This plunge in inflation is crucial for the economy’s future.  As I have repeatedly pointed out, it is the sky high interest rates (currently 10%) the Central Bank has been imposing to achieve the 4% inflation target which caused Russian economic growth to slow from mid 2012.  Far more than low oil prices it is these high interest rates which are continuing to hold the economy back.  There is a direct historic correlation between the rise of Russian interest rates since the Central Bank began serious inflation targeting in 2012, the decline in inflation in Russia, and the fall in Russia’s GDP growth rate, even if most commentators are blind to it and even if the Central Bank itself downplays it.  I have discussed all this in detail previously here.

So perhaps the Kremlin does not believe that it has to rely on increases to the military budget for economic investment.  Moreover, with the presidential election coming up in 2018, it would behoove Putin and his United Russia Party to find other areas of the budget to invest in, particularly social spending.

Speaking of election politics, there is speculation on what significance to attach to reports that current prime minister, Dmitry Medvedev, owns multi-million dollar real estate and has a wealth of assets.

Gordon Hahn has written a detailed article on the expose of Medvedev’s “assets”:

On March 2 the FBK published an article and video detailing a large empire of foundations. One is a supposed philanthropic foundation ‘Dar’ or ‘Giving’. It appears to stand at the center of the empire’s acquisitions around which others such as ‘SotsGosProekt’ and ‘Gradislav.’ Through Dar’s and the others’ accounts investments are made by Kremlin-tied oligarchs, and various properties, including wineries, yachts, and luxurious residences are held and de facto ‘owned’ indirectly by Russian Prime Minister and former Russian president Dmitrii Medvedev. Navalnyi’s estimation is that the sum of the properties can be valued at R70 billion – approximately $1.2 billion (http://dimon.navalny.com).

Some believe that this information was published with the tacit approval of the Kremlin – or the faction of the Kremlin that opposes the Neoliberal policies that Medvedev has been associated with. There have been rumors for years that there has been a battle in the Kremlin between the “Eurasianists” who advocate a more nationalist economic policy and an economic and geopolitical turn toward the East (China’s One Belt One Road program, SCO, BRICS, and a strengthening/expansion of EEU) and the “Atlantic Integrationists” supposedly embodied by Medvedev which supports a Neoliberal economic model and playing a subordinate geopolitical role to Washington and the various organizations it controls (NATO, WTO, World Bank, etc.).  It has been thought that Putin has been playing a balancing act with the two factions and both sides have been trying to win him more strongly over to their side.

While there are some who believe that the person behind the report, Kremlin nemesis Alexei Navalny, worked with western intelligence to obtain the information on Medvedev in order to give Russia another scandal, others wonder if Putin is finally throwing Medvedev under the bus in time for the elections next year.   Russia analyst, The Saker, predicted this would happen back in November after the arrest of then Economic Minister Alexei Uliukaev, who was considered to be an ally and philosophical fellow traveler of Medvedev:

The way Uliukaev was detained was carefully choreographed to instill the strongest sense of fear possible in all the other 5^th columnists still in power because in so many ways Uliukaev was a symbol for all the the “Atlantic Integrationists” (those in the Kremlin who want to integrate Russia into the US controlled international security system): Uliukaev was a known liberal, just like Nikita Belykh, governor of Kirov Region, who was detained in a high-publicity arrest in June for taking a 400,000 Euros bribe. I would even say that Uliukaev could be considered the ultimate symbol of the Atlantic Integrationists and a faithful member of the Russian “liberal” (meaning the “Washington consensus” type) sect who, in the past had worked with Egor Gaidar and Alexei Kudrin and who now has been brought down by the Russian “siloviki”, the top officials of the so-called “power ministries” (defense, state security, intelligence). This was immediately recognized by everybody and the main headline of the popular website Gazeta.ru could not be clearer, it read: “The Siloviki brought down Uliukaev” and featured a photo of the key actors of this drama, including the tough-looking man thought to have brought Uliukaev down, Sergei Korolev, the Head of the Economic Security service of the FSB (shown on photo here).

….The list of potential ‘candidates’ to be purged next is still long and includes names like the Deputy Prime Minister Arkadii Dvorkovich, the First Deputy Prime Minister Igor Shuvalov, the Governor of the Russian Central Bank Elvira Nabiullina, the Minister of Finance Anton Siluanov and, of course, Prime Minister Dmitri Medvedev. Uliukaev was only one amongst many more. Still, he was definitely a top-level target and the manner in which he was arrested must have sent a chill down the spine of all the other 5^th columnists in the Kremlin. Just the fact that his phone was tapped for so long is quite unthinkable and clearly points to the fact that nobody is safe from Putin’s purges. And that, by itself, is truly a most welcome change: every member of the Medvedev government now has been put on notice that his/her life is now spent under the close scrutiny of the FSB.

Among others speculating about a purge after Uliukaev’s downfall was Newsbud‘s Russia expert, Filip Kovacevic, who wrote an article about the potential for Medvedev to be replaced by Nikolai Patrushev.

First, Kovacevic defines what a Liberal is in Russia:

We first need to define what it means to be a liberal in the Russian government today. The designation does not refer to political positions (like in the U.S.) as much as it highlights the approach to the economy. Liberals in Russia are those who believe that the role of the state should be minimized and that private, corporate ownership is the best way to run the economy. They are also advocates of Russia’s full-fledged participation in the international economic system dominated by the so-called Bretton Woods institutions, the International Monetary Fund, the World Bank, and the World Trade Organization. Obviously, this means a commitment to the so-called free trade and opposition to any policy of tariffs and import substitution.

The liberals were politically dominant in Russia during Boris Yeltsin’s two-term presidency in the 1990s. Those who brought Putin to power in the late 1990s (the intelligence and military networks) made an uneasy compromise with the liberals, which lasted throughout Putin’s first two presidential terms (2000-2008). The liberals even seemed in ascendance after Medvedev replaced Putin at the helm.

As regular readers of this blog know by now, Yeltsin is the least popular leader of the last 100 years in Russia.  His economic policies are associated with the collapse of Russians’s standard of living in the 1990’s:  massive poverty, loss of life savings, sky-high inflation, food deprivation and the worst mortality crisis since WWII.  Hence, Liberals have no support among the Russian public, with Liberal politicians typically achieving single digit approval ratings and Liberal “activists” and their agenda being spurned more often than not.

Kovacevic next explains the downfall of Medvedev and his policies:

However, soon afterwards, in August 2008, a surprise military attack by the Georgian troops, heavily assisted by NATO and the U.S., on the rebellious enclave of South Ossetia defended by the Russian “peace-keepers” took place. Consequently, the Russian military directly intervened and the Georgians were pushed back. That was the first time since the end of the Cold War that the Russian military crossed the borders of Russia. This created a pattern that will later be repeated in Ukraine, Syria, and no doubt in other places in the future. The genie was out of the bottle.

This was the beginning of the end for the Russian liberals who counted on honest and friendly relations with the West and believed in the existence of a fair playing field for Russia in the global economy. It became clear that the West would allow nothing of the sort. No wonder then that Putin, who initially was ambivalent about running again, returned as the president in 2012.

He goes on to detail how the Ukraine crisis of 2014 only reinforced the distrust of the west and the ideas of Medvedev and his political allies.   He then explains how and why the purge will take place, why Patrushev is in a good position to be Medvedev’s replacement and the likely response of the Russian people:

The ordinary Russian people have no pity for the liberals because they know well the extent to which liberal politicians and their business cronies got rich abusing governmental power for private gain. The recently arrested Ulyukaev is the case in point. Most liberal politicians can easily move to the West – their apartments, yachts, and bank accounts are waiting for them. This is why the majority of the population will support Putin’s purge, even though the purge will be far from democratic and may at times turn violent.

Putin will replace the purged liberals by his trusted allies from the intelligence and military structures. One of them Sergey Naryshkin, the former president of the Russian Parliament, has been appointed to the position of the chief of the Russian external intelligence agency (SVR) immediately after the elections results were in. I have discussed Naryshkin’s appointment in detail in an earlier article,[3] but what is important to keep in mind here is that by appointing a long-time friend and fellow intelligence operative, Putin has cut off any possibility of the liberal insiders at the top leaking national security information to the West. In other words, Putin has built up another layer of protection around the future Russian military and intelligence agenda. In my opinion, he demonstrated that he had no trust left in the West and that he was getting the country ready for a possible military confrontation.

….This is why I think that, parallel with his efforts to develop a detente relations with the U.S. under Trump, Putin will bring in more personal loyalists into the highest offices of the Russian government. Considering the power of the U.S./NATO lobby working against it, the chances of an authentic detente (unfortunately) do not look very good and Putin knows that he must not make a misstep. He may not have another chance.

….Patrushev is one of the top members of the so-called KGB aristocracy of whose mission to lead Russia he himself spoke in an interview more than 15 years ago at the time when Russia was in the midst of the Chechnya crisis that dangerously threatened its very foundations.[6] Such an early mention of this powerful group, which later came to yield tremendous power in the Russian political life, shows that Patrushev was one of its main driving forces.

Over the years, Nikolai Patrushev has been even closer to Putin than Naryshkin. They are almost the same age and their friendship goes back to the 1970s KGB days in Leningrad (now St. Petersburg). In the late 1990s, Patrushev’s rise closely followed Putin’s. It is very significant that it was Patrushev who succeeded Putin as the head of the FSB and held this position for nine years (1999-2008), which is longer than anybody since the Communist Yuri Andropov who was the KGB head from 1967 until 1982 and then became the leader of the Soviet Union (that is, the general secretary of the central committee of the Soviet Communist party).

This analogy may not be accidental. After all, in 2006, there was some speculation that Patrushev would succeed Putin.[7] However, the position went to Medvedev, a member of the liberal camp and not a KGB aristocrat. I believe that now the political tide has turned.

In his interviews with various Russian newspapers, Patrushev, who has a doctorate in law, reveals himself as a serious scholar of the post-WWII global politics. He is a strong critic of the U.S. foreign policy claiming that the U.S. involvement in the world is bent on regime change and state fragmentation.[8] He blames the U.S. for the break-up of Yugoslavia, the numerous so-called color revolutions, the putsch in Ukraine, and the carnage in the Middle East. In fact, he asserts that the wars of the Yugoslav succession were nothing else but the testing ground for the ongoing efforts to break up the former Soviet Republics, including Russia itself.[9] In all of this, he discerns a malicious Western anti-Russian prejudice that is grounded in the historical push for the control of the Eastern territories and resources. This puts Patrushev firmly in the tradition of the Russian Eurasianists. As a result, if chosen by Putin to be the next prime minister, he can be expected to formulate and oversee a very hawkish foreign and national security policy.

It will be interesting to see how this all plays out over the next few months.

*****************

Turning to American politics, as recently reported by the UK Telegraph, the Kremlin spokesman, Dmitry Peskov, announced that members of Hillary Clinton’s team also had contact with the Russian ambassador during the campaign.  So far, nobody seems up in arms about this allegation.  Hmmm.

And in a still stranger and more cynical turn of events, the Podesta Group (the lobbying business of Clinton manager John Podesta) has been hired by Russia’s largest bank to lobby for the end of sanctions. So much for all the sanctimonious shrieking by the Clinton campaign of Trump being Putin’s stooge and being too soft on Russia.

And before we leave the topic of Hillary Clinton and her presidential campaign, it should be noted that one of her biggest and most ardently anti-Russia allies, ex-CIA chief Michael Morell, admitted in a recent presentation to a group of intelligence professionals that there was no evidence to support the allegations of collusion between Trump and the Russians or that the allegations in the Trump “dossier” had any validity:

On the question of the Trump campaign conspiring with the Russians here, there is smoke, but there is no fire, at all.  There’s no little campfire, there’s no little candle, there’s no spark. And there’s a lot of people looking for it….

….[With respect to the dossier] Unless you know the sources, and unless you know how a particular source acquired a particular piece of information, you can’t judge the information — you just can’t.  [The dossier] doesn’t take you anywhere, I don’t think.  I had two questions when I first read it. One was, How did Chris (Christopher Steele, the former MI6 who compiled it – AM) talk to these sources?  I have subsequently learned that he used intermediaries.  And then I asked myself, why did these guys provide this information, what was their motivation? And I subsequently learned that he paid them. That the intermediaries paid the sources and the intermediaries got the money from Chris. And that kind of worries me a little bit because if you’re paying somebody, particularly former FSB officers, they are going to tell you truth and innuendo and rumor, and they’re going to call you up and say, ‘hey, let’s have another meeting, I have more information for you [because they want to get paid some more].  I think you’ve got to take all that into consideration when you consider the dossier.