Interview Conducted By Benjamin Bidder und Ann-Dorit Boy, Der Spiegel, 4/3/24

Alexandra Prokopenko works in Berlin at the Carnegie Russia Eurasia Center and the Center for East European and International Studies (ZOiS). She previously served as an advisor to the Russian Central Bank in Moscow. In March 2022, Prokopenko handed in her notice in protest against the war.

DER SPIEGEL: Ms. Prokopenko, Russian President Vladimir Putin has radicalized his domestic and foreign policy in recent years, while his economic policy has remained surprisingly pragmatic and constant. Why is that?

Prokopenko: Putin has clearly understood that great empires such as the Czarist Empire and the Soviet Union perished due to poor economic management. That is why he makes sure that the management of the Russian economy is as non–ideological as possible and remains in the hands of experts. Putin trusts them completely and does not interfere in the operational business.

DER SPIEGEL: Russia’s good growth figures have long been doubted. What is the real situation?

Prokopenko: The official figures largely correspond to reality. The economic situation is not great, not terrible. The economy grew significantly last year. On the other hand, however, we are seeing clear signs that the Russian economy is overheating.

DER SPIEGEL: What does that mean?

Prokopenko: The economy has grown faster than its potential actually allows. The labor market is at its limit, as good as empty. Unemployment is at a record low. This shortage of skilled labor is already having a negative impact on production. In short, it is an unhealthy situation and the Russian economy does not have the necessary resources to expand so rapidly in the long term. Exports are also unlikely to expand any further. If we look at the statistics, we can also see that a large part of last year’s growth was attributable to defense-related industries. This ranges from the metal industry to textile processing, which produces uniforms on a massive scale.

DER SPIEGEL: Could this affect the Russian economy and Russia’s ability to wage war?

Prokopenko: We keep seeing local problems. The egg crisis last year was one example. There are always acute staff shortages or local bottlenecks in the supply of certain foods to the population. This is caused by logistics chains that are disrupted by the sanctions. However, they are usually re-established. But today they have to be longer and more complex than in the past. This also means: more expensive. At the moment, this does not look particularly threatening. In the medium- to long term, however, this development is not sustainable.

DER SPIEGEL: Is that a problem for Putin’s warfare?

Prokopenko: The time horizon of 12 to 18 months is decisive for developments on the battlefield, and I don’t see any significant economic problems for Russia.

DER SPIEGEL: Nevertheless, you speak of “Putin’s trilemma.” What do you mean by that?

Prokopenko: He has three main tasks: Putin must continue to finance the war. At the same time, the standard of living of the general population must not deteriorate drastically. Thirdly, it must ensure that the economy does not lose its macroeconomic balance. It will be difficult to fulfill all three tasks at the same time. They contradict each other. Stability requires low inflation. In order to keep the inflation rate in check, government spending would have to be cut. But that is not possible because of the cost of the war.

DER SPIEGEL: Citizens don’t seem to notice a dramatic fall in living standards.

Prokopenko: It’s a gradual process. Take a look at the car market: You can buy cars in Russia again, but they now generally come from Chinese rather than Western brands. Most of these vehicles are also imported from China and are no longer built by VW or Toyota in Russian factories. In order to maintain the standard of living in the country, sooner or later certain decisions will have to be made, including investments. Then the Kremlin will have to say which task is more important to it.

DER SPIEGEL: You used to work at Russia’s central bank until the start of Russia’s large-scale attack in 2022. Many of your former colleagues are continuing – and thus keeping Russia’s war machine running. Yet some representatives of the Central Bank and the Economics Ministry were once considered liberals. Why is this “economic bloc” so reliable in its support of the regime?

Prokopenko: The “economic bloc” doesn’t just support the Putin regime. It is an integral part of the system, just like its other pillars, such as the security services. Of course, its fundamental nature is interesting. The “economic bloc” is made of different material than the security bloc. In fact, the economists have proven to be more capable and reliable than the generals on the battlefield.

DER SPIEGEL: What do you mean by that?

Prokopenko: Let’s look on the Russian actions after the Ukrainian counteroffensive. It took the Russian army a few months and thousands of dead and wounded to conquer the village of Avdiivka in eastern Ukraine. Apart from that, there were hardly any successes on the battlefield. In the area of economic policy, on the other hand, the defense measures were extremely successful, everything that has been described as the “Fortress Russia” strategy.

DER SPIEGEL: You are referring to the idea of making Russia’s economy as invulnerable as possible to external pressure. How has that been achieved?

Prokopenko: Of course, it has only been partially successful, the sanctions are definitely affecting the Russian economy. However, fundamental stability has been maintained. And that has a lot to do with the earlier design of Russian economic policy, as it had already developed many years before the war. It allowed the Kremlin to rapidly reorganize the country for war. I observe all of this with a certain pang in my heart: the war and the sanctions have devalued many of the economic policy institutions and principles that an entire generation of economic policymakers helped to build.

DER SPIEGEL: Which ones?

Prokopenko: A vivid example is the Moscow financial center, which had actually developed extremely well. In the years before the war began, it had become increasingly interesting for many investors from other emerging countries. Today, there is nothing left of it. There are no more foreign investors, hardly any normal trade. Sure, formally this market still exists. But it has as much to do with a real trading center as a children’s shop game has to do with a supermarket. Another example is the so–called “budget rule” …

DER SPIEGEL: … a kind of Russian spending brake to limit government spending.

Prokopenko: It has allowed Russia to save up a large financial safety buffer. This was made possible by transfers from the oil and gas business to the National Welfare Fund, but also by prescribed restrictions on government spending. Since 2018, the budget rule has prevented Moscow from inflating the state budget. Russia therefore entered the war with extremely solid state finances. This allowed the Kremlin to quickly divert a lot of money into armaments.

DER SPIEGEL: But that was not the original goal. The idea was to pursue a clever economic policy and save money for a rainy day. Shouldn’t more economic policy decision–makers therefore have thrown in the towel?

Prokopenko: I don’t think it’s particularly surprising that many stay. In the United States, we didn’t experience a mass exodus from government agencies during the Vietnam War and the growing criticism of it.

DER SPIEGEL: Are you still in contact with your former colleagues? How strong is the support for the war there?

Prokopenko: If people continue their work, that doesn’t necessarily mean that they support the war. In any case, I haven’t met anyone among my former colleagues who would be in favor of this war and say: Yes, we’re doing everything right! We just need to kill more Ukrainians and really devastate the Ukrainian economy. There is no such thing there.

DER SPIEGEL: Are you talking about the Central Bank now?

Prokopenko: I have not heard any such statements from the Central Bank or the Finance Ministry, or even from the Russian government as a whole.

DER SPIEGEL: But these people are not against the war either.

Prokopenko: I don’t perceive any enthusiasm for war in the bureaucracy or within the Russian business world. There is just this enthusiasm for war that we read about in the Russian official media. I don’t think it is authentic at its core. This broad coalition among the Russian population, which allegedly actively wants the war, does not exist. It’s an invention.

DER SPIEGEL: Let me ask you again: Wouldn’t many more civil servants have to resign?

Prokopenko: Like me, some have left. But please bear in mind that people are in different life situations. For some, it is easier to burn all bridges. After the war began, the secret services started holding preventive talks at the Central Bank and the ministries. They went along the following lines: “If you resign, we will have your deputies thrown in prison or there will be other unpleasantness.” What’s more: In such large apparatuses, a resignation, even if it is demonstrative, changes little. For many, it is also difficult to find another position: Senior employees have been banned from leaving the country because they had access to classified documents. There are reports that some officials had to hand in their passports.

DER SPIEGEL: How many people are we talking about? Probably only a few top civil servants.

Prokopenko: No, it affects very broad groups of employees. We also see something similar in large Russian companies: There are employees who may not even formally come into contact with classified information. Nevertheless, they are given instructions that they must provide information about planned trips abroad in good time. For many, this is received exactly as it is intended: as half a threat, half a ban. So, the mood among many civil servants and managers is bad, they don’t feel safe. Even in this situation, it is an enormous risk to demonstratively oppose the system. Not everyone is capable of doing this. And let’s be honest: Where are these people supposed to go today? Anyone who has worked for the Russian state will not find a job anywhere except within the Russian Federation. Even if a person demonstratively declares their resignation, they can’t expect to be able to pursue a career abroad again.

DER SPIEGEL: Are you talking about people against whom personal sanctions have been imposed?

Prokopenko: No, not at all. I also mean normal civil servants. Some of them are excellently trained and capable people with expertise that is internationally recognized. The few who have decided to resign have major problems. They find it extremely difficult to find a job in academia. They’re not wanted in the consulting business, not even in international organizations. And I’ll say it quite openly: Perhaps more people in Russia would make a different choice if they saw a way out. But the West doesn’t offer them one.

DER SPIEGEL: What is your general assessment of the West’s sanctions policy?

Prokopenko: There is no exit option. Why are no conditions being set? Distance yourself from the regime, pay in money for Ukraine here – and then the sanctions will be weakened or lifted. But there is no such offer. This also applies to many Russian businesspeople: Their assets are frozen, they can no longer travel. They have become pariahs of the international system. There is only Putin left, and he says: You stay with me. It may be that Putin is the devil – but for many, he is a devil that they know how to deal with. Added to this is the increasing repression and growing fear within Russia. All of this is fueling fatalism.

DER SPIEGEL: You once spoke of “moral sanctions” against all Russians. What do you mean by that?

Prokopenko: These are sanctions that have not been formalized at all, but which affect all Russians, regardless of whether they are civil servants or have left the country in protest. Every holder of a Russian passport in Berlin can tell you a thing or two about it: It is enormously difficult even for ordinary Russians to open an account in Germany, almost impossible. This is not only annoying for those affected: It also cements the narrative of Russian propaganda that Russians are being persecuted abroad across the board and that the West is pursuing anti-Russian propaganda.

DER SPIEGEL: Should the West change its sanctions policy?

Prokopenko: I think we have now reached a point where we can clearly see that the measures taken so far are not working as intended. I think it wouldn’t hurt to experiment a little. Unfortunately, the EU has so far done the opposite: It is simply expanding its register of banned goods and sanctioned persons. Will this throw the Russian economy off course? Of course not.

DER SPIEGEL: What do you suggest?

Prokopenko: A more intelligent approach: Instead of sealing off the West from Russian money, we could, on the contrary, try to stimulate the outflow of capital from Russia. Every billion less in Russia means less support for the war machine. Even at a time when the Russian Central Bank had already introduced capital controls, tens of billions of dollars were still flowing abroad. Why shouldn’t the West encourage such movements instead of fighting them as it does now? I believe it is time for the West to do everything it can to encourage both the brain drain and capital flight from Russia. That would undermine Putin’s regime. It would be time to slowly bleed Russia’s economy dry.

DER SPIEGEL: Hasn’t the wave of emigration of critically minded Russians actually stabilized the political system in Russia?

Prokopenko: The Kremlin talks about traitors and always pretends that it doesn’t mind the mass exodus. But that’s not true. That’s why the regime is doing everything it can to prevent even more people from going abroad.

By Igor Slabykh, Kennan Institute, 4/5/24

Fifteen years after the death penalty was abolished in Russia, the country’s commitment to avoiding executions will be tested. Public officials and pro-Kremlin politicians have called for the lifting of the ban following the March 22 act of terror near Moscow. At least 144 people were killed and hundreds were injured in a brutal attack on the Crocus City Hall, a music venue on the outskirts of Moscow.

Executions, both legal and illegal under the Soviet law, were widely used during the Soviet period of Russia’s history. There were instances of spectacular abuse of justice even after Stalin. At one point in the 1960s, a death penalty was retroactively applied against persons convicted of an economic crime, ignoring the criminal law bedrock principle.

Drive to Join the West

In post-Soviet Russia, the decision to abstain from use of the death penalty has been strongly motivated by a desire to relegate the practice to history. The drive to abolish capital punishment was also associated with the gradual humanization of law enforcement and the country’s intention to join the institutions of the West.

Russia last executed a human in 1996. At the time, Russia was seeking to join the Council of Europe. The country’s participation in the European Convention on Human Rights was a condition for such membership. Russia was admitted to the organization on the condition, among other things, that it would accede to Protocol No. 6, which imposes on member states the obligation not to apply the death penalty.

Despite the lack of ratification of Protocol No. 6 by the Duma (it was signed by the president), Russia ceased executions. Initially, Boris Yeltsin, Russia’s president between 1991 and 1999, simply stopped considering clemency for those sentenced to death. Without a refusal of clemency, the death penalty could not be carried out.

Death Penalty Effectively Banned

In 1999 the Constitutional Court of Russia issued a decision recognizing the impossibility of imposing a death sentence as the Russian constitution required jury trials for such a decision, and jury trials were not set up throughout the entire territory of Russia.

In 2009 the Constitutional Court clarified its old decision and stated that the courts could not apply the death penalty at all. The court declared that certain conditions had led to abolishment of the death penalty: the long nonapplication of capital punishment, Russia’s international obligations, and the temporary nature of the use of capital punishment in constitution.

The decision of the Constitutional Court was tested in the early 2000s when a court considered the case of Nur-Pashi Kulaev, the sole surviving perpetrator of the Beslan school siege. Quoting the Quran and discussing the principles of justice and the educative significance of the judgment, the prosecutor requested the court to sentence the defendant to death. The court acknowledged that the severity of the defendant’s actions warranted the death penalty. However, citing the abovementioned decision of the Constitutional Court, the court sentenced Kulaev to life imprisonment.

Today the decision to stop using the death penalty in Russia will once again be tested. However, there is no certainty that Russia will not return to the death penalty this time.

Torture Practices Publicized

The first signs that the requirements of legality would be sacrificed to political expediency emerged almost immediately after the attack. A video of the torture of detainees was posted online. In one case, a law enforcement officer cut off part of Saidakrami Rachabalizodа’s ear, after which, amid threats to cut off the detainee’s penis, he attempted to stuff the severed piece of the ear into the detainee’s mouth.

In another case, the video showed law enforcement officers torturing Shamsidin Faridun using an electric current directed toward the detainee’s genitals. It is self-evident that the videos were not leaked accidentally but rather deliberately by law enforcement.

Despite widespread discussion of the torture, the Investigative Committee and the court, which arrested all the detainees pending trial, were not interested. At the same time, signs of beatings could easily be seen on the faces of the accused in court.

Rachabalizodа had a bandage on his ear, and another accused, Muhammadsober Faizov, was in a wheelchair and accompanied by doctors. The Human Rights Commissioner, Tatiana Moskalkova, who herself is a former police general, has condemned the maltreatment of the prisoners as “inadmissable”; she has declared Russia to be a civilized and mature state where lynching has been avoided. Meanwhile, the defendants’ lawyers began to receive threats immediately after the court hearings and demands that they abandon the defense of their clients.

Talk of Lifting the Ban

Russian society has resumed discussions on the need for the death penalty. This debate is actively fueled by state propaganda. However, it remains unclear whether this is a deliberate operation to prepare public opinion or whether it falls within the usual activities of an authoritarian government trying to escalate hysteria regarding enemies of the state.

Back in 2015, a pro-Kremlin politician, Sergey Mironov, proposed lifting the moratorium on use of the death penalty for terrorists. This idea did not progress beyond the discussion phase. Currently, surveys indicate a surge in Russians’ interest in reinstating the death penalty. This increased interest, coupled with the Kremlin’s desire to conceal its failure and the unsubstantiated charge that Ukrainians were somehow involved, could be used to conduct a public and cruel trial with a predetermined outcome. Moreover, Russia, which withdrew from the Council of Europe after the unprovoked invasion of Ukraine, is no longer interested in maintaining the moratorium on capital punishment.

The Constitutional Court of Russia’s decision to prohibit the death penalty is still in effect. In the history of modern Russia, however, the Constitutional Court has repeatedly demonstrated its readiness to submit the requirements of legality to those of political expediency. Therefore, it will surprise no one if the Constitutional Court finds grounds to change its position, citing war, extraordinary circumstances, or the protection of Russian citizens’ interests.

by Nikolas K. Gvosdev, The National Interest, 4/22/24

When examining the secret annex to the recently released Russian Foreign Policy Concept, many of my colleagues have zeroed in on the recommendations for how Russia ought to play a “sharp power” Wurlitzer piano—utilizing all the tools of disinformation, cyber intrusions, and election interference to cause political turmoil in the nations of the Euro-Atlantic world, with the ultimate goal of eroding the cohesion of the Western bloc.

While these certainly are important topics to focus on, what has struck me in reading this document is that the proposals in question—which only form a portion of the overall advisory points—arise not from a position of confidence but pessimism. In contrast to the relatively anodyne language of the publicly released concept, the annex clearly is concerned that Russia may be on the verge of being knocked out of the ranks of the major powers—and so lose its ability to shape global affairs. In other words, the annex assesses that the United States no longer seeks partnership with a near-peer Russia but wants to ensure that Russia becomes a non-peer competitor with declining and degraded foundations of national power.

Below the surface of the bureaucratic language of the document, I detected three strains of worry.

The first is that some thirty-five years after the Paris Charter laid the hope for achieving a common European home with Moscow as a full partner, the finality of the assessment that Russia will never be part of the Euro-Atlantic world in any shape or form, whether full membership or ongoing association. During his first two terms, Vladimir Putin’s post-9/11 gamble was that the United States would recognize Russia as a near co-equal partner for managing world affairs. When the outreach to George W. Bush faltered, and the Barack Obama reset foundered, Moscow shifted its efforts in the 2010s to craft a working relationship with Paris and Berlin (and perhaps Rome) to encourage some degree of European equidistance from Washington and Moscow. Both efforts are now recognized to be failures. There is no longer a question of whether there will once again be a line between Russia and the West—only where that line will be drawn and how formidable a barrier it will present. 

The second is the Russian recognition that the United States and its allies still largely manage the current international system despite all the rhetoric of multipolarity. Since the restart of major Russian combat operations in Ukraine in 2022, the United States has been working both to isolate Russia from the main sinews of the globalized system and to find ways to exclude Russia from any substantive decision-making and agenda-setting role in international affairs. Of particular concern for Moscow is the efficacy of measures attempting to cut Russia off from the mainstream of the global economy.

Finally, the annex is infused with the recognition that maintaining any degree of Russian autonomy and agenda-setting power in the international system now rests on the goodwill of China and of a set of middle-power countries—what The Economist has labeled the “transactional 25”—to maintain Russia as a hedge against the United States and the expanded “D-10” states (the G-7 countries and the EU plus Australia and South Korea). Russia hopes that the rising powers of the global south and east will be prepared to do more to check the United States—but in so doing, Moscow is also ceding the initiative to them and increasingly will have to accept their terms, especially for trade. This incentivizes Moscow to show how and where the United States is unreliable—particularly in showing that Washington cannot bridge its stated commitments and its actual ability to keep its promises.

The annex lays out recommendations to find ways for Russia to safely raise costs for the United States if it wishes to continue its expansive program of global engagement. It is based on the hope that the United States will recognize its limitations and accept that it can no longer afford to maintain the post-Cold War settlement—and thus will be more open to proposed Russian modifications.

Russia’s proposed revisions have generally proven to be unacceptable to most of the U.S. national security establishment, and if, since 2022, the United States accepts that Russia cannot be persuaded to change its approach, then reducing the sources of Russian power and influence is the logical assessment. However, recognizing that Moscow is not prepared to reduce its footprint to accord with American preferences voluntarily, the United States should not be surprised that Russia will use any means necessary to foil American efforts. There is no reason to expect Moscow to refrain from exploiting the U.S. (or allied) domestic political dysfunction or take advantage of American missteps (such as in the Middle East and sub-Saharan Africa).

The problem, of course, is that U.S. political leaders have promised Americans that the costs of forward engagement can be kept at a minimum. Russia did not create the growing sentiment that the United States must recalibrate and restrain its global activism, even if it seeks to benefit from it. The annex makes clear that much of the Russian establishment believes that the United States cannot coexist with Russia in its current configuration—and that America seeks changes in Russia’s position that would be highly detrimental to the present Russian political establishment. (This is why fantasies that Putin’s departure somehow magically improves U.S.-Russia relations are far-fetched.) If Washington assesses that those changes are necessary to achieve fundamental U.S. national interests, this annex serves as a wake-up call that meeting this challenge will prove neither easy nor inexpensive.

Wall Street Journal, 4/27/24

U.S. intelligence agencies have determined that Putin likely didn’t order Navalny to be killed at the notoriously brutal prison camp in February, people familiar with the matter said, a finding that deepens the mystery about the circumstances of his death.

“Make no mistake. Putin is responsible for Navalny’s death,” Biden said after the world learned of the death.

But the U.S. now believes the timing of his demise wasn’t intended by Putin.

Full article here.

US Spy Agencies Surprisingly Concluded That Putin Didn’t Order Navalny’s Death

By Andrew Korybko, Substack, 4/28/24

The Wall Street Journal cited unnamed people familiar with the matter to report that the CIA, the National Directorate of Intelligence, and the State Department’s intelligence unit, among other US spy agencies, concluded that President Putin didn’t order Navalny’s death earlier this year. They still believe that he’s culpable since the US’ view is that he was wrongly imprisoned and lacked adequate medical care, but this disclosure still throws a wrench in the West’s information warfare operations.

Objective observers were already aware that “Putin Had No Reason To Kill Navalny But The West Has Every Reason To Lie That He Did”, with the first being due to the fact that he posed no threat to the Russian leader from behind bars while the second was attributable to their interest in smearing him. The West also wanted to reduce turnout during March’s presidential elections and pressure Congress into breaking its deadlock on Ukraine aid. Now that neither is relevant anymore, the truth is coming out. [https://korybko.substack.com/p/putin-had-no-reason-to-kill-navalny]

President Putin revealed during his re-election speech that he had actually approved swapping Navalny for unnamed Russian prisoners being held by the West before that convicted non-systemic opposition leader’s untimely demise that Ukrainian military-intelligence chief Budanov blamed on a blood clot. Even so, many anti-Russian activists in the West refused to believe either of those two, and this was in spite of them previously treating the latter’s words as gospel.

It remains unclear why US spy agencies reportedly concluded that the Russian leader didn’t order Navalny’s death despite being in positions of authority to launder this lie for easy soft power points against his country. One possible reason is that his public confirmation that he was about to be swapped made it difficult for them to cling to that story since it truly doesn’t make sense why President Putin would approve of that only to then turn around and kill him.

In other words, they couldn’t lend false credence to the initial narrative that he was responsible if they wanted to retain a semblance of credibility, though the consequence of doing so was that Biden was made to look like a fool after their boss claimed that “Putin is responsible for Navalny’s death.” Everyone interpreted that to mean that he ordered it, but their new caveat appears to be that he created the conditions for him to pass away prematurely from a medical issue, thus helping Biden “save face” a bit.

Nevertheless, many anti-Russian activists still can’t accept those spy agencies’ reported conclusion since it contradicts their secular cult’s dogma, namely that President Putin is personally responsible for every bad thing that happens to any non-systemic opposition member. It’s a matter of faith for them to believe this since failing to do so could lead to the unraveling of their entire movement. They therefore delusionally insist that they know him better than the entire American Intelligence Community does.

As two cases in point, the Wall Street Journal cited Russian-designated foreign agent Leonid Volkov (a member of the non-systemic opposition) and Polish think tank expert Slawomir Debski, who both claimed that Navalny was killed at President Putin’s orders or at least with his tacit approval in advance. By divorcing themselves more and more from reality, they’re further discrediting the West’s information warfare operations, which works to Russia’s cynical benefit in the soft power sense.

The Bell, 4/5/24

Nationalizations in Russia begin to hit smaller firms

Since the full-scale invasion of Ukraine, there have been a wave of high-profile nationalizations in Russia, mainly affecting big business people and powerful officials. Now, however, there are more and more cases of the state seizing relatively minor assets from low-level tycoons, and even those without any significant personal wealth.

• Significant incidents involving the state seizure of assets from wealthy Russians amid the war in Ukraine include auto trader Rolf (owned by former opposition parliamentary deputy Sergei Petrov) and chemical company Metafrax. In January, Russian prosecutors even ordered 13 plots of land along Moscow region’s prestigious Rublyovskoye Shosse be seized by the state (Rublyovka has long been regarded as Russia’s Millionaire’s Row). 
• In a significant legal dispute over the nationalization of a magnesium factory in the central Russian city of Solikamsk, prosecutors Wednesday stated that they do not believe the apparently legal acquisition by minority shareholders of a stake in the plant on the Moscow Exchange was made in good conscience. This is a major case, which appears to be setting a precedent for further seizures.   
• The most recent target for nationalization is Russia’s biggest pasta company: Makfa. At the end of last month, it emerged that prosecutors had filed a lawsuit for the state to seize Makfa, and dozens of related companies. They estimated the combined value of the companies at about $500 million.
• The lawsuit names businessmen Mikhail Yurevich and Vadim Belousov as Makfa’s beneficiaries. In the 1990s, the two men privatized pasta and flour plants in the Ural mountains Chelyabinsk Region. Like many other such  business people, Makfa’s owners went on to enter politics. Yurevich became mayor of Chelyabinsk, a city of 1.2 million people, then governor of the region. Belousov was a parliamentary deputy from 2011 to 2023. The justification for nationalizing Makfa is that, after the two were elected to government roles, they continued to do business. But this seems a very thin excuse – hundreds of other Russian entrepreneurs followed a similar path.  
• Nationalizations have even begun to affect ordinary homeowners. Russian-installed officials in the occupied Ukrainian region of Zaporizhzhia this week announced their intention to pass a law to nationalize “abandoned” Ukrainian houses. While details are unclear, it seems that anyone who leaves the area could potentially lose their property. The authorities are promising to transfer nationalized housing to doctors, teachers and construction workers. 

Why the world should care

Russia appears to be undergoing its greatest redistribution of wealth in three decades. The idea of 1990s privatization was to create a new capitalist class that would help prevent a return to Communism. Now, asset transfers appear designed to boost loyalty to the Kremlin.

Russia’s ballooning budget deficit

Russia’s budget deficit has almost reached its planned annual limit (1.6 trillion rubles) in the first two months of this year, according to Finance Ministry figures. At the end of February the deficit stood at 1.5 trillion rubles. At the same time, spending in January and February hit 6.5 trillion rubles – up 17.2% on the same period a year ago.

• How significant is this? Last year’s deficit came to 3 trillion rubles ($32 billion), and economists expect Russia to surpass that this year. However, Russia’s budget deficit isn’t big by global standards. In 2023, the deficit amounted to 1.9% of GDP, in 2022 it was 2.1%. That’s lower than the European maximum, established in 1992 with the creation of the European Union. Russia also has low levels of debt. 
• Amid the war in Ukraine, the main source of funds to plug the deficit has been Russia’s rainy day fund, the National Welfare Fund (NWF). The cost of supporting Russia’s economy has almost halved the fund’s liquid assets from 8.9 trillion rubles before the invasion of Ukraine to 5 trillion rubles at the beginning of this month.
• Such a drop, however, is not critical, according to economist Dmitry Polevoy. The remaining liquid part of the NWF amounts to about 3.3% of GDP, which is better than the 2019 minimum of 2.1 trillion rubles (1.5% of GDP).
• The NWF is usually topped up with windfall oil revenues. But this year its liquid assets are likely to dwindle further. 
• Finance Minister Anton Siluanov said late in 2023 that liquid NWF funds could be exhausted this year if oil prices plunge. The average price for Russian oil would have to fall to $48 a barrel for this to happen (if spending remained as planned), an economist at one of Russia’s leading investment banks calculated for The Bell.

Why the world should care

The extent of Russia’s budget deficit does not tell you very much about the country’s financial stability – it’s more important to look at where the money is coming from to pay for it. The fact is that, as long as oil prices remain relatively high, Russia will have plenty of cash to continue running deficits of this size.