29 September 2014

Private bank fuels fortunes of Putin’s inner circle

The New York Times: 27. September 2014
By STEVEN LEE MYERS, JO BECKER and JIM YARDLEY


President Vladimir V. Putin has moved to prop up Bank Rossiya, owned by close friends, in the face of Western sanctions. Credit

ST. PETERSBURG, Russia — Weeks after President Vladimir V. Putin annexed Crimea in March, an obscure regulatory board in Moscow known as the Market Council convened inside an office tower not far from the Kremlin to discuss the country’s wholesale electricity market. It is a colossal business, worth 2 percent of Russia’s gross domestic product, and a rich source of fees for the bank that had long held the exclusive right to service it.
With no advance notice or public debate, though, the board voted that day in April to shift that business to Bank Rossiya, a smaller institution that lacked the ability to immediately absorb the work. For Bank Rossiya, it was a tidy coup set to yield an estimated $100 million or more in annual commissions, yet it was hardly the only new business coming in. State corporations, local governments and even the Black Sea Fleet in Crimea were suddenly shifting their accounts to the bank, too.

In a matter of days, Bank Rossiya had received an enormous windfall, nearly all from different branches of the Russian state, which was delivering a pointed message. In late March, the United States had made Bank Rossiya a primary target of sanctions, effectively ostracizing it from the global financial system. Now the Kremlin was pushing back, steering lucrative accounts its way to reduce the pain.

Putin’s way

Articles in this series are examining how President Vladimir V. Putin’s system of personalized state-sponsored capitalism allows him to wield power at home and abroad.
The reason the Kremlin rushed to prop up Bank Rossiya is the same reason that the United States, and later its European allies, placed it on the sanctions list: its privileged status as what the Obama administration calls the “personal bank” of the Putin inner circle. Built and run by some of the president’s closest friends and colleagues from his early days in St. Petersburg, Bank Rossiya is emblematic of the way Mr. Putin’s brand of crony capitalism has turned loyalists into billionaires whose influence over strategic sectors of the economy has in turn helped him maintain his iron-fisted grip on power.

Now the sanctions are testing the resilience of his economic and political system. Even as President Obama argues that the measures aimed at Mr. Putin’s inner circle are pinching Russia’s economy and squeezing the tycoons who dominate it, many of them have mocked the sanctions as a mere nuisance, the economic equivalent of a shaving cut, while the Kremlin has moved rapidly to insulate them.

Woven deeply into the Putin system is Bank Rossiya. Founded as the tiniest of banks in the twilight of the Soviet era, Bank Rossiya, through staggering, stealthy expansion backed by the largess of the state, now has nearly $11 billion in assets. It controls a vast financial empire with tentacles across the economy, including a large stake in the country’s most powerful private media conglomerate, a key instrument of the Kremlin’s power to shape public opinion. How well the bank survives in a time of sanctions may ultimately be a barometer of whether economic pressure is enough to make Mr. Putin stand down at a time when neighboring countries, especially in the Baltics, are increasingly anxious about a newly aggressive Russia.

Mr. Putin came to power vowing to eliminate “as a class” the oligarchs who had amassed fortunes — and, to the new president’s mind, a dangerous quotient of political sway — under his predecessor, Boris N. Yeltsin, in the post-Communist chaos of the 1990s. Instead, a new class of tycoons have emerged, men of humble Soviet origins who owe their vast wealth to Mr. Putin, and offer unquestioning political fealty to him in return.
“These guys emerged from scratch and became billionaires under Putin,” Sergei Aleksashenko, a former deputy finance minister and central banker, said in a recent interview.

If the modern Russian state is Kremlin Inc., Mr. Putin is its chief executive officer, rewarding his friends with control of state-owned companies and doling out lucrative government contracts in deals that provoke accusations of corruption but have the veneer of legality under the Putin system.
“He has given and he has taken away,” said Mikhail M. Kasyanov, who served as prime minister during Mr. Putin’s first term. “They depend on him, and he depends on them.”
This inner circle coalesced around Mr. Putin as he began his unobtrusive rise, from a middling career as a K.G.B. intelligence officer to a midlevel functionary in the office of St. Petersburg’s mayor.

One of these loyalists is Bank Rossiya’s chairman and largest shareholder, Yuri V. Kovalchuk, a physicist by training, sometimes called the Rupert Murdoch of Russia for his role as architect of the bank’s media interests. Other Bank Rossiya shareholders include several of the country’s wealthiest men, the son of Mr. Putin’s cousin and even an old St. Petersburg friend of his, a cellist who was formerly first chair at the fabled Mariinsky Theater.

The Kremlin has long denied giving Mr. Putin’s friends preferential treatment. But in acquiring many of its holdings, the privately held Bank Rossiya benefited from Kremlin directives that allowed it to purchase prize state-owned assets at what critics have called cut-rate prices. Meanwhile the true extent of its holdings is obscured by shadowy corporate shell structures that nest like matryoshka dolls, one inside the next.

Records show that the ownership of one powerful television advertising company linked to Bank Rossiya, for example, is buried in offshore companies in Panama, in the British Virgin Islands and even at a simple concrete house on Karpathou Street in Nicosia, the capital of Cyprus, whose owner had no idea of the company registered there.

In the early days of the conflict over Ukraine, several European leaders expressed deep ambivalence about alienating a Russia that under Mr. Putin’s rule has become immeasurably wealthier than it ever was under the Soviet system. Russia has been a sought-after partner in the globalized economy, a source of cheap natural gas for Europe, where wealthy Russians have also purchased billions of dollars in real estate in places like the Cote d’Azur and the Belgravia district of London.

But that resistance has to some extent eroded, especially since the downing of a commercial airliner over eastern Ukraine in July that killed 298 people. This month, despite an edgy truce between pro-Russian separatists and government forces in Ukraine, the West announced a new round of sanctions aimed not just at Mr. Putin’s powerful cronies but at the Russian economy more broadly. Some argue, however, that this punitive strategy fundamentally misunderstands the way the Putin system works.

Gennady N. Timchenko, an oil trader and Bank Rossiya investor whose own holding company is also under sanctions, admitted in a recent interview with Itar-Tass to a measure of annoyance. He was unhappy that his Learjet had been grounded because of sanctions, and that he could not vacation in France with his family and dog, Romi, which happens to be the offspring of Mr. Putin’s beloved black Labrador, Koni.

And yet, he said, he would never presume to question the Russian president’s policies in Ukraine, whatever the cost to companies like his. “That would be impossible,” he said, going on to refer to Mr. Putin formally by his first name and patronymic. “Vladimir Vladimirovich acts in the interest of Russia in any situation, period. No compromises. It would not even enter our minds to discuss that.

THE POWER Vladimir V. Putin preparing to take the oath for a third term as Russia’s president in Moscow in 2012. His brand of crony capitalism has turned loyalists into billionaires.


‘A bouquet of friends’

In the Kolomna district of St. Petersburg, near the shipyards, is a 19th-century palace that belonged to Grand Duke Aleksei Aleksandrovich, a son of Czar Aleksandr II. Lately its elegant halls — this one in Baroque style, this one English, this one Chinese — have been repurposed as the House of Music, a training academy for classical musicians.

The academy’s artistic director, Sergei P. Roldugin, has his own singular back story. He is an accomplished cellist and musical director. He is certainly not a businessman, he explained at the palace the other day. “I don’t have millions,” he said. And yet, on paper at least, he has a fortune that could be worth $350 million. That is because, years ago, he said, he acquired shares in a small bank run by men close to his old friend Mr. Putin.

He had met Mr. Putin in the 1970s, and is godfather to his eldest daughter, Maria. He opened the House of Music with Mr. Putin’s patronage. Last year, he recalled, the president asked him for a favor: would he organize a private concert?
So Mr. Roldugin traveled to the president’s official residence west of Moscow, Novo-Ogaryovo, with three young musicians: a violinist, a pianist and a clarinetist. They played Mozart, Weber and Tchaikovsky — so well, he said, that Mr. Putin invited them to play again the next night for the same small group of friends who had gathered there.
They were “of course, very famous people,” Mr. Roldugin said, without revealing any names. “Quite all,” he said, “are under sanctions.”
The concerts are a glimpse into the small, remarkably cohesive group of men who came together around Mr. Putin as the old order was crumbling and a new, post-Soviet Russia was taking form.

When the last Soviet leader, Mikhail S. Gorbachev, began to allow the first experiments in private enterprise in the 1980s, St. Petersburg was still Leningrad, an impoverished shadow of the czarist capital it had been.
An early adapter was Mr. Kovalchuk, a physicist at the Ioffe Physical Technical Institute, who founded an enterprise to turn its scientific work into commercially viable products. Another was Mr. Timchenko, a former Soviet trade official, who formed a cooperative to export products from an oil refinery on the Baltic Sea.
What brought Mr. Putin into their orbit was the fall of the Berlin Wall in 1989. After five years as a K.G.B. officer in East Germany, Mr. Putin was part of a wave of embittered military and intelligence officers who withdrew from the Soviet satellites and returned with few prospects to a changing homeland.

Still with the K.G.B., Mr. Putin came into contact with one of his former law professors: Anatoly A. Sobchak, a reformer who had just become chairman of the Leningrad legislature (and would later become mayor of the renamed St. Petersburg). He asked Mr. Putin to become an adviser, to smooth relations with the still-powerful security services. And when the Soviet Union collapsed, Mr. Putin joined Mr. Sobchak full time, overseeing a new committee on foreign economic relations.

The committee worked closely with Russia’s emerging entrepreneurs, regulating imports and exports and distributing city contracts. Some of the deals became controversial, notably one during the hungry winter of 1991-92, of a deal to barter oil, metal and other products for food. Virtually none of the food ever materialized, and a City Council committee unsuccessfully sought to have Mr. Putin fired for incompetence.

For all that, Mr. Putin was considered an efficient, unprepossessing administrator, helping businessmen cut through the bureaucracy. His fluency in German was useful with the many Germans seeking a foothold in the city. Among them was Matthias Warnig, formerly of the East German secret police, the Stasi, who opened one of the city’s first foreign banks, Dresdner.
Mr. Putin was, in short, both collecting new friends and laying the foundation for what would evolve into the system of personalized, state-sponsored capitalism now at the heart of his power.
“It was a favorable environment for such a bouquet of friends to appear,” explained Mikhail I. Amosov, who served on the City Council at the time.

THE ARTS Sergei P. Roldugin, left, a music academy director, has profited from connections.

In many cases, contracts and property were distributed through insider deals, often without open or transparent bidding. “Everything was decided through personal connections,” Mr. Amosov said. “We didn’t like it.”
One enterprise that received an infusion of municipal aid was Bank Rossiya.

The bank had been founded in 1990 at the initiative of the city’s branch of the Communist Party, with party funds as capital. It was also believed to handle the banking needs of the K.G.B. But with the collapse of the Soviet Union, it was all but bust.

Mr. Kovalchuk stepped in. In December 1991, he and a group of friends secured a small loan from a local shoe manufacturer and bought the foundering bank. The investors included three other alumni of the Ioffe Technical Institute — the physicists Victor Y. Myachin and Andrei A. Fursenko, and Vladimir I. Yakunin, the institute’s former head of international relations.
The reconstituted Bank Rossiya quickly became a favored city institution. At the mayor’s instruction, according to news reports, the city opened several large accounts there, fattening the bank’s coffers and setting it on its way.
Business connections became deeply personal connections.

In 1996, Mr. Putin joined seven businessmen, most of them Bank Rossiya shareholders, in forming a cooperative of summer homes, or dachas, called Ozero, or “lake,” in the northeast of St. Petersburg. The group has come to have an outsize influence on Russia’s political and economic life. The cooperative included the homes of Mr. Putin, Mr. Yakunin, Mr. Kovalchuk, Mr. Fursenko and his brother Sergei, Mr. Myachin, and Nikolai T. Shamalov, who headed the St. Petersburg office of the German manufacturer Siemens and would also acquire a major stake in Bank Rossiya. Vladimir A. Smirnov, a St. Petersburg businessman with an exclusive contract to supply the city’s gasoline retailers, served as Ozero’s director.

Mr. Timchenko, the oil trader, entered the Bank Rossiya circle as an investor; according to the bank, his stake is owned by a company he controls. Mr. Warnig, the German banker, would later join Bank Rossiya’s board. (When Mr. Putin’s wife was badly injured in a car accident, Mr. Warnig’s bank arranged to pay for her medical care in Germany.)

And there was Mr. Roldugin, the cellist. “The issue was that I needed to have some money,” he said, adding, “There was no money for art anywhere.” His investment, he said, involved “a lot of manipulations” and required him to take out a loan. Today the bank lists him as owner of 3.2 percent of its shares.
Mr. Putin’s stint in St. Petersburg ended in 1996, when his boss lost his bid for re-election. Soon Mr. Putin had a new boss, President Yeltsin. And after Mr. Yeltsin unexpectedly elevated him to prime minister and then acting president on New Year’s Eve in 1999, the fortunes of many of his friends — and their little bank — began to be transformed.

‘Bank Rossiya, that’s it’

He had arrived in Moscow as a midlevel apparatchik in ill-fitting suits, had ascended to power as a thoroughly unexpected president and won his first presidential election in 2000 on the crest of war to suppress separatists in Chechnya. By 2004, Mr. Putin had become the paramount figure in Russia, winning a second term with 72 percent of the vote, in a race tainted by allegations of strong-arm tactics and vote rigging. Yet Mr. Putin probably would have won a fair election easily, too. The Russian economy, buoyed by high oil prices, was booming, creating huge fortunes and also lifting the middle class. The long era of post-Soviet gloom seemed done.
Not many people yet understood that in the middle of Russia’s prosperity, the men in the tight circle close to Mr. Putin were becoming fabulously wealthy, and increasingly powerful, in what critics now consider a case study in legalized kleptocracy.

Bank Rossiya, which reported less than $1 million in profits the year before Mr. Putin became president, had grown steadily, but figures like Mr. Kovalchuk and Mr. Timchenko remained in the shadows.
“I didn’t even know such names — Timchenko, Kovalchuk,” said Mr. Kasyanov, whom Mr. Putin dismissed as prime minister shortly before the elections.

'I won't sing for occupiers' -- a Ukrainian singer falls out with Russia

Radio Free Europe/Radio Liberty: 25. September 2014
By Dmitry Volchek and Claire Bigg

Anastasia Prykhodko performs during a rehearsal of the Eurovision Song Contest in Moscow in May 2009. Now she vows never to sing in Russia again.

In 2009, Ukrainian singer Anastasia Prykhodko represented Russia at the Eurovision song contest with "Mamo," a love ballad that she performed in both Russian and Ukrainian. 
Ahead of the competition, Prykhodko -- whose father is ethnic Russian -- spoke warmly about the "spiritual and historical affinity" between the two nations, stressing it would be "a sin" to ignore this special bond.

Five years later, as the conflict pitting Ukrainian troops against pro-Russian separatist rebels simmers in eastern Ukraine, this bond is in tatters. Prykhodko's own relationship with Russia, too, is badly frayed.
Her passionate pro-Ukrainian stance has made her the target of a mudslinging campaign in the Russian media, which have singled her out as one of the country's greatest foes.

Last month, the 27-year-old vowed never to sing in Russia again. "Why should I go there?" she told RFE/RL. "I've already said that I regard singing for the occupiers as supreme treason. I will remain true to my position. Forever." 

No 'Russian Star'

Prykhodko, a Kyiv resident, shot to fame in Russia after winning Russia's Star Factory singing talent contest in 2007.

Up until the pro-European protests that shook the Ukrainian capital last fall, she had a strong following in Russia and was a prized guest on Russian television.
But in Ukraine's highly polarized conflict, her show of support for Ukrainian sovereignty has led to a spectacular fallout with Russia. "I first demonstrated my political stance when I sang at the Maidan on December 14," she says. "At the time, [Viktor] Yanukovych was still president and we risked losing everything. But for us, the future of our country took precedence over our own."


Anastasia Prykhodko poses with Ukrainian soldiers on the front line.

In recent weeks, Prykhodko has performed for Ukrainian troops and local residents in a dozen towns in the country's strife-torn east. On September 20, she unveiled a new patriotic song titled "Heroes Don't Die," appearing on stage in a dress adorned with traditional Ukrainian embroidery.
The sharp-tongued singer has also waged an active campaign against separatists on her Twitter account, where her profile picture shows her toying with a knife while posing with heavily armed Ukrainian soldiers.

To Russian critics who call her ungrateful, she answers that she owes her fame solely to her mother and to her former producer, Georgian-born Konstantin Meladze. "It's not Russia that gave me my voice, it's not Russia that gave me my talent," she says. "My mother gave me all of this. Meladze, a Georgian living in Ukraine, discovered me. The fact that I ended up at the Russian Star Factory contest was a twist of fate."


'Friend Of The Junta'

Prykhodko backs Ukraine's recent decision to block top Russian television channels, which she accuses of spreading "lies, hatred, and stupidity," from its cable networks.

On August 31, the state-controlled NTV channel broadcast a news show portraying her as a Russian-hating opportunist. The program, titled "17 Friends of the Junta" -- in reference to how the Russian media describes the new, Western-leaning Ukrainian government -- targeted Prykhodko along with several prominent Russian artists and public figures who have criticized Russia's actions in Ukraine.

The show featured Prykhodko's estranged Russian grandmother, who shed tears and described the singer as the shame of the family as cameras rolled. "I find it funny watching how Russian media are agonizing," Prykhodko says. "The very name of the program is laughable."

Russian singer Iosif Kobzon, a Soviet-era icon known for his time-tested loyalty to the Kremlin, has also had harsh words for his Ukrainian colleague. He dismissed her 2009 Eurovision performance as "disgraceful" and branded her a talentless "street girl" who "swears like a prostitute" and smears Russia at the bequest of her "master." He did not clarify who this master was.

Prykhodko, in turn, criticized what she called Kobzon's "artistic helplessness" and called for his statue in Donetsk to be pulled down. "One can't take offense at sick people," Prykhodko concludes snappily. "I hope these people will eventually recover. The important thing is to find a good doctor. Unfortunately, such a doctor will not appear in Russia any time soon."

What does Ukraine have to do to get real help from the West?

Kyiv Post: 25. September 2014
Op-ed — by Timothy Ash

View image on Twitter
A old woman today in Pervomaisk, eastern Ukraine, sitting down in a residential area shelled a few weeks ago. 

I think rather the really difficult economic reality of Ukraine is now setting in with investors, with economic activity collapsing. Industrial production is down over 20 percent year-on-year in August, and production in Donetsk and Luhansk almost halted. The National Bank of Ukraine is really struggling to defend the hryvnia, as exports are collapsing, and sentiment with it. As a National Bank of Ukraine offical said today,demand for FX is very high again.     

And what about Western support?

Well I think there was an argument that Ukraine was simply too important to fail - but let's face it, Ukrainian President Petro Poroshenko went to Washington, D.C., and made the speech of his life on Sept. 18.
"Live free, or die." He is not naturally a star public speaker, but he hit this one totally out of the park - 13 standing ovations and hegot absolutely "nada" from U.S. President Barack Obama. 
It makes you ask what Poroshenko and Ukraine needs to do to get even a modicum of support from the West. And I guess therein, this is the realisation dawning on investors - i.e. don't hold your breath for an open cheque book for Ukraine from the West.

Note therein the re-statement of the position from the European Union on Sept. 22, that disbursement of its 1.6 billion euro in credits for Ukraine will be conditional on implementation of a reform agenda. Dudes, the country has just been invaded, and is at risk of total collapse now!
And I guess the concern here now is that looking forward, Ukraine may end up re-restructuring, rather as did Greece before, even after getting an IMF programme. External market debt might not be huge, but with official financing building up on the sovereign balance sheet, it suggests that any hair cut if applied on private sector creditors would now need to be pretty aggressive to "make a difference."

The hope is that Ukraine still "plays by the rules," and seeks to pay creditors in full, but difficult choices are going to have to be made if the West does not finally step up to the plate. And then there is that tricky issue of the Russian bail bond trigger being hit by April next year - true, the Ministry of Finance might use International Monetary Fund money to repay early, but Russia will likely use this issue to make life very difficult for Ukraine.
Markets are likely to fret in the run-up to the release of 2014 national accounts data in April 2015.

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Timothy Ash is the head of emerging market research for Standard Bank in London.

23 September 2014

Putin cleverly exploits three weaknesses of the West

The Interpreter: 23. September 2014
Op-ed by Paul Goble


Vladimir Putin appears stronger than he is because he is exploiting three weaknesses of the West: confusion among journalists of balance and objectivity, a desire to get a ceasefire rather than to repulse aggression, and a lack of will to punish Moscow politically and not just economically.

The Kremlin leader’s clever use of these three weaknesses – and they are far from the only Western weaknesses at present – have been very much on public view this week. Unless the West finds the strength to correct them, Putin’s aggression against his own people and other countries will continue.

First, as has been true since the start of Moscow’s aggression against Ukraine, Putin has exploited the increasing proclivity of Western journalists to equate balance with objectivity. He and his minions have flooded the media with statements that are simply not true, but many Western outlets report them as part of the story, without identifying them as false or even questioning their veracity.
That allows such journalists to claim objectivity, but it creates a situation in which there is little or no pressure on Western governments to do the right thing. Many journalists (and governments) will not describe what Moscow is doing as an invasion because Putin says there are no Russian troops in Ukraine, despite massive evidence to the contrary.

As a result, in all too many cases, Putin’s lies have defined the situation rather than facts on the ground, and the Western media’s focus on balance – on presenting all sides of the case even if one or more is untrue – gives thuggish leaders like him an opening that they should not have but will not exploit.
It is of course true that the Western media is more ready to do this with Moscow than it is with any other governments, but a simple test is all that is required to see how bad reporting has been: If any other regime were doing what Putin’s is doing, would Western media outlets be describing it in the same way?

Second, Western governments approach every conflict as an occasion to get a ceasefire rather than to defeat aggression out of a belief that diplomacy alone can solve the problem and reach a solution. But there are at least two obvious problems with that, as the current Minsk Accords show.

On the one hand, moves toward a ceasefire rather than toward a restoration of the status quo ante have the effect of allowing the aggressor to pocket at least a good part of what he has seized, to claim moral equivalence, and to use so-called “frozen conflicts” to promote its policies of domination as Moscow has done for the last 15 years.

And on the other, by signaling that it will not oppose a particular case of aggression, the West has taught Putin and his regime a lesson, but very much the wrong one: aggression works and after “a decent interval” will be ignored, have no consequences for relations with the West, and then can be repeated.
Because the West did not respond when Putin invaded Georgia, he concluded he could seize Crimea. When the West did not oppose that move – indeed, when in his eyes, the West almost legitimated it by the Geneva accords – he moved into eastern Ukraine. Now, Putin has the Minsk agreement, something that will set the stage for more aggression in the future not less.

Obviously seeking a ceasefire as a means to achieve a peace is a good thing. Talking is better than fighting. But it is not better if one side is consciously using a ceasefire to legitimate its aggression, and the other side, by its errors of omission and commission, is facilitating that – and that is what the Minsk accords look like to many.
One question everyone in the West should be asking is this: Will Putin have any incentive to move toward peace if he can get everything he wants by dragging out a Western-backed “peace process” forever? There is little evidence that he will, and there is a great deal of evidence that he won’t.

And third, the West is only prepared to go so far in using its leverage. Its sanctions on Russia have been good as far as they have gone: they are hurting Moscow economically and financially. But the West has not been prepared to impose the kind of political sanctions that would affect the Kremlin more directly, apparently fearful of creating a longer that would call Western profits into question.
There should have been no discussion about whether the West would welcome Putin at Normandy in June or at the G-20 in Australia. He is an aggressor, at odds with the international community and breaking rules established after the Second World War, and should be disinvited to all such forums. But the West is apparently now too weak to do that, at least in the eyes of Putin.

The West has been reluctant to take political steps to isolate the Kremlin assuming that economic ones are enough. They are not. Under pressure from its own business elites, the West has failed to impose the kind of draconian sanctions that would really hurt and has been unnecessarily explicit, even craven, in saying how Moscow can end them.

If Russia is not going to be punished militarily by the supplying of weapons to Ukraine, then it must be punished other ways, including with the downgrading of diplomatic representation, restrictions on visas, and symbolic exclusions as from all international forums, including economic, cultural and athletic ones.
Unless that happens, the West will continue to send a message to Putin that his aggression works, a message he will use not only to shore up his power in Moscow but to launch new aggression elsewhere.

Ukraine is more of an existential threat than ISIS, because it could destroy NATO

Forbes: 23. September 2014
Op-ed by Paul Roderick Gregory


Ukrainian President Petro Poroshenko addressing Congress on Thursday, alongside Vice President Joe Biden and House Speaker John Boehner.

It is rare for a head of state, especially one fighting a hot war against, using Mitt Romney’s phrase, “America’s number one geopolitical enemy,” to be invited to address a joint session of Congress. Ukraine’s president Petro Poroshenko delivered an urgent plea on Thursday for American military support against Russia’s invasion. The passionate speech elicited standing ovations from both sides of the aisle.

Congress showing rare level of unity on Poroshenko speech & Ukraine.

For the press, however, it was as if Petroshenko’s speech never took place despite his memorable jab at President Obama: “Blankets do not win wars.” The New York Times relegated Poroshenko to A12. No mention on the Drudge Report, and the Wall Street Journal placed its Ukraine Gets More Aid, No Weapons on A6 and derided Obama’s fear that “real weapons (for Ukraine) will provoke Vladimir Putin, as if he needs an excuse for invasion” on its editorial page. BTW: The Russian invasion of late August was conveniently dismissed in White-House speak as an “incursion.”

The slaughter of more than 3,000 civilians and Ukrainian soldiers and a growing toll of Russian mercenaries and conscripts in southeast Ukraine can hardly compete with ISIS’s (or ISIL’s, if you like) grisly You-Tube beheadings, but the potential risk posed by Russia’s War of Southeast Ukraine exceeds those emanating from the ISIS threat.

If you do not believe me, hear me out.

A retired general, a former ambassador, and an intelligence expert testified before the House shortly before Poroshenko’s speech about how to defeat the 30,000 strong (and growing) ISIS forces. We must keep our options open and not “tell our adversaries in advance any timeline … or which of our capabilities we will not employ.” Defeating ISIS will be a tough slog. ISIS’s recruitment of European and American sympathizers complicates the war on terror, which we must regrettably fight for decades to come, ISIS or no ISIS.

The same military experts would be hard pressed to explain how the hobbled Ukrainian army is to defeat the Russian-backed separatists and regular Russian troops without military assistance, especially now that Russia has shown it will invade with regular forces. Sanctions are indeed hurting, but they are a price Putin is willing to pay. If anything, Europe and the United States seem to be rooting for Ukraine’s military weakness. Angela Merkel rejected military aid lest Ukraine believe a military solution is possible. Barack Obama expressed fear that military aid might involve the U.S. more deeply in the conflict. Neither Merkel nor Obama seem to understand that you gain a good peace by winning not by losing.

Whereas Poroshenko’s “blankets do not win wars” line gained the most attention, his chilling parallel with the Cuban Missile Crisis largely escaped notice:
“Without any doubt, the international system of checks and balances has been effectively ruined (by Russia’s actions). The world has been plunged into the worst security crisis since the U.S. (Cuban missile) standoff of 1962.”

By this stark comparison, Poroshenko made clear that Vladimir Putin’s territorial ambitions, his clear intent to restore a Russian empire, and his hatred of NATO provide the tinderbox for reigniting events similar to October 1962 when U.S. and Soviet forces faced each other “eyeball-to-eyeball.” We could be weeks or months away from another such standoff with Russia, not in the Caribbean, but in a small state on the Baltic Sea.

Are the world’s two largest nuclear powers moving towards a missile-crisis-like confrontation because Russia is achieving or failing to achieve its objectives in Southeast Ukraine? Are Europe and the U.S. really hoping that a peace deal entered into by a weakened Ukraine will end Putin’s empire-restoration dream? Or would only effective Ukrainian resistance that denies Putin his Novorossiya head off such a catastrophe? Merkel and Obama regrettably seem to be pushing Ukraine towards an unfavorable peace that gives Putin a permanently destabilized Ukraine blocked from the European Union and NATO. And the only price he has had to pay is sanctions, which he expects to be lifted after a decent time has passed.

Noted Russian commentator and Putin critic, Andrei Piontovsky, argues that if “Putin succeeds and completely subordinates to himself the policy of Ukraine and blocks its European choice, then he will continue this campaign. And the next target will be the Baltics.” (See Paul Goble’s summary). If he loses in Ukraine, he cannot move to his next target and his regime may be threatened. We are not talking small ball here.

At this juncture, it appears that Putin’s late August invasion ended Ukraine’s successful Anti-Terrorist Operation and devastated Ukraine’s forces in the southeast. Ukraine’s army and national guard have pulled back, hoping to regroup. Putin is close to his objective of an autonomous southeast Ukraine through which he can manipulate the whole of Ukraine, and he has yet to pay what he regards as a real price.

As far as Putin is concerned, the game is almost over. Let’s get ready for the next game.

Piontovsky argues that NATO membership of the Baltic States will not hold Putin back. Rather, it will spur him on. Ukraine-like hybrid wars against Estonia, Latvia, or Lithuania, “would call the (NATO) alliance as a whole into question and give Putin an enormous victory.” Putin sees the grand prize in reach: the de facto destruction of his greatest enemy, NATO – the very organization that destroyed the USSR and encircled Russia. The risks of such an adventure would be high, but the rewards would be astronomical.

But wait, skeptics argue: Surely Putin understands that an attack on any Baltic state would trigger the Article 5 mutual defense clause of NATO. Did not the President of the United States pledge in Tallinn on September 3 that “Article Five is crystal clear? An attack on one is an attack on all… So if, in such a moment, you ever ask again, who will come to help, you’ll know the answer: the NATO alliance, including the armed forces of the United States of America, right here, present, now.”
Putin would not dare, such skeptics say. Obama has laid down a red line, and this time he means it.

Not so fast! We thought Putin would not dare to invade and annex Crimea and over turn the postwar order, but he did. We thought he would not use regular troops in Southeastern Ukraine but he did. And in all cases, he got away with it largely unscathed. Putin would respond with: I have been there and done that in Ukraine. I can get away with it in the Baltics. I know how to do it. There is truth to what he says. Russia has six years of experience with fighting hybrid wars, none of which have failed. One was against Georgia, a member of NATO’s Partnership For Peace. Putin annexed parts of Georgia and NATO did little or nothing.

As writes Thomas Lifson in American Thinker: “We are in very dangerous territory now. Russia will be encouraged to escalate its provocations, having seen that Obama’s threats are empty. Putin has already mentioned that Russia is a nuclear power, a not so veiled threat to start World War 3 should his future aggression meet a response. The risk is that having shown he can be bullied, Obama will respond too late …. thereby setting off Armageddon.”

US President Obama as host,  listens to Ukraine President Poroshenko's remarks.

We can already describe Putin’s game plan for destroying NATO via the new type of war he perfected in Georgia, Moldova, and Ukraine. It could begin in any of the three Baltic states. Russia has already launched a provocation in Estonia, but this is likely a diversion. Latvia, a country of two million, one quarter Russian, 150,000 of which are not Latvian citizens, is the likely first target.

The first step of Russia’s hybrid war has purportedly already been taken in the form of secret surveys of Latvia’s ethnic Russians. Putin’s propaganda arm, RT, is already hammering Latvia’s discrimination against its Russians. As preparations against Latvia accelerate, RT and Russian TV channels, which are the main source of information for most of Latvia’s Russians, will increasingly feature lurid tales of murder, torture and rape of Latvian Russians by nationalists and neo-Nazis supported by Latvia’s “criminal” state. Agents of Russian military intelligence (GRU) and FSB (the KGB successor) will infiltrate Latvia along with mercenaries, armed with money and lists of likely sympathizers. Riots will be organized in smaller eastern cities with high proportions of Russians. The protester/occupiers will sport signs demanding equal rights and autonomous status. Armed crowds will overwhelm local police and will occupy municipal buildings. The occupiers will then proclaim a Peoples’ Republic of Free Latvia. They will surround their occupied buildings with barbed wire, burning tires, and AK47 toting thugs.

As this is going on, the Russian army will begin “long scheduled” maneuvers on the Latvian border. The Kremlin may admit that Russian “volunteers” have crossed the border, but the Russian people are free to help their Russian brothers abroad, and the Kremlin has nothing to do with this. Russia only wants peace on its borders. The Latvian government will deliver outraged protests to the Kremlin which will claim its innocence, while its troops make feints at the border.

Joint Latvian, Lithuanian, and Estonian forces will make their way to remove the new self-declared “mayors” and “governors” from the occupied buildings and towns. Shooting breaks out between Baltic forces and the self-proclaimed Peoples Republic of Free Latvia. Casualties mount. Latvia declares that it has been attacked by Russia and invokes NATO’s Article 5. Russia counters by protesting its innocence and concern that a civil war has broken out on its borders. It could be compelled, however, to intervene if fellow Russians are at risk, and Russia will take no weapons off the table.

Russia and the United States again stand eyeball-to-eyeball. We do not know, to use Dean Rusk’s term, which side will blink. What will NATO and the United States do at this moment? The answer is far from clear.

Airwaves, the press, and the blogosphere will already have been saturated with dire warnings of World War III. Putin is already on record that he can win a war with NATO through the use of tactical nuclear weapons. Putin apologists in Germany, France, Italy and the United States will ask: Are we really prepared to die for Latvia or Estonia? At this point, Putin will volunteer himself as a peace maker. Surely he can work something out. The Latvian commotion is nothing more than a Scotland referendum gone bad. Why should we turn the world upside down just because of a civil war in a small insignificant country that few can locate on the map.

At an emergency NATO meeting in Brussels, the Baltic States make their plea for Article 5. After a considerable tug of war, NATO decides to wait and see. Perhaps everything will turn out just fine. More mercenaries and equipment cross the border to defend the Peoples Republic of Free Latvia. Latvia sinks into a frozen conflict, whose end is not in sight. Russian troops remain poised on the border.

Putin has called NATO’s bluff, and the world has seen that NATO is an empty shell. There is no more NATO. Putin is king of the roost. It is he who decides who will be spared and who will punished.

ISIS and Putin teach the same lesson. If the West wants to win, it must resist before it is too late. ISIS would have been easy to defeat when it was a ragtag force of several thousand. Putin would have been easy to stop if the West had moved in destroyers, carriers, and NATO troops to Poland or Kiev at the first move to annex Crimea. Putin’s unconventional attack on southeast Ukraine could have been halted by massive sanctions before misdeeds (not after), by brushing aside Russia’s protestations of innocence with straight talk, and by providing Ukraine with real military assistance from the get-go. It is already too late to do what we should have done, but consider the scenario that I have described above. Very soon, it could really be too late.

Ukraine is fighting on its own with little or no help from its feckless allies. Those who stand next in the line of victims understand the urgency of the situation. Others do not, if Obama’s remark at a recent fund raiser is accurate: “Geopolitically…what happens in Ukraine does not pose a threat to us.” That remark may go down in history along with Chamberlain’s “peace in our time” statement.

Ukraine's neglected and battered army inspires citizens to pitch in

The New York Times: 23. September 2014

A child of a Sich special volunteer battalion member holds her father during an oath-taking and farewell ceremony in Kyiv on August 26.
A child of a Sich special volunteer battalion member holds her father during an oath-taking and farewell ceremony in Kyiv on August 26.


DNIPROPETROVSK, Ukraine — Well-wishers mill around the entrances of the two main hospitals in this city in east-central Ukraine — men who greet friends with hugs and backslaps or share a cigarette, women who arrive to visit the wounded, sorting food parcels and pouring cups of sweet tea.
Inside the two hospitals, one civilian-run and one military, the medical staffs are busy treating dozens of wounded Ukrainian soldiers, casualties of the six-month war with Russian-backed separatist rebels in the restive provinces to the east. As those casualties have mounted, citizens and support groups for wounded soldiers and their families have begun to rally behind their long-neglected, resource-starved army in a rush of patriotic feeling.
According to the support groups’ tally, more than 800 soldiers have been killed in the conflict so far.

“We don’t have an army,” said Andrei Karnysh, a veteran of the border guard and the chairman of a regional support group, who was visiting the wounded in the military hospital. “These boys were sent on buses, with rifles and just 30 bullets each,” Mr. Karnysh said. “No body armor, nothing.”
Soldiers and veterans interviewed say the armed forces are understaffed, undertrained and underequipped as they confront a much bigger and stronger opponent: not the separatist rebels, but the Russian forces behind them, with their superior firepower. The Kremlin denies taking any role in the fighting, but almost every soldier interviewed here spoke of direct encounters with Russian troops.

“They were shooting at us like they were on a firing range,” said Viktor, a reservist with his arm in a sling. He gave only his first name, saying, as most other soldiers did, that identifying himself to a reporter would be against regulations. Viktor said he was wounded Aug. 29 as Ukrainian forces tried to retreat through a prearranged safe corridor, but came under withering fire from Russian troops anyway.

Another soldier, who said he had just returned after four months in the Donetsk region, complained that “there are no supplies in the army.” “There were no good flak jackets, weapons or equipment,” the soldier continued. “We did not see the American supplies that have been given, or medical supplies. It was difficult to get medicine.”
Mr. Karnysh said that in the 23 years since independence, successive Ukrainian leaders had let the armed forces decline and even sold off some of their equipment. Budgets became so tight that he and his friends collected contributions to pay for serving paratroopers to make one jump during training.
“We are civilians, and we are gathering money so the army can shoot,” he said.

Friends and relatives say goodbye to volunteers before they were sent to the eastern part of Ukraine to join the ranks of those already fighting.

When Russia annexed Crimea and pro-Russian separatists began staging protests in eastern Ukraine in March, the Ukrainian armed forces proved largely incapable of handling the threat. Since then, the army has called up thousands of additional recruits, and it has been joined in the field by volunteer paramilitary battalions. Many of them were angered by the loss of Crimea and inspired by the protests in Kiev, the capital, that overthrew President Viktor F. Yanukovych in February.

Continue reading the main storyContinue reading the main storyContinue reading the main story
Yet these efforts have resulted not in a unified force, but in a motley collection of units of widely varying ability — the volunteer National Guard formations under the Interior Ministry and the regular army units under the Ministry of Defense — with only a weak central command structure.
That lack of cohesion cost the Ukrainian forces dearly in late August.

Sgt. Maj. Igor Tchaikovsky, 47, an army veteran who joined the volunteer Donbass battalion, said a lack of proper equipment and backup had cost his unit dearly, with about 50 men killed, 40 wounded and 110 taken prisoner when they withdrew from the town of Ilovaysk on Aug. 29.
“We got the order to leave, and were told there was a corridor,” Sergeant Major Tchaikovsky said. “We made our column with civilian cars; we don’t have military vehicles or heavy guns. We had a big civilian truck loaded with wounded, and pickups and small cars.”
After traveling 18 miles, he said, the column came under attack from Russian artillery and antitank grenades. “We managed to scatter and started fighting,” Sergeant Major Tchaikovsky said. “Normally, volunteer battalions function like police. This fighting was not something we should be doing.”

He said that the battalion had been able to capture some vehicles and eight prisoners, some of them Russians, but that its route out had been blocked. Surrounded, the battalion was forced to surrender, he recalled. The Russian troops immediately exchanged some of the wounded Ukrainians for their own men, and then turned the rest of their captives over to the separatist rebels, he said. He and a handful of others were later released in another prisoner exchange, but 99 soldiers are still being held in the basement of the Security Service headquarters in Donetsk.

Despite the losses and the scale of the Russian intervention, soldiers interviewed over the past two weeks insisted that Ukraine had to build up its forces and continue to resist any breakup of Ukrainian territory.
“Many who went to Ilovaysk are ready to stay and build the battalion,” Sergeant Major Tchaikovsky said. “If there was an opportunity not to fight, that would be better. But the mood of our guys is, we should do everything correctly, and not cause harm to the country and to the memory of those who died.”

A girl cries as she embraces her boyfriend, a new volunteer for the Ukrainian army's Azov battalion, after a military ceremony Monday in Kiev.

Some units are receiving training and equipment. A National Guard volunteer who was wounded in Ilovaysk said he had trained intensively for three months with an antitank unit before going into battle. An army sergeant who was wounded twice defending the Donetsk airport from rebel forces and had shrapnel scars dotting his face said with a smile that he had survived because he had been protected by American body armor.

The sergeant said that the separatist rebels continued attacking the airport day and night even after the cease-fire was declared on Sept. 5, but that he was confident that the army could hold the airport, and would prevail in the larger conflict.
“I think we will stay as one country,” he said. “We have survived so many things, and the whole country has been mobilized for this, you cannot imagine.”



The sergeant, 36, who repairs shoes in civilian life, said his comrades in the unit defending the airport were working-class men like him. “One was a tea boy on the trains, another transported cash for banks, a third was a car mechanic,” he said. “We can manage. Maybe it will be hard, but we will have victory for sure. My unit is very ready to fight.”

Rogozin: Russia to renew strategic nuclear arsenal by 2020

Reuters: 23. September 2014

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Deputy Prime Minister of Russia, Dmitry Rogozin, stated that by 2020 Russian strategic nuclear forces (SNF) will be renewed by 100%, and not 70% as currently anticipated.
“We’re forming the technical basis for our strategic nuclear forces at a faster rate than expected, and, in fact, we’ll update SNF by 100%, and not 70%.” Rogozin said on Russia 24 TV channel.

The Deputy Prime Minister added that in 2015 the Army and Navy should be re-equipped with ultra-sophisticated weapons by 30%, and in 2020 – by 70%.

At the same time, Russia needs to create a compact army, which can be deployed quickly to “any threatening zone of war.”
“Is it really necessary to surprise our colleagues by openly brandishing all sorts of weapons? Some things must be kept secret so we can spring a surprise in the most critical moment.” concluded Rogozin.

Rearming the Russian army

Begun in 2008, military reforms for the Russian army will be the largest to be implemented in post-Soviet history. The system of military command and control was dramatically changed and the number of servicemen was significantly reduced (proportion of conscripts decreased, and number of contractors increased). Officers’ salaries were raised considerably, and solutions were offered for their housing problems. But, most importantly, the authorities approved an important rearmament programme to be implemented by 2020.

During this period, supplies of new military weapons increased to 16%, and are expected to reach 70% by 2020.

Vladimir Putin: “The state allocates a lot of money for this purpose (rearmament)… a huge amount. In 2003, the defense budget totalled 600 billion rubles. This year, overall budget expenditures for the Ministry of Defense will reach 2.3 trillion rubles.”


Weapons for the army in 2014

In 2014, the Russian Defense Ministry plans to increase the delivery of modern weapons and technology to the army by 30%. This year, the Ministry will continue upgrading missile regiments in the Strategic Missile Troops with Yars, NATO codename SS 27 second generation, mobile launcher systems. At the same time, it will re-equip siloes based Yars launchers at the Kozelsky missile compound.

In addition, the Defense Ministry will renew equipment of two missile brigades of the Ground Forces with Iskander missile complexes and two anti-aircraft missile regiments with S-400 anti-aircraft missile systems.

Photo Russia24 TV: Rogozin to Medvedev: We have a secret weapon that will surprise everyone at the most critical moment

Ukraine provided with anti-radar devices and encrypted communication equipment

Censor.NET: 23. September 2014


New Ukrainian R300-B radio jamming complexes.

Ukraine is now provided with the radar jamming devices and encrypted communication equipment. Deputy Head of the presidential administration Valerii Chalyi stated this on air of Svoboda Slova on ICTV.Censor.NET reports this citing UNN.

"Ukraine needs not only tanks and offensive weaponry today. We have them. There are other problems. Our soldiers are covered by salvos... We do not have appropriate anti-radar devices as well as encrypted communication equipment. Ukraine will be submitted with all this appliances and moreover we are already receiving them," the representative of the Presidential Administration said.

The Ukrainian NSDC:stated today that part of the Russian troops left the Ukraine, but new troops intrude.

Chalyi said that the way of winning hybrid war differs from successful actions in traditional warfare.
He added that our Western partners did not know how to react on military operations in the east of Ukraine when they began.

"And now they are rapidly changing their military doctrines, ways of responding. Now they are taking in consideration this type of war which is taking place in Ukraine. There is a clear understanding that this is a war. Everyone understands that Ukraine stops the aggression, it protects Europe from the aggressor," the deputy head of the administration of the President said. 

High hopes for Russia are fading on Wall Street

The New York Times: 23. September 2014


Russian President Vladimir Putin attends a meeting with Russian and local figures of culture at the Chekhov museum in Yalta, on August 14, 2014.

Goldman Sachs has an office in Moscow. So do Citigroup and Morgan Stanley. JPMorgan Chase and Bank of America Merrill Lynch, too.
Russia was supposed to be a growth market for Wall Street. It is quickly turning out to be a potential financial nightmare and a political hot potato.
With the deteriorating relationship between the United States and Russia over Ukraine, and a series of punitive sanctions clearly slowing Russia’s economy, Wall Street banks are facing a conundrum: Should they stay or go?

Wall Street’s involvement with Russia has long been a source of controversy. Some critics contend that Western banks have quietly helped enrich the government of President Vladimir V. Putin while he ran roughshod over the rule of law, often confiscating assets from political opponents.

“Hidden behind economic sanctions against Russia is the role of Wall Street banks in propping up Putin,” Robert B. Reich, the former labor secretary, wrote recently. “Morgan Stanley, for example, earned an estimated $360 million in investment banking fees in Russia from 2002 through 2013. The bank led the $10 billion initial public offering for Rosneft, Russia’s giant state-controlled oil company, and has helped transform it into the world’s largest publicly traded oil producer.” He added: “Is there anything Wall Street banks won’t do to make more money?”

Over the last decade, Russian companies have produced about $8 billion in banking fees, according to Thomson Reuters’ Deals Intelligence unit. Deutsche Bank is the leading beneficiary of Russian fees over the last decade, with 8.3 percent market share, followed by Morgan Stanley with 6.22 percent, Citigroup with 6.16 percent and JPMorgan with 5.9 percent.
Two of Russia’s largest state-owned companies have been the biggest generators of fees, Gazprom and Rosneft, paying out nearly $600 million.

When relations between the United States and Russia were friendlier, John J. Mack, Morgan Stanley’s former chief executive, was added to Rosneft’s board with the personal approval of Mr. Putin, according to Bloomberg News. Mr. Mack stepped down in late May just as tensions between the two countries were heating up. He has insisted that his departure was unrelated to any political issues.

But his departure did come as Morgan Stanley was in the process of selling its oil and commodities business to a unit of Rosneft, a deal that was reached in late 2013 but still needs various government approvals, including from the Committee on Foreign Investment in the United States, whose mission is to “determine the effect of such transactions on the national security of the United States.”
Morgan Stanley’s deal with Rosneft is a bit of an odd puzzle: The United States government had pushed banks like Morgan Stanley to sell their commodities businesses. The bank, naturally, sought out the most logical buyer, but the deal is in political limbo.

The question for most United States banks is what to do with all of their employees “who are sitting on their hands,” according to one senior executive of a large bank. While Russia’s economy holds enormous promise if the political tensions ease and the sanctions are lifted, it could take years to capitalize on it and banks will most likely have to spend tens of millions of dollars, if not more, to keep their operations open.

Most United States banks have offices with at least 100 people in Moscow, and in some cases many more. Citigroup has about 50 branches in Russia.

Goldman specifically mentioned in its most recent quarterly filing that “the political situations in Iraq, Russia and Ukraine have negatively affected market sentiment toward those countries,” and it pegged its credit and exposure to Russia at about $1 billion.
Up to $100 billion of capital could flee the country just this year, making investments and mergers and acquisitions almost impossible.

The Blackstone Group, the private equity firm, is planning to end its ambition to make investments in Russia this year, according to a person involved in the decision. The Financial Times reported that Blackstone did not plan to renew a consulting contract with a leading financier in the country who had been contracted to scout for Blackstone. The rival Carlyle Group tried to establish an office in Russia twice and ultimately withdrew.

At Bloomberg Markets Most Influential Summit conference in Manhattan on Monday, Patrick J. Healy, deputy chief executive of Hellman & Friedman, a private equity firm, declared, “If you don’t have to invest in Russia, why would you?”
Still, that doesn’t address the question of what happens if a bank were to leave the country and try to return later. Goldman withdrew from Russia in the late 1990s and then spent nearly a decade re-establishing itself.

Then, of course, there is the political calculus and the public relations issues.

Earlier this year, the White House specifically directed chief executives of United States companies, including the banks, to decline invitations to the annual St. Petersburg International Economic Forum, often known as Russia’s Davos. Virtually no major Wall Street chief executive attended the event, after having accepted the invitation. Those declines led an official of Russia’s Ministry of Economic Development to publicly criticize the United States government. “We regret the refusals by C.E.O.s of some American companies to participate,” the official said, “owing to the unprecedented pressure that the U.S. administration is exerting on business.”

At the conference, Mr. Putin was even more forceful: “In the modern, interconnected world, economic sanctions as an instrument of political pressure can have a boomerang effect, and in the end they have an impact on the businesses and economies of the countries that initiated them.”

That’s exactly what Wall Street is worried about.