Russia In Crisis: William Browder, Hermitage Capitial Management On Moscow’s Future; “Flagging Economy And Growing Discord Over The War In Ukraine Is Converging To Destabilize The Regime;” “Capital Flight Has Reached Epic Proportions”

Russia In Crisis: William Browder, Hermitage Capital Management On Moscow’s Future; “Flagging Economy And Growing Discord Over The War In Ukraine Is Converging To Destabilize The Regime;” “Capital Flight Has Reached Epic Proportions”

William Felix Browder, is the Chief Executive Officer, and Founder of Hermitage Capital Management, a noted critic of Vadimir Putin; a long time investor in Russia; and, the author of a new book, Red Notice: A True Story Of High Finance, Murder, And One Man’s Fight For Justice. Mr. Browder was interviewed on CNBC’s Squawk Box, last Tuesday (Feb. 3, 2015), He had some very interesting things to say. FYI, Putin would like to put Mr. Browder in prison — if he could. An interesting side-note, Mr. Browder is the son of the former General Secretary of the U.S. Communist Party in the 30s and 40s.

Mr. Browder is certain that Russia is in crisis; and, that Putin will soon likely have to impose capital controls — due to the free fall in oil, well below $60. FYI, Russia’ 2015 budget, he contends, is 50 percent dependent on oil sales revenue; and 50 percent dependent on Ukraine. Mr. Browder believes that Putin will have to resort to expropriating, and nationalizing more companies; which in turn will lead to more and more money flowing outside Russia — as people attempt to protect their investments. “Oil isn’t liely to return to $100 anytime soon,” he says, and f it doesn’t, Russia is in trouble.

David Satter agrees. Mr. Satter is affiliated with The Hudson Institute, Johns Hopkins University, and The Henry Jackson Society in London. His books include: “It Was A Long Time Ago, and “It Never Happened Anyway: Russia And The Communist Past,” Yale, 2011. He had an Op-Ed in the February 4, 2015 Wall Street Journal, “Putin’s Shaky Hold On Power.”

Mr. Satter;s bottom line: “Russia’s flagging economy and growing discord over the war in Ukraine, is converging to destabilize the regime.” He adds, “the upsurge in fighting in Ukraine, with Russian troops and equipment across the border, is a sign that Russian President Vladimir Putin has decided to engage the West in a dangerous game of “chicken,” the goal of which is to show that the only result of Western pressure on Russia — will be renewed slaughter.” Putin’s regime,” he argues, “needs an end to sanctions, — not because they are crippling in themselves; but, because in combination with the growing crisis of the economy, and the unstoppable trajectory of the war, — they could help lead to the destabilization of Russia.”

“The fear that pervades the Russian leadership, is reflected in a series of recent statements by the country’s leaders, Prime Minister Dmitry Medvedev, who said on January 27, that if Russia is cut off from the Swift International payment system as punishment for its actions in Ukraine, its response “will know no limits.” Andrei Kostin, the head of the VT,B, Russia’s second largest bank, said excluding Russia foom Swift, would mean “war.”Igor Ivanov, the former Foreign Minster, said that a confrontation could involve nuclear weapons.”

“In Russia today,” Mr. Satter observes, “110 people, including Mr. Putin’s cronies, control 35 percent of the country’s wealth, while 50 percent of the adult population — have total household wealth of $871 or lower.” It was over $1300, prior to the implosion in oil prices. “In 2014, food prices rose 15.4 percent. It is a measure of the government’s concern, that it has cut the price of vodka, despite the need to fill the treasury. This is a transparent attempt to use vodka to tranquilize the population,” he writes.

“If the economic situation in Russia continues to worsen,” Mr. Satter warns, “many Russians may come to see that the Ukrainian model of a peaceful, and spontaneous rebellion against a corrupt regime, can have relevance for them. It was because of the potential power of the Ukrainian example for Russia, that Mr. Putin began the war in Ukraine in the first place.” “The cost of fighting has been hidden from Russians, but as the death rate climbs,the war may soon become less popular. The Russian authorities state authorities officially claim that there are no Russian troops fighting in Ukraine; but, the movement of thousands of troops is impossible to hide, and it is similarly impossible to hide soldiers’ funerals.” “In St. Petersburg, calls are coming in to the hot line of the ‘Soldoers’ Mothers’ organization, from parents of soldiers who report anonymously that their children are being commanded to sign contracts that enable them to be sent to Ukraine. Such reports are also coming from a number of other regions.”

“Lev Shlosberg, the Chairman of the Pskov Regional Division of the Yabloko political party, told Radio Liberty, that “there has been a change in the mood of he Army, because of the scale of the losses in Ukraine.” He added that there have been massive cases of the canceling of contracts by contract soldiers; and, the termination of their military service because of an unwillingness to fight in Ukraine”
“The [Russian] military is carefully hiding its dispatch of forces from their places of permanent dislocation,” Mr. Satter writes. “If military planes once flew from the Pakov Airport, they now leave from the airport of the neighboring smaller city of Ostrov. Mr. Shlosberg, and members of the press became aware of Russian military deaths in Ukraine by attending and reading about the funerals of soldiers from the 76th Airborne Division, which is based in Pskov. Now,” Mr. Satter writes, “there is an attempt to transport the bodies of those killed, to –to un-populated areas for funerals. But, they are nonetheless seen; and, the news of the high cost of the war is spreading.”

“The war in eastern Ukraine, has been turned into a war of attrition, in which the Ukrainian military is mostly holding its positions. Such a war could go on indefinitely,” Mr. Satter argues. “The Russians however, have not used their Air Force; and, they have an estimated 52,000 troops just over the border with Ukraine. They could decide to begin an all-out offensive; and, drop any pretense of nonintervention. Such a course of action however, carries risk for the Russians.”

In conclusion, Mr. Satter writes, “the pyramid of power in Russia is unstable. Capital flight is reaching epic proportions (63.7B) in the first quarter of 2014, according to the U.S. State Department; and, thousands of Russian officials have made contingency plans to escape with their money to the West. Mr. Putin and his cronies will not take aggressive action, if they fear that they could as a result — lose their hold on power. This is why the time for maximum deterrence on the part of the West……is now.”

In his 2013 book, “Implosion: The End of Russia and What It Means For America.” Ilan Berman wrote, “A confident Valdimir Putin striding very large on the world stage (Syria, Iran, Olympics, etc.), portraying a strong, geo-political image — is not the reality behind the curtain. Russia may appear strong now,” Mr. Berman says but, the country is going through a profound transition “that when it settles in, will be as earth-shattering as the collapse of the Soviet Union some two decades ago.” Russia’s burgeoning Muslim population — the one sector which is experiencing a significant population explosion. Muslims currently make up 16% of Russia’s population;– about 2M — but by the end of this decade Muslims are expected to make up 20% of Russia’s total population. Mr. Berman says that Muslims have hit a “glass ceiling” in the country as the Muslim community is not well integrated into the overall society and there is visible sense of discrimination that the Muslim population feels. Radicalism among this sector is increasing; and, the violence/terrorism that has been ongoing in Chechnya for years is beginning to migrate into the interiors of Russia. Mr. Berman says this insurgent strain of militant Islam risks widening the conflict with not just one Chechnya — but, many.

The real challenge for the U.S. Mr. Berman says, “is not the strength of Russia twenty years hence”; but, a much weakened Russia, imploding from within. Much food for thought. V/R, RCP.

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