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‘It is impossible to imagine how the Soviet economy would have functioned without these supplies’

‘Money talks, and it seems that in the future, it will frequently speak Chinese.’

OLEG BUDNITSKY, HISTORY PROFESSOR

VLADIMIR MIKHEEV, EXPERT

Ruble/Dollar 62

1 500 Feb 27 Mar

Apr

Apr 27

Feb 27 Mar 9

Distributed with The Wall Street Journal

Mar 23

Apr 6

Apr 20

Saturday, May 9, 2015

IN THIS ISSUE

Russia hopes to encourage investment and diversify exports by liberalizing its economy

Russia Battles Recession, Aims to Spur Investment

POLITICS & BUSINESS

Ruble Rebounds Russia’s currency regains lost ground after 2014 collapse PAGE 2

SPECIAL REPORT

Victory Day in Russia WWII holds a central place in Russia’s national self image PAGES 4-5

MONEY & MARKETS

I’m Yelling “Timber” Russia may become China’s top timber exporter as a cheaper ruble promotes exports GETTY IMAGES/FOTOBANK

Officials in Moscow hope a weaker currency boosts sales of Russian products in foreign markets, and that structural reforms help promote investment.

Russia has entered recession for the first time in five years, as officials seek to foster a new economic growth model based on encouraging private investment. ALEXEY LOSSAN RBTH

As 2015 began, the Russian economy found itself in a recession for the first time in five years. H e a dw i n d s h a d m o u n t e d throughout the previous year, blowing in from multiple sources to create a near-perfect storm. The price of oil, Russia’s most important export, fell precipitously in 2014, dragging the value of Russia’s national currency, the ruble, along with it. Meanwhile, a dispute over Russia’s role in spiraling civil unrest in neighboring Ukraine brought titfor-tat economic sanctions between Russia and the West. Rising inflation appeared set to hit double-digits in 2015, prompting policymakers to simultaneously contend with slowing growth, rising inflation and a falling currency. Despite the difficulties, Russia avoided recession in 2014, eking out 0.6% economic growth for the year. But in March 2015, Russia’s economy shrank by 0.4%, as the World

Bank forecast an annual contraction this year of between 2.9% and 4.6%.

Attracting investment Russian officials say they are gearing up to fight back, aiming for nothing less than a restructuring of the country’s economy away from its reliance on exports of oil and natural gas. Officials say they are working on a raft of measures akin to those long recommended by independent economists: liberalizing the economy and making structural changes to boost private investment. Yet such talk has come from Russian officials before, and observers note it remains to be seen whether the current crisis is the necessary catalyst to spur Russian officials to turn words into deeds. Policymakers say they don’t underestimate the task. “The difficulty of the challenges facing us demands a lot from the state apparatus, and also the coordination of work between the various branches of government,”Russian First Deputy Prime Minister Igor Shuvalov said in a recent conference in Moscow. Among Russia’s problems are

sanctions from the U.S. and Europe that effectively seek to isolate important parts of the Russian economy, such as its energy industry, from international debt markets. Yet economists say Russia’s biggest economic problems stem from domestic, structural issues rather than from Western sanctions, meaning the country can indeed make domestic changes that will help boost economic growth on its own. Institutional reform, economists say, will be a crucial test. “The key issue is in increasing the productivity of labor and obtaining effectiveness of production,” says Scientific Director of the Higher School of Economics Evgeny Yasin. One of the major obstacles to increasing investment is a lack of accessible credit. In December 2014 the key rate, a reference point for banks, was increased from 9.5% to 17%. Towards the end of April 2015 it was decreased to 14%, but financing costs remain high by international standards. According to the Gaidar Institute, the volume of credit given to corporate borrowers was reduced by almost a quarter to 3.98 trillion

rubles ($78.2 billion) in JanuaryFebruary 2015, compared to the same period a year ago, when it amounted to 5.18 trillion rubles ($101.6 billion). Credit activity diminished the most in the field of construction, by 63%, while in machine building and metallurgy it fell 40%. Moreover, after the western countries introduced sanctions against Russia, Russian players were deprived of access to inexpensive European and American credit. According to Anton Soroko, analyst at Finam Investment, the peak of dollar repayments on corporate loans occurred in December 2014. After this Russian borrowers practically stopped attempting to access European or U.S. debt markets. As an alternative, some Russian firms are seeking capital through selling shares. Magnit, Russia’s largest retailer, sold 1% of its shares to international investors on the London Stock Exchange in February 2015 for 9.8 billion rubles ($192.35 million). Other players are courting Asian markets. Russia’s third-largest bank by assets, Gazprombank, and Gazprom have announced they may seek a bond sale in China.

VLADIMIR SMIRNOV / TASS

PAGE 3

FEATURE

Travel: Visit Russia’s ‘Hero Cities’ Russian cities still bear scars and monuments of WWII PAGE 8

27m

people

200 days

May 9 Russia notes the anniversary of the end of WWII amid tensions with America and Europe

WWII Anniversary Looms Large in Russia

DAVID MILLER SPECIAL TO RBTH

When invading Nazi forces reached the outskirts of Moscow in late 1941, the stakes couldn’t have been higher for the Soviet Union. Hitler considered Slavs an inferior ethnic race. Nazi records suggest that if Germany had been successful, tens of millions of Russians would have

faced a genocidal regime of enslavement and forced exile. The statistics around the Battle of Moscow defy belief. Estimates of Soviet casualties alone range as high as 1.2 million people for that single engagement — almost double the number that the United States lost in all of World War One, World War Two, the Vietnam War and the Korean War combined. Comparisons like these help demonstrate why the Second World War still looms so large in the minds of Russians — in a way that Western visitors to Russia sometimes find

ARTYOM KOROTAEV / TASS

The Second World War has a central place in Russia’s national zeitgeist. A blockbuster celebration is set for the 70th anniversary, amid new tensions with its former allies.

Victory Day is celebrated on May 9.

surprising. “World War II is an event very different in the minds of Russians than in the minds of Americans and

Europeans,”Paul Goble, a political analyst who once advised former U.S. Secretary of State James Baker, wrote in a recent analysis for the Russia Direct website. “For Russians, World War II is and remains the central act of their history during the last century…. For Americans and Europeans, that conflict is increasingly a matter of history.” On May 9, Russia commemorates victory over Nazi Germany with a zeal that is almost surely unequalled anywhere else in the world. Schools and financial markets close. Moscow’s main thoroughfare becomes a pedestrian promenade bedecked with flags and black-and-yellow ribbons, the Russian symbol of military valor.

from the USSR are estimated to have died during the Second World War, more than from any other country

was how long the Battle of Stalingrad lasted. It was a major turning point in the war that cost the lives of more than a million Red Army soldiers and civilians

6000 tanks

and self-propelled guns took part in the Battle of Kursk in June 1943, still the world’s biggest battle of its kind

Discover the Unknown War in the pages of this issue and find out much more at unknownwar.rbth.com

CONTINUED ON PAGE 4

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NEWS IN BRIEF

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Russia’s Currency Last year the ruble staged historic declines, setting the stage for a turnaround spite the strengthening of the ruble, the overall interest of investors in the broader Russian economy has not yet grown accordingly.

Ruble Rebounds: Once a Turkey Now a Phoenix

• Russia-focused funds have gained $362 million in investment since the start of the year, Kommersant reported, citing data from Emerging Portfolio Fund Research (EPFR). Increased interest in Russia came even as investors shied away from funds focusing on other parts of the developing world. Funds concentrating on Russia gained $182 million in investment in the week ending April 22, more than three times the amount attracted the week before. • Russia has begun building a railway line that will bypass Ukraine on its way from northern to southern Russia as tensions between Moscow and Kiev smolder, news agency Interfax reported. Russians’ ability to travel through Ukraine has been complicated by a political clash between the two countries, precipitated by the overthrow of a Russia-friendly regime in Ukraine last year.

From the beginning of February 2015 to the end of April, the Russian ruble has strengthened by 28.7%, making it the fastest-rising currency in the world.

• Russian meat producer Cherkizovo plans to increase poultry exports to reap the benefits of a weaker ruble as domestic prices come under pressure from faltering consumption, its chief ex-

ALEXEY SERGEEV RBTH

ecutive said. The company, which is a top-three poultry and pork producer in Russia, will aim to export 10%, up from between 1 and 2% currently, and target consumers in the Middle East, Africa and China. Company’s base-case scenario implied meat consumption in Russia would decline to 67-68 kilograms per capita in 2015 from 71-72 kilograms last year as Russia slips into recession. Poultry accounts for around 50% of all meat consumption in Russia. • Gazpromneft plans to double output at Russia’s sole Arctic offshore oil project, the Prirazlomnoye field, the company said. Last year, oil production at the field totaled 300,000 tons. Gazprom Neft, the oil arm of Russia’s top natural gas

Following an historic collapse in 2014 amid heightening military tensions in Ukraine and darkening economic horizons, Russia’s national currency, the ruble, has staged a recovery that made it temporarily the best-performing currency in the world. From the beginning of February 2015 to the end of April, the Russian ruble strengthened 28.7%, making it the fastest-rising currency in the world, UFS IC chief analyst Alexei Kozlov told RBTH. The turnaround is all the more striking in that it exceeded the increase in value of Russia’s main export, crude oil. During the ruble’s plunge in 2014, many analysts noted that the currency seemed to be declining alongside a drop in the value of oil. According to Kozlov, as the ruble rose 28.7% from February to April, North Sea Brent crude oil rose from a minimum value in the same period by only 16.7%, from $53.50 per barrel to $64.20. The comparison suggests that the ruble’s historical dependence on oil

prices may be decreasing, Kozlov said.

Main causes The Russian ruble is strengthening due to the combination of a series of positive factors, according to the head of the Stock Market and Financial Engineering Department at the Russian Presidential Academy of National Economy and Public Administration, the main institution which influences the financial policy of the Russian government, Konstantin Korischenko. Korischenko, who is also the former deputy chairman of the Central Bank, said the main reasons for the rise include foreign currency loans by Central Bank to banks totaling $30 billion, a decrease in the Russian Central bank’s key rate from 17 to 14%, and a reduction of military tension in the east of Ukraine. “All this has made investment in the ruble and ruble assets speculatively more attractive,”Korishchenko said. According to Kozlov, the ruble’s rebound can be partly explained by a more general increase of interest among investors in emerging markets as well. According to Anton Soroko, an analyst at Finam Investment Holding, the Russian currency could fur-

Prospects for investment Experts are not yet sure if the sharp strengthening of the ruble will continue as a long-term trend. “Claims that the value of the ruble is no longer pegged to oil prices are not quite appropriate,” Korischenko said.“Rather, one could speak of a different [ratio] of ruble-to-oil prices for 2015.” According to Korischenko, the situation of the international oil prices is also unclear, and could depend on political developments. If the United States and its negotiating partners reach a diplomatic deal with Iran over its bid to develop nuclear power and remove sanctions on Iran, oil prices might force prices to go lower. However, an escalation of the conflict in the middle eastern country of Yemen might have the opposite impact. Either event could have a large indirect impact on the direction of the ruble. Meanwhile, problems in the Russian economy may continue to restrain the ruble’s growth. “Banks’ lack of capital, the lack of economic growth, the tendency for an increase of the public sector in the economy – all this cannot but cause concern and restrain optimism about the future value of the national currency,” Korischnko said. If oil prices don’t rise and the outflow of capital from Russia continues, the prospects of the ruble in 2016 may signficantly deteriorate. Meanwhile, the Central Bank hopes to restrain excessive strengthening of the ruble because of the adverse effect on the competitiveness of Russian companies. Deputy head of the Central Bank, KseniaYudayeva, was recently quoted by news agencies as saying the the ruble’s strong run may be over.

IN FIGURES

28.7%

The ruble rose this much from February to April. However, problems in the Russian economy may restrain the currency’s growth in the future.

ther strengthen in the near future if oil prices rise, and if clear diplomatic terms for lifting international sanctions against Russia appear on the horizon. “The situation in Ukraine at the moment, as a whole, appears to be stable, so that there seem to be no reasons for tightening rhetoric from the EU and the U.S.,” Soroko said. Analysts also pointed to another positive factor: agreements with individual EU countries, including Greece and Turkey, on the construction of the gas pipeline Turkish Stream from Russia to southern Europe. According to Alexei Kozlov, a large share of the credit for the strengthening of the ruble goes to the Central Bank, which has managed to build a monetary policy in such a way as to make currency volatility noticeably fall. At the same time, the analyst notes, de-

Major events that inﬂuenced the Russian ruble since April 2014 PRESS PHOTO

producer Gazprom, has also been exploring another Arctic offshore oilfield, Dolginskoye, where it drilled its fourth exploration well last year. In 2014, Gazprom Neft’s total hydrocarbon output rose by 6.4% to 66.3 million tons of oil equivalent. • The cost of a cabbage in Russia has almost tripled in less than six months. The Russian staple — and a key ingredient in traditional dishes such as the famous shchi soup — leads the field among foods suffering from inflation because of huge ruble devaluation in 2014 and a Kremlin ban on food imports from the United States and European Union. Cabbages now cost over 40 rubles (80 cents) a kilogram in most stores. • Former managers and employees of Trust Bank have been charged with fraud for spiriting millions of dollars away through offshore companies, the Interfax news agency reported. The Central Bank gave Trust Bank — the first bank bailed out by the state during Russia’s ongoing financial crisis — an emergency 30 billion ruble ($590 million) loan and put it under supervision in December after a sharp devaluation of the ruble sent shockwaves through the Russian banking system. The regulator believes that the actions of the bank’s former owners and managers precipitated its later financial difficulties, Interfax reported. • Russia will not scrap pension fund contributions, preserving a key pool of investment capital, in an apparent victory for economic liberals in the government who had united in vocal opposition to proposed changes. “The accumulative pension system will be preserved,” Prime Minister Dmitry Medvedev announced.

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Viewpoint: New York and Washington are at odds over Russia policy

Sanctions Against Russia: a Tale of Two Cities At Russia Forum New York 2015, business leaders weighed the ineffectiveness of sanctions against Russia, suggesting they threaten the core of any future US-Russian relationship. DOMINIC BASULTO RUSSIA DIRECT

In many ways, NewYork and Washington couldn’t be more different in how they view sanctions. While the Washington foreign policy elites are pushing to ramp up sanctions against Russia, arm Kiev and ostracize Russia on the world stage, it’s a completely different scene in New York, where multinational managers, venture capitalists and institutional investors are looking for ways to roll back sanctions, find new avenues for business cooperation and integrate Russia into the global economy. At Russia Forum NewYork 2015, hosted in March at the Princeton Club in midtown Manhattan by Russian Center NewYork and sponsored by the Gorchakov Fund, Ethnomir and the Congress of Russian Americans, these differences between how the elites of Washington and NewYork view Russia came into stark contrast. As Ambassador Kislyak noted in his opening remarks, Russia is still “open for business” and there’s no

PRESS PHOTO

BEST RUSSIAN STUDIES PROGRAMS 2015

ALYONA REPKINA

Russian Ambassador to the U.S. Sergei Kislyak speaking in New York.

need to fear a return of the Cold War even if the U.S. is attempting to isolate Russia both diplomatically and economically. The good news, Kislyak says, is that Russia

Russia is still “open for business,” said Ambassador Sergei Kislyak. is redoubling efforts at diversifying and modernizing its economy, including more emphasis on diversifying by geographic region. As a result, the ruble has stabilized, the Russian economy is show-

ing signs of positive growth in 2015 (even if it’s “miserably low”) and the feared credit crunch of February 2015 (when Russian companies were scheduled to pay back significant amounts of dollar-denominated debt) never materialized. In fact, Kislyak says, trade between the U.S. and Russia is still very much active, and actually increased by almost 5% in 2014, despite the U.S. economic sanctions against Russia. And it’s not just that economic sanctions against Russia aren’t having their desired effect. The U.S. policy of isolating Russia on the world stage may end up boomeranging and hitting the very people

it was not supposed to impact – multinational companies that have invested in Russia for the long-haul, smaller companies, entrepreneurs, and young Russians who have embraced both globalization and innovation. The hope in New York investment circles, of course, is that these changing geometries of capital flows will lead to changing geometries of political thinking. In other words, in a global financial system no longer created, run and controlled by America, there might be need to reassess where Russia stands in the global economy. Even some Russian foreign policy insiders in Washington are starting to make this point. The most eloquent case for rethinking sanctions was recently made by Samuel Charap, senior fellow for Russia and Eurasia at the International Institute for Strategic Studies, and Bernard Sucher in an op-ed for the NewYork Times: “Why Sanctions on Russia Will Backfire”. Charap and Sucher argue that sanctions are impacting the wrong people, and that they unfairly punish Russia for integrating into the global economy and embracing the American-led global financial system. So if sanctions against Russia don’t make any sense, why pursue them? The short answer is that sanctions are a form of low-hanging fruit for American politicians and diplomats, eager to show that that they are doing something – anything – to punish Russia for its annexation of Crimea and involvement in Eastern Ukraine.

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NEWS IN BRIEF

Russia is seeking to diversify its economy away from relying on oil and gas production

Russia Seeks Growth in New Export Areas

• Russia and Argentina signed documents deepening energy cooperation, underlining Moscow’s drive to develop ties with South America since coming under Western sanctions over the Ukraine crisis. Russian state-owned gas producer Gazprom signed a memorandum on cooperation with Argentinian state oil company YPF. • Heineken will start producing kvas, the traditional Russian bread-based drink, as the country’s beer market battles a steep downturn, the brewer said. Production of the mildly alcoholic beverage will help fill empty capacity in its breweries. The Dutch brewer saw Russian beer sales plummet 10% in the first quarter, the Kommersant newspaper cited the company as saying, as Russians cut their beer consumption amid an economic downturn and laws aimed at curbing alcoholism.

Russia is attempting to diversify its economy away from energy exports as a falling ruble boosts the chances of success for its products in foreign markets.

• Russian airlines flew 15.6% fewer passengers on international flights in the first quarter of this year as demand plummeted due to a sharp devaluation of the ruble, according to data published Wednesday by Russia’s Federal Air Trans-

ALEXEY SERGEEV

GETTY IMAGES/FOTOBANK

Russian imports, exports and trade surplus

18 Industries

conditions against the backdrop of the weakening ruble. “Processing industries are underdeveloped in Russia,” Kapitonov continued. “The quality of goods does not always meet the requirements of developed Western countries”, professor said.

Russia is developing plans for substituting imports with domestic production in 18 industries by the end of June 2015, including localizing foreign companies in Russia, according to the director of the Analytical Center for Foreign Trade

of the Russian Ministry of Industry and Trade, Roman Lyadov. One particular area of focus will be the high-tech industry. To this end, Russia will introduce a“special investment contract” – a form of the agreement between the government and private companies, in which the government will insist that the investor create jobs and production facilities for high-tech products. Another instrument will be the Industry Development Fund, which already received 20 billion rubles ($347.8 million). The Fund will provide loans to Russian companies with 5% interest per annum. By comparison, the key rate for the Central Bank, accessible by private banks in Russia, was 14% at the end of April 2015. “As of today, the import of hightech products into Russia exceeds export by [a factor of] 11 times,” said Skolkovo Foundation vicepresident Vasily Belov. The weakening of the ruble helps, but it will also be necessary to improve the quality of research at academic institutions, Belov said.

Rising timber exports support Moscow’s hopes that a lower ruble will boost exports

KIRA EGOROVA RBTH

For decades, Russian leaders have fretted over the need to reduce the country’s oversized reliance on exports of oil and gas, which constitute more than half of the country’s export revenues. Last year, amid news of international sanctions against Russia due to its alleged role in the Ukrainian conflict, sputtering economic statistics, plummeting oil prices and a cheaper national currency, policymakers also expressed hope in a silver lining: that the crisis might provide a framework to move beyond reliance on energy exports. The declining ruble, in particular, might make other Russian products more attractive on international markets - or so policymakers hoped. Now, one of the first signs of such a trend is emerging in an area that was Russia’s sixth-biggest export sector in 2013: Timber and wood products. The volume of Russian timber exports increased by 7.9% in 2014, making the industry one of Russia’s fastest-growing international trade areas, according to a report prepared by the Lesprom Network

Analytic Agency. In particular, China, the largest importer of Russian timber, increased the volume of orders in 2014 by 17.6% to 9.24 mln tons. Currently, Russia is China’s second-biggest supplier of timber. Accessible prices help Russian production stay ahead of the Chinese competitors in European and U.S. markets. By the end of 2015, Russia may surpass New Zealand to become China’s biggest timber supplier, according to Lesprom Director Alexei Bogatyrev. In his words, New Zealand’s timber output faces constraints due to government policies against timber export. The devaluation of the ruble gave Russian companies an edge in negotiations with competitors on the global market, says Sales and Marketing Director of the Arkhangelsky Pulp Mill, Alexei Dyachenko. The fall of the ruble against the main world currencies at the end of 2014 stirred a demand for Russian plywood, whose prices fell by 40% from September 2014 to February 2015, says the Lesprom Network report. As a result, the export of unprocessed timber increased by 9.8%, boards by 7.5%, plywood by 13.3% and cellulose by 4.2%. Russian timber producers likewise had reason to cheer in 2013, when export duties were abolished and the U.S. experienced a revival in the pace of economic growth. “The American real estate mar-

• Russia’s Skolkovo Foundation and Chinese investment group Cybernaut have agreed to launch a $200 million venture fund and joint

business incubator, bringing a wave of new cooperation between Russia and China to the world of high technology. The incentives were clear for Cybernaut, an eight-year-old fund that currently manages $5 billion in assets. The $200 million venture fund will invest in companies based in Skolkovo that work “in the sphere of IT and robotics as well as space technology and telecommunications,” the two companies said in a press release cited by RBTH. • The number of donations from individuals in Russia has increased and now represents 90% of all money given to charitable foundation Zhivoi (“Alive”). Many donations are small, between 5 rubles (0.1 cent) to 150 rubles ($3). Even as Russia’s economic crisis sees corporate donations decline dramatically, charitable organization are seeing more and more ordinary Russians step up to the plate. • Russian tycoon Roman Abramovich is investing $15 million in music app Music Messenger, co-founded by Israeli entrepreneur O.D. Kobo. Other backers include Benny Andersson from pop band ABBA, artists David Guetta, Will.i.am and Avicci, and Gee Roberson, manager of Nicki Minaj, who is also an investor. Music Messenger allows users to create multiple playlists and send music to each another’s mobile phones for free.

Russian Exports: A Bright Spot in Timber Trading Russia has drastically increased timber exports, as a cheaper currency boosts the competitiveness of one of the country’s top non-oil exports.

• Russia has seen a 68% drop in permits for U.S. workers in first quarter. In the first three months of the year, companies were granted the right to employ 411 Americans under Russia’s foreign worker quota system, 68% fewer than in the same period last year, RBC reported. Quotas given for EU citizens dropped 37% to 10,628 people.

Officials hope that the economic downturn comes with a silver lining: a cheaper ruble that will boost exports

ALYONA REPKINA

“Prospects on the whole are very good, but this is mainly due to the weak ruble, which makes exports attractive, as expenses for exporting companies are mainly in rubles,”said UFS IC chief analyst Ilya Balakirev. As a result, he said, all exporters are trying to increase the share of products shipped to foreign markets, this applies to metallurgists, food producers and other industries. . However, redirecting domestic supplies to foreign markets may also create shortages and price increases within Russia, Balakirev added. In particular, it is for this reason that the Russian authorities imposed export duties on grain at the beginning of 2015, and did not rule out similar moves in the metals industry in the future. “Growth of Russian non-oil exports is possible, especially in the export of agricultural products, including grains and products with a low degree of processing,” said RANEPA Associate Professor Ivan Kapitonov. According to him, manufacturers have improved their

portation Agency. In the first three months of this year 7.4 million passengers flew with Russian airlines on international routes, down from 8.8 million in the same period last year, the data showed. Carriers have been hit hard by the decline in the value of the ruble.

REUTERS

The ruble factor

DPA/VOSTOCK-PHOTO

RBTH

Russian policymakers are seeking to turn economic headwinds into new advantages for export growth, after a steep plunge in the value of the ruble in 2014 made Russian products more attractive in international markets. The fall of the Russian currency presents a window of opportunity for Russian companies to dramatically increase the export of goods beyond Russia’s traditional reliance on oil and natural gas, analysts said. “The goals pursued by the sanctions [imposed against Russia in connection with the Ukrainian crisis] have not been achieved. It is impossible to isolate the Russian economy,”said vice-president of the Russian Chamber of Commerce, Georgy Petrov, during a public discussion on Russia’s economic prospects at the Open Russia forum in Moscow this spring.

Russia may become China’s biggest timber supplier by next year.

IN FIGURES

$1.6 Bn The total amount Chinese investors may put into the biggest project in Russia’s timber industry.

7.9% Russian timber exports growth in 2014, making the industry one of Russia’s fastest growing export areas.

ket quickly recovered after the crisis and already in 2013 demonstrated enormous growth in the demand for boards,” says Bogatyrev. “As a result, Canada redirected a substantial part of its export from China to the U.S.” Nevertheless, besides making Russian products more attractive on international markets, the decline of the ruble also puts pressure on Russian companies’ costs. “Russia imports most of the tech-

nological and auxiliary equipment and the devaluation of the ruble in this case leads to an increase in the payback period,”explains Boris Kaznacheev, Deputy General Director of the Russia-Chinese RosKitInvest Company.

The search for partners Russia’s main suppliers for the Asian markets of China, Japan and South Korea are regional producers located in Siberia and the Far East, who have been evaluating multi-million investment proposals from prospective Asian partners. The largest example of RussianChinese cooperation today is the construction of the Asinovsky timber industrial park in the Tomskaya Region with an annual timber procurement and processing volume of 4.5 million cubic meters. The main investor is the Chinese AVIC International, which manages the project through its Russian branches, RosKitInvest and Khenda-Siberia. “The total investment volume from China to that project may reach 80 billion rubles ($1.57 billion),” says Boris Kaznacheev of RosKitInvest.

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RUSSIA-DIRECT.ORG March Monthly Brief

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Special Report

THE WAR IN FIGURES

What the USSR built during the war In 1989, as part of preparations for the 45th anniversary of Allied victory in the World War II, the State Statistics Committee of the USSR was instructed to study the scale of the losses the Soviet Union had suffered during the war. To that end, data on human losses that were kept in state archives were declassified. Ahead of the 70th anniversary of the victory, the Russian Federal State Statistics Service has expanded the data and released them in a dedicated publication.

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Q&A LEGACY OF THE LEND-LEASE PROGRAM

ALLIES GAVE SOVIETS $130 BILLION UNDER LEND-LEASE HISTORY PROFESSOR OLEG BUDNITSKY SPEAKS ABOUT THE

ALYONA REPKINA

thanks to American military equipment.

How great was the economic importance of military cooperation between the USSR and the U.S.? What is the importance of the Lend-Lease for the formation of economic relations between our countries? It was large-scale military technical assistance from the Allies, especially the U.S., but also the UK and Canada. Volumes of this support are assessed differently. In the Soviet tradition, it was assumed that it was 4% of the total production capacity of the USSR, but the latest research shows that in reality the level was as high as 7%. The importance of economic cooperation with the U.S., UK and Canada cannot be overestimated. According to the dollar rate of 2003, the inflation-adjusted value of these supplies amounted to $130 billion. These supplies were critical in some key areas. For example, in the beginning of 1942,Western tanks fully replenished Soviet losses, and exceeded them by three times. About 15% of the aircraft used by Soviet air forces were supplied by Allies, including the Airacobra fighter and Boston bomber. The Allies supplied 15,000 state-of-the-art machines at that time; for example, famous Soviet ace Alexander Pokryshkin flew Airacobra, as did the rest of his squadron. He shot down 59 enemy aircraft, and 48 of them were

plied more than 400,000 vehicles, mainly trucks, to the USSR. During the occupation, the German concern Daimler Benz set up a vehicle assembly line at a factory in Minsk (now the capital of Belarus). After the liberation of the city, the assembly of American vehicles under Lend-Lease was organized there. It was not only supplies of finished products, but also raw materials that were extremely important – metals, chemicals and products, which were either not produced in the USSR or lost to the enemy. For example, more than half of Soviet aircraft were produced using aluminum supplied by the Allies.

If we speak not only about the supply of military equipment, but also industrial appliances and accessories, what was the volume of cooperation here? One of the main areas of cooperation was aviation fuel. The USSR could not produce gasoline with high octane. However, it was this fuel that was used by the equipment supplied by the Allies. In ad-

In the first protocol of Lend-Lease, only 20% of deliveries were military equipment, while 80% were related to industrial and food production. The Allies gave the USSR 1900 locomotives and 610,000 tons of sugar.

What portion of these supplies served military needs directly, and can we talk about a fully-fledged civil partnership? In the first protocol of the LendLease (there were four of them), only 20% of deliveries were in military equipment, while 80% were related to industrial and food production. The Allies supplied 1900 locomotives to the USSR, while only 446 locomotives were produced in the country itself during the same period, as well as 11,000 carriages, while only a few more than 1,000 were

dition, the Achilles heel of the Soviet Army was communication and transport. The Soviet industry simply could not meet the demand either in number or in quality. For example, the army lost 58% of its vehicles in 1941 alone. To recover these losses, the Allies sup-

REUTERS

CONTINUED FROM PAGE 1

Every year, Russia’s leadership throws out all the stops for a massive military parade on Red Square, and typically invites dozens of heads of state to join them in marking the occasion. Indeed, the Soviet Union endured the highest casualties of any country in the war, with estimates ranging from around 20 million to 28 million. The colossal human sacrifice made by the Soviet Union has led many average Russians today to feel their country paid the lion’s share of the cost for defeating Nazi Germany. This year the ceremonies come at a time when Russia is at bitter odds with the West over the armed conflict in Ukraine, and as economic sanctions threaten to force average Russians into making sacrifices due to Russia’s standoff with the West. During a recent meeting of the committee organizing the 70th anniversary celebrations this year, Russian President Vladimir Putin lashed out at unnamed critics he accused of attempting to downplay

Russia’s role in the Second World War — which is known as The Great Patriotic War in Russia. “Unfortunately, today we see not only attempts at distorting the events of that war, but also unmasked cynical lies and impudent defamation of an entire generation of people who gave up everything for thisVictory, who defended peace on earth,” Putin said. “We should constantly, firmly, persistently and with reason assert the truth about

“World War II is an event very different in the minds of Russians and Americans,” said Paul Goble, political analyst. the war, about the colossal contribution of the Soviet people to the Victory.” Years after the Soviet Union collapsed, Putin himself revived the May 9 military parades on Red Square, the historic open space next to the Kremlin in Moscow, in an event that features tanks, missiles, and hundreds of marching soldiers. Indeed, in recent years, atten-

Soldiers parade on Red Square as part of the annual Victory Day celebrations in Moscow.

made in the USSR. It is impossible to imagine how the Soviet economy would have functioned without these supplies. For example, the telephone cable provided by the Allies could wrap the Earth at the equator. The Allies’ aid was also critical in the reconstruction of production in the liberated regions of the country, including the role of seeds for the resumption of agriculture. Specific products were also supplied; the Allies delivered 610,000 tons of sugar to the USSR, where-

Lend-Lease American pilots retrace the route

ULLSTEIN BILD/VOSTOCK-PHOTO

For Russia, 70th WWII Anniversary Looms Large dance by foreign leaders at the May 9 parade can be viewed as a bellwether for Russia’s relations with other countries. In late March, Russian Foreign Minister Sergei Lavrov said leaders of 26 countries plan to attend the Victory Day celebrations in Moscow in 2015, including Chinese President Xi Jinping and North Korean leader Kim Jong Un. British Prime Minister David Cameron has declined Russia’s invitation. In early March, British Foreign Secretary Philip Hammond said Russia may pose the greatest threat to British national security. By contrast, U.S. and British troops joined Russian soldiers in marching across Red Square in 2010, while former U.S. President George W. Bush traveled to Moscow in 2005 to sit right next to Putin for the 60th anniversary. Meanwhile, German Chancellor Angela Merkel, a Russian speaker who has led diplomatic attempts to negotiate peace in Ukraine, has said she will not attend the military parade on May 9, but will instead join Putin in laying a wreath at the Tomb of the Unknown Soldier beneath the the Kremlin Wall on May 10. The move is being seen by political observers as walking a fine line between acknowledging the importance of the occasion to Russia while also avoiding the political pitfalls of spending an afternoon admiring Russian military hardware on parade. Even some post-Soviet countries are walking a complicated political balancing act when it comes to noting the May 9 ceremonies. President Alexander Lukashenko of Belarussia, long an ally of Russia, announced in late April he won’t attend the Victory Day events in Moscow on May 9 because he’ll be attending another event in the Belarussian capital of Minsk, but added that he will“probably”visit Moscow on May 7 or 8.

ECONOMIC ASSISTANCE THE U.S. GAVE THE USSR IN WWII.

Flying into LendLease history An American foundation and its Russian partners hope to retrace the historic Lend-Lease route from Alaska to Siberia. ALEXANDER BRATERSKY SPECIAL TO RBTH

Today, as many American politicians express concerns about Russian military patrol flights stretching to the East Coast of the United States, it seems impossible to imagine that there was a time when 19% of Russian military aircraft were built in the U.S. In October 1941, the Lend-Lease Act, which provided U.S. military aid to the UK and China, was extended to the Soviet Union. From October 1, 1941 to May 31, 1945 the U.S. provided the Soviet Union nearly half a million vehicles, 2 million tons of gas and oil and nearly 4.5 million tons of food, along with more than 8,000 aircraft. There were several paths by which American goods reached Soviet territory, but the most direct was the Alaska to Siberia air route, known as ALSIB, which reached from the Ladd Army Airfield in Fairbanks, Alaska to Soviet pilot training facilities in Krasnoyarsk – a distance of nearly 4,000 miles. Starting in 1942, nearly 8,000 planes were flown to Russia via the ALSIB route. As part of the Lend-Lease program, the U.S. supplied the Soviet army with the Douglas C-47 Sky-

train, the Douglas A-20 Boston/ Havoc and the legendary Bell P-39 Airacobra, the principal American fighter aircraft of the time. The Airacobra was popular among many Soviet pilots, including World War II hero Alexander Pokryshkin who shot down 48 German planes while flying one:“I liked the Airacobra, because of its appearance and powerful weapons,” Pokryshkin wrote in his 1986 autobiography “Know Yourself in Combat.” During the war, the Soviet Air Force scored more kills per pilot with the Aircobra than pilots using any other type of U.S. fighter plane. This year, the Bravo369 Flight Foundation, with the support of Russian aviation company Rusavia, plans to trace the entire route of the ALSIB route, starting not in Alaska, but at Great Falls, Montana, which was a staging area for many of the planes eventually shipped across Siberia. Jeff Greer, the president and executive director of Bravo369, told RBTH: “We have found that very few people including historians, government officials, military personnel, students, or the general public have ever heard of ALSIB or know of its importance... nor are they aware of the friendship and cooperation that existed between the Soviet Union, Canada, and the United States during that time.”

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as the USSR itself produced little more than 1.46 million tons. How serious was the decline in cooperation after the war? The fall was quite sharp, in the first place because the Lend-Lease had ended. The equipment destroyed during the fighting was written off, but what was left was to be returned. Before ending the war, the USSR and the U.S. were negotiating loans for the restoration of the national economy. In particular, the U.S. offered to the Soviet leadership a large-scale loan for 35 years at 2% per annum.There were counter-pleas from the Soviet government, specifically Foreign Minister Vyacheslav Molotov tried to negotiate a loan for $6 billion for 30 years, but economic ties failed to develop. The USSR was afraid to get into economic dependence on the West, since the Soviet leadership did not believe in the sincerity of help from the Allies.

The Order of the Patriotic War, established in 1942, was the Soviet Union’s first military award of the conflict. Given for heroic deeds by troops, security forces and partisans, it had two versions, first and second class. Until 1977 it was the only Soviet order that could be retained by relatives after the death of a recipient. All others had to be returned to the state.

The most common Russian wartime award is the medal For the Victory Over Germany in the Great Patriotic War 1941–1945. Established on Victory Day, May 9, 1945, more than 15 million people qualified as recipients.

Prepared by Alexey Lossan

HIS STORY

Oleg Budnitsky DIRECTOR OF THE INTERNATIONAL CENTER FOR THE HISTORY AND SOCIOLOGY OF WORLD WAR II AND ITS CONSEQUENCES AT THE HIGHER SCHOOL OF ECONOMICS

The U.S., UK and Canada supplied the USSR with some $130 billion worth of supplies during WWII.

Oleg Budnitsky is Doctor of Historical Sciences, Senior Fellow of the Institute of Russian History of the Russian Academy of Sciences and Director, International Center for Russian & East European Jewish Studies. He has authored or edited over 150 publications on 19th- and 20-century Russia.

New York An archive is preserving the stories of Soviet Jews who fought during WWII

Soviet Jews in the Red Army: Archiving Personal Histories An archive based in New York is dedicated to recording and preserving the memories of Jewish military veterans who fought alongside Soviet forces during World War II. ALEXEI TIMOFEICHEV, RBTH

LEONID REINES, SPECIAL TO RBTH

While the tragic history of European Jews during the period from 1933 to 1945 is well known to many, the achievements and sacrifices of Soviet Jews who took part in the military struggle against Nazi Germany is, perhaps, one of the lesserknown parts of that story. Uncovering the lives of these Soviet Jews and their life during wartime is the goal of the Blavatnik Archive Foundation, founded by Leonard Blavatnik in 2005. Blavatnik, who made a fortune in the oil, petrochemicals and plastics industries via his holding company Access Industries, was born in Odessa to a Jewish family but emigrated to the United States in 1978. More than half a million Soviet Jews were either drafted or volunteered to fight in the Red Army after Hitler’s forces invaded the USSR in June of 1941. Others fought in partisan regiments in parts of Ukraine, frequently in the area that had once been the ‘Pale of Settlement’ for Russian Jews during Tsarist times. More than 200,000 of them died on the battlefields. Between 2 and 2.5 million Jews who died in the Holocaust came from Soviet territory – half the Jewish population of the Soviet Union on the eve of the war. The goal of the Blavatnik Archive is to tell the stories of Jews in the war through the remembrances of those who fought. Over the past 10 years, archivists have visited 11 countries and created more than 1,100 video recordings of individual stories told by Jewish veterans. The veterans talk about their youth, about the humanitarian disaster that followed the Nazi invasion, about wounds and death, about friendships on the front forged by blood, about grieving the dead and longing for their families. Besides the video recordings of the individual recollections, the archive contains thousands of pages of personal diaries, letters from the front, documents and photographs from the war period. “I am convinced that the historical material preserved in the archive can truthfully illuminate a little-known page in the history of Soviet Jews,” says Blavatnik. “Tens of thousands of Soviet Jews fighting in the Red Army were honored with orders and medals of the Soviet Union. We should always remember the

deeds of the war generation with gratitude, a generation that with unprecedented in history courage and self-sacrifice rose to defend mankind’s better future.” The archive, which is based in New York, maintains contacts with museums and educational institutions in Russia, Canada and Israel. Oleg Budnitsky, Head of the International Center of History and Sociology of World War II at the Higher School of Economics in Moscow has been a member of the archive’s academic council for several years. “The Jews who, especially in the West, are often viewed exclusively as victims of the Holocaust, are presented in the archive as soldiers fighting the Nazis, defending themselves and avenging their relatives,” Budnitsky says. Budnitsky points to the Soviet military as a means for Jews to engage in massive, organized and active resistance to the Nazis. However, Budnitsky notes that the archive project is also unique in that the subject of the Holocaust itself was not as widely discussed during the days of the Soviet Union as it was in the West. Soviet authorities sought to portray their vast and multi-ethnic country as a place in which all nationalities were treated as equal citizens of the Soviet state. That meant that emphasizing the suffering of Jewish people during the war was not considered by officials to be patriotic, he says. “In places where mass murders of Jews took place, there were signs about the death of Soviet citizens killed by the Nazis, which of course is true, however, they were killed only because they were Jewish,” Budnitsky says. Archive Director Yulia Chervinskaya says that the project’s objective is to“preserve a picture of life on the front and make a contribution to a better understanding of World War II,” adding that there was not one family in the entire territory of the former Soviet Union that was not affected by the tragic events of 1941-1945. Some material in the Blavatnik Archive, including interviews with veterans, can be found online. The Archive has also recently published the first in a multi-volume, bilingual series about Soviet Jews in the war. It hosts exhibitions and makes its material available to researchers upon request. More information about the Blavatnik Archive can be found on its website: Blavatnikarchive.org. Here, then, are selections from some of the stories of the Jewish veterans, told in their own words:

Abram Abramovich Litvin

Born in Odessa, Ukraine, in 1924. Interviewed in Odessa in 2009, he recalls his route from Bryansk to Berlin. “I was never in the rear, always on the front line. During the war, I was a 19-year old guy, platoon commander. I was awarded the Order of the Red Star, the Order of the Patriotic War 2nd class, and the Order of the Red Banner which was considered the second honor after the Order of Lenin. I’m from Odessa and [my commander] assumed that I was an excellent swimmer. That’s what he assumed, though I would take third place [as a swimmer], behind a hammer and an iron. I was an awful swimmer. But crossing a river? I was afraid that someone might say or might think… I’ve already heard this talk, that Jews are all in Tashkent, that all the Jews are [hiding] somewhere in evacuation… The thing was that I was afraid that someone might say that I’m afraid. And that’s how I was from Bryansk to Berlin. I was wounded four times.”

THE HEROES OF VICTORY ONLINE During nearly four years of fighting in what was for the Soviet Union total war, Red Army y soldiers won more than 38 million awards, orders and medals for bravery and for taking part in various campaigns. Sadly, in many cases the award never reached the serviceman or servicewoman who had earned the honor through their sacrifice and courage. New technology now allows the families of veterans – and surviving veterans themselves – to check online to see if there are awards due to them. In the 70 years since the end of the war, its survivors and their descendants have scattered across the world. The goal of the Zvezdy Pobedy (Stars of Victory) project is to provide a way for these far-flung former Soviet citizens to check if they have missed out. There are more than 8,200 names listed in the database, which can be read in Russian at rg.ru/zvezdy_pobedy. With the help of readers, RBTH editors have already found the families of five women listed in the database. If you have Russian friends who live in your country, you are an émigré or a descendant; or if any of your relatives, male or female, fought or served in 1941-1945, please visit the website and check to see whether you or they are among those still awaiting an award. RBTH will update readers with details of those veterans who have been found through the online database. Please let us know if you think you or people who you know missed out, by emailing info@rbth.com

One of the most prestigious wartime awards is The Medal for the Capture of Berlin. Given to all those involved in the storming of the capital of Hitler’s Third Reich or its organization, more than a millon were issued. There are also medals from other campaigns as the Red Army swept to victory across eastern Europe in 1944 and 1945.

Simeon Grigoryevich Shpiegel Born 9 February, 1923 in Kiev, Ukraine. Shpiegel returned to Kiev after the war, where he lived until he emigrated to New

York in 1994. He was interviewed in New York City in 2007, during which he recalled fighting in Stalingrad. “We slept in the basements of these houses, destroyed houses. But you could sleep in the basement. Once, my commander, Fyeodr Podisemoff, told us that in one basement the people had left, and there were blankets and pillows and we could spend the night there. We slept and in the morning we discovered that there were corpses under the blankets. Those were the conditions we lived in. “Many say that it wasn’t frightening at the front. I repeat: It was frightening.”

Discover the Unknown War in the pages of this issue and find out much more at UNKNOWNWAR.RBTH.COM

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Finance Visa and Mastercard enroll in Russia’s new officially-mandated local payment system

Why today’s Russia isn’t the 1980s Soviet Union Alexey Lossan RBTH

erators as an alternative to Western payment systems. Immediately after the introduction of sanctions against Russia by the U.S., the Chinese bank card system UnionPay entered the Russian market in April 2014, followed in March 2015 by Japan Credit Bureau (JCB). By 2017 Russia plans to issue about two million UnionPay cards and three million JCB cards.

Russian Payment System Ramps Up

Alexey Lossan is a reporter for rbth

THERE ARE MANY WAYS TO READ ABOUT RUSSIA WE PROVIDE OUR AUDIENCE WITH FULL RANGE OF OPTIONS

Banks are insuring themselves

DPA/VOSTOCK-PHOTO

or a long time, entire sectors of the Russian economy were made up entirely of imports from abroad. But sanctions from the U.S. and EU, along with the sharp 50% drop in the value of the ruble at the end of 2014, have forced Russia to rethink its developmental model. Previously, the Russian market sought to protect itself from an influx of higher-quality foreign goods with import duties. That strategy, at last, went out the window. The reduction of the population’s purchasing power and the weakened ruble now protect Russian producers better than any duty could. This spurs hope for the growth of exports of products beyond raw materials. Russian imports in January 2015, immediately after the fall of the ruble against the American dollar, plummeted by 41% to $11.19 billion compared to January 2014. In the automobile and equipment sectors, the decline was 45%. Imports of food products fell 42%. Russian individuals and legal entities started buying products from abroad in much smaller ammounts than before. To be sure, the volume of Russia’s total exports also fell, since the lion’s share of that trade consists of oil and gas. In the last year the price of oil fell by more than 50%. However, Russian exports in January 2015 fell by only 30% year-on-year to $27.5 billion, as the export of energy resources shrunk by 33%. Meanwhile, the export of certain goods increased. Russian firms began selling more grain, fertilizer and food abroad, as the falling cost of these goods based in foreign currencies made them more competitive on the world market. This tendency leads to the fact that Russia’s trade balance remains positive, despite the financial crisis and the economic recession. Some pundits have sought to draw a comparison between Russia’s current economic malaise and the Soviet dysfunction of the late 1980s, when a sharp drop in oil prices slammed the Soviet economy. At that time, the Soviet Union responded by increasing imports, creating an unsustainable imbalance that hastened the collapse of the Soviet economy. But now, having drastically devaluated the national currency, the Russian government has been able to avoid repeating the mistake.

Russia’s national payments processing system aims to buttress the country’s independence from global finance.

Visa and MasterCard have started processing payments in Russia’s new national processing system, launched in response to U.S. sanctions against Russia. ALEXEY SERGEEV RBTH

Visa and MasterCard have begun processing payments in Russia’s new domestic payment processing system, lending credibility to the program at a time when Russia is battling to overcome Western sanctions aimed at isolating the country from the international financial networks. The U.S.-based payment processing companies joined Russia’s newly-created National Card Payment System (NCPS) on April 1 in what is being seen by analysts as the first step towards the creation of an autonomous financial system in Russia. “The national system has already been introduced, quickly and at little cost, and it has fully resolved the problem of payments inside the country,” says Sergei Khestanov, professor of finance and banking at the Russian Presidential Academy of National Economy and Public Administration.

If Visa and Mastercard do not fulfill the requirements of the Central Bank, they will have to pay a security deposit, whose size will be linked directly to the turnover of the credit card systems. Morgan Stanley estimated the figure at $950 million for Visa and $500 million for MasterCard. The Russian government moved to place all settlements under domestic control after the international payment systems blocked the cards of several banks in March 2014, following the imposition of sanctions on Russia by the U.S. in response to Moscow’s takeover of Crimea.

plains Anton Soroko, an analyst at Finam Investment Holding. Visa signed the agreement with the new system only on Feb. 19 of this year, while MasterCard has been on board since Jan. 12. For the time being, experts say the success of the new system is still unproven. In addition, the two companies haven’t moved at the same pace: Visa’s integration has been more difficult, as the

But difficulties remain

“The national system has already been introduced, quickly,” says Sergei Khestanov, finance professor.

According to Khestanov, processing Visa and Mastercard transactions through the national system should be viewed as something of a middle-path between independence and connectivity with the global financial infrastructure: The Russian government’s control of the transactions will strengthen, but international systems will continue to operate in Russia. “The potential of the development of the Russian cashless payment market is still enormous,”ex-

company’s protocols are seen as being more complex than MasterCard’s.“We will see if this will be successful only after the infrastructure assumes the full burden,” says chief analyst at UFS IS Ilya Balakirev. The next stage should be the Russian national payment system’s issuance of plastic cards, which is slated for December 2015. The picture is further complicated by the emergence of Asian op-

High Speed Rail Russia and China are working on plans for a massive, high-speed rail connection

Russia to China, at High Speed Russia is gearing up to build its first new high-speed rail system, potentially backed by $6 billion in Chinese investment, according to media reports.

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Chinese investors may provide 300 billion rubles ($6 billion) in financing towards the construction of a 770 kilometer high-speed rail line from Moscow to the regional city of Kazan, in what would be the first stage of a massive new link between Moscow and the Chinese capital of Beijing. If completed, the high-speed rail would represent the initial stage of a futuristic version of the legendary Trans-Siberian Railway, which has connected Moscow in Western Europe with Vladivostok on the Sea of Japan since 1916, and is currently the longest railway in the world. The majority of the proposed funds, about 250 billion rubles, would come in the form of 20year loans from Chinese banks, Russian news agency RIA Novosti reported, citing unnamed sources familiar with the Chinese proposal. Construction of the first link from Moscow to Kazan, the capital of Russia’s majority-Muslim Tatarstan region, is scheduled for completion by 2020 according to Russian newspaper Kommersant, which cited Alexander Misharin, the vice president of Russia’s state-owned rail holding, Russian Railways. Russian Railways, in cooperation with the German engineering company Siemens, has already launched a high-speed train between Moscow and the relatively close regional city of St. Petersburg. But this route used existing railway infrastructure.

The amount that Chinese investors may provide in financing the construction of the first high-speed rail line in Russia.

RUSLAN SHAMUKOV / TASS

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Large Russian banks have warned their clients of possible interruptions in the servicing of payment cards. In particular, on March 30, the largest issuer of banking cards in Russia, state-owned Sberbank (102 million cards issued), started transferring internal Russian MasterCard transactions to the national system. Meanwhile, the Russian news agency Interfax cited Director of Banking Card Management and Cash Settlement Services at Sberbank, Rostislav Yanykin, as saying that the transfer ofVisa card transactions will take up to two weeks. Representatives of Raiffeisenbank were even more pessimistic. “The success of carrying out transactions in the given situation depends on several participants of the settlements, including the National Card Payment System, which is why it may take a while to solve the problem,” the Raiffeisenbank press office said. Small banks were the first to adopt the new system, with the St. Petersburg-based Bank BFA announcing its full transference to the National Card Payment System on March 27. On March 25 the Tatfondbank in the city of Kazan, 800 kilometers east of Moscow, announced it had successfully tested card transactions using the national system. According to the scheme adopted by the Central Bank of Russia, the authorization - meaning the issuance of permission for conducting transactions with particular cards - will be given by Visa, while the clearing of payments will be handled by the national system. By comparison, MasterCard has already transferred all its operations to the NCPS. Observers said MasterCard’s transfer over to the national system proceeded rather smoothly, while Russian banks reported they did not register significant complaints from cardholders. With Visa, however, the division of authority and clearing between Visa and the NCPS may create additional difficulties for banks and cardholders.

770 km The length of the line from Moscow to Kazan. This is the first stage of a massive new link between Moscow and Beijing.

A high-speed rail line may eventually connect Moscow with Beijing.

Chinese funding for Russian rails? Russia and China have been holding discussions on constructing a megalong-distance, high-speed rail connection between the two countries’ capital cities since 2012. But plans stalled as Russia’s economy entered recession, and funding for the project began to look doubtful amid a decline in Russia’s currency, the ruble. Talk of moving forward on the early stages of the project, an initial link from Moscow to the regional Russian city of Kazan, using Chinese funding, gained credibility in October 2014 after the two governments signed a memorandum of understanding on the project. Potential Chinese partners include the China Investment Corporation, the CREC Construction and Engineering Company, as well as one of China’s largest manufacturers of railway trains, China CNR Corporation Limited.

Standstill

Whose rail?

The project to start building a longdistance high-speed rail link stretching across Russia’s vast interior and connecting the capitals of Russia and China has been under consideration since 2012, and the proposed Chinese funding may help push the project forward out of its current impasse. The Russian government has long debated financing the costly pro-ject from the state budget. In February 2015, the head of Russian Railways,VladimirYakunin, threatened to abandon the project if the company did not receive the first tranche of funding from the Russian state in the first quarter of the year. In response, the Ministry of Economy proposed that Russian Railways split the cost “approximately in half”with the government. Further expansion may stretch the rail line on to China either through the Central Asian country of Kazakhstan, or else through the Russian section of the Altai mountain range in Siberia, Russian Railways has said.

At present, China has the world’s largest network of high-speed rails with a total length of 15,400 kilometers (9,625 miles) and a top speed of 350 kilometers-perhour. Despite the report of Chinese proposals for financing, Russia’s bid to gain strong support for the larger project from Chinese partners looks doubtful, said Konstantin Trofimenko, director of the Center for Study of Transport Problems of Mega-Cities at the National Research University Higher School of Economics in Moscow. “Usually, Chinese investors work under the following scheme: they offer their money, but at the same time oblige the partner to buy Chinese technologies and hire Chinese workers – providing that the money returns to the economy of China,” he said. The Russian government should therefore consider building the link with its own money, he added.

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RUSSIA WILL SAVE ITS BANKS, LIKE THE U.S. AND THE EU DID Konstantin Korischenko EXPERT

T KONSTANTIN MALER

CHINA-LED BANK FACES U.S. RESISTANCE Vladimir Mikheev EXPERT

hina’s decision to set up a $100 billion Asian Infrastructure Investment Bank is coming to fruition. Chinese officials claim that at least 35 countries will join the new umbrella financial group. The move is starting to look more and more like a watershed event marking a new flexible and sophisticated approach by China to engage with both developing countries in need of loans and the industrial nations. America has sought to keep its time-honored allies from joining the China-led financial structure, as could have been expected. This pressure reflects the logic of America’s zero-sum approach to China’s ascension to global prominence. It is also an indication of the slow erosion of the U.S. grip on global finances. To be sure, several factors have combined to undermine the credibility of the international dominant financial institutions, including sanctions between Russia and the West, trouble around the globe from the Middle East to Hong Kong, and attempts by the United States to bring economic relief to its own citizens by striking a comprehensive trade deal with the Euro-

pean Union at the expense of European business and taxpayers. On top of that, the U.S. Congress has shortsightedly prevented China and the emerging economies having a bigger say in running the International Monetary Fund. This opposition has led to a backlash resulting in an unexpected backing of Beijing’s promoted Asian Infrastructure Investment Bank. However, the idea of joining a Chinese bank has triggered off a barrage of criticism from the United States, created a split within the transAtlantic alliance, and raised both hopes and fears about the prospect of ruining the Washington Consensus. Just to remind you, the Washington Consensus represents a packaged prescription for reforms in the third World which had been elaborated jointly by the Washington-based institutions such as the International Monetary Fund,World Bank, and the U.S. Treasury Department. The Asian Infrastructure Investment Bank is designed specifically to source finances to build roads, rail and power projects, and thus presents an alternative to the World Bank and other U.S.linked financial institutions. It would also compete with a similar loan-provider in Japan, Asian Development Bank (ADB), which used to serve as a major donor for the nations in Asia.

In order to avoid accusations of taking a heavyhanded approach to lending money while lacking transparency, China pledged to take into account different opinions and even granted the participants veto powers. Beijing’s moves created confusion among several staunch allies of the United States. Eventually, some of them broke ranks and decided to jump on the band wagon, apparently out of fear of being left out in the cold. The United Kingdom, Germany, France and Italy applied to join the China-led mega bank. This demonstrative act of desertion infuriated Washington for quite good reasons. Yet, there can also be a different interpretation of the volte-face by the Europeans. At present, the money markets are dominated by two giants, the World Bank and the International Monetary Fund. Both emerged as a product of the Bretton Woods system in 1944 which established the supremacy of the American dollar as the one and only common denominator in the world of finances. This pecking order remained unchallenged until recently when gradual changes in the hierarchy of economic powers provoked trade and currency wars. Money talks, and it seems that in the future, it will frequently speak Chinese.

Konstantin Korischenko is Director of the Department of Stock Markets and Finance Engineering at the RANEPA Faculty of Finance and Banking. He is also ex Vice President of Central bank.

The author is an independent journalist.

AFTER UKRAINE: AN ERA OF DANGEROUS MULTIPOLARITY Petr Kopka EXPERT

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he year that has passed since the commencement of large-scale military operations in Eastern Ukraine has been marked by many significant events in the field of international relations. But the main conclusion that presents itself, whether solicited or not, is that the international community was fundamentally unprepared to deliver an adequate response to different scenarios for developments on the ground. It so happened that in March 2015, within days of each other, two high-ranking international officials effectively admitted that today’s global institutions are unable to cope with the new challenges and threats facing the world in the twenty-first century. First, NATO Secretary General Jens Stoltenberg told Sky News in London that, since Ukraine was not part of NATO, the latter would not interfere in the “Ukraine conflict.” Stoltenberg stressed that the North Atlantic alliance was responsible for protecting and defending its allies, of which none was under attack. Nevertheless, he said that NATO could not agree with or accept what Russia was doing in Ukraine, for which reason the alliance had offered Kiev its strong political backing. It is unclear what these words highlight more: the failure to fully grasp the severity of the current threats, the aspiration to unconditionally comply with statutory provisions, or the inability of the alliance to make its impact felt in the field of international security. Perhaps it is a bit of all three. However, such blunt utterances provoke not only surprise, but also anxiety that

a world of violent confrontation and fragmentation is becoming the norm. Where once there was a bipolar confrontation between opposing systems on ideological grounds, today’s poorly structured modern world is gradually stoking a confrontation based on the Hobbesian principle of “all against all,” replete with all the rapidly changing configurations, objectives, interests, unions, and centers of attraction and repulsion that ensue. Speaking at a symposium on the 70th anniversary of the United Nations at the U.N. University in Japan, Secretary General Ban Ki-moon addressed that very issue. In particular, he stated that the security landscape was becoming increasingly complex. There are a few players on the battlefield, but many more acting behind the scenes. Consequently, as underlined by Ban Ki-moon, the U.N. Security Council has been unable to frame a common position on Syria and Ukraine. The only way out of the “Ukraine crisis,” in his view, is through the“genuine willingness”of the warring parties to“implement the Minsk-2 ceasefire agreement.” On that point he agrees with Stoltenberg, who believes that “the most important thing now is to support the implementation of the Minsk ceasefire agreements, to guarantee the withdrawal of weapons from the front line, and maintain control over the process. However, both international officials, wittingly or otherwise, are leading the global community, their esteemed international organizations and themselves astray. The Ukraine-Russia conflict (which, for the sake of correctness, is what the processes occurring in the east of Ukraine should be called) did not initially presuppose the existence of a mechanism for a peaceful settlement.

What Russia was (and is) doing in respect of Ukraine in no way provided for a possible return to the preaggression status quo or even for a compromise solution. Everything is tailored not for a peaceful return to the past, but for the violent overthrow of the existing order with the prospect of an endlessly expanding zone of instability and general havoc to come. This confirms yet again the inference that Crimea and the escalation of tension in eastern Ukraine was merely a detonator for the time bomb planted under the existing system of international relations and an anti-handling device intended to stymie efforts to restore security within the framework of global reality. The situation is aggravated by the fact that

he Russian government has adopted an anti-crisis plan for a $20 billion recapitalization of the Russian banking system. By doing so, the Russian government is repeating the success of the U.S. and the EU. The first thing the U.S. did when the crisis began in 2007 was give assistance to banks, providing them with additional capital and beginning a large-scale asset buying program, starting with mortgages. The EU carried out similar measures during the 2011 crisis, as Japan did in its own crisis during the 1990s. Active state support of the banking system during such times is a necessity, because banks are the “circulatory system” of the economy, and the “blockage of blood vessels” can have the gravest of consequences. Why should the government allot $20 billion? First of all, this concerns the necessity of support for the growth of the economy, which cannot recover without the increase of business credit. In 2014 the volume of money in circulation (M2) grew by only 2%, which is extremely little for guaranteeing the growth of the economy and is actually a sign of a restrictive monetary policy. In many respects the problem of credit growth is due to the increase of bad loans in the banking system. Consequently, the level of capital sufficiency in the system approached 11%, which is an indicator that additional capital is needed very badly. It is impossible to provide credit within the economy without capital, even given the presence of very attractive borrowers. Moreover, the condition of today’s market doubtfully presents the hope that a sufficient number of quality borrowers will be found among the population and among small and medium businesses, those that will be able to borrow tens of billions of rubles a month according to today’s high rates. Therefore, the stabilization of inflation and the value of the ruble are very important conditions for the success of the recapitalization of banks. For the sake of being just, we need to underline that not only the government but also the Bank of Russia and Parliament understand the significance of the banking system for the recovery of the Russian economy very well, which reflects in the measures being adopted on all fronts.

all this is happening against the backdrop of the complete and irrevocable collapse of the mechanisms designed to ensure the smooth running of the balance-of-power system. Above all, it pertains to the system of international treaties, or rather the mechanism to control compliance therewith. The latest evidence of this is perhaps Russia’s decision to withdraw from the Joint Consultative Group on the Treaty on Conventional Armed Forces in Europe (CFE). As emphasized in a statement by the head of the Russian delegation at the talks in Vienna: “Russia’s announced suspension of the operation of the CFE Treaty in 2007 is hereby complete.” The suspension of the Treaty adds additional complexity to the already less-than-ideal mechanism for conventional arms control in Europe. All this requires that the international community, primarily in the shape of a consolidated Europe and the United States, should give its undivided attention to finding a new global architecture of international relations, including, first and foremost, the creation of new, or radically reformed, mechanisms and institutions for ensuring international security. These mechanisms should include not only censure of any form of aggression whatsoever, but also coercion to desist from it. And this, as Ukraine shows, should not be limited to economic sanctions. If one proceeds from the statement by former U.S. Secretary of State Henry Kissinger in his latest book that the international system of the twenty-first century will be characterized by an apparent contradiction — fragmentation amidst increasing globalization, one can only conjecture how complex relations between nations will be. Given the far greater complexity of today’s state of play, the sooner the international community wakes up to the need to start developing and building a new architecture of international relations, the sooner the world will come into the possession of new mechanisms to settle arising conflicts. Petr Kopka is the head of research programs at the Center for Operational Strategic Analysis (COSA).

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ST. PETERSBURG: PLOSHCHAD POBEDY (VICTORY SQUARE) AND THE MUSEUM OF THE DEFENSE AND SIEGE OF LENINGRAD

RUSSIA REBORN

KURSK: THE KURSK ARCH MEMORIAL COMPLEX AND TRIUMPHAL ARCH

The Battle of Stalingrad marked a turning point in the course of World War II, but its success would not have been consolidated without the July 1943 Battle of Kursk (457 kilometers from Moscow). Its geopolitical significance went well beyond the Soviet-German front, as it put pressure on the Germans and ruptured their alliances. The Battle of Kursk also made history as the biggest tank battle ever: about two million people, 6,000 tanks and 4,000 planes participated. The monumental Battle of Kursk memorial park is located in the northern outskirts of the city. The park is set up in the form of an alley one kilometer long with a Triumphal Arch, a monument to Red Army Marshal Georgy Zhukov, the Church of St. George, the Tomb of the Unknown Soldier and an eternal flame. There is a memorial stele in the shape of a Doric column with a cartouche with the Russian President’s text bestowing the title of Hero City to Kursk. The complex also includes an exhibition of military equipment, a cannon, howitzers, a T-34 tank, a “Zveroboy”mobile artillery piece and the famous Katyusha rocket launchers.

RUSSIA’S MAJOR CITIES HOST STRIKING MONUMENTS TO WWII

While the inhabitants and defenders of Stalingrad were dying in battle, Leningraders had to endure an equally horrifying experience: the 872-day siege of their city from September 8, 1941 to January 27, 1944. Of those that died 97 percent didn’t suffer from injuries, nor did they fight on the frontline, but perished instead of hunger and disease. As noted by American political philosopher Michael Walzer in his book “Just and Unjust Wars,”“in the Siege of Leningrad more civilians died than in the hells of Hamburg, Dresden, Tokyo, Hiroshima and Nagasaki combined.” The monument to the defenders of Leningrad is located in St. Petersburg’s Victory Square and constitutes the center of this architectural composition. This is the most famous memorial devoted to the heroic deeds of city residents during the tragic days of the siege. Under the monument there is an underground Memory Hall museum, embellished by two huge mosaics called “The Siege” and “The Victory.”

In 1945 the USSR was a country worn out by war. Many of the cities lay in ruins. Today, 70 years later, the sites of these terrible battles host memorial complexes that are visited by travelers from all over the world. YULIA SHANDURENKO RBTH

Few cities in Russia went untouched by the devastation of World War II. Many, like Stalingrad, became battlefields, while others were turned into shelters for refugees or homes for relocated factories. The nine cities that suffered the most from the war were later officially recognized, taking the title of “Hero City” – Moscow, St. Petersburg, Volgograd, Tula, Smolensk, Murmansk, Kerch, Novorossiysk and Sevastopol. Here, RBTH looks at several of these cities’ most impressive war memorials.

In the hall, historic radio broadcasts from Moscow can be heard, while on screens two silhouettes appear of the city under siege. A short documentary film is shown accompanied by Dmitry Shostakovich’s Symphony No. 7, which he completed in late 1941 and dedicated to the residents of Leningrad. It became popular as a symbol of resistance to Nazi militarism. At the Museum of the Defense and Siege of Leningrad you can get a more personal sense of what life was like during the blockade through the eyes of ordinary Leningraders. There’s a reconstruction of a Leningrad flat at the time of the siege and on display are examples of weapons and personal items belonging to the city’s defenders, while piercing air raid signals ring out through the museum. The pitiful rations that Leningraders existed on are also explained here: for example, a 125 gram piece of ‘siege bread’ was made on the whole from rye flour of rough grinding stock and hydrocellulose.

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HISTORY BECKONS: VISIT RUSSIA’S “HERO CITIES”

NOVOROSSIYSK: THE MALAYA ZEMLYA MEMORIAL COMPLEX

VOLGOGRAD: MOTHERLAND CALLS SCULPTURE AND MEMORIAL COMPLEX IN MAMAYEV KURGAN

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Stalingrad (913 kilometers from Moscow), later renamedVolgograd, was the location of the bloodiest battle in world history, with an estimated 2 million casualties. In July 1942 the Red Army defeated Hitler’s Eastern front army in the battle of Mamayev Kurgan, a fight that changed the course of World War II. Stunning monuments have been erected on the spot where those events took place, which today serve as the city’s proudest landmarks.

Most of these monuments are concentrated in three areas located not far from each other: Heroes’ Alley, leading from the Embankment to the Square of the Fallen Fighters; around the Panorama Museum of the Battle of Stalingrad; and in the area of Mamayev Kurgan. The best way to go from one place to the other is by the Metrotram that goes both above and below ground. When the city’s Motherland Calls sculpture was erected in 1967, it was included in the Guinness Book of Records as the tallest statue in the world at 85 meters tall (not counting the pedestal). By comparison the Statue of Liberty in New York is 46 meters tall, and the statue of Christ the Redeemer in Rio de Janeiro stands at 38 meters. Of course, you could learn all the frightening details of the Battle of Stalingrad in books or online. However, your impressions will be somewhat incomplete. Make a visit to the sites of Mamayev Kurgan and walk the 200 steps (one for each day of the battle) from the Memory of Generations monument up to the base of the Motherland Calls statue. Each step you take will act as a solemn reminder to you of the horrors of this battle and war.

The dramatic events of World War II also affected Russia’s South. The most famous episode from this part of the front was an amphibious operation launched by the Red Army in February 1943. It resulted in the establishment of a bridgehead called Malaya Zemlya (Little Land) south of Novorossiysk (1,466 kilometers from Moscow). The heroic defense of this strip of land lasted 225 days and ended on the morning of September 16 with the liberation of Novorossiysk from the Nazis. A consequence of this victory was that a counteroffensive, which played a crucial role in defeating Germany in the Battle of the Caucasus, was launched. The Novorossiysk Malaya Zemlya State History Museum is located on the Black Sea coast. Malaya Zemlya’s main monument is a huge spatial composition in the shape of the prow of a ship heading towards the shore at full speed. From here a view opens up on Tsemess Bay where much of the ruthless fighting took place. To this day near the monument you can still find remnants of the 1943 battle: communication trenches, ditches and observation and command posts. Inside the monument there is a museum and an exhibition of military equipment from World War II is located nearby.

Moscow in a soldier’s greatcoat

ILIA PITALEV / TASS

LORI/LEGION MEDIA

Moscow has preserved many of its memories of World War II. They include the June 1941 mobilization, the endless air raids and evacuation, the enemy’s withdrawal and the return of the soldiers from the front, and most importantly, the Vic-

tory Parade in June 1945 that signified the end of the war. In May 2015 Red Square will host a parade in honor of the 70th anniversary of the victory over fascism. RBTH has prepared a special route through the city that encourages visitors to see Moscow through the eyes of ordinary Muscovites that lived through the bombs and longed for victory together with the whole country. Follow the QR-code and take a walk through the city’s military history of World War II. Read more at travel.rbth.com

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