Khazar Dictionary

The share of foreign investors among holders of Russia’s OFZ treasury bonds hit its lowest since August 2015. Russian index of treasury bonds RGBI went down 1.4% in January, 2.3% in February, slumped 1.2% in March and 1.1% so far in April. Non-residents accounted for 20.2% of OFZ bondholders as of end-March compared with 22.7% as of March 1. This is a perfect showcase of how American sanctions and military preparations in Ukraine affect Russian state finances. Foreign investors have sold Russian treasury bonds and shares worth about $5.9bln in just three months of 2021. Further escalation will hurt the Russian debt market even more. The Finance Ministry sold just 75% of the planned treasury bonds only due to the state banks that acquired OFZ bonds worth $4bln the last day of the three months period. Non-residents are retreating from the Russian treasuries market which is by no means a good sign for the country.

The Favourite Enemy Russian Deputy Foreign Minister Sergei Ryabkov said today that Russia sees the US as its adversary. This is a significant shift in political language from Putin’s usual “our American partners’’. Ryabkov has a point, because American pressure is getting too systemic and painful for Russia. Clash over Ukraine is not going well for Kremlin marking the total disaster of Russia’s post-Soviet Ukrainian policy. The very fact that Americans are acting in Ukraine the way they want to shows who has the upper hand in the conflict. There is no place for an underestimation of Ukraine’s key role for Russian security. Kremlin needs at least a neutral Ukraine. American maneuvers, sanctions, threats and insults obviously got on nerves of Putin, and the rhetoric towards the US has finally changed. The last time America was designated by Russia as an enemy or adversary during the Soviet era. As we all know, it didn’t work out well for Russia. Today Kremlin has no resources whatsoever to engage in any kind of global struggle with Washington. Americans on the other hand do not need to push Russia toward becoming China’s junior partner. Russian elites are quite westernized and actually want no trouble with the US. The rhetoric is more about Putin and his future. The US don’t see Putin as Russian leader in the coming decade and are sending clear signals to the Russian elites. Russian weak strongman has to act decisively, and Ryabkov’s claim was a message from Putin to his own: he is not going to tolerate any disloyalty.

The Race Is On President Vladimir Putin declared today that a list of infrastructure projects to receive investments from the National Wealth Fund should be provided by May 1. The race for getting state financing among different oligarchs and state companies affiliated with Putin’s inner circle has officially started. Russian Direct Investment Fund of Kirill Dmitriev will participate in making of the list along with The Government, which surely raises the stakes of Dmitriev in the inner power struggle in Kremlin. The National Wealth Fund of Russia has currently accumulated about $182bln, mostly from oil and gas profits. Part of it was previously spent to acqire the controlling stake in Sberbank from the Bank of Russia and to allocate funds in VEB and other state banks. Another $15bln were spent to buy in 2013 Ukranian eurobonds in an unsuccessful effort to save Yanukovich’s regime, although Ukraine’s credit ratings at the time were lower than required for investments in foreign securities. The list of money recipients is supposed to be ready in three weeks. It will show the current balance of power in Russian political and business elites.

Sixty years ago Yuri Gagarin said his famous “Let’s go!” and opened a new era in the history of the mankind, becoming the first human being in space. In sixty years the prominent Russian space program went all the way from the greats like Korolev and Gagarin to the current head of Roskosmos (Russian Space Agency) Dmitry Rogozin posting silly memes after the landing of Perseverence on Mars. It looks like a joke or a bad dream, but as far as Gagarin is not only a subject of a great national pride, but a symbol of hope for an entire humanity, we believe that Russia will somehow recover its space positions. Let’s go.

Vladimir Putin has replaced three regional governors this week, with the head of the Republic North Ossetia-Alania Vyacheslav Bitarov becoming the last one today. The previous too are Republic of Tuva’s head Sholban Kara-ool and Ulyanovsk region governor Sergei Morozov. Russian national republics are mostly stripped of the right to hold direct democratic elections, so the head of Ossetia will be appointed by Putin with the formal approval of the local parliament. Bitarov is going to be replaced by the former presidential envoy to Siberia Sergei Menyailo. Last year the EU imposed sanctions on Menyailo because of Alexei Navalny’s poisoning which took place in Siberia. US Treasury sanctioned him a month ago along with other high-ranked officials for the same reason. Kremlin gears up for the autumn regional and Duma elections which could be essential for Putin’s political transfer and future of the regime. Taking into consideration the stagnating economy, rising prices and tense relations with the West, these elections have a clear negative potential for Kremlin. Elections in Putin's Russia are always a rigged game. The question is whether everything will go as usual this time.

Nikolai Patrushev, Putin’s top security advisor, gave a wide-ranging interview on bilateral relations with the US to the Kommersant newspaper. This interview from Putin’s closest associate and hardliner reflects the way Kremlin sees Washington’s Russian policies. Patrushev is known for specific views like positioning secret services as the new Russian nobility, so one could’ve expected his interview to be harsh and unrealistic, especially regarding the current state of affairs between two countries. However, this time the Head of Security Council stayed in line and made some pragmatic, rational points. First of all, Patrushev/Putin sent peaceful signals to the US by stating that the people of both countries have no contradictions and there is an urgent need for Russia and the US to maintain responsible relations. Kremlin has a weaker hand in the game and is ready for reasonable compromise. Second, there is a problem of American biolabs along Russian borders in the former Soviet republics. These biolabs, including Lugar Center in Tbilisi, should be viewed as a potential threat to Russian and its people. Patrushev has stressed attention on this issue as he should've done as Kremlin’s top security official. Third, Patrushev has almost sensationally acknowledged the fact of American advantage over Russia, thus challenging one of the state propaganda cornerstones. Kremlin made millions of Russians believe that Washington has no other business than thinking day and night about destroying Russia. “It is time to acknowledge that relations with Russia are not America's top priority. The vision of Russia is dominated by internal issues of the US“,- Patrushev said. They are ready to talk, but, unfortunately, the bilateral relations will deteriorate further.

Putin’s Case Timothy Frye did an essential piece of writing on Vladimir Putin and internal challenges that he has to face as a head of a personalist autocracy. It is fair to say that Putin is actually a weak strongman, although his image in the West is heavily politicized, if not romanticized. Putin faces several challenges in the finishing period of his rule, most importantly stagnating economy, possible elite coup and civil unrest. He is by no means a lame duck, but there is one very important, almost metaphysical feature of the current situation in Russia: the complete loneliness of Putin. The President and his inner circle have been weakening state institutions (courts, parties etc) for two decades while building a personalist autocracy with unlimited opportunities for themselves. Putin’s friends are now billionaires and highest-ranked officials in charge of immense resources, Putin himself has been ruling the country for 20 years. There are numerous rumours about the 68-year old Czar not being in good health anymore. He may want to retire and enjoy his wealth, but, as Frye correctly stated, “once personalist autocrats relinquish power, they are at the mercy of their successors“. Putin is totally aware of this danger. He needs the same guarantees he himself once gave to Boris Yeltsin and his family, but who will give them to Putin amidst Western sanctions? The coming Presidential Address could make things more clear and actually become a domestic analogue of the famous 2007 Munich Speech.

Russian inflation jumped to the highest level in more than four years, accelerating to 5.8%in March , the Federal Statistics Service reported late Tuesday. It is well above the Bank of Russia’s 4% target. It is difficult to say whether the inflation in Russia has already peaked. On the one hand, global food prices are stabilizing. On the other hand, prices for non-food products keep accelerating with gasoline going up from 4.1% YoY to 5.2% YoY (the highest rate since April 2019) despite the price control mechanisms in place. The Bank of Russia is now in position for a further key point hike and will likely be deciding between a 25bp and 50bp. Life is getting more and more expensive in Russia with the incomes of the people steadily deteriorating and poverty getting embarassingly massive. Putin will surely elaborate on this issue in his coming Presidential Address, but there is an urgent need for something actually to be done.

Russian ruble hit a six months minimum after Defense Minister Sergei Shoigu announced today a combat readiness check of the Russian Army. Ruble started to fall immediately after Shoigu said that Defense Ministry will launch a military check all over the country. Markets are nervous about a harsh escalation in Donbass. Meanwhile the Ukranian President Zelensky said today that NATO membership is the only way for Ukraine and its partners to effectively end the war in two breakaway regions. Unfortunately for Zelensky and Ukraine, that’s not how it works. NATO soldiers are certainly not going to die for Ukraine, but Ukranians will have to die in the Anglo-American game in Ukraine. As well as Russians.

Same Old Story Russian Deputy Foreign Minister Alexander Pankin said yesterday that American foreign policy have undermined international faith in dollar, therefore it is time to move from greenback. According to Pankin, Washington is linking its currency more and more to its policy aims. It is unclear how any national currency cannot be linked to national policy aims, but Pankin hasn’t elaborated on this issue. Instead he told RIA media agency the same old story about the necessity of switching to national currencies, alternative to dollar. Pankin’s boss Sergei Lavrov claimed earlier that Russia and China need to protect themselves from American hostile acts and use a Russian payment system SPFS in their financial transactions. Pankin confirmed that Moscow is considering this payment system as a rival of SWIFT. SPFS was launched in 2016, but only 399 banks have joined it. Non-Russian banks predictably have shown almost zero interest in it: only one Chinese and several Western banks are using SPFS. Kremlin’s anti-dollar narratives are nothing more than a popular propaganda tool. At the end of the day, if you want to move from Western payment systems, then do something. Moscow cannot do anything, because its economic sovereignty (another popular term in Kremlin’s discourse) and independence from dollar are impossible.

FSB Federation Kirill Cherkalin, a colonel and a billionaire, who headed a banking subdepartment of FSB’s economic security service and was accused of receiving a bribe of $850,000 from Russian businessman for "general protection", pleaded guilty. According to Russian media, his case will be now heard by the court in special order, which almost guarantees Cherkalin a lighter sentence. Cherkalin was arrested in 2019. About $185mln in cash and jewelry were seized from his apartment in Moscow. Cherkalin wasn’t an oil-pumping oligarch or invest banker from Wall Street. Still he had a budget of a small country stacked in his apartment in cash. Colonel Cherkalin clearly was only a part of big FSB money-laundering scheme. His plea deal looks more like a deal with his seniors. He hasn’t revealed any names except for former Deposit Insurance Agency deputy head Valery Miroshnikov. According to Cherkalin, most of the cash in his apartment belonged to Miroshnikov who fled the country immediately after Cherkalin’s arrest. It is absolutely clear though that money-laundering of this scale is impossible in Russia without FSB assistance or, more likely, leadership. It is also clear the Russian law views corrupted officials as a less threat comparing, for example, to protesters. The latter usually cannot hope for any indulgence of Russian courts.

Reducing the poverty level in Russia by half can be achieved earlier than by 2030, said the head of the Accounts Chamber Alexei Kudrin at a meeting of the committee on control and regulation in the State Duma on Monday. Kudirin made a preface to the coming address of Putin to the Parliament. Amidst growing poverty and rising prices the President has to make some new promises to encourage the garrison of Fortress Russia. Kudrin’s words certainly make sense but reducing poverty will require a change in the current socioeconomic model of Russia. Kremlin will have to push for more equality in sharing the national income, but it is a big question whether Putin and his oligarchs are ready to do so. Even a bigger question is whether a country with a Russian poverty and corruption rates can be viewed as great by anyone.