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