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Monthly Archives: February 2013

As reported in the Russian media in February, and in particular in the blog by anti-corruption blogger Alexei Navalny, the longstanding chairman of the State Duma’s parliamentary committee of ethics Vladimir Pehtin would appear to have some ethical issues of his own. 

Despite working as a member of parliament since 1999, Pehtin has amassed considerable real estate in Russia, a fleet of expensive cars (Porsche, Mercedes-Benz, etc.) and also real estate in… America. Furthermore, for some reason Pehtin omitted to mention the existence of this prime real estate in Florida in his tax reason.

Subsequent to the disclosure on 13 February, Pehtin resigned his post during the investigating, while adamantly denying ownership of the property, claiming that it was owned by his son Alexei Pehtin, an alleged 35-year old businessman.

However, as Navalny noted in response, Pehtin has been receiving a state salary since 2004 from the State Duma. He would appear to be his father’s “advisor”. Moreover, Pehtin senior has allegedly been paying tax on the Miami real estate in the USA, which is strange behaviour if he doesn’t own any property in the country! If you ever hear this “ethical” deputy lambasting America, you will have to laugh even more at the utter hypocrisy of the Russian state official. 

So yet another parliamentary deputy and state official has been found out. The corruption reeks more and more. The officials are so convinced that they won’t be caught that they flaunt their wealth.

Interestingly, when you type in Vladimir Peshtin in the Internet in English, Google assumes you have made a mistake and meant to write Vladimir Putin. Maybe this is not so surprising, if Putin lets such corrupt people assume leading roles in his parliament. He is not the first deputy to be caught and clearly won’t be the last.

Welcome to President Putin’s Russia. Vive la corruption!

According to Kommersant (13 February 2013), leading manufacturer of prepackaged grain Angstrem and  agricultural holding AF-Group, which focuses on rice, have announced plans to merger their businesses in the new company AFG National, with the value of the merged assets estimated at over RUB 8 billion.

The partners may also acquire production facilities from Razgulyai and Mistral, with the goal of transforming AFG National into a major rice supplier, accounting for 25 per cent of the market.

According to analysts, it remains unclear how powerful the holding will be, in view of the reduction in rice import duties following Russia’s accessing to the WTO.

 

 

As reported in Kommersant on 13 February 2013, Ukraine’s Prominvestbank, one of the country’s oldest banks and regularly ranked in the top ten in terms of retail savings, has appealed to its parent, Russian state-owned corporation Vnesheconombank (official English name – Bank for Development and Foreign Economic Affairs), for almost USD 800 million in financial assistance, including USD 400 million in the first quarter of 2013, as it is undercapitalised based on the requirements stipulated by International Financial Reporting Standards [IFRS]. The bank needs to create 100 per cent provisions for bad debt, thereby adversely affecting its capital.

Vnesheconombank owns 98 per cent of the bank and will no doubt adhere to this request. This is the first time, however, that the Russian state, represented by Vnesheconombank, has had to provide assistance of this kind to a foreign subsidiary.

As Ukrainian banks have only just had to start making the transition to IFRS (effective from 1 January 2013), there has to be cause for concern for other institutions that don’t have such a wealthy patron, given the sorry state of Ukraine’s economy.

Of course, this might lead to some interesting M&A transactions/share swaps.

 

Observer journalist Anita Sethi posted an excellent review on one of my favourite works of literature, Notes from the Underground – Notes from Underground by Fyodor Dostoevsky – review. This has always been an underappreciated and little-known novella penned by Fyodor Dostoevsky before he wrote the classics – Crime and Punishment, Idiot and Brothers Karamazov. The review concerns a new English translation of the novella and erudite introduction from DBC Pierre.

It is a pity that the work has been ignored so much by both Western and Russian audiences, as Dostoevsky not only lays down the framework for the ideas in subsequent novels, but also goes further in exploring the mind.

The novella also manages to cover such a wide range of issues – the desire for a utopia and the simultaneous desire to destroy this utopia, as man finds perfection unbearable to hold (example of Crystal Palace) ; the endless possibilities of technology and the way they can be used to cause more havoc – the better the technology, the greater the death caused through military action; the yearning for independence and freedom contrasted with the desire for some kind of security and state support; free will and existentialism; and many other ideas, including enlightened self-interest.

The New York Times posted an interesting piece on 12 February on alleged attempts by President Putin to force Russian officials to bring their cash back home entitled Russia May Restrict Investing Abroad

Putin has submitted a draft law to parliament, which will naturally be adopted by the servile members of the State Duma. According to the law, all top state officials, including in government, their spouses and young children (what young means is not defined at present) will be expected to close down any bank accounts or shares held outside Russia.

The apparent goal is to crack down on corruption – however, it would appear more likely to be another way of pressurising officials at all levels to toe the party line and also make them share more the backhanders that they receive with other senior officials.

Furthermore, the law has loopholes – surprise, surprise – officials can as in the past retain money in foreign accounts linked to offshore companies that will not be accessible by the ban or by using the names of proxies and friends – a measure that has, by the way, proved quiet handy for UK businessmen seeking to avoid paying high rates of tax in the UK.

So this would appear to be another measure aimed at appeasing public anger over the high levels of corruption in Russia, while at the same time leveraging more control over officials and inevitably increasing corruption levels, as they seek to offset the cost of sharing their illegal earnings with other government figures now aware of the scale of their theft.

 

To date this blog has focused perhaps too much on the issues facing Russia, the widespread poverty, corruption and indifference of the powers-that-be.

However, things aren’t much better in Europe and the US, as a new hard-hitting documentary points out, covered in an excellent article in the Guardian http://www.guardian.co.uk/film/2013/feb/02/inequality-for-all-us-economy-robert-reich

Just like Russia, a small minority in the US and UK own the majority of assets. Unfortunately, this is rarely reported. As well as highlighting inequality and the squeeze on the middle class and poor, the documentary stresses the negative impact that such government policies have on the economy, with all hopes of growth destroyed by futile austerity.

Meanwhile, as indicated in another report recently, based on Sberbank data, almost 90 per cent of Russians own their properties – compared to a far lower figure in the US and Europe. This has historical roots (decree by Russia’s first President Boris Yeltsin to allow Russian citizens to privatise the state properties where they live). At the same time, to date Russians have to a large extent abhorred debt (I am not talking here about the dishonest oligarchs, but instead the general public), preferring either to pay cash for property or to repay loans/mortgages early.

And given the high budget deficit issues in the West, compared to Russia, it remains unclear how the situation will develop over time. A recent Economist report focused on the unsustainable nature of the welfare state in the UK and highlighted successes in Nordic countries.