants to increase the workweek from 40 hours to 60, but he has obvious advantages. He is a fresh face in Russian politics; he is not connected with the ruling bureaucracy; he is quite impressive and does well on television. In addition, there is a demand in Russia today for a party that is both liberal and pro-business; the kind of party that would express the interests not of those waiting for handouts from the government, but of those who want government policies to allow them to realise their potential. What is most fascinating about the political constellation ahead of the parliamentary elections is that it hardly depends at all on the answer to the other big question in Russian politics today: who — Dmitry Medvedev orVladimir Putin — will be United Russia’s candidate in the March 2012 presidential elections.

efits derived primarily from the shock of the default. Russia never had a currentaccount deficit and did not need a devaluation to balance its foreign account. Rather, the main problem was the persistently huge budget deficit and its financing with foreign funds. The devaluation hurt the middle class and concentrated profits in the hands of the raw material-exporting oligarchs, undermining what remained of the country’s democracy. The EU and International Monetary Fund’s handling

of the euro crisis over the past year and a half is not inspiring confidence. First, the EU has acted very slowly. Second, its actions have not been guided by clear, sensible principles, leading to persistent conflicts and policy reversals. Third, the fiscal adjustment demanded from Greece and Portugal has been far softer than what Russia did in 1998 or the Baltic countries in 2009. Fourth, although the EU and the IMF have pumped in large amounts of funding, the amounts have been insufficient and

thus unconvincing, given the soft restructuring. Fifth, without clear principles, nobody has been able to sell these programmes to the public. In short, the EU has made almost every mistake possible. It has done too little, too late, with too little funding and without clear principles. If you are doing everything wrong, you are likely to fail.

dmitry divin

Georgy Bovt

Putin’s United Russia is seeking fresh faces to revitalise its next term in office.

Georgy Bovt is a Moscowbased political commentator.

Anders Aslund

The Moscow Times

atching the current crisis in the euro area unfold, Russians can proudly say they have eliminated their public debt. By contrast, the eurozone decision-makers have made nearly every conceivable mistake, and they keep repeating them. Their blunders highlight many of the lessons that Russia learned during its financial crisis in 1998. No government can run large budget deficits for many years without eventual financial collapse. From 1993 until 1998, Russia had an untenable average budget deficit of 9% of gross domestic product (GDP). In 1998, the long-expected financial collapse hit. Russia’s ballooning public debt reached 66% of GDP at the end of 1997 when foreign investors realised that Russia’s financial policies were unsustainable and called a halt. In August

1998, the Russian government defaulted on most domestic bonds, the so-called GKOs, saving $60 billion for the motherland and rendering Russia financially viable. That was a real haircut for gambling creditors. The financial crash jumpstarted Russia’s stalled market reforms. The government could no longer afford harmful practices, such as barter, which was essentially a means of escaping taxes.Without other financing than tax revenues, the state budget had to be balanced, and from 2000 to 2008 it had sound surpluses. In three years, Russia carried out extraordinary cuts in public expenditure, reducing it from 48% of GDP in 1997 to 34% in 2000, a stunning reduction in three quick years. Meanwhile, Russia moved from a budget deficit of 9% of GDP to a surplus of 3% long before oil prices skyrocketed, while revenues actually fell by 2% of GDP. The Russian government did it all right: fiscal ad-

justment was done fast and hard, mainly by cutting public expenditures. Substantial structural reforms followed in 19982002. Russia adopted a new tax code with fewer and lower taxes, and it deregulated small and mediumsized enterprises. Russia promulgated major new legal codes, such as the customs and civil codes. Only one year after the default, Russia’s economy started growing, and it did so at an annual average of 7% for a decade. Clearly, the reforms brought in following the default unleashed this growth. Greece and the European Union could have profited from some technical assistance from the Russian Finance Ministry or from EU members Estonia, Latvia and Lithuania, which have recently pursued similar feats. Many claim that Russia benefited mainly from the currency devaluation that kick-started commodity exports. But long-term ben-

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THE EU should learn russian restraint

Anders Aslund is a senior fellow of the Peterson Institute for International Economics.

Migration

30 JUNE 2011 RUSSIA NOW WWW.RBTH.RU SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA

Migrant jobs push Russian growth CONTINUED FROM PAGE 1

Backlash against migrants

Grafova said the government’s current push for a more liberal immigration

THE NUMBERS

5.7

million foreigners will enter Russia to work in 2011. Up to 4 million will be illegals.

Kazakh Russians buck trend to mass emigration Russian communities have shrunk dramatically across central Asia, but in Kazakhstan, those who remain try to assimilate. CLARE NUTTALL

SPECIAL FOR RUSSIA NOW

ITAR-TASS

It is not difficult to find many of these new immigrants. Bakhyd Asilbekulu, 21, came from Osh, Kyrgyzstan, to work as a cleaner in a Moscow market. He shares a room in a hostel near the market with more than a dozen of his compatriots. Bakhyd, who has Russified his name to Borya, plans to return to Kyrgyzstan in December but “if there is no money, I will return [to Moscow]”. Emigration from the former Soviet republics is driven by poverty at home and the attraction of a booming Russia, where the demand for cheap labour is robust. Russia’s need for workers is not likely to abate anytime soon. “Every year Russia loses one million able-bodied citizens,” said Lidia Grafova, a human-rights advocate who advises a government commission on migration. By 2030, the Russian economy will need another 30m immigrants, according to Vyacheslav Postavnin, a former deputy FMS director and chairman of the Migration XXI Century Found a t i o n , a n a dv o c a cy group. “Ten percent of GDP is [generated by] migrants,” Postavnin said at a press conference in May. The FMS announced earlier this year plans to ease the immigration process, increase the number of legal residents, and ease the path to citizenship. Konstantin Romodanovsky, head of the migration agency, also said that he wants to root out corruption, which often forces emigrants to pay bribes as they attempt to navigate the bureaucracy and legalise their status. “It is difficult to move up each step without needing to pay a bribe,” Grafova said. President Dmitry Medvedev changed visa regulations last year to allow highly qualified specialists and their families to come to Russia more easily. Even with that measure, officials estimate that the country will attract only about half of the skilled emigrants it needs.

Men from central Asia often find jobs on high-rise building sites.

policy has in part been sparked by inter-ethnic strife, and a desire to counter a growing and sometimes murderous xenophobia that has been directed at immigrants. Despite the falling population, there is widespread ambivalence about a more liberal immigration policy. Olga Kirsanova, a 52-yearold cleaner in a Moscow hotel, echoes a fairly typical hostility.“Crime goes up and they take all the jobs,” she said. “You can’t really close [the borders] but you need to restrict.” According to migration experts, Russia does little in the way of public education to foster tolerance. Nor does

the state provide enough programmes to help immigrants to integrate; recommendations include free language classes as well as instruction focusing on Russia’s culture and laws. “There are a few efforts but they are very weak,” said Alexander Verkhovsky, director of the SOVA Centre, a non-governmental organisation based in Moscow that monitors ethnic violence. Attacks on immigrants are still common, Verkhovsky said, but the number of killings has been reduced after the police secured murder convictions against members of a number of racist gangs. Verkhovsky and others said

that new immigrants are often exploited by employers. Abror, from Uzbekistan, declined to give his full name since his current work status is unclear. He worked in construction in Moscow for three years and saved up to buy a car. He said he was cheated out of his wages a few times until he wised up, and he now drives an unlicensed taxi, or ‘gypsy cab’, in Moscow. Now fairly fluent in Russian, he recalled his earliest days. “When I first started, I only knew ‘left’, ‘right’ and ‘straight’ in Russian,” he said, adding proudly: “I learned to speak Russian from the people I drive.”

Kazakhstan’s ethnic makeup has changed dramatically since independence, when Kazakhs comprised less than half of the population. Two years before the collapse of the Soviet Union, the 1988 census showed that 39.7% of the Kazakh SSR’s population were ethnic Kazakhs and 37.8% Russians. There were also sizeable minorities of Ukrainians, Germans, Uzbeks and other nationalities. Two decades later, 63% of independent Kazakhstan’s population were Kazakhs and the Russian population had declined to just 24%. Political freedoms may be limited in Kazakhstan, but the need to keep the peace has resulted in a nationalities policy that, while it does not please everyone, is widely considered to be sensitive and forward-looking. “On inter-ethnic relations, the Kazakhstan government is quite tolerant and progressive, in comparison both to central Asia and to Europe. Nation-building in Kazakhstan was based on two things – the multinational aspect, and the idea of ‘Kazakhness’,”said Zharmukhamed Zardykhan, an assistant professor at the Kazakhstan Institute of Management, Economics, and Strategic Research. Nadezhda, a Russian teacher in Almaty, says that Russian and Kazakh people live together peacefully.“But the politics have changed,” she added.“Previously, the Russians were the older brother, who helped the younger brother. Now everything has been reversed. The Russians who have stayed are a national minority. The Kazakhs are the titular nation.” Valeria, another ethnic Russian living in Almaty, said she did not have to think of reasons to stay.“I just live here and feel like part of

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this place and community,” she said. Valeria took part in the prestigious Bolashak program, which sends some of Kazakhstan’s best students to top international universities before returning to work in Kazakhstan. “Living and working conditions are the same for any nationality. The only difference is one’s intention to achieve something,” she said. As Kazakhstan pulled ahead of the rest of central Asia economically, the case for Russians to stay grew stronger.Work prospects are more appealing in Almaty or Karaganda than in the economically troubled Siberian cities where returning Russians are encouraged to settle. Gulya, another ethnic Russian living in Almaty, where she works as a beautician, says

Kazakhs, once under 40% of the population, are now the dominant group in their own state. she and her family plan to stay: “My husband and I have work here and our children are at school. We don’t know what the situation will be in Russia.” Back in the early 1990s, ethnic Russians did not feel safe at night on the streets of Kazakhstan’s southern cities of Kyzlyorda and Shymkent, while clashes were also common in the northern majority-Russian cities. Even today, Nadezhda says, many Russians still sleep, metaphorically speaking,“with a suitcase under their beds”,knowing that although times are good now, this may not always be the case. They worry that Kazakhstan could get a more nationalistic leader in future. “Fewer Russians are leaving for other countries now, thanks to the peaceloving policies of the president,”she said.“[President Nursultan] Nazarbayev is the guarantor of stability in Kazakhstan.”

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