Monthly Archives: February 2009

Russian Central Bank Consolidating Control: More Visible Signs

As I had mentioned earlier, the Russian government is making a conscious effort to consolidate and centralize power. This is completely in line with the renewal of an autocratic period of Russian rule as per Russian historical norms. Putin is using the current financial crisis to consolidate power over the economy in specific ways and to consolidate the government’s control over the financial sector in particular. Fiscal independence is not as important in a controlled economy as it is in a fully open market, and so Russia is not as concerned with the drop in their own stock market, the closure of small banks or the drop in the ruble as other countries would be in similar situations (though a complete drop in the ruble would cause a public panic and become problematic, but still not on the level it would cause panic if the floor fell out of, say, the British pound).

A small news article on the closure of two smaller Russian banks, Uraikombank and Kauri bank, are the first indications of a conscious effort to follow previous historical norms for Russian consolidation of fiscal power. It is very important to note that the story includes not a reference to the banks’ lack of liquidity as a cause of collapse, but cites instead the banks’ closure by the order of the central bank for reasons including not only lack of liquidity but also a typical Russian-style “violation of regulations” without any citation of what regulations those were. In the end, it does not matter what regulations they were or if such regulations even exist. Russia closes and consolidates (their newspeak for nationalization) business enterprises, both foreign and domestic, when an autocratic government comes to power and wishes to remove power from the oligarchy. Now that it is happening openly in the banking system expect to see a sharp increase in the frequency of this specific type of closure. The global financial panic will not last forever and so Russia has a limited time to act on apparently solid grounds to establish control over its domestic financial world.

I am sorry to say that I do not have time to dig up more references to recent Russian nationalizations or cite a more complete article concerning this particular closure (Bloomberg may be a good place to farm for this) but this should be enough to get your engines turning if you’re interested. Unfortunately Yahoo! Asia is notorious for being overly brief on its news reports.

U.S. Considering Russian Supply Routes a Sign of Reinterpretation of Russian Power?

General Petraeus, the new CENTCOM commander and most recent commander of American forces in Iraq, has personally visited several former Soviet satellite States which would be necessary to establish a non-Pakistani supply route to Afghanistan. This means two things: The US is becoming very serious about cutting Pakistan out of the loop on the war, and the US is considering cutting Russia in.

As I have discussed at length elsewhere, Russian and American interests diverge in significant ways which have already forced a resumption of the Cold War (a detail that most prefer to gloss over at the moment). This has manifested in the Russo-Georgian War of 2008, the current Russian attempts to unzip, collapse or otherwise politically take over Ukraine and the Russian moves which are unzipping the EU by bringing Germany closer to a separate arrangement with Russia apart from the rest of Europe.

How does the Afghan war play into this?

Russia is in conflict with the US because it is seeking to re-establish firm control over its historical sphere of influence — what most recently were the Soviet satellite countries bordering Russia. Several of these same countries are the ones that America must use if it desires an alternative supply corridor to Afghanistan which completely circumvents Pakistan and Iran (Iran being an interesting alternative of its own which is… well, interesting to even contemplate at the moment). Being the only country with a reasonable supply route to Afghanistan is the only leverage that Pakistan has in the world, as Islamabad has found itself suddenly without friends, full of batshit crazy Islamists and on the verge of concrete political collapse following the Mumbai attacks. All that being said, the serious talks going on with Russian peripheral states about creating an alternative supply route is extremely worrying to Pakistan because once another supply route is secured the US is free to pull all support for Pakistan and allow it to collapse under its own ineptitude. A government-less Pakistan would quickly devolve into a mess of Islamic chaos and violence — even to a greater degree than Pakistan already iss a mess of Islamic chaos and violence. Once and if that happens, the US would have all the justification it would need to extend the Afghan war into Pakistan as it saw fit, and India could assist on the southeast side, as both nations (and several others, besides) have a vested interest in seeing Pakistan’s radical Islamic societies eliminated entirely.

However, pulling the leverage from Pakistan would, in this case, hand it directly to Russia. Why would the US be considering such a move at a time when the true anchor of counter-American geopolitics is not Muslim nutbags in Pakistan but the newly reorganized, thoughtful and powerful Russian government? This is the question I am posing today and at the moment I have no solid answers. I hypothesize that perhaps the Americans believe that Moscow sees enough common interest in having its southeast settled once and for all that it will be willing to cooperate on that commonality. Or perhaps the Americans believe that because America is in far less a bad position than the rest of the world economically due to the current crisis it will emerge so much farther ahead of everyone at the end that Russia simply will not be able to compete in a meaningful manner. My counter — or rather caution — to this approach is that with a centralized economy, a government controlled banking sector where money can be de-commoditized at will and there is little reliance on the stock market for companies to generate cash, Russia could actually emerge from this economic crisis far ahead of the game as well. Perhaps the Russians would not be as far ahead as the Americans, but the two both emerging as leaders — one an industrialized and information power and the other a raw commodity and resource power — at a time when both are struggling to establish a shape of Europe that will suit one or the other, but not both, seems to be playing with geopolitical fire.

That fire is obviously considered less of a risk to the Americans right now than allowing Pakistan to demonstrate abject complicity in Islamic terrorism and confuse tactical issues with arbitrary definitions between “good” and “bad” Taleban (“good” means they are not currently seeking to topple the regime in Islamabad and “bad” means they are… this says nothing of their common involvement in all sorts of other Islamist efforts the world over…).

Currently I am unable to get into any deep analysis because work calls and I am far away from home again. I’m still working on the Afghan-Pakistan piece to the Obama series but I am hamstrung by circumstance until at least April. I apologize for the abrupt and disorganized approach to this article. I have not had time to lay this one out as clearly as I would have liked.