Why I Am Optimistic About Ukraine

http://euromaidanpress.com/2017/12/16/why-i-am-optimistic-about-ukraine/

Article by: Dirk Mattheisen

Buffeted by rapacious oligarchs and invasion by Russia, Ukraine seems an unlikely success story. However, renewed economic growth is fueling a growing sense of optimism and of opportunity. There are a few things getting in the way. But first the good news.

Ukraine’s economy is projected to grow 2.0% this year and then accelerate to 3.5% in 2018 and 4.0% in 2019, driven by a steady growth in consumption of 3% per year and in exports of 1.6% in 2017, 3% in 2018 and 5% in 2019 (recent government estimates of growth are slightly lower but still very similar). Already in 2017 exports to the EU in the first nine months are up 29.1%, which indicates the rapid pace at which Ukraine is taking advantage of access to EU markets). The business press is full of stories about new businesses and investment opportunities, including highly innovative, internationally competitive startups, such as Google’s Grammarly, which was developed by two Ukrainian entrepreneurs in Kyiv, as well as countless “locally-grown” tech startups and micro-enterprises. There is constant chatter about fashion and advertising video shoots in Kyiv, including the recent Apple Watch 3 video, adding cultural flair to the economic momentum.

Ukraine Finance Minister Oleksandr Danyliuk said all the right things in September in the lead up to the World Bank/IMF annual meetings. He pointed to the government’s tough measures to stabilize the economy with the support of a US$17.5b IMF program. He also emphasized the seriousness of the government’s efforts to improve the business climate, such as in tax and customs administration for which Ukraine had hired an international consultancy firm to help run an anti-corruption program and invited the US, Germany, EU, EBRD, and Canada to sit on the supervisory board to ensure the program was not derailed. Danyliuk emphasized that many reforms had been instituted, but it was also now important for the people to feel the effect through improved living standards by not just eliminating high-level corruption but of eliminating petty day-to-day corruption.

However, despite the optimistic outlook, Ukraine needs to take advantage of this period to restructure its domestic economy.  Failure to restructure will slow growth and diminish overall economic prospects.

For example, the World Bank estimates that reforming land ownership laws alone could lift economic growth by 1.5%. This is critical because, as welcome as 4% GDP growth may be, Ukraine has to grow faster for people to feel, as Danyliuk emphasized, a meaningful impact on their well-being. At $2,200, Ukraine’s GDP per capita is roughly a quarter of Russia’s (though more equitably distributed) and among the lowest of the former Soviet republics; to counter Russia’s existential threat to the country, Ukraine needs to increase GDP per capita by several orders of magnitude to demonstrate that its economic model can deliver benefits comparable to other countries.

Ultimately, Ukraine needs to aspire to be a regional economic power in its own right, which would be good for Ukraine and for Europe–nothing would supercharge Ukrainian and EU economic growth like welcoming into the EU 40m talented people with an impressive endowment in resources and a strategic geographic position.

To visualize Ukraine’s economic potential, compare its GDP of about $93 bn to Poland’s GDP of about $480 bn with roughly half the area of Ukraine and the same population. Twenty-five years of serious economic reform separate Polish GDP from Ukraine’s. A more serious effort by Ukraine is necessary to make up the difference in a shorter period of time. As Poland shows, economic growth does not solve all the problems, but it is an essential start.

To make that happen, Ukraine has to get a grip on pervasive corruption that is fueled by lack of respect for the law, ineffective law enforcement and widespread self-interest over civic interest in government and business. Rule of law was the core of the 2014 Revolution of Dignity which, despite substantial progress, remains an aspiration.

Above all, reform has to be credible.

Liberalizing the land market is useless without a reliable cadastral system and market transparency that prevents raiding and speculation. Judicial reform is useless if incompetent or corrupt officials continue to be appointed. The recent appointment of 25 judges with histories of questionable decisions and improbable wealth undermines reform. Criminal charges against public officials, such as those against Ukraine’s General Prosecutor, Yuriy Lutsenko, need to be prosecuted in accordance with the highest legal standards and not subverted by legal artifice that fails to hold wrongdoers accountable. Lack of progress will erode vital international support (as evidenced by the recent halt due to unfulfilled anti-corruption conditions in the EU’s macro-financialassistance program and a slowed IMF program).

Political reform is integral to ending corruption and achieving economic success.

For reform to work, the political process has to serve society’s needs. It can’t if the political and economic elite, including President Poroshenko and members of his government, behave as in the past. The reformists can try to wait out the entrenched interests, risking that the reform process will peter out; or, they can find ways to breath additional life into the process.

Civic activism is essential; and entrenched interests have to support the reform process, which may require some form of selective amnesty for economic crimes committed before the Revolution of Dignity, which these interests fear will expose them to prosecution, and a commitment that they not stand in the way of or undermine further reform. Entrenched interests will not disappear, but they must be made to fall in line.

Timing is crucial. The 2019 presidential election is warming up. It can be a watershed moment in surmounting corruption. President Poroshenko has been effective in leading the economic stabilization program with the IMF and in introducing many of the needed reforms. His resolute defense of Ukraine internationally and support for association with the EU has elevated recognition in the West of Ukraine as a democratic nation distinct and separate from Russia.

However, he has also failed to live up to personal commitments as president, including putting his extensive business interests ahead of the national interest by forming a blind trust; many of his businesses are held in offshore corporations of the type that are used by oligarchs to hide assets and avoid taxes. Extraordinarily wealthy individuals fuel corruption if not checked by law, and they have yet to yield or share power in Ukraine with the next generation of business, government and political leaders who will build the new Ukrainian society. The 2019 election is a good moment for anti-corruption and political reform not just to be declared but to become real in order to unleash the rewards of reform.

Otherwise, popular frustration may overflow. Although recent pro-reform protests in Kyiv fronted by Georgian political activist Mikheil Saakashvili have been small—in part due to the seeming self-interest of its most prominent sponsors, Saakashvili and Yulia Tymoshenko, there is still widespread impatience with the slow pace of reform.

Though the protests have been small, the political risk is not. The “impeach Poroshenko” protest, again led by Saakashvili, is a portent of worse to come if reform is derailed. Public unhappiness will grow, especially if the politically unpopular Porochenko continues to provoke friction with highhanded political assaults on Saakashvili and other opponents and backroom maneuvers to enforce his control of the government. The focus needs to be on advancing anti-corruption and economic reforms and upholding the rule of law, including in politics. Messy disputes (such as this) between anti-corruption authorities and security services and mutual claims of corruption don’t help.

For all the risks, the promise of change is irreversible. Ukrainian society is no longer capable of sliding back into conformity and submission. Ukraine’s transformation into a more just and inclusive society is in its early stages but even now entrenched interests cannot contain Ukrainian society’s new aspirations nor its new economic promise.

Fundamentally, what distinguishes Ukraine is not its historic association with Russia. Cast between competing empires (and sometimes known as the borderlands), Ukraine has a powerful egalitarian tradition based on the independent-minded Cossack warrior-farmer (reviled during Russian-dominated Soviet times as kulaks). This tradition is a distinct cultural identifier setting Ukrainian society apart from a more hierarchical and authoritarian Russian society, something Stalin understood as a threat and attempted to extinguish through state-sponsored genocide in the 1930s.

Completing the key reforms today will transform Ukraine into a democratic nation and an economic power in Europe. In the future, when one speaks of Ukraine–a strong European nation at the heart of a unified Europe—one will be able to say that it’s democratic institutions were formed on its distinctive traditions that Russian imperialism failed to crush and on the renewed vitality of its civil society.

We Are Entitled to Investigate, Debate and Act on Russian Interference

 TheHill.com

American actor Morgan Freeman tossed a firecracker among Russian scholars by lending his voice to a newly formed Committee to Investigate Russia, whose purpose is to confront Russian interference in American democracy.

The response on behalf of Russian scholars was taken up by well-known Russian expatriate journalist, Leonid Bershidsky, in an article on Sept. 20 in Bloomberg entitled, “Wanted: Russia Experts. No Expertise Required.” Sean Keeley makes a similar point in The Russian Interference Racket in The American Interest.

Bershidsky’s complaint against Freeman is that the Committee to Investigate Russia (CIR) and many who write about Russia have no background in the subject. Therefore, they lack the familiarity to provide the nuance necessary to understand Russia. Consequently, their views are ill-informed and incorrect, and too often manifest as Russophobia. These persons should leave Russia to the experts. However, Bershidsky’s complaint is dead wrong.

The issue is not understanding Russia. The issue is how to deal with Russian aggression against Western institutions and values. CIR “investigates” Russia by drawing attention to Russian interference through posting background information and articles published elsewhere. Although decidedly to the right of the spectrum, CIR addresses plenty of Americans' concern about Russian interference that is well-established, if not yet well-understood. This is hardly Russophobic.

Bershidsky disparages by name the competence of CIR’s advisory board members, who are highly accomplished professionals but do not meet his requisite standard for expertise in Russian affairs. That criticism is misplaced. Whatever their specific competencies, they have a stake in the issue. They are affected by Russian interference.

Following Bershidsky’s reasoning, Jimmy Kimmel, the outspoken American comedian and talk show host, has no business opining on health care reform because he is not a health-care specialist. Kimmel however has a personal stake in the healthcare issue that he has spoken about on his show, as do millions of Americans whose voices cannot be shut out because their familiarity with the issues does not rise to a certain standard. The question here is not a particular kind of competence but a personal stake in the consequences. The same goes for Russia’s behavior, climate change, or tax reform.

Morgan Freeman does say that Russia is at war with the U.S., but Russia’s interference in elections in the U.S. and elsewhere, as well as its attempts to sow conflict through social media, is incontestable. There is nothing exaggerated or overblown in what Freeman says in the video. This isn’t hyperbole or jingoism.

Diminished in standing by the collapse of the Soviet Union and the ensuing chaos, Russia under Vladimir Putin has veered toward blaming the West and has chosen to retaliate by invading neighboring countries and by interfering in other countries in areas that are fundamental to those countries’ institutions and values. Russia has legitimate grievances related to its change in circumstances, fed at times by American bungling on the world stage, but it does not follow that Russia’s grievances legitimate its aggression against perceived slights and imagined threats. It doesn’t take special expertise to figure that out.

What Bershidsky decries as lacking expertise and authority is part and parcel of legitimate public debate. Russia experts may feel swamped by the growing public debate on Russia because the importance of the issue to the public has become more manifest with the growing evidence of Russian interference. Russian experts have to speak more loudly to be heard.

Bershidsky quotes Russian scholar, Samuel Greene, to the effect that Russian scholars are not being heard because they are keeping their heads down due to the rise in Russophobia. This is nonsense. The increase in public debate about Russia is a direct consequence of Russian actions against democratic institutions; and, the emergence in some corners of Russophobia does not invalidate or diminish genuine debate about Russia’s behavior. Bershidsky also references Russian affairs expert Mark Galeotti. However, Galeotti does not keep his head down. He continues to publish frequently, as should Greene.

Galeotti’s articles are excellent and should be read by anyone wishing to be well-informed on the nuances of Russian behavior. And, indeed, their voices may be needed to balance out more strident voices, such as Molly McKew, mentioned critically by both Bershidsky and Keeley, who appears on the Committee to Investigate Russia website. An example of an excellent perspective on how to deal with Russian interference is provided by Jan Jankowicz, fellow at the Kennan Institute, in The Only Way to Defend Against Russia’s Information War in the New York Times.

If the drama about Russian influence in the West—or for that matter Trump’s attack on NFL players for speaking their minds--teaches us anything, it is that public debate is the most effective weapon against the real threat of overbearing authority—from governments to extremists of the left and the right, and even the malicious, manipulative voices on social media.

We—the affected parties—are entitled to investigate, debate and act on Russian interference. We are better off if our views are based on objective fact and sound judgement. In the meantime, we need to listen to what legitimate voices across the spectrum have to say.

Dirk Mattheisen is a writer and blogger on political economy and independent consultant on institutional governance and strengthening the role of civil society in government. He is a former assistant secretary of the World Bank Group. Follow him on Twitter  @DirkMattheisen.

Putin's Trump Moment (continued)

Andrey Pertsev of the Carnegie Moscow Center has a commentary, The Active Minority and Passive Majority: Takeaways from Russia’s Regional Elections, that provides more detail and greater insight into the September 10 elections that I wrote about, including the points that the outcome reflects an "increase in voting by the reform-minded minority and a decrease in voter turnout among Putin’s former majority", which, as I wrote,

"A worrisome feature of this election for Putin is that turnout was as low as 14-15 percent in some districts, which magnified the opposition vote, suggesting that Putin may be stung by voter apathy next year. It seems unlikely that a populist insurgent like Trump could disrupt a vote for Putin, but a disaffected public also means that when the insurgency comes it will be unexpected, widespread and messy."

See Putin's Trump Moment

Putin's Trump Moment

© Getty Images

Vladimir Putin and Donald Trump have the same problem, they have squandered their credibility. They both appear clever because by chance they have spent a lifetime getting away with things that have brought down others long ago, and they lied about them. They get away with it because the audacity catches everyone off guard.

However, the lesson of Trump’s first months in office is that, once most people catch on, it is harder to pull off the next audacious stunt. Trump’s agenda from health care to that wall is stalled. Putin has had a longer run in public office but is having trouble with his agenda, too — from lifting oil prices to lifting sanctions.

Now that everyone has caught on to Russia’s election interference and propaganda, Putin’s audacious stunts, despite much hand wringing by his victims, are harder to pull off without a substantial reaction in response. Local elections held in Russia on Sept. 10 fit the pattern and spell possible trouble for next year’s presidential election that Putin is currently expected to win handedly.

On Sept. 10, Putin’s United Russia party swept local elections in the 16 Regions where elections took place, including in Sevastopol in Crimea seized by Russia from Ukraine in 2014. However, opposition candidates in Moscow made surprising gains.

As reported by RFE/RL, United Russia took about 77 percent of the contested seats in Moscow while opposition parties took the remaining 23 percent, putting them on track to “ win a majority of seats in 14 of the more than 100 administrative districts of the capital.” A modest but significant gain for the political opposition in a key region.

Some commentators have made much of this success, arguing that it shows Putin’s declining popularity among the important Moscow electorate. Others conclude it is a ploy by Putin to give the appearance of plurality and vent some of the pressure from alternatives to United Russia before next year’s presidential election.

In one version, Putin will announce in November that he is running for president, but as an independent, effectively throwing United Russia under the bus to deflect public unhappiness from Putin over poor economic conditions and the unpopular and expensive interventions in eastern Ukraine and Syria that are draining lives and the national budget.

Given that Putin is at the pinnacle of his domestic power, it is difficult to believe that election results in Moscow, where everything is controlled from the top, are anything but a ploy in Putin’s presidential reelection strategy. Moreover, poor opposition results elsewhere and numerous election fraud complaints indicate that the modest opposition win in Moscow had at the least Putin’s tacit approval. Since Putin does not intend to give up power, the opposition victories seem to be a tactical concession on the part of Putin.

There is a risk, however, that this very modest ploy will backfire. It is not yet an insurgency, but the appearance of political plurality may escalate into a demand for actual plurality. Such an escalation — like Trump’s surprise election — might effervesce from deep dissatisfaction among ordinary Russians about their poor economic prospects.

Ordinary Russians have already expressed unhappiness with political and economic corruption through the unexpected strength of protests earlier this year. If dissent grows, Putin’s ability to rule through a diminished United Russia party would be undercut. This why there are rumors of him running as an independent.  He would have to build a new coalition, a seemingly improbable event if he can’t hold United Russia together, or he may fall back on suppressing dissent through his control of the justice system and the newly established National Guard that reports directly to him and is trained for such purposes.

In which case, the likely outcome is the social upheaval that Putin wants to avoid (not to mention that Putin might again foment a foreign conflict to rivet the Russian people’s attention and loyalty). A worrisome feature of this election for Putin is that turnout was as low as 14-15 percent in some districts, which magnified the opposition vote, suggesting that Putin may be stung by voter apathy next year. It seems unlikely that a populist insurgent like Trump could disrupt a vote for Putin, but a disaffected public also means that when the insurgency comes it will be unexpected, widespread and messy.

That Putin believes there is a risk of an unpleasant surprise is also suggested by the wave of bomb threats across Russia over the last few days. It may be a prank or a genuine terrorist threat, but it also has the appearance of old tradecraft out of Russia’s security service (FSB) playbook. It’s hard to tell.

It’s an old trick to instill in the Russian people a sense of vulnerability to dark (usually foreign) forces, and their reaction is to look to the central government in Moscow to protect them. Alarmist statements from Russian officials that the bombing threat is unprecedented and could have come from Ukraine fit into this narrative, as does the response of Russian authorities, which has been unremarkable when they are more noted for overreacting. The perception of a Russia under siege from terrorism was, after all, what propelled Putin to power in 2000.

Putin has reason to worry, because, unlike Trump, he is not the disruptor this time. Putin’s game is defensive. He has to fend off challenges to his power. However, his tricks have grown stale and repetition has increased the Russian public’s awareness that the government is failing them. Few believe that elections are fair, the economy is tepid at best, and no one believes that there are no Russian soldiers in eastern Ukraine. Putin and Trump have credibility problems because mistrust of them has only grown and for that reason Putin, like Trump, may win elections but lose the broad appeal necessary to rule.

Dirk Mattheisen is a writer/blogger on political economy and independent consultant on institutional governance as well as strengthening the role of civil society in government.  He is a former assistant secretary of the World Bank Group.  Follow him on @DirkMattheisen or dirkmattheisen.blogspot.com

Russia's Assassination Habit--What Happened to Mikhail Lesin?

Mikhail Lesin is dead but his unaccountable death lives on.  On Friday  BuzzFeedNews wrote,

"Vladimir Putin’s former media czar was murdered in Washington, DC, on the eve of a planned meeting with the US Justice Department, according to two FBI agents whose assertions cast new doubts on the US government’s official explanation of his death."

The report is part of a BuzzFeed series (cited in article) on assassinations by Russia against opponents or those who have fallen foul of Putin, including assassinations with seeming impunity in Western Europe, the most famous case being the murder of Alexander Litvinenko who ingested a rare radioactive isotope while drinking tea with two Russian agents in a London hotel.

BuzzFeed reports that some in the intelligence community fear Russia may be emboldened to carry out more assassinations in the US due to the lack of consequences for Mikhail Lesin's murder and the readiness to hide the true circumstances of his death.

Back in March 2016, I wrote about the oddly indifferent attitude of the police and the press to Lesin's death.  And on what the death of Mikhail Lesin suggested about Russian crime and corruption, I wrote,

A rogue Russia reaching out to murder its citizens in the United States and other countries, as well as conducting subversive acts including military aggression is a threat to everyone.  It has been months since Mikhail Lesin’s death but the DC police have only now released a brief, inconclusive description of what they know.  The case echoes the British government’s treatment of the Litvinenko murder, which was investigated only after Litvinenko’s wife got a court order for a public inquiry.  [BuzzFeed is now suing the US government to release more information about Lesin's death]

Not only are the DC police less than impressive in pursuing and making public the essential facts of Lesin’s death, US law enforcement appears derelict in pursuing obvious instances of money laundering by Russian citizens and their families, including Lesin, who establish themselves in legitimate enterprises in the US to “launder” criminal gains, which only facilitates the dangerous conduct of a rogue state with an unstable leadership that is capable of far greater harm.

There are lots of twists and turns to the Lesin story.  For those with the stamina to wade through the background, here's what I wrote in 2016.


The Unaccountable Death of Kremlin Insider, Mikhail Lesin
Photo Credit: thetimes.co.uk

DC police seem oddly confused about the death in a hotel room in Washington, DC, in November of prominent Kremlin insider, Mikhail Lesin.  Police have provided little detail other than the death was related to, a result of, or unrelated to extensive blunt force trauma over large parts of his body.  The cause of death, “undetermined”.  An investigation--such as it is--is ongoing.

Mikhail Lesin was Putin’s press minister (a post as Orwellian as you might guess) and Putin aide who helped shape Putin’s macho political image to appeal to the Russian electorate.  Lesin built the English language news service Russia Today (RT) and used it to serve the propaganda needs of the Kremlin.  Known as the “Bulldozer”, he aggressively went after independent news services critical of the Kremlin and closed them down.
Although he worked much of his career as a civil servant, Lesin was immensely wealthy.  He bought $28m in real estate in Los Angeles and owned a US$50m mega-yacht News.com/au.  He was also reported to have property in Europe and the British Virgin Islands.  As with many improbably wealthy Russians residing in the West, the origins of Lesin’s immense wealth was unexplained.

The circumstances of Lesin’s death are equally poorly understood.  What is known is that Lesin was found dead in his hotel room at the Dupont Circle Hotel shortly before noon on November 5, 2015.  DC police and the DC Medical Examiner briefly reported four months later on March 10 that Lesin’s cause of death was “blunt force injuries of the head” and that he also suffered “blunt force injuries of the neck, torso, upper extremities and lower extremities.”  However, the DC Medical Examiner also states that the manner of death is “undetermined”; in other words, they don’t know how he got those injuries.  DC police have said that their investigation is still open but they have provided no additional details.
News reports are as short on facts as the DC Medical Examiner.

An article in the Washington Post newspaper can best be described as a mélange of isolated facts and speculation.  The Washington Post reports that police claim Lesin showed up at the Four Seasons hotel drunk one night in early November and was turned away from the bar.  He is then said to have checked out of the Four Seasons, where he had been staying, and checked into the Dupont Circle Hotel, where he was found dead on November 5th.  Only The Washington Post seems to be aware that Lesin stayed at the Four Seasons.  No other news service has reported this.  If true, though, it undermines speculation that Lesin was staying at the modest Dupont Circle Hotel in order to keep a low profile.

The Washington Post does not explore why Lesin checked out of the Four Seasons hotel or why he chose the Dupont Circle Hotel to check into.  There are any number of higher end hotels closer to the Four Seasons.

The Washington Post doesn’t explore why the Dupont Circle hotel would check in a guest so drunk he was tossed out of the Four Seasons bar, or how Lesin managed to get to Dupont Circle in his condition. 

The Washington Post reports police speculation that Lesin may have been injured in a brawl or was hit by a car, but does not explore how then Lesin’s condition did not attract the attention of the Dupont Circle Hotel front desk when he checked in.  The Dupont Circle Hotel’s discretion must be exemplary.

The brawl theory seems a red herring, though.  The neighborhoods around the Four Seasons and Dupont Circle, where most embassies are located, are upscale and heavily policed.  A serious brawl would have attracted immediate attention.  The streets are also heavily traveled.  Someone getting hit by a car would also attract immediate attention.  According to police, they just don’t know.  The New York Times reports that Lesin arrived at the Dupont Circle Hotel “disheveled” but without apparent injuries, leaving one to wonder if Lesin didn’t acquire his extensive injuries after arriving at the hotel.

The Washington Post goes on to say that a Russian television station reported that Lesin had been with friends before his death.  How his friends disappeared so completely or, if there had been a fight or a car accident, why they were not there to help him with his injuries is not explored.

The Washington Post reports that a certain long-term friend of Lesin’s in Russia, Sergey Vasiliev, believes Lesin died from heavy drinking, which is what Vasiliev says he was told by the Russian Foreign Ministry.  This is the same Foreign Ministry that is complaining that they do not have any information and are demanding to be briefed by US authorities.  The BBC reports that the Russian embassy in Washington told them it only became aware of Lesin’s injuries when the DC medical examiner’s report was released.  The BBC reports that the Russian embassy press secretary criticized the lack of communication by US authorities, “saying Russia had made repeated requests for updates on the investigation but very few facts had been given.” 

A number of news sources report an unspecified long-term illness, inferring that the illness may have had something to do with Lesin’s death.  The BBC quotes the head of Russian media regulator, Rosepechat, as saying that Lesin had had spinal surgery but was in good health.  The inference seems a highly doubtful explanation for Lesin’s death.

The only sensible comment out of Russia seems to be a BBC quote from Lente.ru from a Russian forensic expert that Lesin’s injuries “were consistent with a severe beating, not an accident or the result of convulsions”.

The Washington Post reports that the same Vasiliev claimed that on November 4 a hotel guard at Dupont Circle checked on Lesin because he had failed to come out of his room for a long time.  However, according to The Washington Post, Lesin had only just checked in, so he could hardly have been there for a long time.  Vasiliev claims Lesin was found dead the next morning by the hotel maid, although The Washington Post can’t say because the hotel declined to comment when asked by them.

Vasiliev also claimed that Lesin had had breakdowns and drinking bouts in the past and had sometimes fallen and injured himself.  Who is Sergey Vasiliev?  Take your pick.  There are many on the web, though none are an obvious candidate.  The Washington Post does not provide enough information to identify Sergey Vasiliev.  [NB; subsequent news reports identify Sergey Vasiliev as CEO of VI Group, a Moscow advertising media company.  However, assertions by the improbably well-informed Vasiliev beg corroboration.)
Did the Kremlin kill Lesin?  The Moscow Times reports that Lesin had had a falling out with another Kremlin insider, Yuri Kovalchuk, a major shareholder of Gazprom Media, where Lesin most recently worked.  Reportedly Lesin owed Kovalchuk a large sum of money that he did not intend to pay back.   TheDailyBeast (and TheDailyBeast2) reports that Lesin owed money to “some of the most powerful men in Russian media and finance.”

If the Kremlin is involved though, it is loosing its touch.  This murder will be tough for the Kremlin to pin on rogue Chechens or accidental poisoning by rare radioactive isotope that the victim had lying around the house, as the Kremlin has claimed about other Russians who fell foul of Putin and died in unusual circumstances.  Blunt force trauma lacks finesse and is kind of hard to explain away.  All one can say is that the mortality rate among not only Kremlin critics but also Kremlin supporters is high.

The police are oddly reticent to call Lesin’s beating a crime.  Even if it were an ordinary drunken bar fight, possibly with friends who were supposedly accompanying Lesin, he is dead, and that is still at least manslaughter.  The only reason to tread carefully is if those who beat Lesin were powerful men (really, no pun intended) or connected to the Russian embassy and had diplomatic immunity; without compelling evidence, even to make the accusation could escalate to a major diplomatic confrontation.  That the Russian embassy in DC feigns complete ignorance while some in Russia share detailed information, suggests that the Kremlin wishes to distance itself from Lesin’s death or someone is engaged in obfuscating the truth.  But that is all just speculation on my part.

In an otherwise fantastical article, the Pro Russia News service, helpfully posts images of the original death notice for Lesin issued on November 7, 2015, and the Chief Medical Examiner’s statement on March 10, which contain curious errors.  PRN notes the seemingly hastily prepared nature of the March 10 notice that misspelled the title of the Chief Communications Officer, had no date, and did not provide the names of the Chief Medical Officer or the Chief of Police in whose names it was issued.  The New York Times reports that the “medical examiner’s office did not explain the timing of its announcement, nor why the findings took so long. Officials there had said as recently as Wednesday that it would not imminently release its findings, only to reverse course the next day.”  The rest of the PRN article is complete nonsense.

There are other anomalies.  Lesin was discovered dead around mid-day on November 5.  Within hours Russian news services were reporting his death and that, according to family members, he had died of a heart attack.  That the family may have been informed of his death so quickly seems possible, but why Russian news services?  And on what basis did the family believe Lesin had died from a heart attack?  Is the connection that Lesin’s daughter works for the US bureau of Russia Today (RT), the news service that her father had set up?

Lesin’s family is surprisingly quiet.  His son, Anton Lessine, is a financier and film producer in Los Angeles.  Lesin’s daughter, Yekaterina Lessina (or Ekaterina Lesina) also lives in Los Angeles.  Both live far beyond their incomes in houses that were purchased by their father.  Lesin is said to have provided tens of millions of dollars to fund his son’s business interests and may have been involved in the business himself (Margarita Simonyan, RT editor in Moscow, claims Lesin invited her to come to Hollywood to write screen plays and he would act as her producer, Radio Free Europe).  Business Insider.

One reason to be quiet is that, as direct beneficiaries of their father’s alleged corruption, they may be subject to criminal charges and penalties also, such as confiscation of their properties, threatening the pampered lifestyle of both children.  Despite a lack of evidence from the US Justice Department of an active investigation, TheDailyBeast reports, “it was all but certain that he [Lesin] was being pursued by US law enforcement” and “the FBI had enough evidence to consider opening a case.”  Dicey stuff for recipients of allegedly ill-gotten gains.

VirtualGlobeTrotting.com provides a tidy snapshot of the former civil servant and his children’s privileged lifestyle:

Ekaterina Lesina is the daughter of powerful Russian media mogul Mikhail Lesin, who is one of Vladimir Putin's top advisers and the former Kremlin media chief.

In summer 2014, a scandal arose when an otherwise mundane lawsuit revealed that Lesin had secretly purchased three multi-million dollar mansions in Los Angeles (one for himself, one for his son Anton Lessine, and one for Ekaterina) at a cost of nearly $30 million. He and his family also purchased at least 8 luxury vehicles, at a cost of more than $1 million, including a $250k Bentley and a $300k Ferrari.

It was also revealed that Lisin had invested tens of millions of dollars through anonymous corporations into the production of Hollywood blockbusters, including the Brad Pitt thriller "The Fury".

Following the emergence of these details, Mississippi Senator Roger Wicker called for the Department of Justice to investigate whether Lesin's money was being illegally laundered in the US and/or was generated via government corruption.

The original lawsuit was the result of two former nannies suing Carole Lessine (Ekaterina's sister-in-law) over wrongful termination and abuse.

Ekaterina's house is located in the exclusive gated community of Mulholland Estates and was purchased for $5.6 million. Her brother's mansion in Brentwood and her father's estate in nearby Beverly Park are also featured on this site.

The theory that Lesin was in Washington to cut a deal with the US seems though to be largely based on his staying at the low profile Dupont Circle Hotel.  However, The Washington Post’s claim that he was actually staying first at the very high profile Four Seasons pretty much blows that theory out of the water.  In any case, The Washington Post also reports that Lesin was in town to attend a charity function honoring Pyotr Aven, a Russian billionaire and philanthropist for which he had paid $10,000 for a dinner ticket, not a good way to keep a low profile.

In some sense, the Kremlin turning on its own people, if true, is comforting.  It means less attention on others.  The Kremlin is showing strains, and Putin’s affection for Stalin extends to Stalin’s methods and climate of paranoia.  Those still in the Kremlin’s favor need to be careful.  It is so easy to fall out of Putin’s good will.  Might Vladimir Yakunin, former head of Russian Railways, or Herman Gref, CEO and Chair of Sberbank, Russia’s largest bank, who have spoken out recently about problems in Russia, be next?  Or, Arkady Rotenburg, if that bridge to Crimea doesn’t work out?  In good stead today doesn’t mean waking up in good stead tomorrow—or waking up at all.  It just takes a twitch to fall out of line with Putin, also a Stalin characteristic.

What should concern Americans is the work of the DC police and the medical examiner.  So far, they appear either evasive or ineffectual.  Lack of progress leaves the impression that Russian oligarchs are treated as “hands-off,” which everywhere else has emboldened their criminal behavior.  A body is a body.  It was either homicide or manslaughter.  What it is not is just those madcap Russians having fun on holiday.

A rogue Russia reaching out to murder its citizens in the United States and other countries, as well as conducting subversive acts including military aggression is a threat to everyone.  It has been months since Mikhail Lesin’s death but the DC police have only now released a brief, inconclusive description of what they know.  The case echoes the British government’s treatment of the Litvinenko murder, which was investigated only after Litvinenko’s wife get a court order for a public inquiry.

Not only are the DC police less than impressive in pursuing and making public the essential facts of Lesin’s death, US law enforcement appears derelict in pursuing obvious instances of money laundering by Russian citizens and their families, including Lesin, who establish themselves in legitimate enterprises in the US to “launder” criminal gains, which only facilitates the dangerous conduct of a rogue state with an unstable leadership that is capable of far greater harm.

Dirk Mattheisen is a writer and blogger on political economy.  He is also an independent consultant on institutional governance of international economic and financial institutions.

How Well Off Is The Average Russian, Anyway?

In response to a recent article on prospects for the Russian economy (Russia: All Scenarios Are Bad in Interiabiznes, a Polish news service), a commenter who can be inferred to be a young Russian professional inveighed against the argument that the Russian people were doing poorly simply because Russia’s GDP compared badly to other countries’.

The commenter had a point of sorts about the limits of international comparisons in explaining domestic economic conditions, and his comment explains in part why the Russian people have not reacted more strongly to their declining economic welfare. He wrote,

“Every time [*@$%#] starts listing gdp per capita in russia in dollars or euro or whatever equivalent i roll my eyes. Wana hear a fun fact? Electricity, standard price here, 2 rubbles for a killowat in rush hours. Now go to british gas or whatever have you, and check how much you pay. And it’s like this in everything. Footlong subway – 220 rubbles with double cheese chicken and bacon. I recall it being in the area of 6-7 pounds in london. Any consumer good you can imagine or resource is a LOT cheaper in Russia…Another example 400 euros a month will get you a medium sized (50sqm+) rented flat in city center. In smaller cities even less than 300 maybe. Find me a city in eu that’s relevant and has rents like that. I recall paying this a week in london for a tiny [ *@$%#] flat.

Based on his examples, nominal prices in Russia appear very reasonable and low in comparison with elsewhere, suggesting that local goods and services in Russia are more affordable than in Europe. That 50sqm+ apartment that rents for €400 in Moscow, might cost £1,000 or more in London (although you could come pretty close to €400 in Berlin). That foot-long Subway sandwich that cost 220 rubles in Russia, or about US$4.40, would cost $7.95 in Washington DC. Throw in stunningly low utility prices, and the average Russian might seem to live quite well.

Even though the import of consumer goods has fallen substantially, low prices in Russia seem to reflect an attractive domestic market for non-tradable goods and services—economist-speak for things that aren’t imported or exported–including housing, domestically produced food, and things like health and educational services—things that are sometimes otherwise known as basic needs. But that isn’t the whole story.

Although prices in the commenter’s examples are roughly half in Russia what they are in Europe, the GDP per capita comparison that he doesn’t like is still a problem. Russia’s GDP per capita is about €9,650, while GDP per capita in Germany is about €36,000 (Estonia is about €16,000 and Hungary is about €11,200) (IMF). The average GDP per capita for the Eurozone is €33,000. Even though prices in Russia might be half what they are in Europe, the average Eurozone citizen’s purchasing power is roughly three times higher. That €400 apartment would take half of the average Russian’s monthly salary. After paying rent, a Subway sandwich a day would take 30% of the average Russian’s remaining gross income per month. The price of a sandwich might sound cheap, but it is not in comparison with income. That cheap electricity presents another problem. It is cheap because Russia has the third largest fossil fuel consumption subsidies in the world, amounting to just over US$30 billion per year. These subsidies drain the national budget and divert resources from more productive economic uses, which slows economic growth and suppresses GDP per capita.

There are other problems. Low domestic prices also reflect the low quality of goods and services. The quality of housing, for instance, is far below standards elsewhere in Europe. The proposal by Moscow’s mayor to level thousands of apartments built during Stalin’s reign, many of which are deemed uninhabitable, indicates the decrepit state of Russian housing. That the mayor’s proposal has met with so much opposition reflects a number of factors but includes low public confidence that promised new housing will be of equal value or more attractive than what is being replaced. Food standards are also lower. As much as 60% of Russian-produced food is “poor quality, unsafe, or falsified”. Much of it is of such low quality that it is not exportable—making it an “un-tradable” good. The low—and declining—quality of education and health services is a major concern for Russia, including not only the low quality of the services provided but also low teacher and doctor salaries.

The average Russian has been until now accepting of the level of prices and low quality of basic goods and services because these have been within reach of most of the population and because, while things could be better, things could also be worse. This has contributed to the average Russian’s complacency about economic conditions.

However, Russians today are under severe economic stress and for many even cheap domestic goods and services are becoming unaffordable. The Russian poverty rate reached almost 15% or nearly 22 million people last year, up from 14 million in 2014, the highest number in a decade.

Growing protests indicate widespread dissatisfaction with material welfare, and anecdotal evidence suggests Russians are under severe economic stress. As an example, the broad-based truckers’ strike in its third year has grown because the new road toll system makes it impossible for independent truckers to make a living, forcing them out of business or into the shadow economy. As one analyst describes it, Povertyin Russia,

“…despite the overall economic upturn, Russia’s people are still in dire straits. One-quarter of Russian companies cut salaries in 2016, at times even skipping payments to their employees. The average monthly wage in Russia dropped 8% last year (after falling 9.5% in 2015) to under $450 — less than the mean monthly pay in China, Poland or Romania — while the poverty rate jumped to nearly 15%. And the country’s regional governments are not faring much better, much to the Kremlin’s consternation.”

Although the commenter argues that the quality of life is better in Russia because the price of basic needs such as food and housing is lower, price alone is a misleading and inadequate indicator of economic welfare. Income matters, too, as does freedom from want, opportunity to better oneself and to provide for one’s family, and the chance to enjoy life’s pleasures. In Russia, these are threatened by poor economic policies. There may be Russians who can afford what the commenter describes, but there are too many who cannot. The commenter’s notion that the average Russian is just as well off materially—or better off–as his or her counterpart in Europe is nonsense. Most Russians have to think twice before spending 220 rubles on a foot-long Subway sandwich.

About the Source

DIRK MATTHEISEN

Dirk Mattheisen is a writer and blogger on political economy with a focus on European affairs and independent consultant on institutional governance of international economic and financial institutions.

Kyiv Noir Continues With Another Russian Assassination Attempt

Kyiv Noir continues with another high profile Russian assassination attempt in Kyiv.  

New York Times - Masquerading As Reporter, Assassin Hunted Putin Foes in Ukraine.

The story of the couple in the New York Times article is worthy of a movie.


As I wrote previously,

Kyiv Noir: When Will The Headlines End?

much of the headline violence in Ukraine starts with Russia’s subversion of Ukraine’s democratic reforms, including anti-corruption reforms--as well as with Russia's war in eastern Ukraine.  Violence and subversion are carried out against Ukraine by Russia because Putin views Ukraine as a threat.  Ukraine's democratic reforms are a threat to Putin because next door to Russia a fellow post-Soviet country is becoming a successful democratic alternative to Putin's oppressive rule. The headlines about violence don't tell the story of Ukraine's progress toward an open and democratic society.

What bothers Putin is that Ukraine’s reform process is succeeding.