Russia Beyond the Headlines #11 by Russia Beyond

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Opinion

Culture

Real Estate: Another Bubble in the Making?

Why Occupy Wall Street Hasn’t Found an Audience in Russia

Controversy Over Oscar Nominee Causes Scandal

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Special Report

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Trade Last major hurdle to Russia’s accession to the World Trade Organization cleared as investors meet

Lifting the Roadblock

News in Brief United Russia Counts on AllRussian Popular Front As part of its campaign to win votes in the Dec. 4 State Duma elections, the United Russia party has formed the All-Russian Popular Front. Made up of unions, youth groups and other social organizations, the Popular Front, organizers say, exists to encourage ordinary citizens to take a more active role in government. Critics say it is a lame attempt to boost the popularity of United Russia. Although the party is widely expected to win the elections, enthusiasm for it has fallen in recent years as the effects of the global financial crisis have trickled down to ordinary Russians.

Incentives, lower taxes and the likelihood of W.T.O. accession mean an improved business climate for Russia, but will it lead to an increase in investment? Anna Andrianova special to rbth

Fint out about the group’s platform at http://rbth.ru/13668

Rogozin Proposes Solution to ABM Problem Dmitry Rogozin, Russia’s ambassador to NATO, has suggested that a defense system be constructed in Europe to protect not only against missiles, but also against asteroid strikes. Rogozin hopes the idea will derail U.S. plans for an antiballistic missile defense system in Eastern Europe. Read more at http://rbth.ru/13644

Seven Billionth Baby Born in Russia? itar-tass

The day Georgia announced it had reached an agreement on Russia’s W.T.O. accession, Russian Deputy Minister of Economic Development and Trade Stanislav Voskresensky was in New York, explaining to potential investors that his country is aware of the damage its reputation is inflicting on its ability to attract foreign direct investment. In his keynote address at the recent Russian Business Investment Summit (R.B.I.S.), Voskresensky stated that the Russian government knows that the country’s dependence on commodities coupled with the widespread belief that it has an unfavorable business climate has hindered its economic growth. But the country’s reputation hasn’t been as big a barrier to trade as Russia’s exclusion from the World Trade Organization (W.T.O.), which looks set to come to an end as soon as December. Just as the business summit opened in New York, it was announced that Georgia had reached an agreement clearing the way for Russia’s W.T.O. membership, which observers say will jumpstart trade and investment. “It will be a surprise to everybody when in a few years Russia will move into the world with its young management and its world-

Wednesday, november 9, 2011

class companies. Russian companies will do very well internationally,” said John Conner, a portfolio manager at Richmondbased Third Millennium Russia Fund who attended the R.B.I.S. conference. He added that Russian steel companies are already entering the world market, and

that Russian oil companies will be next.

Incentivizing Investment

There is a general consensus that the Russian economy will be fine as long as oil prices remain high. However,Voskresensky said that the government has conducted a

stress test and is prepared for a scenario in which oil prices drop below $80, or even below $60. He also stated that, with a debt-toG.D.P. ratio of 10 percent, the Russian economy is prepared to resist financial turmoil. continued on PAGE 4

Checkpoints on Russia’s borders with Abkhazia and South Ossetia were a major barrier to a W.T.O. deal with Georgia.

Politics The departure of Russia’s respected finance minister leaves investors unsettled

Peter Nikolyaev, born at 12:02 a.m. Oct. 31 in Russia’s westernmost region, the exclave of Kaliningrad, has been declared the world’s seven billionth citizen. U.N. observers were on hand to certify the birth of the baby. India, China and the Philippines as well as at least two other Russian regions have also claimed the seven billionth baby, and U.N. Secretary General Ban-Ki Moon recently asked all countries to choose a symbolic seven billionth baby in order to end the controversy. Peter’s parents, along with many others, will be issued a “Born on 7 Billion Day” certificate.

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“Mr. Prudence” Has Left the Building Kudrin is widely credited for policies that protected Russia from the worst of the financial crisis. Will they remain in place without him? ben aris

Russia’s widely respected finance minister, Alexei Kudrin, quit in September just days after Russian Prime Minister Vladimir Putin announced that he wants to return to the presidency and suggested he swap jobs with current Russian President Dmitry Medvedev. “I do not see myself in a new government. The matter is not

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Alexei Kudrin was a cautious finance minister.

only that no one has offered me the job. I feel that the disagreements I have will not allow me to join this government,” Kudrin said, citing a string of disagreements with Medvedev. Kudrin is credited with stabilizing the Russian economy and creating the foundation for the strong economic growth of the last decade. The departure of“Mr. Prudence,” as Kudrin has been dubbed by some, raises two questions: Will he return to government service sometime soon? And, does his departure mean there will be a dramatic change in the cautious fiscal policy he has come to personify?

It was widely believed that after 11 years in the job, Kudrin wanted to step down, but would have stayed on if offered the position of prime minister. At the same time, his disagreements with Medvedev are well known. “It is clear that Kudrin chose to leave because he did not want to be a prime-minister-in-waiting. But he also left because he was in disagreement with Medvedev over his plans to spend $65 billion on the military in the next three years,” said Lilit Gevorgyan, a political analyst with IHS Global Insight. continued on PAGE 2

Kommersant

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Politics & Society

Russia BEYOND THE HEADLINES

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Viewpoint

Technology Russia is at the forefront of using innovation in the electoral process

Duma Knowns and Unknowns

Voters in Moscow used paper ballots during the 2003 Duma elections; this year, voters will have more options.

Eugene Ivanov

Russia has been developing its electronic voting system for more than 15 years, and it has a better track record than that of many other countries.

Russia on the Leading Edge of E-Voting Parties Taking Part in the December 4 Duma Elections

Alexei Morozov Special to rbth

In 1994, when the Russian budget was more or less equivalent to that of NewYork City, the state decided to begin development of the Automated State Election System (SAS). Prior to the development of SAS, Russian electoral rolls were printed on typewriters and ballot papers were hand-counted. In the 1993 elections, it took election officials 12 days to count the votes. SAS, which took about a year to develop and launch, was built on a foundation of Soviet technological innovations, but some of the world’s leading I.T. companies, including H.P., Oracle and Cisco Systems, also contributed. Now, the SAS has served more than 20,000 election campaigns at various levels without significant technological failures. In 2009, Russian President Dmitry Medvedev proposed a system upgrade. According to Medvedev, the upgrade was necessary to enhance the transparency of the electoral process and strengthen public oversight. Last year, a state program was launched specifically to introduce electronic vote counting, establish a secure network for data transfer and storage, and construct infrastructure for remote voting via mobile phone for those who cannot make it to polling stations. This is par-

ticularly important in Russia, where in some regions the closest inhabited locations might be thousands of miles apart. One of the major technical innovations that will be in operation for December’s State Duma elections is an optical scan voting system.Voters can bring their ballots to the scanner and a Russia-wide data network will record the information from it. In many ways, the Russian system is more sophisticated than its foreign counterparts. The American system, developed by Diebold, consists of sensory terminals, also known as e-voting machines. These are tablets that run on Windows and are connect-

ed to the Internet by ordinary, unprotected wires. The system has been around for about 10 years, during which time a number of scandals have occurred, most notably in 2002, when the developer accidentally posted the system’s codes in open access. Some of Russia’s fellow BRICS members have had success with automated voting, but there are challenges. India is a pioneer in the automation of elections. The country tested prototypes as early as 1989. However, the huge population of the country combine with the poor development of the Internet in rural areas and a shortage of computer systems have made progress slow. This is

also true of Brazil, which is also considered a leader among developing economies in the creation of automated voting systems. Where it is implemented, the Brazilian system allows for approximate results within one hour. But at a recent seminar in Russia, representatives of the Electoral Commission of Brazil noted that they can learn a lot from the Russian experience, including how to use an automated system across a large country that contains many sparsely populated areas. Read more at www.rbth.ru/elections

Special to RBTH

ince Vladimir Putin announced he was running for president, few have much interest in the Dec. 4 Duma elections, but the lower house of parliament still plays a role in Russia’s political landscape. Additionally, the position of Duma deputy carries with it some prestige — along with immunity from prosecution. As a result, many businesspeople seek Duma membership to elevate their public profile and to protect themselves from criminal prosecution; party allegiance is often a secondary consideration. Experts predict that the composition of the next Duma will follow a “3+2” formula. This means that only three political parties will overcome the 7 percent threshold required to enter the Duma and form full-fledged Duma factions. In addition, two more parties will collect between 5 percent and 7 percent of the vote and, in accordance with a recent change to the electoral law, be allowed to occupy one or two Duma seats. The Holy Trinity of the parties, whose presence in the Duma is all but guaranteed, is made up of United Russia, the Communist Party (K.P.R.F.) and the Liberal Democratic Party (L.D.P.R.). Understanding that their place in the Duma is assured — and being aware that they will not be allowed to have Duma factions whose size would threaten the domination of United Russia — K.P.R.F. and L.D.P.R. have chosen to conduct low-key election campaigns.The electoral programs composed by both parties represent a conventional blend of demands of lavish social spending with a mild criticism of United Russia — but not Vladimir Putin personally. Neither program includes any bold, or even original, propositions, unless you count K.P.R.F.’s promise to create a “new union of fraternal nations” or L.D.P.R.’s desire to ban porn on the Internet. Looking forward to the election, K.P.R.F. is counting on the perennial loyalty of its core electorate and a solid network of regional party organizations, whereas L.D.P.R., as usual, will benefit from the entertaining TV appearances of its leader,Vladimir Zhirinovsky. The Right Cause party, after expelling its leader and primary sponsor Mikhail Prokhorov

in an intra-party putsch, has lost any chance of getting into the Duma. Yet the party might still have a dog in the fight: The new leadership may hope that the removal of Prokhorov from active politics will be rewarded by their handlers in the presidential administration. The price would be 3 percent of the vote, making Right Cause eligible for state financing for the next five years. The election will be especially difficult for the Just Russia party. Following the departure of its leader Sergei Mironov from the helm of the Federation Council, Just Russia lost the administrative resources available to it in the past. Defections of high-ranking party members and financial sponsors have further weakened the party. At a certain point, it

The biggest remaining unknown is whether United Russia will be able to win a constitutional majority. appeared that Just Russia was moving into opposition to the Kremlin. This hasn’t happened, though: The party’s harsh criticism of United Russia was toned down, and plans to include a number of prominent opposition figures into Just Russia’s election list were scrapped. The unexpected winner of the upcoming election may turn out to be the moribundYabloko party. According to loud whispers of the Moscow rumor mill, the presidential administration didn’t completely abandon its idea of having a liberal party in the next Duma. So after terminating the Prokhorov project, the Kremlin decided to appointYabloko’s leader, well-respected economist GrigoriyYavlinsky, designated Duma liberal.Yabloko may therefore join Just Russia in becoming the second “mini-party” in the Duma, according to the “3+2” formula. The biggest remaining unknown is whether United Russia will be able to win a constitutional majority. Recent developments present a challenge for Medvedev himself. On the one hand, as president, he promised to ensure a clean and honest election. On the other, his future in politics now depends on United Russia’s results in December. How this conflict of interest between Medvedev the lame-duck president and Medvedev the aspiring party leader will be reconciled remains to be seen.

Mr. Prudence Has Left the Building continued from PAGE 1

Since Kudrin’s ouster, many analysts and investors have expressed concern that the prudent economic policies he represented will be abandoned. “On the policy side, in a sense Kudrin has not done as well as he used to because the pressure to spend has grown so much in recent years,”said Sergei Guriev, the dean of the New Economic School in Moscow, pointing out that the price of oil needed for the federal budget to break even has risen from $23 in 2007 to $118 today. “I don’t think this is the last we have seen of Kudrin,” said Nikolai Petrov, research fellow at the Moscow Carnegie Center. “I wouldn’t be surprised to see him back as prime minister next year.” But regardless, most Moscowbased analysts are confident that Kudrin’s successful policies will not be undone. Under a plan put in place by Kudrin, the Russian oil industry pays taxes equal to around 90 percent of crude export revenues over $28 per bar-

Budgetary Dependence on Oil

Source: Ministry of Finance, Citi Investment Research and Analysis

rel; these proceeds are then placed in a stablization fund, which cushioned Russia from the worst of the financial crisis in 2008. At the same time, Kudrin used the windfall oil receipts to rapidly repay almost all of Russia’s national debt — under Kudrin, the debt to G.D.P. ratio fell from 160 percent in 2000 to about 10 percent today, according to Renaissance Capital.

“Kudrin’s views weren’t popular. But then-President Putin backed him to the hilt,”said Liam Halligan, chief economist with Prosperity Capital Management. “Kudrin’s actions provided the stable macroeconomic platform that Russia so desperately needed. Kudrin’s policies will be broadly maintained because they have been successful and, in the aftermath of the 2008 crisis, were

acknowledged as successful even by many of his former oil lobby detractors.” Putin highlighted the closeness of his relationship with his former finance minister during a conference at the beginning of October, saying that despite Kudrin’s departure, he would remain part of Putin’s team, without specifying a role. “He is, no doubt, one of the best specialists not only in Russia, but also the world,”Putin said heaping praise on Kudrin during a speech at theVTB Capital investment conference. Some analysts have actually been buoyed by the whole affair. Under BorisYeltsin, Russian politics was all about who held raw power, but increasingly, political battles are fought over policy. “The Kudrin-Medvedev spat also suggests Russia’s nascent democracy, while still very much a work in progress and far from perfect, is already capable of generating more meaningful public debate on fiscal policy in the runup to crucial elections than many of the older democracies in the Western world,” said Halligan.

Timeline

Eleven Years of Prudent Policies 2000 • Alexei Kudrin becomes the Minister of Finance and launches a reform of the Russian tax system. 2003 • Kudrin is named the best finance minister in Central and Eastern Europe by the magazine “Emerging Markets.” The magazine cited Kudrin’s conservative fiscal policies, which brought stability to the Russian economy. 2004 • Kudrin initiates the creation of the Stabilization Fund. In spite of public pressure, Kudrin is adamant about refusing to use the Fund’s assets on domestic public spending. 2006 • Kudrin presents the first “non-oil-and-gas budget,” which limits oil export revenues to 2.8 percent of G.D.P.; Russia settles all its debts with the Paris Club.

2008 • The Stabilization Fund allows Russia to avoid a collapse of the national currency. Anatoly Chubais calls on those who ridiculed the Fund to apologize to Kudrin. 2010 • “Euromoney” magazine names Alexei Kudrin Best Finance Minister of the Year. That same year, Kudrin receives his second top government decoration, the Order of Merit for the Fatherland, third class. 2011 • Kudrin continues to be sharply critical of the economic policy of the Russian government. “Today I heard a call from Medvedev to live within our means. But over the last six months, it was Dmitry Medvedev himself who decided to increase military spending by 1.5 percent of the G.D.P. This is a new challenge,” Kudrin told the St. Petersburg Economic Forum in June.

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Russia BEYOND THE HEADLINES

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Real Estate Both residential and commercial properties in Russia are once again in demand as the economy continues its recovery

Russian Real Estate Constructing a Success Story As the Russian economy comes out of the global financial crisis, individuals and companies alike are once again investing in bricks and mortar. ben aris

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The cranes on the top of the 47story Dom na Mosfilmovskoi skyscraper have begun to move again after a two-year hiatus. The towering glass-and-silver building is already a landmark, but the last five floors of the building have remained exposed to the elements since its developer ran out of money and suspended work in 2008. Over the summer, however, Russia’s economy started to pick up momentum, and the construction restarted. As in most western countries, Russia’s real estate sector was booming before the start of the global debt crisis. Prices soared and Russian developers were investing billions of dollars. “The crisis arrived at absolutely the worst possible time for the Russian real estate market,”said Darrell Stanaford, managing director at CB Richard Ellis Rus-

A glass-and-steel 47-story mixed-use commercial and residential building rises down the street from the iconic Mosfilm studio in southwestern Moscow.

A similar story is playing out in the residential market. Moribund for the last two years, the residential sector is now recovering quickly. The volume of new construction accelerated unexpectedly in July, rising by 17.6 percent year-on-year, according to analysts with Alfa Bank. The prospects for more growth are good. Banks have reported an increase in mortgages, as Russians are once again investing their cash in bricks and mortar.

sia.“In the spring of 2008, over a million square meters [10 million square feet] of new office space arrived on the market — the biggest-ever addition to the city. So when prices began to fall, they collapsed completely.” Today, the new supply of office space in Moscow is being steadily eaten up. The lack of supply has already pushed prices up. Rental costs for prime locations have already passed their prebubble peaks.

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Residential property is no longer out of reach for most Russians.

Although the number of Russians buying apartments with mortgages is growing, many people prefer other mechanisms for investing in property. Vladimir ruvinsky rbth

Mortgage lending is continuing its resurgence in Russia. During the first three quarters of 2011, Russians took out loans for housing totaling 396.6 billion rubles ($13 billion), which is double the figure of a year ago, according to data from the state agency for housing mortgage lending (AIZhK). Data from Penny Lane Realty indicates that the market’s recovery is being aided by a reduction on mortgage interest rates, now at a historic low of 11.9 percent for loans denominated in rubles and 9.6 percent for those in U.S. dollars. Although Russians across the country are buying property, Muscovites are borrowing the most. Data from the Federal Service for State Registration, Cadastral Records and Cartography (Rosreestr) shows that most buyers in Moscow are purchasing pre-existing homes. This is the least risky segment of the market, as the new owner receives property rights

immediately and can move in right away. After living in Moscow for six years, Ksenia, 28, an art director for an advertising agency, decided to buy an apartment. Her 200-square-foot, one-room apartment, near a Metro station and convenient to her job, cost her 3.7 million rubles ($121,000). She used 700,000 rubles ($23,000) she had saved as a down payment and borrowed 3 million rubles ($98,200) from a bank on standard terms, deciding to take out the loan in U.S. dollars. “The loan was given in U.S. dollars at 9.5 percent per year. It is a low rate,” Ksenia said. “As for a loan in rubles, I was offered one at 12 percent per year.” Surveys show that in general Russians don’t consider mortgages to be a good deal because of the increase in the total price due to the interest rate on the loan. Russians who do take out mortgages try to pay them off in advance.

Risking new construction

Although mortgages are increasing in Russia, they are not the most popular way to buy housing. According to AIZhK, this year, mortgages make up only 17.4 percent of all housing transac-

tions. Most Russians choose instead to participating in equity construction projects or by coinvesting in a building under construction. The system works like this: A construction company planning a new apartment complex will announce the beginning of construction and sell apartments in a building that doesn’t yet exist, then the building is constructed from the amount of money collected. It is beneficial for both the buyers and the developers, since the price of apartments at this stage ranges from 30–60 percent less than the cost of a finished apartment, and the developers do not have to take out a loan to pay for the construction. The Levashovs bought their apartment this way. In 2008, they agreed to buy a 400-square-foot, two-room apartment on the outskirts of Moscow for 3.05 million rubles ($98,200). According to the terms of the agreement, the couple paid 60 percent of the hous-

In general, Russians do not consider mortgages to be a good deal because the interest rate increases the total price. ing cost at once and then paid the rest of it by installments in the amount of 72,000 rubles ($2,350) per month over 18 months. As a result, their interest payments raised the price of the apartment only 7 percent over the initial cost. Taking into account the rise in prices for new housing in the Moscow region, which averages 10 percent per year, the Levashovs have already made a profit. This kind of deal appeals to Russians who don’t have a lot of savings, but it has drawbacks — the quality of the construction is not guaranteed, the developer may run out of funds to finish the building, or he may just be a scammer. As part of his plan to expand the capital to the southwest, Moscow Mayor Sergei Sobyanin has issued orders limiting mass construction of residential housing, and he has promised that his plan will also have a positive impact on the transparency of housing purchases.

While many American and European mortgage holders are still underwater, prices for residential property in Moscow have held up well — as the market is so small that the owners of the better apartments simply took them off the market, prepared to wait until the crisis was past. The average price of Moscow residential real estate has soared from around $80 per square foot in 2003 when mortgages first became available, to $365 per square

Size of Mortgage Market

Mortgage Bankers Association State Agency for housing mortgage lending (AIZhK)

Home Is Where Your Money Is

“We noticed a sales increase in August. It’s both direct sales of new homes and mortgage deals,” said Pavel Kocheryozhkin, deputy chief executive of YIT Moskovia, a subsidiary of Finnish developer YIT. At the same time, Russia’s state mortgage agency (AIZhK) said that the number of mortgage and housing loans will nearly triple to 741,000 loans by 2015 from the current 300,000 and continue climbing to 868,000 by 2020.

foot in January 2010 to reach $460 in June 2011, according to the website Irn.ru. The recovery of the sector in general is also attracting money: Investment into real estate has already nearly recovered all the ground lost and, after 52 percent growth year-on-year in 2010, investment will increase another 30 percent this year, according to analysts with Renaissance Capital. This will finally take the absolute levels past their pre-crisis peak. Is another bubble forming? The big difference between Russia and the United States is that, unlike in the U.S., there is a huge shortfall of housing supply in Russia. In order to meet the pent-up demand, the size of Moscow would have to double, said Roland Nash, chief strategist at Verno Capital. Fortunately in August, Mayor Sobyanin announced plans to do exactly this. The city administration is working on a development plan for the capital, and says it plans to double the size of the city and move the city administration out of the center. But this will take several years, and redevelopment of the center of Moscow is still desperately needed.“A city is like an ocean liner,” said Darrell Stanaford.“It takes time to change direction, and it is best to do it slowly and get it right.

Russian Buyers Look for a New Start in New York Russian with disposable income are investing it in property in New York and Long Island, making a break with their former favorite destination, London. nadia Pomerantseva special to rbth

Russians and citizens from other post-Soviet states have become steady buyers of premium property in New York City and on Long Island. According to experts, demand for property among Russian-speaking nonresidents in the United States has doubled over the past two years and continues to grow. Edward Mermelstein, an attorney and managing partner with Rheem Bell & Mermelstein LLP, says that in his 20 years of practice, he has never before seen this kind of buying spree among Russians. The average price of property in Manhattan is $3 million, and the greatest demand is for luxury apartments in NewYork’s most upscale buildings.“I rarely see Russians buying property for less than $800,000–$900,000,” Mermelstein said. Most important for Russian buyers is a prestigious location. Said Victoria Logvinskaya, vice president of Prudential Douglas Elliman Real Estate, “Russians usually buy real estate in the best buildings in prime locations, focusing on Park Avenue, Central Park West, Central Park South, Fifth Avenue and 57th street.You often hear a Russian client ask-

ing where the best buildings and best apartments are.” Experts attribute the increased demand among foreigners to the economic situation in their home countries. The dollar is weakening against their local currencies, which allows them to buy apartments they could not afford in the past. Logvinskaya named “capital flight in connection with the unstable political situation in Russia” as another motive for Russians buying American real estate.

“Russian clients always know what they want, and it has to be expensive. They like everything new.” Demand for property among Russianspeaking nonresidents has doubled in the past two years. Logvinskaya has also noticed an influx of Russians from London, which has been a popular place of residence for wealthy Russians. “I also worked with some Russians who are tired of London and looking to move their families and business here to New York City,” said Logvinskaya. In addition to New York proper, the Russian-speaking diaspo-

ra is invading the Hamptons area of Long Island. Logvinskaya noted that many Russians who used to rent homes in the south of France for the summer have been showing more interest in renting homes in the Hamptons this year. Russian businessman Igor Sosnin paid a record $850,000 to rent a Hamptons house for the summer season. Russian composer Igor Krutoy, who already owns an apartment at The Plaza in New York, is finishing a house in the Hamptons. Most sales transactions, especially those involving Russian clients, are handled by incorporated firms that cannot be traced to the names of the buyers. Real estate lawyer Anna Gerzon says it is a common practice in her field to open a new LLC just to conduct a purchase-and-sale deal. According to Gerzon, Russian clients like to make sweeping renovations immediately after buying a property. “Russian clients always know what they want, and it has to be expensive. Immediately after the purchase, they have the property renovated or rearranged by a famous designer. They like everything new and with the maximum amenities. They want everything within easy reach, Gerzon said. And, she added,“our people adore skyscrapers.” Read more at www.rbth.ru/13708

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Investment First Russian Business and Investment Summit takes place at New York Stock Exchange

John T. Connor

Mark Gyetvay

Participants of the Russia Business and Investment Summit at the closing bell.

Business Unusual at N.Y.S.E. Summit SPecial to RBTH

Russia’s popularity as an investment destination has suffered from its reputation as a country with a lack of law enforcement, a prevalence of corruption, and a government that likes to have a strong hand in the business sector. But participants in the Russia Business and Investment Summit, which took place at the New York Stock Exchange at the end of October, hoped to rehabilitate the country’s image by separating rumor from reality. “You can always use the bad example as a way to explain everything. Bad things happen here [in Russia] and in other countries; it does not mean that you cannot have success,”said Laura Brank, a lawyer with Dechert LLP, who has been working in Moscow for 16 years. Brank said that as an investment destination, Russia should be compared to other emerging markets rather than developed Western economies.

in their own words

Crispin Osborne Managing Director Barclay Capital

Over the last couple of years, there has been a great pickup in the number of international issuers using the ruble bond market. We expect to see more [of them] coming.”

Portfolio Manager Third Millenium Russian fund

I lived and worked in India, and the idea that Russia is more corrupt than India is a joke. Sure there is corruption, no question about it. But we even had it in New Jersey.”

No More Roadblocks to Russia’s W.T.O. Accession continued from page 1

timeline

Russia’s Road to the W.T.O. 1974 • The U.S. Congress passes the Jackson-Vanik amendment, placing trade-related sanctions on the Soviet Union for restricting emigration. AFP/eastnews

Russia has one of the world’s lowest corporate tax rates at 20 percent, and this year the inflation rate is predicted to remain below 7 percent. Combined with W.T.O. membership, these figures should make Russia an attractive place to do business. Voskresensky said that Russia’s top-listed companies have reduced their debt by 20 percent over the last three years and their foreign exchange debt by 40 percent, which demonstrates the companies’readiness for a range of scenarios on the global financial markets. The World Bank’s latest “Ease of Doing Business” report also named Russia one of the countries that has“improved the most over time.” In its evaluation, the World Bank looked at new regulations and measures that apply to small- and medium-sized businesses, including the procedures required to start a new business, the tax rates, and the difficulties of obtaining permits, getting credit and registering property. This year, Russia improved its score by launching electronic procedures and reducing the cost and documentation required for import and export transactions. A revision and reduction of utility tariffs also boosted the rating.

Russia has been negotiating for 18 years to join the 153-member bloc.

The economic effect of W.T.O. entry for Russia will be a 3.3 percent increase in the annual G.D.P. — $53 billion. “We know our problems; we are not ideal; we are who we are. But I think we are on the right track,” said Voskrensensky. Clinching the W.T.O. membership could have an immediate and even startling impact, business insiders say. Russia has been trying to get into the world-trade body for 18 years, but from time

to time the Russian leadership seemed to stop caring about accession. The rhetoric this fall was a good example. “Without Russia, the W.T.O. cannot be said to be a really universal organization,” said Prime Minister Vladimir Putin in October. “It has managed without us and will continue to do so. But we are still a country that today produces and sells more oil than any other, and it would be better if we were a member of the organization.” In recent months, Georgia has been the only state still opposing Russia’s accession to the W.T.O.

1993 • After the fall of the Soviet Union, a working group is formed to negotiate Russia’s entry into the world’s largest trade organization. 2002 • Putin identifies W.T.O. membership as a key tool for Russia’s economic development and diversification. Accession talks become more frequent and substantive. 2008 • Following a five-day war, Georgia refuses to negotiate a deal for Russia’s entry. 2011 • Russia and Georgia reach a compromise over checkpoints with breakaway regions, clearing the way for Russia’s membership.

Chief Financial Officer Novatek

press photo

Anna Andrianova

practice at BNYMellon. “There have been two large I.P.O.s from the entire European area, Rosneft and VTB, most recently.” Said Ross Goodhart, principal at Siguler Guff & Company, which invests in Russia, “We don’t invest in government-regulated industries. There is more than enough to invest in Russia. The

press photo

“Big I.T. companies have reported greater success in combating counterfeiting in Russia than in other emerging markets such as China,”said Brank, speaking from the experience of one of her clients. “Investors should understand that Russia is a different legal environment. To be successful it takes time.” John T. Connor, portfolio manager with the Third Millenium Russian Fund, said that he had never had a corruption problem in Russia, although he suggested that small start-ups were probably more likely than big foreign companies to face that problem. “I lived and worked in India, and the idea that Russia is more corrupt than India is a joke,”Conner said. “Sure, there is corruption in Russia, no question about it. But we even had it in New Jersey,”he added, speaking about his home state. More and more firms are either having the experience that Brank and Connor describe, or deciding the potential of the market far outweighs the risk. “Clearly the market has an appetite for the client size that Russia offers,”said Graham Marshall, head of the Russia and C.I.S.

Valerie Caviness

During a recent meeting in New York, Investors discussed new avenues for investment in Russia as well as the challenges businesses face in that market.

Valerie Caviness

perception is that government is very invasive, but it gets involved in industries that are critical to state stability.” Goodhart described Russia’s competitiveness for investment compared with other emerging economies as“high-margin businesses with a limited amount of capital targeting those compa-

nies.” He said that the Russian bond market is growing at rates similar to that of other emerging markets, and his view is backed by Standard & Poors, which rates Russia’s local currency bonds BBB, the same as Brazil and better than India, which has a BBBrating. Despite this, according to Goodhart, in Russia, investors can enter the market more cheaply. Other investment firms see opportunities in the growing Russian consumer market. Michael O’Flynn, managing director at UFG Asset Management, said that there is “a favorable environment for private equity in particular,”adding that his company likes to invest in everything that is connected with Russian consumer. “There is a very vibrant consumer market in Russia,” said Joshua Tulgan, head of investor relations at MTS, Russia’s largest mobile network operator. Low consumer debt levels and a favorable regulatory environment for telecoms have made Russia a promising market, Tulgan said. MTS, which is listed on the New York Stock Exchange, earned more than $11 billion in revenues last year. Boris Lipkin, with California’s Vantage Point Capital, said that although his firm is not investing in Russia yet, they are looking into it, which is one of the reasons he attended the summit. Louiza Ferrara, vice president of Philippe Investment Management, headquartered in Paris, said that her company was interested in the summit because it gave them the opportunity to learn more about Russia, especially the energy and mining industries.“We want to know how these companies work with their clients, what are the new tendencies,” she said.

There are some really worldclass companies out there. It’s our responsibility to get the word out. Right now the only people interested are emergingmarket funds.”

Although the substance of the new Georgian proposal has not been disclosed, Russian business daily Kommersant reported that the main difference between this deal and previous ones is the status of breakaway republics Abkhazia and South Ossetia. Until now, Georgia has insisted that trade between these regions and Russia be legally considered trade with Georgia. Moscow, which recognizes these two territories as independent countries, does not agree. According to Kommersant, Georgia has proposed joint monitoring of trade operations on the borders with Abkhazia and South Ossetia. The deal came as a result of Georgia’s consultations with the European Union and Switzerland. Russia signed off on the deal Nov. 2. According to the World Bank, the economic effect of entry for Russia will be a 3.3 percent increase of the annual G.D.P. over the next several years — approximately $53 billion. In the longer term, the gain may exceed $150 billion. Michael O’Flynn, managing director at UFG Asset Management, said that the immediate impact of W.T.O. accession will be felt in the steel sector, in which Russia is the cheapest producer, adding that share prices of stocks such as SeverStal and Evraz could surge ahead of the entry date as investors assess the situation. O’Flynn also noted that American multinationals already in Russia — McDonalds, Pepsi and Ford, among others – will find the rules-based W.T.O.-enforced business environment far more predictable and legally viable.

ECONOMY in brief Russia Offers to Bail Out European Union Arkady Dvorkovich, Russian President Dmitry Medvedev’s top economic adviser, announed on Oct. 31 that Russia would be willing to offer the E.U. a $10 billion bailout package. Experts and pundits immediately began questioning Russia’s motives for the deal. Some said the offer showed Russia’s comprehension of the interconnected global economy as well as good faith in the E.U. Others criticized the move as a token gesture ($10 billion would barely cover the next payment to Greece) from a country that has also suffered in the global economic crisis. The Russian government has spent much of its reserve cash in recent years shoring up its own economy and may need to do so again, should oil prices fall. So, even should the E.U. accept Moscow’s offer, it would likely be a one-time deal.

Disney Channel Headed for Broadcast TV

alamy/legion media

The Walt Disney Company has agreed to pay United Television Holding $300 million for a 49 percent stake in Russia’s 7TV channel. Disney had been attempting to purchase part of a terrestrial Russian channel since 2008. The company launched a cable channel in Russia last year, but cable does not have the reach of broadcast TV. The new deal will give Disney access to 75 percent of viewers in Russia’s 54 biggest cities. “We expect a family channel combining the best Disney programming with original Russian TV shows will be of great interest to the audience,”said Alisher Usmanov of United Television in a joint statement.

Low-Cost Airline Sky Express Stops Flying Russia’s last budget airline, Sky Express, was decertified on Oct. 31 after a series of weak financial reports. Sky Express began operating in 2007, focusing on cheap flights between Moscow and the vacation destination of Sochi. The company suffered as Russians cut back on travel during the financial crisis and ended up deeply in debt to its host airport, Moscow’s Vnukovo. Kuban Airlines, which is owned by Oleg Deripaska, has been in merger talks with Sky Express and took over Sky Express’s routes as of Oct. 30.

GLOBAL RUSSIA BUSINESS CALENDAR 4th baku international c.i.s. banking conference Nov. 30 – dec. 3 baku, Azerbaijan

The theme of this year’s conference will be “Financial markets in the C.I.S.: stable development in the face of global uncertainty.” The “Angel Investor” award will also be presented at this year’s event. ›› http://www.confer.fbc-cis.ru/

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Money & Markets

Investment Estimates for capital outflows are revised upward, as Kremlin fails to reassure investors

Following the Money Out of the Country The Central Bank’s announcement that capital outflow will increase this year is an indication that government measures to encourage investment need work. Tai Adelaja

The Nov. 1 announcement by Russia’s Central Bank that capital flight will double to $70 billion this year is a stark reality check for the Kremlin, which has been making frantic efforts in recent months to improve the country’s investment climate. The regulator said it arrived at the new figures after it firmed up a new draft of the country’s monetary lending policy for 2012 through 2014. The original draft, which was prepared in early October, predicted an increase in capital outflow of just $36 billion. The revised estimates indicate a change in foreign investor sentiment “in favor of buying less vulnerable foreign assets” amid increased volatility in global financial markets, the Central Bank document said. However, the statement added that Russians are not investing money in their country either, scared off like their foreign colleagues by the country’s “unfavorable investment climate.” Between January and September, Russia’s net private capital outflow hit an estimated $49.3 billion, according to Central Bank Chairman Sergei Ignatyev. Capital flight surged in the third quarter, especially in September, when $13 billion — or 70 percent — of the third-quarter outflow left the country. The 2011 total has now exceeded that of 2010, when $35.3 billion left the country, but still less than the $133.7 billion that left at the height of the financial crisis in 2008. Researchers from the Higher School of Economics’ Center for Development warned in a report released last week that capital flight cannot be reversed without fundamental changes in the Russian economy.“Capital is fleeing Russia not because things are better elsewhere, but because things are bad here and are probably going to get worse,”according to the researchers.“Things that need

ria novosti

Russia Profile

A model of Russia’s Central Bank building in Moscow’s Central Bank Museum.

Russian Capital Outflow

Between January and September, Russia’s net private capital outflow hit an estimated $49.3 billion. “Capital is fleeing Russia not because things are better elsewhere, but because things are bad here,” said a report. to be done are not new: fostering competition, establishing the rule of law, fighting corruption and state racket,” the report said. Despite the resolution of the Kremlin’s succession problem in September, various experts claim that political uncertainty continues to plague Russia’s investment environment.The sudden dismissal of former Finance Minister Alexei Kudrin, whom many investors associate with fiscal pru-

Central Bank

dence, has not helped matters either. Emerging Portfolio Fund Research said some $443 million had been pulled out of funds that were invested in Russia a week after Kudrin’s resignation, compared to just $164 million that left the week before his exit. “One should not underestimate the political situation in the country, as well as the expectations of a fairly negative election campaign,” said Anton Safonov, an analyst at the Investkafe agency. Safonov, who correctly predicted back in October that capital outflow could reach $70 billion this year, said “the political situation is almost always associated with large capital outflows from Russia.” Kudrin has attributed capital flight to “the high oil price and the impossibility of investing this revenue on the domestic market.” In a speech at a financial conference last month, he told business people that capital outflows from Russia could continue if the budget isn’t brought under control. He said Russia’s dependence on ever-higher oil prices to balance the budget was primarily due to the country’s military spending, his main point of contention with the Kremlin. Since all speculative movements in the Russian market are correlated with the commodities market, the widely expected dip in global oil prices will adversely affect the Russian economy and trigger even more capital outflows according to Yevgeny Pischulin, a trader at the Region Broker Company. Pischulin said that Russia is particularly vulnerable to the ongoing global financial turmoil as investors try to avoid emerging markets in favor of safe havens in Europe and the United States. “European banks with assets abroad, including in Russia, are repatriating capital for reinvestment in their home countries as well as in treasury bonds of sturdy countries like the United States or Germany,”Pischulin said.“The speculative demand for foreign currencies by public and private companies is only aggravating the tendency and spurring even bigger capital outflows.” The Central Bank, meanwhile, has also lowered its outlook for the country’s international reserves, slashing it to $495 billion from the $515 billion projected earlier. Russia’s reserves, the world’s third largest, stood at $469.4 billion last year, but rose to $493.6 as of Oct. 1, on the back of higher energy prices. Despite the fact that oil prices remain at a consistently high level, the regulator predicted that foreign reserves will stagnate.

Interview Anton rakhmanov

Russian Risk Increases with Instability The managing director of investment bank troika dialog says that russian investments are undervalued because the country’s economy makes it difficult to assess risk

nikita dulnev

russia beyond the headlines

What sectors of the Russian economy do you think are most undervalued? The Russian market is currently the BRIC countries’ cheapest. Compare Russia’s price/earnings ratio of 6 with Brazil’s 8.5, China’s 15, or India’s 14. The most undervalued companies are found in Russia’s traditional industries, such as oil and gas, metals and mining. Even the consumer goods and tech sectors don’t look so cheap in comparison. Why is the Russian market such a good value compared to the others, including the BRIC? Because Russia, unfortunately, hasn’t been able to kick its oil habit. This makes for extremely high macroeconomic risks. Another problem is that the current price of oil is out of whack with supply and demand. Most likely, investors don’t understand what the fair value of“black gold” really is amid the uncertainty over money issues by leading central banks, in both the U.S. and Europe. It’s obvious that, if the situation keeps deteriorating, the treatment that will most likely be prescribed by the monetary authorities for the developed economies will be to print more

money. This is making commodities one of the few instruments investors still invest in. A bubble is being inflated. As a result, it is very difficult to quantify the investment risks inherent in Russian stocks: It’s unclear how low oil prices would drop once outof-control money printing stops and the developed world slips into recession. The Micex and the RTS plan to merge by the end of the year. What effect will this have on trading participants, especially foreigners? In theory, a united stock exchange should be good news, as it would provide deeper liquidity and be able to implement new and advanced technology faster. I hope very much that everyone will benefit from the merger. There won’t be a lot of foreign players though, as the quantity and quality of international participants is determined by the current macroeconomic situation in the country. Big foreign pension funds and big capital won’t come rushing into Russia until they see reasonably serious and qualitative changes taking place in our country. This requires the establishment of a stable domestic capital market. Volatility has to subside. Whatinstrumentsdoyoubelievethe Russian market is critically lacking? It’s not any particular instrument that is lacking; it’s market capitalization and, especially, domestic capital — although I wouldn’t

itar-tass

Over-reliance on oil, underdeveloped domestic capital markets and lack of demand at home are all problematic, according to Anton Rakhmanov.

his story NAtIONALITY: russian Studied: Business

deny that liquid derivative instruments are also in short supply. Several steps need to be taken to resolve this problem. First of all, the legislation should be amended. Operations with derivatives should be regulated and spelled out in technical detail. Demand for those derivatives also needs to emerge. The legislation should allow stock market players, including mutual and pension funds, to invest in derivatives to generate actual investment demand for futures and options

Anton Rakhmanov joined Troika Dialog as a managing director in April 2010. From 2007–2010, he was the director and head of the equity sales group at Troika’s main rival, Renaissance Investment Management. Rakhmanov has extensive experience working with both Russian and international investment firms. He began his career in 1995 as an actions and bonds trader at the Agroindustrial financial company and from there went to the I.F.C., where he headed the organization’s equity and derivatives trading operation. He then moved to the C.I.S. Regional Growth Fund, and later worked for Switzerland’s Unifund. Rakhmanov earned his degree in business from the Business School at the University of Leeds in the U.K. He also holds a certification from the International Securities Market Association.

rather than simply leaving it all to speculators. It is possible, even now, of course, to try and offer the market a sufficiently sophisticated derivative instrument, except that it won’t find any takers. How do foreign investors view the Russian economy in general? Do they consider it a phenomenon in its own right or just another emerging market? Or perhaps even a developed market? Unfortunately, in most cases, Rus-

sia is perceived as a country with a not-very-efficient commoditybased economy, complete with operating and investment risks. If investors had considered the Russian economy a unique phenomenon, it would have been trading at a premium rather than at a discount compared to other emerging markets. It appears that there are no macroeconomic conditions today for long-term and serious investments to come into the country. Russia has always been and remains hostage to the global situation. It so happens that whenever instability increases on the global markets, Russia’s risks increase exponentially. The problem is that Russia has done next to nothing to establish and sustain development of the domestic market and consumer demand, something that China has been doing rather successfully and that Brazil has recently embarked on. Furthermore, Russia has yet to learn how to control domestic public spending: While it keeps increasing, the social and economic situation remains as deplorable as ever. Almost all social sectors, including education and healthcare, are underinvested. The ranks of public servants continue to expand, having almost tripled over the past seven years. All this comes down to a rather simple thing: The federal budget is balanced as long as oil costs $115 [per barrel].

MOSCOW BLOG

Russia’s Middle Class Walloped by Crisis Ben Aris

the moscow times

he global financial crisis, which began in 2008, sent a tsunami of pain around the world, damaging markets and consumers alike. The Russian consumer in particular has suffered. A report from the Zircon research group, entitled “The Trend of the Financial Activity of the Russian Population 1998–2011,” states that the share of Russians identifying themselves as middle class reversed last year, dropping from 54 percent to 47 percent as of March 1.

The middle class in Russia has shrunk from 20 percent of the population precrisis to 12 percent now. Zircon defines middle class as “well-off people on the whole, who only have difficulties buying durable goods,”and identifies “well-off” citizens as those who can afford things like cars and apartments. In Russia, this group has shrunk from 20 percent of the population precrisis to 12 percent now. Russia’s economic woes were exacerbated by the Kremlin’s decision to hike social taxes at the start of this year, which cut into personal incomes. Real disposable incomes were down 2.9 percent in the first quarter of this year, according to the State Statistics Service, which has had a trickle-down effect on other segments of the economy and depressed retail sales as prices continue to rise. In February, survey respondents said the minimum amount of money needed to have a“normal”life was 24,000 rubles ($800) per month, while the minimum cost of living needed to cover the basics was 11,50 0 rubles ($384) per month. But given a little extra money, most Russians would choose to treat themselves to more of those capitalist baubles that are the hallmark of the free market. Asked what they would do with 40,000 ($1,300) rubles in monthly disposable income, 54 percent of respondents said they would go shopping, while another 11 percent said they would invest (which includes putting money on a time deposit at a bank), and 13 percent said they would save (in a current account). Perhaps the most surprising result is how few financial services Russians use. In 2011, the most popular service was insurance policies (40 percent), which is largely due to state laws that mandate car insurance for drivers, followed by debit cards (37 percent). Only 15 percent of respondents had any kind of a bank account, only 14 percent had taken out a loan, and a mere 2 percent used a mobile bank. About 22 percent of respondents have not used a single financial service this year.

Surveys show that 22 percent of Russians have not used a single financial service this year. These results show that Russians are still very wary of banks. When asked which were the most “dangerous” financial services, the lottery naturally came on top (46 percent), but surprisingly mortgages came a close second (41 percent) and even more worryingly, nonstate pension funds were third (33 percent). “Russians have lost their savings so many times in the last two decades that you have to have some sympathy for their antibank sentiment,”said Olga Kuzina, head of the National Financial Research Agency.“If people think a second wave of the crisis is coming, they will expect high inflation and start buying durable goods like cars, which will keep their value regardless of what happens to the ruble.”

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Protests Not yet touched by the movement, Russia observes

Thoughts on Occupation On Sept. 17, a group of people moved into a public park in New York City and began a peaceful protest called Occupy Wall Street. Their crusade against corporate greed, unemployment and the role that governments in major European governments and the United States have played in the global financial crisis inspired people around the world. According to their website, Occupywall-

street.org, they are inspired by the actions of the Arab Spring and want to “fight back against the corrosive power of major banks and multinationals over the democratic process.” A month after the protest began, on Saturday, Oct. 15, thousands of people in more than 80 countries took to the streets in what may be the largest public protest action in modern history.

In their novels and screenplays, science fiction writers have often described a not-too-distant and not-too-bright future in which riots rage in the streets of global capitals, with participants vandalizing the city centers and clashing with police. That day in October, these visions became a reality in many major world capitals, including New York, Rome and London. Although the pro-

test actions differed slightly, the overall scenario was much the same: The protests started out peacefully but turned violent, resulting in multiple battles with police and the arrest of hundreds of protesters. While the Occupy Wall Street movement has yet to take hold in Russia, the Russian media has covered the situation extensively. Here is a sampling.

occupy Red Square? Ian Pryde

Special to RBTH

n recent days, the Occupy Wall Street movement has spread to some 80 countries all over the world as hundreds of thousands of people protest against corporate greed and the global financial system. But the movement remains rather incoherent, with the usual collection of anarchists, anti-globalists and the like, which are all too typical of rallies outside G20 and other major“establishment” meetings. Equally typical for such events, none of the protesters seems to have thought through the anger — they have put forward no new economic ideas or any alternatives, let alone viable policy solutions. Indeed, they show no real understanding of wealth creation in the first place. If not by the major corporations, whose products they all use and enjoy, then

by whom? The state? This alternative was tried in the 20th century, usually with catastrophic consequences. It is ironic that among many of the protesters, multibillionaire businessmen such as Britain’s Richard Branson of the Virgin Group or the late Steve Jobs of Apple enjoy iconic status, in no small measure due to their image and trendy services or products. It’s a tough trick to pull off, but one that other companies and C.E.O.s ought to try emulating. The current crop of Western protesters are a far cry from their predecessors of, say, 1968, who were mostly well-off and welleducated university students very familiar with philosophy, the Frankfurt School and Herbert Marcuse’s critique of both American capitalism and Soviet communism. In his 1964 book “One Dimensional Man: Studies in the Ideology of Advanced Industrial Society,”Marcuse argues that each system had developed new re-

pressive techniques and fostered false needs, aided and abetted by “Mad Men” in the West, where revolutionary fervor had collapsed. But today, despite Western military involvement in three countries — Iran, Afghanistan and Libya — there is nothing comparable to the antiwar and antinuclear sentiment characteristic of the 1960s. That the young are frustrated at their poor prospects is understandable, but Western economies are changing profoundly, with countless jobs being outsourced to India and China — and it is not just low-wage manufacturing labor that is going, but also expensive and high-tech services such as I.T. and back office functions. Western countries desperately need to come up with new models of doing business, but they will find it increasingly hard to remain high up the value chain and ahead of emerging markets

if they continue incompetent educational policies and continue to cut research funding. The risk of a long-term decline in jobs in the West looks very real. So far, the Occupy Wall Street movement has not reached Russia, but there is no doubt that the government is rightly very concerned. Long before the current protests began, Prime Minister Vladimir Putin often claimed that against the background of street unrest in Europe, and especially in Greece, Russia’s own stimulus and rescue package was wholly justified and the right policy response. At a meeting of the consultative committee for foreign investment, Putin said that Russians must feel that things were changing for the better in the country; otherwise, they too would be out in the streets as in Europe and the U.S., where “hundreds of thousands are making demands that the governments of those countries are not in a position to meet.”

Nevertheless, Putin assured the investors, the government had no intention of changing its economic policy, claiming: “We understand the importance of sustainability and predictability.” This has led some Russian observers to detect a change in Putin’s message. The prime minister has long asserted that he would not decrease spending in the run-up to the parliamentary and presidential elections, but now it could be argued that he is taking a more cautious approach, which seems to contradict President Medvedev’s aim to increase expenditures. There are several likely reasons that Occupy Wall Street has not reached Russia — so far. Most obviously, Russia’s financial position is, on the face of it, much stronger than in most developed countries, with a big trade surplus and the third-biggest gold and foreign currency reserves in the world.

Putin said Russians must feel that things were changing for the better; otherwise they would be out in the street too. But this is, of course, largely a function of Russia’s export-oriented, commodities-based economy. Oil and gas employ relatively few people, but in recent years have made possible state largesse in the form of considerable social spending increases. This is good news for the economically naïve, who remain largely unaware of Russia’s deep structural problems and lack of diversification, but has also resulted in vulnerability to a collapse in commodity prices in the

event of a global slowdown or recession. Another reason for Russians’ passivity is that while“social conscience” and awareness among the current global protesters might be much lower than among the 1960s generation, they are even less developed in Russia, whose population is notoriously cynical, believing that they can do nothing against “the system” anyway. Russians are far more used to far more blatant abuses of the politics-money nexus than people in the West, where, until recently, increasing nominal wealth diverted attention from the huge build-up of debt. Russia is also a “new” and emerging economy, so its financial system is still poorly developed, and mortgage and consumer debt has not reached anywhere near the proportion it has in countries such as the U.S., UK, Ireland and Spain. As a result, Russians are much more“debt proof”than the Western public. In addition, well-qualified young Russians have a convenient outlet: They can always emigrate to the West, an option not available to their counterparts in London, New York, Madrid and Rome. It remains to be seen whether Occupy Wall Street will continue extending its reach and whether it will represent a real challenge to the status quo. It also remains to be seen whether it will reach Russia at all. For the moment, Russia’s oil, gas, trade surplus and currency reserves give it a big safety cushion. But as history has often shown, systems that have looked stable for years or decades can collapse very quickly — and the trigger is by no means always economic disaffection.

dmitry divin

A meaningful shift in society Natalya Serova

Special to RBTH

eople have become aware of the ineffectiveness of democratic institutions — their inability to protect the interests of those who elect them — while governments dance to the music of money. Worse still, nothing can be done about it, since any attempts at organization by the public are immediately quashed by the powers that be, which have sufficient resources at their disposal to bully or buy any group leader, or put any organization under financial or administrative control. In their offensive against Wall Street, the movement’s partici-

pants repeatedly stress that they are not simply protesting against the unfairness of some people being rich while others are not. On the contrary, their chief concern is the current state of affairs, in which bankers and financiers rule the world and the system prevents all other participants from challenging this order from within. They even seem to have made this simple idea clear to most of their supporters. Aside from personal issues, which protesters eagerly share with the public in their televised interviews, almost all of them have, in one way or another, spoken of the government and its institutions falling under the influ-

Letters from readers, guest columns and cartoons labeled “Comments,” “Viewpoint” or appearing on the “Opinion” page of this supplement are selected to represent a broad range of views and do not necessarily represent those of the editors of Russia beyond the headlines or Rossiyskaya Gazeta. Please send letters to the editor to US@rbth.ru

ence of those who can pay while the existing form of representative democracy fails to express the will of the people. The obvious conclusion is that the existing world order needs to be changed. We need a different democracy, a genuine one. If the situation deteriorates, the revision of traditional perceptions will continue. If the crisis abates, however, and the ruling classes manage to find the opportunity and resources to adjust their policies, the protesters might return to their daily lives and forget their visions and predictions right away. After all, it is only natural for people to gravitate toward a normal life, and not fight at the barricades. Either way, they will never be the same, because the very emergence of the Occupy Wall Street movement, as well as protest actions involving thousands of people across the United States and Europe, point to a considerable shift in the mentality of contemporary society.

The Cries of idle hipsters Konstantin von Eggert Special to RBTH

hile my liberal-minded colleagues have rushed to announce a new global phenomenon capable of causing governments and mega-corporations to listen to the public, I, for one, can see nothing particularly new here. Most of those who have taken to the streets in western capitals are the same people we have seen every time G8 meets over the last 20 years: anti-globalists, radical environmentalists, pacifists, America- and Israel-haters and Marxists. The struggle for state control over the banking system is noth-

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ing more for them than a pretext for breathing new life into an agenda that seems to have been buried with the downfall of the Soviet Union. A considerable portion of the group consists of the young offspring of wealthy parents who can afford to look for a purpose for their lives until they turn 40 or so. They tend to migrate from one radical movement currently in vogue to another. As a rule, they have no problems with banks and, even if they do, their parents usually come to the rescue. A smaller proportion of the protesters have never, as John Le Carré felicitously put it in his book“The Spy Who Came in from the Cold,”been inside a bank and

are hardly likely to go there at any point in the future. This does not seem funny to me. It is not funny when they call the squares of European cities “our Tahrir,” because people in Egypt died for the right to live with dignity and not for the right to remain idle until near retirement age. It is not funny when demagogues and misfits speak out in the name of the public, because we know from the experience of the Soviet Union and Germany what tragic results this might have. It is not funny because they suggest dealing with history’s first postindustrial crisis of globalizing society in line with what Bulgakov’s Sharikov suggested: “Take everything and divide.” I am neither an economist nor a financier, and I will not offer my vision of a way out, since I am not as self-assured as those rioters from Rome or leftists contaminating the center of New York. One thing I do know: The last thing we need is advice from pampered idle hipsters in search of exciting adventures.

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Theater Plus

Film Controversial choice prompts accusations of cronyism against Russia’s Oscar committee

Stages Far from Moscow Defy Regional Stereotypes John Freedman

the moscow times

Russia’s Oscar Panel Burnt by “Sun” Sequel? Stephen M. Norris special to rbth

Bashing Nikita Mikhalkov seems to be the rage in Russia these days, and who can blame those taking part in it? When the Russian Oscar committee decided at the end of September to forward Mikhalkov’s“Burnt By the Sun 2: Citadel” as the country’s official submission for the Best Foreign Language Film, the resulting furor generated front-page headlines. Mikhalkov, it is fair to say, has become a polarizing figure in Russia, a focal point for many complaints about the state of Russian politics, society and culture. When“Burnt By the Sun 2: Citadel”premiered in May, it became the most widely-panned film in Russia since last May’s appearance of “Burnt By the Sun 2: Exodus.” Collectively, the two films cost more than $50 million to make and earned less than $10 million. Critics savaged both; audiences by and large dismissed them. Most interpreted the films as shameless attempts to capitalize on Russia’s renewed interest in World War II and promote state patriotism. In a year that saw Andrei Zvyagintsev’s “Elena” win a special jury prize at Cannes and Aleksandr Sokurov’s “Faust” capture the Golden Lion atVenice, the committee was hardly short of good candidates for a film that might make the American Academy’s final list. The decision to choose the second sequel as Russia’s Oscar candidate smacks of egoism and nepotism, especially as Mikhalkov serves on the Oscar committee and put his own film forward. Russian media reports mostly agreed that picking Mikhalkov’s flop meant that the cronyism rampant in Russian politics spilled over into the cultural world. When the committee held its vote, chairmanVladimir Menshov, the Oscar-winning director of “Moscow Does Not Believe in Tears,” broke with tradition and went public. He argued that there was something not quite right about a committee member advancing his own film, and that the film was critically drubbed and commercially unsuccessful, calling on Mikhalkov to reconsider.

Even Mikhalkov’s brother, Andrei Konchalovsky, came out against the decision. But beyond the squabbling, it is not hard to see why a Nikita Mikhalkov film would be selected. “Burnt By the Sun 2: Citadel” is the fifth movie by Mikhalkov to be forwarded to the Academy. His previous track record is impressive. His 1992“Close to Eden”made the final Oscar list. His 1994“Burnt By the Sun” won.“The Barber of Siberia,” Mikhalkov’s 1998 epic, was disqualified apparently because the print did not arrive on time. His 2007“12”made the final list. Mikhalkov’s movies have therefore made the final cut more than all other Russian films submitted since 1992 combined: Sergei Bodrov’s 1996“Prisoner of the Mountains”and Pavel Chukhrai’s “The Thief”in 1997 were the only other finalists. Given this history, unparalleled in Russian cinema, there is logic to forwarding one of his films for the Academy’s consideration, even one universally acknowledged as bad. While many voices within the Russian film community believe that the American Academy wants to see Hollywood-style foreign fare, the evidence suggests that the more art-house and“foreign”a film, the better the chance for selection. All three of Mikhalkov’s films to make the shortlist conformed to what many believe a “Russian foreign film” should be like: deliberately placed and philosophical. Of course, the same could be said of many films that did not make the final cut. In the end, whether the committee submitted the film out of crass cronyism, because of Mikhalkov’s previous record, or from a belief that the film could make the shortlist because it was an Americanlike blockbuster full of special effects, it seems clear that they made a bad choice. The Huffington Post reported in recent weeks that Menshov was still waiting for a response from Mikhalkov, adding that the sequel would most likely be ignored by Academy Award voters. However, Kirk Honeycutt of the Associated Press, in a story picked up by the Hollywood Reporter, was kinder to the film than most, suggesting it wasn’t as bad as Russian critics think it is. Still, there is little hope that Mikhalkov will reignite the international attention he once commanded.

viewpoint

The Great Oscar Debate

alexandr petrosyan

Ekaterina Mtsituridze film critic

“I have stopped smiling, a frosty wind chills my lips / Now there is one hope less, there will be one song more.” This verse by Anna Akhmatova, Russia’s greatest 20th century poet, is once again relevant: There is now a little less hope that things will work out for Russia’s film industry and that problems will, as they say, resolve themselves. Here in Moscow, we have witnessed a suspense-filled thriller within the simple and perhaps even noble task of choosing an Oscar candidate for Russia. The country that gave the world several film directors who changed the history of the art, from Sergei Eisenstein to Andrei Tarkovsky, cannot figure out who in Russia deserves an Oscar. The Oscars aren’t what they

what the experts say

Film critics and directors weigh in on the committee’s choice Andrey Konchalovsky

director and producer

“The choice of ‘Citadel’ is irrational if only because it is not a complete picture, but only a quarter or a third of one. That means that those who haven’t seen or have forgotten the previous film will be unable to get what’s going on. So, the decision, in my opinion, is simply incompetent. We have worthy complete pictures acclaimed by international critics this year. Nomination should be the result of a battle and not a simple vote.” Sergei Selyanov

Director, Writer, Producer for television and film

“The Oscar Committee should not be affiliated with or directly con nected to the contenders. Other wise it is ridiculous. “I have not seen ‘Citadel.’ But ima gine how they feel discussing a film made by their boss. The film may have a chance because the trans atlantic Oscar jury consists mainly of elderly people who have their own view of things. I understand that it is a delicate matter. In fact, Ameri can experts and distributors should be brought in by the Oscar commis sion at the preliminary stage. There is a foreign Oscar department. It needs to be done seriously, entering into re lationships and holding joint discus sions. We are still on the sidelines. And we are guided by anything but professional and national interests.”

Andrey Plakhov

critic, director of the St. Petersburg International Film Festival

“Some of those who voted for Mikhalkov’s ‘Citadel’ have not seen the film and some voted in absen tia. The Committee has some ‘dead souls’ that come to life when nec essary and are forgotten the rest of the time. It is an opaque structure, chaotic, and the organizers them selves sometimes forget that they are on the committee. “Oscar committees have differ ent structures in different countries. Filmmakers know how to deal with them. There are no scandals. In prin ciple, anyone who can prove that he represents the opinion of the film community can form a committee.” Valery Todorovsky

director and producer

“The issue isn’t the film ‘Citadel’ and its results, but the fact that the activities of this committee have raised questions for many years. It is not a transparent organiza tion; nobody understands either its mechanisms or the principles it works off. The fact that the com mittee’s chairman, Vladimir Men shov, has refused to sign off on the decision is a signal that something needs to change. That is why the Filmmakers’ Union simply offered its ideas on how to organize this whole affair in a sound and civil ized way. That’s all there is to it.”

The Future and the Past as a Reflection of the Present

TITLE: day of the oprichnik AUTHOR: Vladimir sorokin PUBLISHER: Farrar, Straus and Giroux

used to be. The show in March fights for its audience. The audience in the United States for foreign films represents a tiny percentage of filmgoers. So even to be nominated first by your country, and then by the Academy, is a huge deal. For any foreign film, it can mean the difference between international distribution and the curse of “straight to DVD.” But Russia can’t get out of its own way in this nomination process. A rift has opened up among the members of the Russian Oscar committee. Indeed, the 12 brave members of the Russian Oscar Committee resemble the characters of the film “12,” directed by the central figure in this story — Nikita Mikhalkov. A masterful artist, Milhalkov intuitively grasped that Sidney Lumet’s exploration of the minds and hearts of a jury could resonate in Russia. So he created a highly praised Russian version of“12 Angry Men.”But his“Burnt by the Sun” sequel did not share the same fate. Now, a new Cinema Union has put forward a set of alternative

measures to reform the Oscar committee, supported by the Russian Ministry of Culture. Sovexportfilm, an organization responsible for the international promotion of Russian movies, has offered to play the part of neutral Switzerland. Independent cinematographers are trying to stay out of the way of the opposing forces. The Oscar committee will be reformed — that much is clear. And we all hope very much that history won’t repeat itself, even as a farce, and that the process of positive change is now beginning within our crazy and talented, if somewhat wayward, cinematographic family.

Ekaterina Mtsituridze is a TV presenter, former Cannes jury member and director of Sovexportfilm, an organization that exports Russian films. RBTH is pleased to introduce her as chief film editor.

the end of October, the renowned German director Matthias Langhoff will open his latest show in Saratov — a rendition of Heiner Müller’s“Sophocles. Oedipus the Tyrant.” I have written many times about Nikolai Kolyada’s Kolyada Theater. There is no wonder that his small playhouse in Yekaterinburg is included in the Forbes list. Kolyada is a renaissance man who is playwright, director, manager, teacher, mentor, producer and friend to anyone taking the time to walk through his door. Kolyada has outfitted his space with all kinds of warm, fuzzy, homey objects, but the theater he creates is as serious as the interior of his playhouse is eclectic. Last year I saw his production of Tennessee Williams’“A Streetcar Named Desire” with American director Bob Falls, who called the production the best he had ever seen of the play in his life.

Rbth launches a column, Read Russia, which will feature reviews of books to be presented at BookExpo America in New York City June 4-7, 2012, where Russia will be the guest of honor.

Special to RBTH

Nikita Mikhalkov stars as Sergei Kotov in the “Burnt by the Sun.”

Perm’s U Mosta Theater has explored Irish writer Martin McDonough’s eerie world of outsiders, savants and crazies.

Read Russia

Phoebe Taplin

kinopoisk.ru

In a year that saw Russian films win awards from Cannes to Venice, the Oscar Committee’s choice of a “Burnt by the Sun” sequel raised plenty of questions.

kinopoisk.ru

Nadezhda Mikhalkova, daughter of the director, reprises her role as Nadia, Sergei Kotov’s daughter, in “Citadel.”

few years back, I was invited to Magnitogorsk to be a jury member for the Theater Without Borders festival. It was, I was told when I arrived, a showcase of“theater made in the regions.” The point was that nobody spoke of“regional theater”; the adjective“regional”is a pejorative. The “region” — a definition of place — is the proper term. Whatever the case may be, I remembered this experience recently when I read an article written by Yulia Yakovleva and published on Forbes.ru. Its purpose is clearly stated in the title: “Ten Regional Theaters Worth Visiting.”The venues cited in the article are: Omsk Drama Theater, Pushkin Drama Theater of Krasnoyarsk, Krasny Fakel in Novosibirsk, Voronezh Chamber Theater, SamArt of Samara, KiselyovYouth Theater of Saratov, Kolyada Theater of Yekaterinburg, Nizhny Novgorod Youth Theater, Pushkin Drama Theater of Magnitogorsk and U Mosta Theater of Perm. All of these theaters have been nominated for Golden Mask awards at one time or another. The Golden Mask is Russia’s national theater award. It is given in all genres of theater, including drama, ballet, modern dance, musical and puppet theater. Perm’s U Mosta Theater has made a mighty reputation as a house working on an interesting mix of classic plays and contemporary English-language dramas. In fact, if there is one thing U Mosta is famous for above all, it is its productions of the plays of Martin McDonough. The Irish writer enjoyed an extraordinary boom of interest in Russia three or four seasons ago and that was due, in large part, to the efforts of U Mosta. Under the guidance of founder and artistic director Sergei Fedotov, the playhouse has explored McDonough’s eerie world of outsiders, savants and

crazies with great success. One of scores of theaters that were opened during the Perestroika years, it is one of just a few that continue to work and expand operations. Mikhail Bychkov’s Chamber Theater from Voronezh became a household word in Russian theater households about a decade ago. Bychkov staged several attention-getting works that ranged from dramatizations of Fyodor Dostoevsky’s prose to productions of contemporary plays byYevgeny Grishkovets and Lasha Bugadze. The Kiselyov Youth Theater of Saratov is one of the most ambitious of all theaters in the regions. In recent years, it has set up festivals to develop new directors and new writers, and has attracted numerous directors from abroad to work on its stage. At

ear the start ofVladimir Sorokin’s high-tech fairy tale,“Day of the Oprichnik,” the oprichniki (security services) of the title gangrape a nobleman’s wife, abduct his children and burn his house; his stable-hand is beaten to death and slashed with a knife.This sets the tone for a novel where drugfueled porn and sex in the banya are presented as light relief. It is never clear exactly what the nobleman in question did to offend “his majesty”(in this future, Russia’s monarchy has been reinstated), but the oprichniki understand without question that he deserves his fate at their hands. This satirical account of a security officer’s job in the Russia of 2028 is written to shock. The format is reminiscent of Alexander Solzhenitsyn’s “A Day in the Life of Ivan Denisovich,” which exposed the horrors of Stalin’s camps; both protagonists are cogs in an authoritarian regime, but where Solzhenitsyn’s everyday hero of the gulag is a victim of the system, Sorokin’s first-person narrator, Andrei Komiaga, is one of the perpetrators of a brutal society with uncanny resemblances to modern Russia. Komiaga revels in his lurching orgy of mundane carnage and corruption.

The oprichniki were originally Ivan the Terrible’s army of bodyguards, a feared and violent group. Sorokin simultaneously returns to medieval tyranny and, like so many contemporary Russian novelists, sets his story a few years in the future to comment the more ferociously on the trends he observes in the present day. A recent production of Rimsky-Korsakov’s “The Tsar’s Bride” at London’s Royal Opera used a similar comparison to great effect, seamlessly transposing 16th-century criminality and politics into modern Moscow. Sorokin uses a spicy mixture of archaic Russian terms and futuristic slang. His characters measure distances in versts and arshins, drink kvass and eat kasha, while driving high-end cars (mercedovs) decorated with the traditional oprichink symbols — a severed dog’s head (to bite the tsar’s enemies) and a broom (to sweep them away). They communicate on mobilovs, receive holographic news bubbles and glass spheres of hallucinogenic fish.This linguistic diversity has challenged, but not defeated, translator Jamey Gambrell, who has spent a long time translating Sorokin’s “Ice Trilogy,”also published in English this year. She compares his unorthodox use of language to modernist techniques in art. “Day of the Oprichnik” has been compared repeatedly to Ray Bradbury’s classic “Fahrenheit 451.” For Komiaga, unlike Bradbury’s Guy Montag, there is no redemptive conversion. Yet Sorokin’s startling novel also serves as a harsh mirror for mankind to look at itself.

Feature

RUSSIA BEYOND THE HEADLINES

MOST READ Technology Takes Over Moscow Biennale http://rbth.ru/13683

SECTION SPONSORED BY ROSSIYSKAYA GAZETA, RUSSIA WWW.RBTH.RU

Stereotypes Moscow has struggled to overcome its Soviet reputation, but contemporary visitors and residents alike find much to love

A Visitors Guide to Moscow Moscow is a leading world metropolis, but has difficulty attracting visitors. Are the stereotypes true? Or is the city’s bad reputation completely unfounded?

IN THEIR OWN WORDS

Lucie Pokorna

Housing is expensive. Transport and culture are rather cheap in comparison to western Europe."

INNA LEONOVA

SPECIAL TO RBTH

As a tourist destination, Moscow has long been a victim of stereotypes, most dating from a time when few foriegners got a peek behind the Iron Curtain. Although today the Russian capital features more than its fair share of steeland-glass skyscrapers and Western European chain retailers, many would-be tourists believe things about Moscow ranging from“the city is run by mafia”to “the air is unsafe to breathe.” But Moscow expats and visitors take a different view. Their opinions vary, but there is a strong sense among them that the city is an epic place.

26, CZECH REPUBLIC

Sarah Kay

Moscow is no more dangerous than London. Advice is not to flash your cash and not to speak loudly in a foriegn language.”

22, SHEFFIELD, U.K.

Andrew Close

The stereotype is that Moscow is big, crowded, a city of business, and that people are always in a hurry. These are all true! However, it is possible to find quiet back streets to wander through.”

The most expensive city?

LEGION MEDIA

48, CHESTER, U.K.

Lost in Moscow? Don’t be afraid to ask for directions. Muscovites may appear brusque, but they are happy to help if they can.

kets are the best place to look for that cheap, authentic piece of Russian culture that you just can’t live without.”

GOOD TO KNOW

Free Call Center Aids Travelers

Dangers at every step?

Is Moscow dangerous? One question potential travelers often have about Russia involves the crime rate. Stories of the“Wild East”of the 1990s were prominent in the Western press, and those stereotypes still loom large in the minds of many potential tourists. “I am sure it is like any big city. However, I do not feel unsafe at all. I was very cautious in the beginning. I had been warned about pickpockets, etc. So far, I have not been the victim of a crime. I do not know anyone personally who has been a victim,” said 31-yearold Tessy McKee, an English teacher from Louisiana who lives in Moscow.

There is now a 24-hour call center for tourists in Moscow. Operators speak both Russian and English and are ready to answer questions about the capital’s places of interest and methods of transport. They can also help in case of an emergency by calling the police or a tourist’s embassy. The call center can be reached by dialing 8-800-220-0001 or 8-800-220-00-02.

PHOTOXPRESS

For many years, Moscow was at the top of the list of the world’s most expensive cities. And while many foreigners agree that Moscow is by no means cheap, the rankings are somewhate misleading — especially if you know how to work the system. “I think Moscow can be expensive, but there are also a lot of ways to save money as well, especially on food,”said Brandon Para, 22, from Pennsylvania. “Eating street food and eating in places that serve cafeteria-style food, like Mu-Mu, helps to save on food costs. The No. 1 piece of advice I would give visitors from America is to eat at places like this, because you can still get a lot of food for the price.” Another good tip is to eat your main meal at lunchtime, when many restaurants feature a threecourse business lunch for around $10. It’s a good idea to save money on food, because hotels are by far the most expensive part of a trip to Moscow. A recent survey by the Hotel.info Web site revealed that the average cost of a hotel room in the Russian capital this fall is $191 per night. This fact makes Moscow the second-most expen-

sive capital in the world for hotel rooms after Oslo. If you manage to find a cheap hotel, you can spend your money on souvenirs, but again, it helps to know where to look.

“Souvenir shops are to be avoided at all costs, especially in central Moscow, as their prices could bankrupt small countries,” said Laura Gardner, 26, from Manchester, England.“Mar-

The advice offered by travel agencies and seasoned travelers to first-time visitors to Moscow is pretty much the same as for any other city: Do not stray on to unknown streets after dark and keep away from groups of strangers. After all, Moscow is the biggest city in Europe, and like any other major metropolis it has petty crime. Common sense is generally the best weapon against a bad experience. According to The Village Web site, 15 percent of expats in Russia are afraid of confronting racists or nationalists, and this is not unwarranted. “While living in Moscow, and since leaving, I have routinely heard disparaging and insulting comments made about people from Africa, the Caucasus and China, in particular. Most Russians I met were very loyal, friendly and

generous. However, there are a few bad apples mixed in as well, and you probably will come across them at some point during your stay,” said Californian Cole Margen.

Don’t be afraid to ask

What’s the best way to explore the city? Take the Metro. Learning to get around like a Muscovite gives visitors a taste of local life while saving money. “As for finding your way around, the Metro is really pretty clear and simple,” said Elliott Estebo, 25, from Minneapolis, Minnesota.“The masses of people can be a bit intimidating if you get lost, but if you’re underground you can find your way. Above ground, the streets can be confusing, and they’re not always clearly marked.” The Metro is also cheap. A single trip costs 28 rubles (about 90 cents), whereas taxis will set you back much more. If you’re lost, you can always ask directions from a passerby: a general rule of thumb is that the younger the person, the better the chance he or she speaks English. Are Muscovites unfriendly? People are not falsely friendly (unless they have just finished some customer service training with a Western company), but if someone says something nice, it is genuine. “Before I visited Moscow, I thought it would be horrible and the people would be unfriendly. I was scared to come here because I thought I would get lost all the time and no one would help me and I would be scared of the size of the place. But I realized that, generally, if you need help, people will help you,”said English teacher Sarah Kay, 22 from Sheffield, U.K. “I really enjoy living here. There’s plenty of things to do and plenty of interesting people to meet. I recommend this city to anyone who wants to experience Russia and/or learn Russian.” And if you try just a few words in Russian, you will hear the din of excessive praise and wild applause. No one will tell you your Russian is terrible; instead, you will be encouraged to speak more. Give Moscow a chance.You might fall in love with the city, too.

Landmarks A six-year-long renovation brought the latest in modern technology to the theater’s acoustics while restoring the original look

For Renovated Bolshoi, Everything Old is New Again PAUL DUVERNET SPECIAL TO RBTH

Moscow’s community of music and ballet lovers were saddened, when, in the summer of 2005, scaffolding was first erected around the Bolshoi Theater. The theater was to undergo some much-needed renovations, and open again for the 2008-2009 season. Three years without the Bolshoi was bad enough, but the state of disrepair in the theater was such that fans had to wait much longer than expected. The work was completed only in time for an October 2011 opening. Anatoly Iksanov, the general director of the Bolshoi, admits that he came to realize the extent of the problem only as work progressed.“New issues emerged after the closure.When we scraped off the plaster covering the walls,

we discovered seven massive cracks running from the foundations to the roof. Actually, the walls were only standing thanks to their own weight,” Iksanov said. While the structural upgrade was necessary, according to Iksanov, the most important changes were to the theater’s acoustics.

“We are going to direct great operas and ballets from the past. It is our top priority,” said general director Iksanov. Even the cosmetic improvements reflect the focus on the way the sound fills the space. The angle of the seating has been changed and the balconies have been rebuilt with fir from the Karelia region of northwest Russia and molded with a specific papier mâché that does not crumble with vibrations. Even the fabric for the seats and curtains was chosen

Renovation took six years, from 2005 to 2011. Officially, the work cost $635 million. Some reports suggested that in the end the budget ballooned to more than twice that amount.

based on the recommendations of acoustic experts. Four tons of gold was used in the re-gilding of the theater, and the Soviet hammer and sickle, which were on display from 1917-2006, have been replaced with the original tsarist symbols from 1856. Some barely visible but very significant changes concern a very important gain of space that will be used as rehearsal rooms. The depth of the main stage has been increased and now benefits from state-of-the-art machinery. The Theater’s artistic policy is perfectly in tune with its time. Conservatism is a present trend, and the Bolshoi will still rank itself among the most traditionalist in the world. “We are going to direct great operas and ballets from the past; it is our top priority,”said Iksanov. “More modern productions shall be reserved for the New Stage, where the approach will be more creative.” The New Stage, which is an adjacent, smaller theater, opened in

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3 See slideshow at www.rbth.ru/13675

The Bolshoi Theater reopened on Oct. 28 with great fanfare.

late 2002 and has been the scene for several innovative performances that have surprised the Bolshoi audience: the opera“The Children of Rosenthal”by Leonid Desyatnikov and Vladimir Sorokin; Dmitri Chernyakov ‘s new stagings of“Eugene Onegin”and “Wozzeck”; and some very successful choreography by Alexei

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The theater’s interior has been restored to its original 19th century splendor. Numerous decorative elements have been recreated from photos, paintings and interior fragments that survived the Soviet era.

KOMMERSANT

Although today’s Bolshoi may feature the latest innovations in acoustics, its repertoire reflects the theater’s reputation as one of the world’s most traditional.

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FACTS ABOUT THE BOLSHOI THEATER

be i r c s Sub

Ratmansky for “Bolt” and “The Bright Stream.” The Bolshoi’s 236th season opened with Mikhail Glinka’s “Ruslan and Ludmila,”a symbolic opera often regarded by musicologists as the birth of the Russian lyrical genre. The first ballet will be presented on Nov. 18. It will be Tchaikovsky’s “Sleeping

The theater’s usable space has doubled due to the renovation. A new underground concert hall holds 330 spectators, and will be used for rehearsals of the orchestra and the theater chorus; in the evenings, chamber concerts will be held. The renovated main hall’s 1,768 seats have been laid out in such a way as not to interfere with the theater’s acoustics.

Beauty,”with the original choreography by Marius Petipa, revisited by the Bolshoi’s art director, Yury Grigorovich. Later in the season,“The Knight of the Rose” by Richard Strauss and “Charodeika” by Tchaikovsky will constitute the only other new productions of this modest first season.

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