Russia Update: Ruble Sinks to Lowest Rate Since 1998

December 3, 2014
A man walks by a currency exchange booth with the Foreign Ministry in the background in Moscow. The ruble sunk to its lowest since 1998 December 3, 2014.

Welcome to our new 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, and see also our Russia This Week.

The price of oil rose slightly, and the ruble sunk and then rallied at above 52 again today, with economists predicting a recession in Russia.

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Statement from Caucasus Emirate Terrorists from Grozny

A video has been uploaded to YouTube titled “Statement from the Mujahideen Who Have Attacked Dzhokar (Grozny) December 4, 2014.”

Dzhokhar-Gala is the name the capital of the Chechen Republic was given after the first Chechen war in 1996, afterr Dzhokhar Dudaev, the first presidentof the breakaway Chechen Republic of Ichkeria.

The text is in Russian, translated from Chechen, and The Interpreter has translated it into English:

We have entered the city (Dzhokhar) by order of Emir Khamzat.

There are battles under way now.

We are also under oath to Emir Abu Mukhammad of the Caucasus Emirates

A lot of mujahideen have come into the city. This is an act of Revenge for the fact that the murtadi (apostates) dared to oppress Muslim women, our sisters. This is an operation of Intikam (revenge), a Shahid (martyr) operation and we will battle until the death.

There are already results. Allah has destroyed them through our hands. We have destroyed many cars, military convoys, and many trophies are seized. We cannot take everything away. Allah will help us. We have spread out through the city, battles are underway and none of us are even wounded, and we have destroyed many.

Allah says in the Koran – battle them and I will punish them through your hands, and they will be humiliated…and I will give you victor…. Allah forgives all signs. We see this…That’s our situation here…This is our life…Allah Ahbar!

Here’s a copy of the video where the Chechen original can be heard:

Emir Khamzat is an insurgent leader in the Caucasus Emirate. Adu Muhammedov is the head of the Caucasus Emirate who in March 2014 replaced Doku Umarov, the previous head who was assassinated.

The Press House where the gunmen are said to be barricaded is located in
the center of Grozny across from the seat of government. It has a
number of newspapers and television stations in it.


Russian blogger Oleg Kashin has posted a video of people on the streets of Grozny near the Concert Hall, which is about 4.5 km across town from the Press House.

— Catherine A. Fitzpatrick

Unconfirmed Reports of Caucasus Emirates Terrorists Seizing Press House in Grozny

A Russian-language Muslim blogger on Twitter claims to have information about the gunmen who are in the Press House, and that they are from the terrorist group called Caucasus Emirates.

We have not confirmed any of these reports.

Translation by The Interpreter:

Translation: Burning car of officers in Grozny.

Translation: Roads are blocked.

The next tweets are evidently a translation from Chechen into Russian of the audio statements from a video. We have seen identical texts on the Russian social network VKontakte but the video has been removed.

Translation: A mujahideen is describing their results, operation intikam revenge for Muslim sisters in Grozny.

Intikam is a Turkic word for “revenge.”

Translation: 2 – he also said that they are mujahideen of the Caucasus Emirate, the operation is under Amir Khamzat.

Translation: 3 – many trophies and means of transport, not only in the Center, but we are in Staropromyslovsky and Chernorechye.

By “trophies,” he means the automobiles have been seized.

Translation: 4) We have come here until death to kill the enemies of Muslims and we will stand to the end.

Translation: How about that, the tank is banging on the Press House just like in 1996.

The year 1996 was the start of the first Chechen war.

3 Policemen Killed in Grozny Shoot-Out

There is still little information about what is happening in Grozny, the capital of the Chechen Republic in the Russian Federation, where there has been an explosion and a gunfight near the Press House. has carried a brief news item at 3:18 am Moscow time December 4 that 3 policemen have been killed in Grozny.

The independent site has reported that there are fighters barricaded in the Press House.

LifeNews, a pro-government TV station close to law-enforcement and intelligence, has reported that police have blocked the fighters in the Press House building.

LifeNews cited a source that said last night unknown persons summoned three taxis in the village of Shalazhi. About 10 people hijacked the cars when they arrived at the scene and headed toward Grozny. The Traffic Inspection tried to stop the suspicious vehicle, but fighters in the car opened fire and shot three of the policement.

Then, once they got to Grozny, they broke into the Press House, and a fire started.

Explosion and Gunfire in Grozny

An explosion at the Press House in Grozny has been reported, and there are reports of a shoot-out.

According to unconfirmed reports, 3 people have been wounded.

A video has been uploaded to YouTube dated December 3 labeled “Shoot-out in Grozny. Seizure of the Press House.”

Another video shows a fire and gunfire can be heard in the background. Some men are speaking in Chechen.

This video uploaded today to YouTube and also posted on VK purports to be from the scene and shows tracer bullets.

The independent station TV Rain reports, citing Kavkazskaya Politika, that numerous witnesses have heard a powerful explosion and gunfire in the area of the Press House.

Beslan Uspanov, editor of Kavkazskaya Politika told TV Rain that at 2:00 am Moscow time, there has been no official comment on the incident.

According to unconfirmed reports, up to 20 Chechen rebels have seized the building or are holed up in the Press House building.

Translation: Judging from the audio recordings of the conversations of the law-enforcers, the suspects are holed up in the Press House in Grozny.

Translation: BTRs in Grozny

President Ramzan Kadyrov has not made any statement on his Instagram account, where he often posts news and comments.

— Catherine A. Fitzpatrick

Cutting Russia Off from SWIFT ‘Will Mean War’: Top Russian Banker

Cutting Russian banks off from the international payments system SWIFT “will mean war,” says a top Russian bank chief.

Andrei Kostin, head of VTB Bank said in an interview with Handeslbatt covered by RIA Novosti (translated by The Interpreter):

“In my personal opinion, the introduction of such sanctions will mean war.”

He added that the banking system was the most vulnerable segment of the Russian economy because it depends on the dollar and the euro. He said that the “US ambassador should leave Russia” on the day the SWIFT system is shut off.

The European Parliament passed a resolution calling for Russia to be removed from the SWIFT system in September, reported.

This wasn’t compulsory, and Russia remains part of SWIFT.

The UK has pushed hard for the EU to cut Russia off from SWIFT to escalate the sanctions for Russia’s war on Ukraine but the EU hasn’t responded yet.

But SWIFT itself announced in October 2014 that despite “calls to disconnect institutions and entire countries from its network — most recently Israel and Russia,” it “will not make unilateral decisions to disconnect institutions from its network as a result of political pressure.”

Half a Million Russians Die Each Year from Alcoholism

Debates have raged about what the significance is of the slight increase in Russia’s birth rate over its death rate, but there are still powerful factors causing early deaths for Russians that will continue to have an impact on demographics.

In June, the now-defunct Moscow News reported,

All major negative demographic trends — including alcohol poisoning
deaths, murder and suicide — have been receding in Russia in the last
five years, with life expectancy reaching an all-time high of 71 years
in 2013, according to the Health Ministry, up from 67 in 2007. Russia’s birth rate of 1.7 children per woman surpassed the European Union’s average of 1.6 in 2012.

But these developments are far from stable, and not the whole story, as Moscow News explained:


Anatoly Vishnevsky, director of the Demography Institute
at the Higher School of Economics, warned that Russia’s recent
population growth is not sustainable, as the next few generations
of potential mothers will be those born after the collapse of the Soviet
Union, when fewer children were already being born.

“In 2019 there will only be 12.9 million women of the most
active maternity age of between 20 to 35, while in 2013 there were 17.2
million, so of course there will be fewer children in the future,” he
said in emailed comments. 

Most importantly, the negative factors are not dropping fast enough.

There’s the drug epidemic in which at least 100,000 people still lose their lives every year, 30,000 of them from heroin according to official statistics — which may be under-estimated.  There are an estimated 8.5 million illegal drug users.

RIA Novosti recently reported a thousand people had suffered poisoning from a drug called “spice” this year, and at least 25 died.

And alcoholism is killing half a million Russians a year, reported.

On December 1, Rospotrebnadzor, the Russian consumer agency, published this statistic on their website (translated by The Interpreter):

The growth in the use of beer and low-alcohol drinks is happening at the expense of teenagers and women of child-bearing age. This to no large extent is fostering the lowering of the average life expectancy and the growth of the indicator of premature mortality in the population…Alcoholism at a young age is formed as a consequence of taking beer or low-alcohol drinks.

Russian officials want to limit the time and place of alcohol sales by 2020 to make liquor less accessible.

According to the World Health Organization (WHO), every year more than 3 million people die of alcohol abuse. That means Russia is contributing a large percentage of the world’s deaths.

As for AIDS, Russia won’t supply statistics for how many Russians have died of the disease to UNAIDS — the figures are blank. Doctors have reported that AIDS deaths have increased, with 22,000 reported in 2013, versus 20,000 in 2012, according to an AFP report.

At least 1.8 million are said to be HIV positive, a figure fueled by the refusal of Russia to enable harm-reduction programs for addicts and cooperate with international programs to help prevent AIDS among drug issuers and sex workers, says the Daily Beast.

So while Russia is artificially adding to its population by forcibly annexing the Crimea, and the financial incentives for families to have children may continue to work, there are also grave factors of instability at work.

Hard-Line Russian Parliamentarians Propose Reinstating State Ideology
Hard-line Russian parliamentarians are preparing a draft amendment to the Constitution that would make it possible for Russia to have an official state ideology once again, despite a ban on such state interference in effect in the last years of the Soviet Union, reported.

Yevgeny Fyodorov, a deputy from United Russia, who is also the leader of the ultranationalist National Liberation Front (NOD), and Sergei Katasonov, from the ill-named Liberal Democratic Party of Russia headed by Vladimir Zhirinovsky, have prepared a draft amendment to Art. 13, which prohibits a state ideology in Russia. Katasonov made the following comment to (translation by The Interpreter):

Today our Constitution prohibits any ideology — we believe that is incorrect. The experience of other countries illustrates that it is normal when a state ideology is officially established, based on patriotism and the defense of citizens.

Even before the collapse of the Soviet Union, on December 13, 1989, physicist Andrei Sakharov had a strenuous debate with Soviet President Mikhail Gorbachev in parliament about the need to remove Article 6, which prescribed “the leading role of the Communist Party.” Art. 6 had been used to essentially ban all other parties or groups of any kind. Gorbachev was annoyed and said it would be a “serious mistake” to remove communism’s supremacy. Sakharov waved a sheaf of telegrams showing support for abolition of the article. Gorbachev cut off Sakharov’s microphone, and he died of a heart attack the next day.

The Wikipedia article on Art. 6 erroneously attributes the drive to remove Art. 6 to Gorbachev, but in fact he opposed it. The opposition’s first motion in the Soviet parliament failed in a vote of 1,139 to 839, with 56 abstentions. With continued demands by Baltic and other parliamentarians, the motion ultimately passed in March 1990 when Gorbachev was trying to hang on to power by creating a multi-party system.

After the fall of the USSR, following the the White House crisis and the constitutional referendum, the new Russian parliament incorporated a similar article in the Constitution to prevent the recurrence of a one-party government.

So the ultraconservative deputies today are now trying to undo the last of the reforms made 24 years ago —  the kind of rollback which has been the hallmark of Putin’s rule since 2000.

The deputies have not specified when their draft will be ready, reports, and Fyodorov was not available for comment.

But back in November 2013, he proposed removing Art. 13, chapter 1, part 2, which says “No ideology may be established as a state or compulsive one.”

At the time, presidential press secretary Dmitry Peskov said that Putin did not propose changing the constitution, which doesn’t specify an ideology, but nevertheless, there was a “search for a national idea.”

Now evidently the hardliners feel the climate is right to push for the restoration of state ideology again.

Members of Fyodorov’s ultranationalist NOD were involved in harassing people who attended a lecture on Maidan yesterday in Moscow, where 25 people were detained by riot police.

Fyodorov also publicly supported two members of his group who worked as reporters for the Russian-backed separatist website who went missing last summer and were found dead with Russian state media photographer Andrei Stenin.

— Catherine A. Fitzpatrick

Vedomosti Compares Vladimir Putin To Robert Mugabe
In an editorial yesterday December 2, the Russian business daily Vedomosti says that Russia’s deep economic problems come from Vladimir Putin’s inability to accept his mistakes.

The newspaper recounts that, in his interviews, Putin has claimed
that Russia’s government revenue increases as the ruble falls.
Russia’s economy relies heavily on mineral exports, so, according to
Putin, the cheaper the ruble, the more money the government can raise
from oil dollars.

“It feels awkward to remind [him] of inflation,
purchasing power, and other such things,” writes Andrey Sinitsyn, the
author of the piece. He continues by saying that if the government were to
follow Putin’s line of thought to its logical conclusion, Russia would
end up like Zimbabwe, whose currency depreciated so much that the
government had to officially replace it with the US dollar.

Robert Mugabe has been leading Zimbabwe since 1980. To stay in power,
all he has to do is “control the export of resources and finance the
security apparatus” – much like Putin has been doing for the past 14
years. Russia is not quite like Zimbabwe yet, but it has “already
started moving in that direction,” says Sinitsyn.

Sinitsyn says that the main problem of Russian leaders is their inability to recognize their mistakes.

“The Russian economy is
ill, and the ruble’s value … screams of that illness.” By refusing to
accept the necessary treatments and staying in denial, the government
makes that illness worse.

It would be sensible of Putin and his people to fix their mistakes,
but doing so would involve accepting that they made them in the first
place. Putin has held power for 14 years, and he can blame Russia’s
economic illness on no one but himself. “Accepting … his actions or
inaction … can significantly diminish the people’s trust,” says Sinitsyn.

Putin needs the weak ruble because he needs the “populist spending”
to maintain his approval rate. Sinitsyn exposes Putin’s dilemma: by
stopping that spending, he has to accept his mistakes and face the
people’s anger. By continuing, he will further weaken the ruble and the
economy. Sinitsyn concludes that “the citizens will suffer in either of
those cases, but in the latter, [Putin’s] mistakes will continue.”

— Anton Melnikov

Ruble Fails to Rally Despite Bank of Russia Interventions

The price of oil, which has been falling in recent weeks and impacting Russia’s economy, is up slightly today, with Bloomberg reporting Brent at 71.07 and WTI at 67.68.

The value of the ruble against foreign currencies has bounced back slightly from record lows with the ruble sinking to 54.91 rubles against the US dollar this morning and firming up to 52.79 at 09:51 GMT. Bloomberg’s last update put the ruble at 53.04 to one dollar and 65.53 to one Euro.

The interventions made by the Bank of Russia have not helped, reports the Wall Street Journal.

The central bank let the ruble float freely from Nov. 10 and eliminated regular interventions after spending nearly $30 billion of its reserves did little to stop the ruble’s decline. But the central bank has repeatedly said it reserved the right to carry out sudden interventions at any level to ensure financial stability and avoid panic. On Wednesday, it revealed that it had sold $700 million earlier in the week in defense of the ruble, which has been hitting record lows daily.

The central bank’s latest move back into the market, however, supported the ruble only briefly. The dollar quickly pushed back up to 54.

“The ruble situation is looking quite ugly,” said Luis Saenz, head of equity and derivatives sales and trading at BCS Financial Group.

Alpha Bank is predicting that if the price of oil is at $70, the dollar could get to 48 rubles in 2014, TASS reported.But if oil drops as low as $40 a barrel, the ruble could go to 56 per dollar.

Or worse.

These series of charts in a Bloomberg story titled “6 Charts that Illustrate Vladimir Putin’s World of Pain” sum it up well, which a recession predicted by both Russian and Western economists given the drop in GDP:


The ruble has collapsed — the drop has been the worst since 1998: