Ruble Rallies As European Economies Stumble After Brexit

June 27, 2016

LIVE UPDATES: Following the Brexit the ruble is up, and so are the spirits of some of the Kremlin’s biggest supporters.

Welcome to our column, Russia Update, where we will be closely following day-to-day developments in Russia, including the Russian government’s foreign and domestic policies.

The previous issue is here.

Recent Analysis and Translations:

NATO Got Nothing From Conceding To Russia In the Past, Why Should It Cave To The Kremlin Now?
Who is Hacking the Russian Opposition and State Media Officials — and How?
Does it Matter if the Russian Opposition Stays United?


Mayakovsky Library in St. Petersburg Searched in Connection with Case Against Deputy Director

The Federal Security Service (FSB) searched the Mayakovsky Library in St. Petersburg in connection with a case against Nikolai Solodnikov, deputy director for public liaison of the library and founder of the projects Open Library and Dialogues, Novaya Gazeta reports, citing Bumaga [Paper].
The FSB agents were reported to be from the department for defense of the constitutional order and anti-terrorism. They demanded that the library administration turn over information about Solodnikov’s employment. Documents and computers were seized during the search.
Solodnikov himself reported that the search of the library took place before the monthly meeting of his Dialogues group, which organizes public discussion on social and political topics. He has handed in his resignation to the library and said at the dialogues meeting June 27 covered by Ekho Moskvy that his group’s meetings had to be stopped (translation by The Interpreter):

“This is related, let us say, to the dislike and pressure of a certain type of services and organizations [the FSB–The Interpreter] which, for a year and a half already now, have been trying to explain, including to the administration of the library, that the events that we hold are extremely undesirable for the library and for the city.”

Bumaga reports that the issue of whether a case will be opened against Solodnikov on charges of theft of government funds intended for the library remains undetermined.
The last set of events Solodnikov organized included a discussion between Siberian art activist Artyom Loskutov and Vladimir Mirzoyev, titled “Society of the Spectacle”; an evening devoted to the 30th anniversary of the death of famous Soviet film-maker Andrei Tarkovsky and about the painting in Tarkovsky’s films, titled “Tarkovsky from Rublyov to Leonardo, with Fr. Aleksei Uminsky and Levon Nerseyan,  art critic and specialist on ancient Russian art; and a discussion between Yekaterina Shulman, specialist on legislation and Vedomosti columnist and Aleksandr Etkind, a former Soviet psychologist and later culture and literary critic, currently a professor at Georgetown University.
In an unrelated case, the Russian Authors’ Society (RAS) in Moscow was also searched today by police from the Interior Ministry’s department for economic security and anti-corruption, Novaya Gazeta reported.
The home and office of Sergei Fedotov, head of RAS, were searched by police armed with machine guns in connection with a case of fraud and theft of property valued at 500 million rubles ($7.6 million). RAS is a non-profit organization created to collectively manage copyright.
In November 2015, Igor Matvienko, a producer and member of RAS said in a public speech at the Council for Culture that the accounts of RAS had been blocked in connection with an investigation “on facts of embezzlement.” He said all the members of RAS were being summoned to provide testimony and the case was being handed to the prosecutors. Later, another member of RAS denied the claims of a case.
In November 2015, Igor Matvienko, a producer and member of RAS, said in a public speech at the Council for Culture that the accounts of RAS had been blocked in connection with an investigation “on facts of embezzlement.” He said all the members of RAS were being summoned to provide testimony and the case was being handed to the prosecutors. Later, another member of RAS denied the claims of a case.
Then in May 2016, the prosecutor’s office inspected RAS as well as two other organizations, the Russian Union of Rights-Holders and the All-Russian organization for Intellectual Property, and said no violations were found, in reply to a parliamentary inquiry from Sergei Obukhov, RBC reported.
Obukhov and Rashkin had claimed that these groups, which collected fees for the use of music and audio content, were not sufficiently transparent and that “more than 10 billion rubles have not reached the authors, performers, creators of recordings and other rights-holders.”

But the prosecutor found that while not all the funds reached the rights-holders, no violations of law were found and both the prosecutor and the Interior Ministry decided not to open any cases due to lack of evidence.

It is not know what prompted a re-opening of the cases, but it could be that authorities simply came to dislike any bastion of independence for creative people that prevents them from depending on the state.

— Catherine A. Fitzpatrick 

Nikita Belykh, ‘Last Liberal Governor in Russia,’ Arrested for Bribe-Taking

Nikita Belykh, the governor of Kirov Region dubbed “the last liberal governor in Russia,” was accused of bribe-taking and arrested by officers of the Investigative Committee and Federal Security Service (FSB), and Novaya Gazeta reported, citing the Investigative Committee web site.

A one-time fellow opposition member along with slain leader Boris Nemtsov who agreed to cooperate with President Vladimir Putin, Belykh was filmed allegedly receiving a 400,000 euro bribe. The funds were said to be the third installment for helping the Novovyatsky Sky Plant and the Lumber Management Company through various regional investment projects. Belykh said they were funds to help the region and not a bribe.

Belykh was apparently set up in a sting operation in which law-enforcers placed dye on the bills which were later found on Belykh’s hands.  Belykh’s attorney denied he received the euros, but said he just likely shook hands with the person who delivered him, which left the dye on his fingers. He is charged with large-scale bribe-taking and faces up to 15 years in prison.

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The names of the bribe-takers have not been released.


On June 25, Belykh was brought to court by FSB men in masks, and the Investigative Committee testified of the evidence against regarding the dye and also eye-witnesses. His defense requested house arrest for him, as he suffers from diabetes and also has three minor children at home. The judge ruled that the gravity of the crime precluded required pre-trial detention, however, as the defendant was a flight risk and would “put pressure on eye-witnesses.”

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Nikita Belykh in court. Photo by Yevgeny Feldman
2016-06-27 15:21:00

Belykh denied these claims and said, “I did not take bribes, I don’t take them and never intended to take them.”
Vadim Prokhorov, his lawyer, who also serves as the attorney for the Nemtsov Family, was not allowed access to his client, Novaya Gazeta reported. He said that to gain access to the FSB’s Lefortovo Prison, in addition to his own identification as an attorney and an order from the prison warden, he was told he required permission from the investigator, a procedure not required by law but invoked. Prokhorov is worried that he must appeal Belykh’s arrest by tomorrow and needs to meet with him to do this. The investigator in the case has refused to take his phone calls and he was told to put a letter in a drop box checked once or twice a day.
“Failure to allow access to a lawyer is a full-fledged violation for the European Court of Human Rights,” commented Prokhorov. Russia removed from its law books the requirement to accept the precedence of international law and has ignored ECHR rulings.
Aleksei Kuznetsov, his deputy, was made acting governor. United Russia at first denied that it was looking for a successor for the post of governor of Kirov Region with Belykh’s possible resignation. 
“We do not have that question on the agenda — this is for the vertikal of the president of Russia,” a source in the party told RIA Novosti, referring to the reality that governors have been selected by the president under the vertical command system, although since 2012, direct gubernatorial elections were returned for most of the subjects of the Russian Federation.
But by the next day, United Russia had proposed Senator Vyacheslav Timchenko for the governor’s seat, although Andrei Isayev, deputy secretary of United Russia’s general council, said the candidacy had not been discussed.
Anatoly Chubais, currently in Beijing, said he didn’t believe Belykh had taken the bribe, Novaya Gazeta reported, citing his Facebook page (translation by The Interpreter):

“For me, knowing Nikita about 15 years, it is hard to believe that he could take a bribe. But before making some conclusions based on human measures, even by the norms of the law we must hear Nikita’s replies to all these questions and understand his position.”

Anti-corruption activist Alexei Navalny said he was surprised at Belykh’s arrest and said he had not seen him since 2010 and had “no friendly, acquaintance or other warm feelings toward him after the Kirovles case”.
Moscow Times reported that at first Belykh had backed Navalny in the case, calling the charges “dubious” and said that he had not caused financial damage to the region. The case involved claims of embezzlement of $500,000 worth of timber from a state-owned company in Kirov Region while working with Belykh as governor.
But Navalny said the governor’s office refused to provide exonerating documentation that would have proven that Kirovles was involved in an official tender, and said later Belykh took part in an orchestrated campaign by authorities to bankrupt Navalny by sanctioning a lawsuit against him to recover funds even after the Kirovles case was over.
Even so, he said that taking cash in a Moscow restaurant “really doesn’t seem like him,” said Navalny, and that without an open process where the identities of the bribe-takers were given and the court hearings were open, it was impossible to say what was going on. He likened the case to that of Yevgeny Urlashov, mayor of Yaroslav, another opposition-minded politician, who has waited in pre-trial detention for three years without any solid evidence being brought against him until his trial in 2015.
Vladimir Markin, spokesman for the Investigative Committee, said that Navalny was not involved in Belykh’s case.
Presidential spokesman Dmitry Peskov denied any involvement of the Kremlin in Belykh’s arrest, but said President Vladimir Putin would decide whether to remove him from his post as governor.
Belykh, once a  member of the opposition Union of Right Forces who resigned as deputy governor of Perm to oppose Putin, was party to an agreement with Yabloko leader Girgory Yavlinksy to make a coalition between the two groups. The coalition won 11% of the vote in the Moscow City Duma elections in 2005.

Later Belykh was elected to the Perm Legislative Assembly with 16% of the vote. But when President Dmitry Medvedev offered him the governorship of Kirov Region in 2008, he turned his back on the opposition, to the condemnation of former colleagues such as Nemtsov and Maria Gaidar.

— Catherine A. Fitzpatrick 

Erdogan Seeks Reconciliation With Putin – Apologises For Su-24 Downing

The Kremlin claims that the Turkish President, Recep Tayyip Erdorgan, has apologised to Vladimir Putin over the downing of a Russian bomber on the border with Syria last November.

Interfax reports that Dmitry Peskov, Putin’s press secretary, told reporters today:

“President Vladimir Putin received a message from the Turkey’s President Erdogan, in which the Turkish leader expressed his interest in reconciling the situation arising from the destruction of the Russian military aircraft.”

According to the Kremlin press office, Erdogan said:

“I want to once again express my sympathies and deepest condolences to the family of the dead Russian pilot and say that I am sorry. I share their pain with all my heart. We embrace the family of the Russian pilot like a Turkish family. We are ready to take any initiative to ease the pain and severity of the damage caused.”

In addition, Interfax reports, Erdogan said that he was prepared to do everything possible to restore relations between the two countries and cooperate in the “fight against terrorism.”

Turkey’s state-run Anadolu news agency has confirmed the Kremlin’s reports:

This in itself is a dramatic turnaround given that Turkey and Russia are on opposing sides of a proxy war in Syria. Russian and Syrian regime-allied forces continue to assault areas of northern Aleppo near the border, where some rebel units receive Turkish backing.

But the announcement comes on the same day that Turkey made another dramatic move towards reconciliation with a former ally – Israel.

— Pierre Vaux
Ruble Rallies Over Brexit – Kremlin Supporters Elated
The ruble, Russia’s currency, has rallied today against the euro by about 1%. Currently a euro is trading at just shy of 71.69 per ruble after the previous close of 72.45. The ruble gained even more against the plummeting British pound sterling, as this graph from XE shows (a decrease in the graph reflects a stronger ruble against the pound):

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Perhaps ironically, the US dollar is continuing to strengthen as European markets look to invest in the currency and after the British pound hit a new 31-year low today. As a result, the latest news from Bloomberg is that the ruble is even with its previous value against the dollar after both strong rallies and steep declines so far today. 

In other words, in currency value and in oil prices, expect tremendous volatility. 

Bloomberg reports, however, that sanctions may actually soften the blow for Russia since it is more separated from the European economy, and investors may be looking at emerging markets in order to invest. 

European-Union and U.S. sanctions imposed two years ago over the Kremlin’s role in the Ukraine crisis sparked an exodus of foreign capital and closed foreign debt markets to Russia’s biggest state-controlled companies. So long as oil prices hold steady, the ruble may extend its 13 percent gain this year, the second-biggest gain in 24 emerging markets tracked by Bloomberg.

Even Bloomberg admits, though, that expert opinion is mixed. In the current environment there are just too many risk factors and unpredictable variables. In particular Japan, a key player in global markets, is particularly vulnerable right now, and China is trying to climb its way out of slow growth. Russia is counting on China to replace its European trading partners, but as Bloomberg points out, Russia is at a major disadvantage in this relationship and despite stronger calls from both countries for closer ties, China is not the trump card that Russian President Vladimir Putin would hope:

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Putin's Trade Pivot to China Isn't All Smooth as Silk for Russia

Russian President Vladimir Putin will discuss China's plans for reviving the ancient Silk Road trade route to Europe during talks with President Xi Jinping in Beijing this weekend. Russia's finding its own road to better trade ties with its neighbor isn't running entirely smoothly.

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Jun 27, 2016 17:29 (GMT)

One thing that is more clear — Russia has been pushing for a weaker European Union, and it just got it. Even before the EU levied sanctions against Russia for its illegal annexation of Crimea and its invasion of eastern Ukraine, the Kremlin launched trade wars and used other bully tactics in an attempt to convince Eastern European countries to avoid signing association agreements with the EU. We’ve also written extensively about Russia’s ties to Euroskeptic and far-right political parties which are all celebrating the Brexit vote.

And as RFE/RL’s Brian Whitmore notes, one only need to look to social media to see how the Kremlim really feels about the UK leaving the European Union: 

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The Daily Vertical: One Step Closer To The Goal


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Jun 27, 2016 17:37 (GMT)

James Miller