RUSSIAN FEDERATION WEEKLY SITREP 17 June 2010

RUSSIA INC. The Finance Ministry announced that the budget deficit in 2009 was 2.3 trillion Rubles (US$78 billion – about 25% less than anticipated); GDP declined nearly 8%; the Reserve Fund holds about US$60 billion and the National Welfare Fund about US$95 billion. The IMF has raised its estimate for Russia’s GDP growth in 2010 to 4.25% from 4% and estimates that inflation will be 6%. Rumours of Russia’s economic death have been exaggerated: indeed these numbers look rather better than the IMF’s estimates for either the Euro Area or the USA. Medvedev’s calls for Russia to be treated as a major player in the world financial system don’t look so implausible today.

FOREIGN WEAPONS. It would appear that Moscow has seriously broken with the Soviet (but not Imperial) tradition that almost all weapons should be made domestically. RosOboronEksport has begun negotiations with France over buying a Mistral-class ship and possibly making more under licence. Moscow may go to foreign sources to obtain light armour or infantry equipment and it will be manufacturing French thermal sights under licence. The decision has already been made that it must import UAVs. A Russian newspaper reports that up to €10 billion may be spent in Europe and Israel by 2016. There is nothing especially unusual – very few countries make all their own weapons – but it is interesting as another indication that Russia (unlike the USSR) does not foresee having to go it alone in a serious war. But there must have been some nasty scenes in the background with Soviet-era industries insisting that they could make everything. The fact is that in many areas Russian Armed Forces equipment is far behind current standards. As a reminder of past certainties about the excellence of domestic production (and doctrine), I remember that at least one Soviet general was so dumbfounded by the US performance in the 1991 Gulf War that he claimed the whole thing had been a fake.

ARCTIC SEA. At his trial, one of the hijackers made a plea bargain accusing an Estonian businessman of being behind it: according to him, it was a simple ransom operation to raise money for a failing business. A much more mundane explanation than the many conspiracy theories and rushes to judgement about Russia’s malign intentions current at the time.

TRIFONOVA. It has been announced that Vera Trifonova actually died as the result of surgical error. This does not change the fact that, under the new rules, she should have been out on bail and not in the prison hospital.

SMALL BUSINESS. The Head of Russia’s Labour Service says that 36,000 jobless Russians established their own small businesses in the first quarter of 2010. There is a scheme in Russia to advance small loans for such purposes.

KYRGYZ REPUBLIC. A week ago rioting broke out in Osh in the Ferghana Valley with most reports agreeing that it was between Uzbeks and Kyrgyz. The government in Bishkek claims that the situation is calming down which may or may not prove to be true (it certainly didn’t see it coming two weeks ago). Current reports (estimates) are that nearly 200 have been killed and one to two thousand injured. Tens of thousands of Uzbeks have fled to Uzbekistan which has closed its border claiming it can’t handle any more. Twenty years ago there were very similar riots in Osh. The Valley, one of the very few “green” areas of Central Asia, was extensively gerrymandered by Stalin so that it is today a patchwork of borders and jurisdictions. But the historical reality, as elsewhere in Central Asia, is that the cities are very multi-ethnic; there are even those who argue that Central Asian city-dwellers should be considered a separate ethnos; but Soviet ethnographers, who defined or even created “nationalities” to suit Stalin’s purposes, would have none of that. Access for traders throughout the Valley was comparatively easy and so it remained through the Imperial and Soviet periods. It was the creation of separate countries after the collapse of the USSR, with their borders and customs guards blocking this formerly easy and natural movement, which laid the grounds for a semi-permanent resentment in the Valley. Added to which people suddenly found themselves the wrong nationality in their ancestral homes. Thus there is a good deal of underlying tension and resentment which is kept bubbling. Just what sparked off this latest trouble is unclear: certainly the new regime in Bishkek blames Bakiyev (more precisely his son) for inciting the riots. There are many theories (see JRL/2010/116 & 117) and perhaps we will know some day.

GAS WARS. Medvedev has warned Minsk to pay off its debt for gas or face supply cuts. No doubt there will be those who think that Moscow should continue to subsidise Belarus’ energy usage.

© Patrick Armstrong, Ottawa, Canada