THE NEXT PHASE. Medvedev laid out to the government budget policy for the next three years. The key words are: modernise, competitive, growth, private initiative, innovation, effective, high quality, privatising, transparency, decentralisation. A working group on decentralising power has been set up. Read the speech, don’t read about it. I saw this coming four years ago (Sitrep 20061109: “Putin can name his successor and, one assumes, that if he names only one, that one will be as much in his mould as he can ensure. But that successor will have to confront the task of lifting growth to the next level, making it self-sustaining and not dependent on the world price of oil. The only way to do this is to allow it to happen: the government can encourage, it can create conditions, but it cannot do the lifting itself; only individual Russians can push economic growth to the next level. And here he will run into one of Putin’s legacies, which is Putin’s tendency, when there is a problem, to centralise control into an office next to his. But Russia is too big, too diverse and too untidy to be neatly run from the big corner office in the Kremlin. Putin’s successor will have to start to decentralise or watch Russia’s economic takeoff sag back onto the runway”). All this, Phase II of The Plan, was delayed a year or so by two unexpected events: the war in Ossetia and the international financial crisis.

DUMA BARRIER. Proportional representation is used by many countries in many variations. Russia has been through some: originally the Duma was half party list and half individual candidacies, then it became full party list. The next variation is the size of the percentage of total vote that a party has to gain to get members into parliament. The percentage varies around the world (and what is the “correct” number anyway?); originally in Russia it was 5% but was then put up to 7%. I believed that 7% was too high, especially if the aim was to force the growth of parties (as it was said to have been). Medvedev has just sent a draft law to the Duma to lower it back to 5%. While this is another loosening of things, it is worth noting that even if it had been 5% in the last election there would have been no difference: it would have had to have been 2% for the next party to get in.

POLICE REFORM. On Monday it was announced that police will be tested on lie detectors as part of the re-certifying process of transforming from “militia” to “police”. This is, of course, entirely “voluntary” – if they want to be re-hired into the police force, that is. And, not unconnected, 11 prison officials have been disciplined for violations of prisoners’ rights at one of Moscow’s nastier prisons.

FEDERATION COUNCIL. With Mironov’s translation to the Duma, the post of Speaker is open. Valentina Matviyenko, Governor (mayor) of St Petersburg, has been persuaded to run. She has to get a seat on the St Petersburg legislature first and then it seems that everything is prepared and she should be Speaker by the end of August. Which opens up the Governor’s job. More pre-election manoeuvrings?

ENERGY WARS. In a nutshell, neither Belarus nor Ukraine can afford to pay the price. The Russian electricity export agency cut off electricity to Belarus (about 12% of its total consumption) because of failure to pay a mere US$43 million. Minsk paid up today but that’s symptomatic. The gas price to Ukraine is set at 70% of the European price which, in turn, is tied to oil prices; they are rising. Currently Ukraine pays about US$300 per thousand cubic metres and that will likely go up to about US$400 by the end of the year. Kiev is trying to re-negotiate the price and Putin, on a “private” visit to Crimea, will be meeting Yanukovych, no doubt to talk about this. It is not in Moscow’s interest to bankrupt either but neither is it to carry customers who can’t pay.

USD. One of Medvedev’s advisors speculates that the Central Bank of Russia will cut the share of US dollars in its international reserves. Can’t think they’ll replace them with Euros or Yen: is this Canada’s big moment?

KARABAKH. Medvedev has hosted talks between the Armenian and Azerbaijanian Presidents on Karabakh. I am not sanguine for reasons here (probably posted tomorrow). Not least of which is that if Stepanakert is not represented, what can anyone expect? It won its war and isn’t ready to have someone else give anything away.

GEORGIA. The regime has decided that Irakli Okruashvili – formerly Saakashvili’s Defence Minister (and a rather aggressive one at that) – has formed an “illegal armed group”. Arrests have been made. Meanwhile, Shevardnadze says it would be “wise” for Tbilisi to recognise Abkhazia’s independence: “It’s clear Abkhazia can’t be a normal region of Georgia any longer. “Not serious” says Saakashvili. Will Shevardnadze’s peaceful retirement suddenly end?

© Patrick Armstrong Analysis, Ottawa, Canada (see


MODERNISATION. On Friday Medvedev made a speech about modernisation to the St Petersburg Economic Forum. Those who believe that this program has already failed, or that the only question in Russia is the imaginary Medvedev-Putin feud/power struggle won’t be interested but it’s worth reading. Generalities for the most part, but he is the President and he was giving a strategic message. A message we are now familiar with: “Modernisation is the only way to address the many issues before us”; that progress is real but still small: “They are small fruits, but they are there.” As to state control of certain sectors: “I want to state loud and clear here that we are not building state capitalism. Yes, there was a point in our development when we increased the state’s share in the economy, but this was an unavoidable step and in many ways necessary in order to stabilise the situation after the chaos of the 1990s, and re-establish basic order. That avenue has exhausted its potential now… [he describes problems with state control: state interests always dominate, the greater possibility of corruption and poor management] … This economic model jeopardises the country’s future. It is not my choice. My choice is different. Private business and private investment should dominate in the Russian economy. The state must protect the choice and assets of those who consciously decide to risk their money and reputation. We need to give them the right to make mistakes, and opportunities for drive and development.” As to specifics he spoke of more judicial independence and, as ever, corruption. He does understand what must be done as well as how difficult it will be. But he is right – as Belarus is showing – that there is no alternative. And, I again stress that this is the “Putin program” too: there was much use of “modern” in his 2005 and 2007 Federal Assembly addresses; “it’s no longer possible to survive and be competitive without modernisation” (2010). And so on. All part of The Plan.

THE THIRD TURN. Eugene Ivanov points out a declinebut not absence – of hostile coverage about Russia in some of the Western MSM recently. Too early, of course, to draw big conclusions, but one cannot shout that the Russians are coming – the “gas weapon”, conquering Georgia, subverting Estonia etc etc – forever without some evidence that it is happening.

THE ONLY STORY. One of his aides says Medvedev will make his announcement in the autumn. I believe that there is a difference of opinion in the Duumvirate on the timing: Putin – ever cautious – wants to get the Duma elections out of the way; Medvedev wants to announce earlier. Thus “the autumn” may be the compromise. I expect Medvedev to say he will and Putin to say he won’t.

MISTRAL. The deal is done; as expected, two will be built in France and two later in Russia. The Russian side claims to have got all the technology it wanted.

PERSONNEL CHANGE. More changes in the police senior ranks. And, I have heard, more firings of senior military officers for unstated reasons.

ELECTIONS. There is a wide-spread assumption that United Russia’s domination is fraudulent (although I can’t recall anyone actually having the foolishness to claim that, otherwise, some other party would dominate). Anatoly Karlin takes the effort to move past assumptions to evidence to show that the results accord with opinion polls. But, for so much Russia coverage, it’s all “decision-based evidence making”.

CORRUPTION. Yuriy Chayka, the Prosecutor General (just re-confirmed) says that more than 40,000 corruption cases were begun in 2010: “We consider it progress”. Somewhat more than a drop in the bucket I would say.

BELARUS. The EU, which is in another anti-Belarus phase, has tightened sanctions. (For a brief moment Belarus was another victim of the Russian “energy weapon”).There have been protests, aided by social media, against the economic situation and it is said, across the country, 450 arrests. I believe that Belarus’s avoidance of economic reality is coming to an end but I expect it will be some time yet before the full consequences hit. One of the keys to how long Lukashenka can keep his Soviet-lite economy running is energy costs and here Belarus is dependent on Russia. But Moscow, years ago, made the decision to move prices for its ex-Soviet customers up to the Western Europe level, step-by-step. And, the fact is that cheap energy prices were a drag on these countries’ ability to modernise their economies. So Russia’s 15-year cheap prices were probably not doing them any favours. Both Belarus and Ukraine are experiencing this reality today.

© Patrick Armstrong, Ottawa, Canada


POLICE REFORM. According to the Minister, one third of the top police officers did not survive the screening and have been dismissed – 119 of 335. That is not a trivial percentage and to my mind shows the effort is real. The idea was that the senior officers would be vetted by the Presidential Administration and juniors by the seniors – perhaps it would have been smarter to wait until the seniors’ vetting was over before beginning the juniors. But the effort isn’t over yet.

CORRUPTION. It is almost a cliché in certain circles that Medvedev’s struggle against corruption has failed. Readers are invited, however, to consider this account of a successful effort to stop (corrupt) markups in medical equipment prices. That’s not been a failure. And, by the way, as to the other cliché that anti-corruption is Medvedev’s thing (and by implication not Putin’s), here’s Putin three years ago: asked “Which of Russia’s problems have you found the most wearying and difficult to resolve over these last eight years?”, he answered “Corruption”. Same program, different phase.

MILITARY CORRUPTION. Is a subject that is coming over the horizon. A recent assessment put the Defence Ministry at the top of the corruption list of government structures. This piece explains why and how: huge vague budget holes combined with “national security” make procurement programs into a corruption playground. So, what is to be done? Attempts for some years to get a grip on book-keeping do not seem to have worked. From time to time arrests are made but, if the problem is as widespread and systemic as it is thought to be, it will take many more arrests. I wonder if the “combing” process applied to the police will be done here.

LEGAL REFORM. Last week Medvedev submitted Criminal Code amendments to the Duma. They are aimed at moderating the process. Courts will be able to soften charges in certain cases and take mitigating circumstances into account. Sentencing will also be softened. As usual this will take time to take effect.

PRESUMPTION OF FAILURE. All the above are part of Medvedev’s attempt to reduce “legal nihilism”. In this connection I highly recommend this piece by Eugene Ivanov which persuasively argues that the campaign is having more effect than conventional wisdom thinks. I reiterate: relying on Western coverage of Russia will leave you very poorly informed indeed.

PRIVATISATIONS. It is policy to sell off some of the state assets acquired in the Putin era and both Medvedev and one of his staffers have called for speeding up the process. Apart from the fact that government control – arguably a good idea ten years ago when outright disintegration of the Russian state was a common fear – is now unnecessary, corruption is always easier when you start inside the front door of a large company.

MIRONOV. He has completed his move from the upper to the lower house, taking a seat vacated for him in the Duma last week and being elected leader of the Just Russia (Справедливая Россия) bloc this week. I can’t shake the suspicion that this is all manoeuvring to establish him as a presidential candidate running on the Just Russia ticket. From that bottomless well of talent in St Petersburg, he could be considered a member of The Team but at a bit of distance. See this for more thought on what’s going on.

LIBYA. Foreign Minister Lavrov expressed his disgust with NATO’s interpretation of the UN resolutions: it shows that “no one’s word can be taken” (another suggestion that promises made to secure Russia’s abstention have been broken). Meanwhile Medvedev’s envoy Mikhail Margelov is now in Tripoli. But, given that Medvedev has said Khadafy must go and Khadafy says he won’t, the effort may prove to be fruitless.

PEOPLE POWER.This not a charter but a scheduled flight… kindly make sure your top official does not turn up late”. The pilot (and passengers) lost this one but will they lose the next? An inquiry has been opened.

BUDANOV. Yuriy Budanov was murdered last week in Moscow. Many suspect this is revenge for Kungayeva.

JIHADISM. I don’t cover the subject much because Gordon Hahn does it better but here’s the last two weeks. Two Muslim clerics murdered (a common jihadist tactic); a major attack stopped; and shoot outs in Chechnya and Dagestan. It continues.

MISTRAL. Moscow and Paris have signed a protocol of intent. This is not quite what we were promised by Sarkozy and Medvedev: maybe there are serious difficulties as many suspect.

© Patrick Armstrong Analysis, Ottawa, Canada (see


MISSILE DEFENCE. Here’s Russia’s position in a nutshell: “We must receive guarantees that it is not directed against us. So far no such guarantees have been given.” Simple, easy to understand and any other country would say the same. “Trust, but verify”. Do you become more secure by making your neighbours nervous?

LIBYA. It is reported that several leaders, formally or otherwise, asked Medvedev to mediate in Libya. He is willing. Moscow has maintained relations with Tripoli and more recently opened discussion with the rebels in Benghazi and is therefore in a position to be a middleman. In his press conference after the G8, Medvedev said that he had sent Mikhail Margelov to Benghazi to begin talks, that “Gaddafi’s regime has lost legitimacy and he must leave” and that Russia would not give him asylum. Readers will recall that when NATO’s operation began, I wondered if it would end (as Kosovo did) with Russia helping to get it out of a stalemate.

KHODORKOVSKIY. His lawyers say he will apply for parole. Meanwhile the European Court of Human Rights has ruled 1) that his first trial had not been politically motivated 2) his rights were violated by the treatment he received. It would have been better had this decision come out a lot earlier before it became a meme that the whole thing was political. By the way: the decision had two points to it and news outlets chose which to emphasise: rights violated, not politically motivated. The former slant seems to predominate although I would have put the second first because it contradicts the meme and is therefore less expected.

POLITKOVSKAYA. Rustam Makhmudov, her killer according to the prosecution’s theory, was arrested in Chechnya on Tuesday. The investigators thanked the authorities in Belgium, where he had been hiding, for making him leave. He has been formally charged with murder.

WTO. Sarkozy said that the G8 supported Russian entry into the WTO and saw no impediment. Well I do: Tbilisi seems to have a veto and will use it. So either its objection is dropped, ignored or it continues not to happen. Biden is reported to have told Saakashvili that Washington supports Russia’s entry. We’ll see if that hint from Saakashvili’s only remaining – and increasingly lukewarm – international supporter has any effect.

POLICE REFORM. Three traffic police officers in Samara are accused of beating a driver to death in January.

CORRUPTION. The Chief of the Main Military Medical Directorate of the Ministry of Defence has been arrested on corruption charges. Corruption is said to be a serious problem in the Ministry and Armed Forces and possibly getting worse (or, alternatively, more are being caught).

MISTRAL. Despite all the stories that the deal was falling apart, Medvedev and Sarkozy agreed that the contract (two ships built in France and then two in Russia) will be signed in 15 days. In his interview, Medvedev sidestepped the question about technology transfer so we will have to wait and see.

BELARUS. I believe that the Belarus economy – a sort of USSR-lite – is coming to the end of its possibilities. About two weeks ago the National Bank devalued the currency 36% against the US$ (4930 per dollar vs 3155 the day before) which has set off a degree of panic buying. True to form, Lukashenka has threatened to dismiss the government if it does not produce daily improvements. He has also shut down a number of Russian media outlets for printing “hysterical” pieces on the effect of the devaluation. Meanwhile Minsk is trying for a US$8 billion stabilisation loan from the IMF. Belarus under Lukashenka has been an island of torpid stability – no divisive “Orange Revolution”, wars or economic collapses when you thought everything was OK. He can indeed claim that it’s better under him in Belarus than in most of its neighbours. But it seems to be a gentle and implacable decline.

GEORGIA. The bloom continues to come off the rose: the UN, USA, OSCE and UK (plus people inside Georgia) have called for an inquiry into pretty considerable police brutality. I don’t recall such loud and immediate calls the last time. Meanwhile, as usual, “evidence” has appeared (been manufactured) to show the whole thing was hatched in Moscow. But Saakashvili is losing his audience.

© Patrick Armstrong Analysis, Ottawa, Canada (see