Sunday, August 31, 2008

Foreign Investors Flee Russia

Not only has Russia almost completely isolated itself diplomatically, it is also shooting itself in the foot economically by its unjustified agressiveness and expansionism.

The damage to Georgia has been estimated at $1 billion. And yet the Georgian stock market is booming. And now the US has pledged $1 billion in aid, which will replace the infrastructure damage, and European financial assistance should be forthcoming soon.

Russian stock market, however, is continuing to slide, as investors are pulling money out of Russia in droves. At least $25 billion in foreign investments has left Russia since the start of its imperialist operation in Georgia.

"For the first time since the Crimean War, Russia has no allies," said Garry Kasparov, chess grandmaster turned opposition politician. "We are encircled by countries that are either suspicious or alienated and very angry."

"Boris Nemtsov, an opposition politician, has said the invasion was a blunder, and that ordinary Russians will pay for it."

Fears of isolation as investors flee Russia

By CATRINA STEWART, Associated Press Writer
Fri, Aug 29, 3:16 PM ET

MOSCOW - At the outset of this year, Russia proudly proclaimed itself an island of stability at the annual economic gathering in Davos, setting itself apart from the tumult of the global financial crisis.

Then came the war with Georgia, which some here regard as Russia's 9/11.

Within hours of Russia's retaliation to Georgia's move to take back its breakaway republic of South Ossetia, Russia had attracted widespread condemnation and threats of isolation and expulsion from the international community.

"For the first time since the Crimean War, Russia has no allies," said Garry Kasparov, chess grandmaster turned opposition politician. "We are encircled by countries that are either suspicious or alienated and very angry."

On the economic front, investors are hightailing out of Russia, while Western politicians have hinted at sanctions, visa restrictions and even the denial of Russia's right to host the 2014 Sochi Winter Olympics.

Increasingly cut off from the global world, Russian President Dmitry Medvedev risks undoing many of the successes of the past 10 years, ranging from the country's robust economic growth to a growing sense of national prestige and purpose.

Stock markets plunged, and Russian Finance Minister Alexei Kudrin said more than $7 billion was pulled out of the country in just two days, exposing the fragility of Russia's nine-year economic boom.

Stock markets plunged, and more than $7 billion was pulled out of the country in just three days, exposing the fragility of Russia's nine-year economic boom.

The economy was already under strain.

The five-day war followed months of bad news on Russia's corporate front, led by a high-profile shareholder tussle for control at TNK-BP, the Anglo-Russian joint venture.

In early summer, Bill Browder's Hermitage Capital blew the lid on a catalog of intimidation and corporate theft at the hands of Interior Ministry officials, and in July Prime Minister Vladimir Putin publicly attacked steelmaker Mechel, sending its shares into a tailspin.

Inflation was running at nearly 15 percent.

But while the storm clouds gathered, investors clung on.

The war was the tipping point, said James Fenkner, managing partner at Red Star Asset Management.

French investment bank BNP Paribas has estimated that more than $25 billion has been withdrawn from the country since the outbreak of the conflict, and Russian stock markets have plunged more than 30 percent since May.

It's a far cry from last December, when investors and analysts said 2008 was the year that Russia's stock markets would recover from the previous year's mediocre performance, even in light of the global turmoil.

Now investors are pulling their money out in droves.

"Very few investors have to be here now," said Fenkner. "Unless they are Russia-dedicated, they will move to friendlier environments. Sentiment is just very bad."

To many, Russia's fundamentals look very attractive.

"Russia is extremely cheap, and most of the growth dynamics are still in place," said Peter Halloran, whose hedge fund Pharos Fund has $150 million under management in Russia. "If I look forward 12 months, I want to own Russia."

But as the uncertainty continues, Russia could be seen as a high-stakes geopolitical gamble.

"If there is a perception of Russia as a risky place or as an undesirable place to invest, then the damage will be more long term," said Chris Weafer, chief strategist at UralSib. "It will restrict the development of the economy and hurt the government's plans to create a more diversified the economy."

The war has played well at home. Russians have rallied to the government's decision to punish Georgia for what it calls aggression and recognize the independence of South Ossetia and another separatist-controlled region, Abkhazia.

Alexander Konovalov, president of Moscow's Institute of Strategic Assessment, said many in Western countries see a "big, strong, unmanageable Russia" attacking "a small, democratic, innocent Georgia."

"In Russia," he said, "it is big, aggressive, undemocratic and irresponsible Georgia who took small and innocent South Ossetia."

As Western politicians warn of sanctions and consequences, many ordinary Russians feel increasingly isolated — and blame the Western media for painting a distorted picture of the conflict.

Russians "are sad about the situation and I have had many e-mails from people asking why the media is reporting the situation only from one side," said Lioudmila Siegel, chairman of an organization for Russians in Sweden.

A minority of Russians, though, have denounced the government's decision to use military force in the conflict.

The Union of the Committee of Soldiers' Mothers, for instance, has railed against the use of conscripts in Georgia, despite promises by the Defense Ministry that it would not do so.

Boris Nemtsov, an opposition politician, has said the invasion was a blunder, and that ordinary Russians will pay for it.

"This is a strategic and long-term mistake, the effects of which will be felt by virtually all Russians," Nemtsov wrote. "This is the beginning of a new arms race."

It could, he predicted, also mean visa restrictions, expulsion from the G8 group of countries, discrimination against Russian business abroad and a reversal of the decision to give Russia the 2014 Winter Olympics.

But for the most part, liberal opposition to Russia's actions has been relatively subdued. "The liberals have been extremely quiet," said Konovalov. To stand up for "democratic values and cooperation with the West ... will be seen as a betrayal."

David Cameron, head of Britain's Conservative opposition party, called for the British government to suspend visas for some Russian nationals and even, possibly, suspend Russia's membership of the G8 club of rich nations.

Since the murder of Alexander Litvinenko on British soil nearly two years ago, relations between London and Moscow have deteriorated, and British tabloids were quick to pick up on anti-Russian sentiment.

On Thursday, the Daily Mirror tabloid newspaper condemned British foreign secretary David Miliband for allowing "hundreds of Russian oligarchs who prospered under Vladimir Putin" to use "Britain as a bolthole."

But while there is some popular bashing of Britain's very rich Russians — who the tabloids have long loathed because they benefit from Britain's relatively generous expat tax laws — the overwhelming political and business view of Russians in Britain is still positive.

But analysts warn that, even if Russians themselves are welcomed abroad, it may become more difficult for Russian big business to expand there — especially in sensitive areas such as defense and energy.

In a fit of pique two years ago, then-President Putin canceled foreign participation in the Shtokman gas project after European objections to a move by VTB, a major Russian bank, to acquire a minority stake in Europe's EADS aerospace and defense group.

"This Russia phobia is nothing new," said Fenkner. "But it's going to turn up a couple of notches. It's not a trend reversal."

Friday, August 29, 2008

Admit Ukraine and Georgia into NATO

Alexander J. Motyl, a professor of political science at Rutgers University, has published this wonderful opinion piece in International Herald Tribune:

"All of Russia's non-Russian neighbors, know that the war in Georgia is really about them."
International Herald Tribune, August 27, 2008

Resurgent Russia
Alexander J. Motyl, PhD

Russia's blitzkrieg against Georgia has taken place 70 years after the infamous Munich Agreement of September 29, 1938, when France, Britain and Italy agreed to cede Czechoslovakia's Sudetenland to Nazi Germany in the hope of establishing "peace in our time."

Like Hitler's Germany, Vladimir Putin's Russia is a post-imperial authoritarian state that must expand. The Soviet empire's collapse in 1991 left the Russian population feeling humiliated; economic collapse in the early 1990s only compounded their demoralization. As in Germany, Russians blamed democracy for their collapse and humiliation. And, as in Germany, a strongman promising greatness and glory seized power, dismantled democracy, and created an authoritarian, hyper-nationalist regime with a personality cult based on promises to re-establish imperial greatness.

The war against Georgia is not the first instance of Russia's aggressiveness vis-à-vis its former colonies. Estonia was the target of a cyberwar; Latvia, Lithuania, Belarus, Ukraine and the Czech Republic have been subjected to energy cut-offs; Georgia, Moldova and Ukraine have been punished by trade sanctions.

These states, like all of Russia's non-Russian neighbors, know that the war in Georgia is really about them.

The Munich Agreement is considered a classic example of the perils of appeasement. Had the democracies said no then, it's possible that World War II could have been averted. At some point - and that point surely arrived with Russia's invasion of Georgia - the West must learn to say no to Russia. Expelling Russia from the G-8 would be symbolically nice, but Putin would respond with a laugh. Only an "anti-Munich" would say no in a meaningful fashion: Admit Ukraine and Georgia into NATO's Membership Action Plan - immediately. Putin will glare in response; he will threaten retaliation - and then, like all loud-mouthed dictators, he will acquiesce.

Alexander J. Motyl
Newark, New Jersey
Professor of political science, Rutgers University

Friday, August 22, 2008

Russia broke its own rules in invading Georgia

Not only is Russia's invasion illegal under international law, it also breaks the principles proclaimed by Russia's own government!

I am quoting below from a policy paper on Russian president's own website - posted just a month ago!

Президент России
12 июля 2008 года

Российская Федерация ... твердо исходит из того, что санкционировать применение силы в целях принуждения к миру правомочен только Совет Безопасности ООН; рассматривает статью 51 Устава ООН как адекватную и не подлежащую ревизии правовую основу для применения силы ... Применение принудительных мер с использованием вооруженной силы в обход Устава ООН и ее Совета Безопасности не способно устранить глубокие социально-экономические, межэтнические и другие противоречия, лежащие в основе конфликтов, подрывает основы международного права и ведет к расширению конфликтного пространства, в том числе в непосредственном геополитическом окружении России.

Thursday, August 21, 2008

Kyiv makes it into the new Monopoly game

For those who voted for Kyiv, your votes really made a difference!

Kyiv, Ukraine, has been selected by Hasbro, the maker of the game, as one of the cities on the new International Monopoly Game.

Saturday, August 16, 2008

Russia, Georgia and Russophile Americans

Something is seriously troubling me and I have to write about this. I am starting to see Americans who speak gushingly about Russia and its empire and actually support Putin and Medvedev in their actions in invading the Republic of Georgia and bombing Georgian cities.

Some clear-headed thinking is required here about these matters. I frankly cannot believe any American who loves liberty can seriously be in favor of an invasion of one nation into the territory of another sovereign nation which has not attacked it. Or of despotic leaders like Putin or Medvedev.

Many Ukrainians are now afraid that Russia is planning to invade Ukraine as well. The Russian public is already being prepared for it, just like it was prepared for the Georgian conflict. Russians typically see the United States as their main enemy, but in the recent months they were manipulated by the largely state-controlled Russian media into believeing that Georgia is the #1 enemy of Russia. Russians are also being trained to see Ukrainians as their enemies. Today, 50% of Russians already consider Ukraine to be the enemy of Russia. Russia is the #2 world exporter of oil after Saudi Arabia and their economy is booming because of the record high prices of oil and the weak dollar. This is making them confident and reckless. They are repeating the American hubris in recklessly throwing their weight around to bend weaker nations to their will. (Since Georgia's military is 20 times smaller than Russia's, that was easy to do.)

Some Russophile Americans are anti-war people who seem to think that since Russia often opposes the United States in its imperial ambitions, then Russia must be good and peaceniks should support Russia. Well, the reason the Russian Federation opposes the American Empire is because it wants to build its own empire. The Russian leaders seriously believe that if they don't attack their neighbors, their existing empire will fall apart. They really think if they are not expanding, then they are contracting. Believe it or not, in spite of having a giant nation and one of the most powerful militaries, they seriously think they are fighting for the survival of their nation by attacking weaker nations.

The Russian Empire is much older than the American Empire. The Russian conflict with Georgia had started before the United States even existed. It's preposterous to suggest that Russia's imperial war of aggression against Georgia is only a proxy war with the United States.

I am against the Russian Empire just as much as I am against the American Empire, and so should be all lovers of liberty. American lovers of liberty need to learn to apply their principles equally to all nations, across the board, instead of selectively opposing their own American Empire while throwing their support behind other empires.

Let us work for a world without empires. All people deserve to have liberty and sovereignity by virtue of their birth, if they choose to seek it. And all leaders who choose to use force to abrogate the liberty or sovereignity of the people of other nations or their own are the enemies of liberty.

Friday, August 1, 2008

Quote: Kateryna Yushchenko

"Unifying people in protest is one kind of struggle, but creating democratic institutions, a strong economy, a rule of law, a civil society and a political culture that protects and realizes their dreams is another."

- Kateryna Yushchenko, First Lady of Ukraine, speaking at the World Movement for Democracy Fifth Assembly in Kyiv Ukraine