Google to close engineering office in Russia as internet restrictions bite
Law coming into force next year will require foreign firms to store Russian users’ personal data on servers located in Russia
Alec Luhn in Moscow
The Guardian, Friday 12 December 2014 19.48 GMT
Google is to close its engineering office in Russia in the wake of growing restrictions on internet freedoms, including a law that comes into effect next year targeting foreign web companies.
The law, which authorities say will improve data protection, requires foreign firms to store Russian users’ personal data on servers located in Russia. Critics say it is designed to make it harder for US internet companies to operate in the country and will give Russia’s secret services – which are reportedly able to monitor virtually all data transmitted by domestic internet service providers – greater access to information held by foreign firms.
A Google Russia spokeswoman declined to comment on why it was closing its engineering office. “We are deeply committed to our Russian users and customers and we have a dedicated team in Russia working to support them,” the company said. It will retain support and marketing staff in the country.
President Vladimir Putin is no fan of the internet, calling it a CIA project, and saying he prefers to get his information from other sources. Russian security services have reportedly advised officials against using Gmail, and legislation was considered recently that would prohibit government employees from discussing official information over non-state email accounts.
Another law, passed this year, requires bloggers with more than 3,000 followers to register their personal information with the government, a regulation that has been decried as an intimidation tactic. Whereas state-controlled television offers generally pro-Kremlin views, dissent has been able to flourish on social media and blogs, which played a key role in the opposition protests that swept Moscow in 2011-13.
Google has criticised state restrictions on the internet in the past. Last year, Eric Schmidt, the executive chairman, said he was worried that Russia was beginning to copy China in internet censorship. Google closed its internet search service in China in 2010 after it stopped cooperating with government censors.
Anton Nossik, a web entrepreneur often called the father of the Russian internet, who now runs the internet marketing startup Fuzzy Cheese, said that besides the law requiring Russia-based servers, growing anti-western rhetoric following the Ukraine crisis posed a threat to foreign companies such as Google.
“The changes in the political situation make it less viable, less feasible to maintain engineers here, and that is not even counterbalanced by the fact that engineers get cheaper by the day because of the [falling value of the] rouble,” Nossik said. “There are a lot of counterproductive measures, not only [government] pressure but also the general unpredictability of how the situation will develop. One thing that is predictable is that it will develop for the worse. The only thing we don’t know is how fast regulations limiting foreign activities on the Russian market will be adopted.”
In September, Adobe Systems shut down its Russian office. The Vedomosti newspaper reported that the US firm was unable to meet the requirements of the new law and had been unable to close several deals because of western sanctions against Russia.
In April, Pavel Durvo, the founder of Russia’s most popular social network Vkontakte, left the company after a dispute with its new Kremlin-linked owners.
Although Google is widely used in Russia, the homegrown search engine Yandex controls 60% of the country’s search market, reports say. Yandex.ru emerged as the most popular media channel in a recent study by the marketing research company TNS Russia, with 4.3 million daily visitors among people in Moscow aged 12-64. Google.ru was the fourth most popular media channel, behind Yandex.ru and two state-owned television stations, with 3.2 million daily visitors.
Russian plane has near-miss with passenger aircraft over Sweden
Swedish authorities say military plane turned off transponder to avoid commercial radar and came close to collision
Close military encounters between Russia and the west ‘at cold war levels’
theguardian.com, Saturday 13 December 2014 20.50 GMT
For the second time this year, a Russian military aircraft turned off its transponders to avoid commercial radar and nearly collided with a passenger jet over Sweden, officials have said.
Swedish authorities said that on Friday, a Russian military aircraft nearly collided above southern Sweden with a commercial passenger jet that had taken off from Copenhagen in Denmark.
Sweden’s air force chief, Major General Micael Bydén, said the aircraft’s transponders, which make the plane visible to commercial radar, were shut off. Swedish fighter jets were sent up to identify the aircraft, and Hultqvist later identified it as a Russian intelligence plane.
“This is serious. This is inappropriate. This is outright dangerous when you turn off the transponder,” Swedish defence minister Peter Hultqvist said on Swedish radio.
Officials at Russia’s ministry of defence in Moscow were not available to comment on Saturday.
In recent months, Russia has increased its military presence in the Baltic Sea area, prompting some Swedish officials to compare it to the Cold War. In October, non-Nato member Sweden launched its first submarine hunt since the collapse of the Soviet Union. Swedish authorities said a small, foreign submarine had entered its waters illegally but never found it and did not disclose its nationality.
Nato has air patrols over the Baltic Sea and the continuous rotation of Nato military units in and out of countries such as the Baltic states and Poland.
Bydén said the incident in international air space was fairly serious, adding the southern-bound commercial flight was immediately ordered to change course. Media in Sweden and Denmark said the commercial plane was en route to Poland, but no one identified the airline that was flying the jet or how many people it was carrying.
Byden said this was not as serious as in March when a Russian plane flying without transponders came within 100 metres of an SAS plane that had taken off from Copenhagen.
U.S. Congress Passes Russia Sanctions, Arms for Ukraine
by Naharnet Newsdesk
14 December 2014, 07:43
The U.S. Congress on Saturday unanimously approved fresh economic sanctions against Russia and lethal weapons for Kiev, defying President Barack Obama and hardening American lawmakers' response to a Kremlin-backed insurgency in Ukraine.
Identical texts of the Ukraine Freedom Support Act passed both the Senate and House of Representatives on Thursday, but because of a technical issue it returned to the Senate where it passed by unanimous consent moments before the chamber adjourned late Saturday night.
It is now up to Obama to either sign or veto the measure. The White House said Thursday it was "looking at it."
On Saturday, one day ahead of a meeting between Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State John Kerry, Moscow warned that "undoubtedly, we will not be able to leave this without a response."
The legislation authorizes -- but does not legally require -- Obama to provide lethal and non-lethal military aid to Ukraine, including anti-tank weapons, ammunition and troop-operated surveillance drones.
Washington backs Ukraine in its conflict with Russia, but Obama has yet to approve the bulk of an arms request by Kiev.
"The hesitant U.S. response to Russia's continued invasion of Ukraine threatens to escalate this conflict even further, warned bill coauthor Senator Bob Corker.
Congressional passage heaps political pressure on Obama.
On Thursday he signalled he was against unilaterally putting the economic squeeze on Moscow, saying it would be "counterproductive" for Washington to "get out ahead of Europe further" on sanctions.
In November, the Pentagon delivered the first of 20 anti-mortar radar systems to Ukraine.
The current legislation authorizes $350 million worth of weapons, defense equipment and training for Ukraine over three years.
Lawmakers dropped a key provision in the original bill that would have taken the rare step of giving major non-NATO ally status to Ukraine, Georgia and Moldova.
Senate aides said the provision was removed at the 11th hour in order to ensure final passage.
The measure hits Russia's defense and energy sectors, punishing companies like state defense import-export company Rosoboronexport.
It requires Obama to impose conditional sanctions on the defense sector should Russian state-controlled firms sell or transfer military equipment to Syria, or to entities in Ukraine, Georgia or Moldova without the consent of the governments in those nations.
The rule is aimed at helping stem the flow of weapons from Russia across the border into eastern Ukraine, where Washington and Kiev accuse Moscow of fomenting separatist unrest.
It also gives Obama authority to penalize Russian gas giant Gazprom if it is found to be withholding significant natural gas supplies from NATO states, or Ukraine, Georgia, or Moldova.
Source: Agence France Presse
Attackers Torch Rights Group's Office in Chechen Capital
by Naharnet Newsdesk
14 December 2014, 11:09
Attackers set alight the office of a prominent rights group in Chechnya after its activists criticized Chechen strongman Ramzan Kadyrov for saying that relatives of Islamist insurgents would be punished.
The office of the Joint Mobile Group, one of the few human rights groups active in Chechnya, was set on fire late Saturday, its leader Igor Kalyapin wrote on Facebook.
"The office of the Joint Mobile Group is on fire in Grozny. None of the staff were injured," Kalyapin said.
Kalyapin said that earlier in the evening two men had tried to break into the office and that activists had been followed by armed men.
The apparent arson attack targeted rights activists who have taken a stand against Kadyrov, the North Caucasus region's ardently pro-Putin leader, after his chilling statement that relatives of insurgents will be punished for their crimes.
Chechnya saw a fresh outburst of violence this month as Islamist insurgents attacked Grozny on December 4, storming buildings including a school before 11 were killed in a massive security operation in which 14 police died.
Kadyrov responded by saying that relatives of Islamist insurgents involved in a bloody attack on Grozny this month would be banished and their homes destroyed.
After Kadyrov's statement on his popular Instagram account, at least eight houses belonging to people with family links to insurgents were burnt down, according to a statement by Memorial rights group this week.
Kalyapin had appealed to the Russian prosecutor-general to investigate Kadyrov's statement. At a news conference in Moscow on Thursday to condemn the attacks, two young men threw eggs at Kalyapin and Alexander Cherkasov of Memorial.
The Joint Mobile Group is the Chechnya-based branch of the Committee against Torture rights group, also led by Kalyapin.
Kadyrov furiously responded on Instagram last week that Kalyapin and other activists were defending "bandits" and suggested that Kalyapin had handed money to insurgents from "Western special services".
On Saturday at a mass rally in central Grozny, protesters held placards with slogans about the group and its leader such as "Kalyapin go home" and "Kadyrov, defend us from rights activists paid with dollars."
The rally against "terrorism" saw protesters holding portraits of 14 policemen killed in putting down this month's attack.
The Chechen interior ministry said 50,000 people took part in the rally.
Source: Agence France Presse
Russians must get used to new way of life after rouble crash, says bank chief
Currency hits historic lows after interest rate hike to 17% designed to halt fall
Shaun Walker in Moscow
The Guardian, Tuesday 16 December 2014 12.21 GMT
The head of Russia’s Central Bank warned Russians on Tuesday morning that they should get used to a new way of life, as the country’s embattled currency continued to plummet. After a brief rally, the rouble hit new historic lows on Tuesday, just hours after an overnight rise in interest rates designed to halt its fall.
“We have to learn to live in a different zone, to orient ourselves more towards our own sources of financing, and to give a chance to import substitution,” said Elvira Nabiullina, the chair of the Central Bank. She said the interest rate decision had been taken to stem the negative effects of the falling rouble.
The Central Bank announced the dramatic hike in interest rates, from 10.5% to 17%, after a late-night meeting behind closed doors. Analysts were divided over the move, with some suggesting it was painful but necessary medicine and others claiming it could do further damage to the Russian economy.
The rouble has lost over half its value against the dollar since the year began, with falling oil prices and western sanctions combining to hit the currency. Oil prices fell below $60 a barrel for the first time since 2009 on Tuesday morning, putting further pressure on the rouble. The dollar was trading at 80 roubles on Tuesday afternoon, compared to 32.8 at the beginning of the year.
The fall in the rouble continues to affect ordinary Russians. With a large share of food and consumer goods imported, purchasing power has been decimated by the large drop in the currency. Russia has enjoyed years of growth under Vladimir Putin’s presidency, with the economy benefiting from high oil prices. Increasing numbers of Russians have got used to a higher quality of life, imported products and foreign travel, which makes the sudden reverse of fortunes come as a shock. Many people have cancelled new year’s holiday plans as they have watched the rouble fall and the price of travel rise accordingly. While analysts say a full-blown crisis is unlikely and that the rouble’s fall may soon stop, they also note that a return to the rates of the beginning of the year is almost unthinkable.
There were no queues for banks or obvious signs of panic in Moscow on Tuesday, where people have been slowly coming to terms with the falling rouble all year, but at certain shops people were rushing to buy up stock imported before the currency fell, and still being sold off at old prices. Some retailers have already raised prices, while others plan to do so soon. Queues were reported late into the night on Monday at Ikea, which has said it will raise prices later this week, while some people were stocking up on basic necessities such as food and medicine.
“I don’t trust the Russian tablets. I’ve always taken imported European ones,” said a pensioner, Nadezhda Kovalyova, who was stocking up on blood pressure pills at a central Moscow pharmacy. “I don’t have much in the way of savings but I thought it was better to spend them and get enough for the next few months, before the prices go up.”
Putin said in his state-of-the-nation address earlier this month that Russians should take advantage of sanctions and the falling rouble to develop domestic industry. However, during the oil windfall years, little of the infrastructure required for entrepreneurship and small businesses to flourish was set up, with corruption and red tape still major issues. Analysts said the increased interest rates would make it even harder for small businesses and potential domestic producers to function, because of the expense of taking out credit.
Early signs on Tuesday were that the rate hike would have little effect on the rouble’s fall, as government ministers and state-run companies began to snipe at each other in the first public signs of a split among the elites over the financial slowdown.
“The Central Bank’s decision to raise the rate to 17% was forced on them by the current climate and is the right one,” wrote Alexei Kudrin, who was finance minister until 2011, on Twitter. “The fall of the rouble and the stock market is not just a reaction to the low price of oil and to sanctions, but also due to a lack of confidence in the government’s economic policy.”
Kudrin specifically criticised Rosneft, the state-controlled oil giant, for a huge bond issue last week that many have suggested could have contributed to the rouble’s fall.
Rosneft’s spokesperson Mikhail Leontiev hit back, saying the Central Bank itself had been responsible for “pushing Russia towards recession”, and compared the interest rate hike to shooting dead someone who has a small cut to the finger, in order to alleviate the pain.
Russia has just lost the economic war with the west
The interest rate hike’s failure to halt a freefalling rouble means Russia is facing a perfect storm, only part of which is a full-blown currency crisis
Larry Elliott, economics editor
The Guardian, Tuesday 16 December 2014 11.58 GMT
A full-blown currency crisis. That’s one way to describe the situation in Russia, where even the attempted “shock and awe” of a 6.5 percentage point-hike in interest rates failed to halt the rouble’s slide on the foreign exchanges. The other is to say that Russia has been engaged in an economic war with the west – and has just lost.
Put simply, this was Moscow’s Norman Lamont moment. Back in September 1992, the then chancellor said he would defend the pound and keep Britain in the exchange rate mechanism by raising official borrowing costs to 15%, even though the economy was in deep trouble at the time.
Russia is in even worse shape than Britain was in 1992. With a clapped-out manufacturing sector, it is over-reliant on its massive stocks of oil and gas at a time when the price of oil is falling through the floor. A barrel of Brent crude was trading at below $60 a barrel on Tuesday, compared to a recent peak of $115 in the summer.
The west knows all about the vulnerability of Russia’s economy. When the introduction of sanctions over Russia’s support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and the Saudi Arabians decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true.
At some point, lower oil prices will lead to stronger global growth, because consumers will have more money to spend and businesses will have more spare cash to invest. At that point, the price of oil will rise. But we are not there yet; in the short term the oil price is likely to keep falling.
So where does that leave Russia? Like Lamont, it has reached the end of the road with interest-rate increases. If a 6.5-point rise proves insufficient to halt the collapse of the rouble, it is hard to know what would do the trick. What’s more, it’s clear that some members of the policy elite in Moscow are unhappy with the idea of further damaging an already weak economy through draconian increases in interest rates to defend the currency.
As a result, there are now only two options. The first is to allow the rouble to find its own level, in the hope that the decline in the oil price will prove temporary and that rising demand for energy as the global economy recovers will push up the rouble against the dollar. The other is to introduce stringent capital controls. These are seen very much as a last resort by Moscow, but may prove necessary if the rouble rout continues.
The phrase “perfect storm” is much over-used, but in Russia’s case it is entirely apposite. The country has a collapsing currency, a collapsing economy and sky-high interest rates. The question now is how the Putin government responds. If Moscow softens its line over Ukraine, it will be a case of mission accomplished for the west. But if economic agony makes a wounded Russian bear even more belligerent, it could prove to be a hollow victory.
Rouble in freefall despite rate hike
Benchmark crude price drops below $60 as Russia’s dramatic move to raise interest rates to 17% fails to halt currency freefall
The Guardian, Tuesday 16 December 2014 12.07 GMT
Drastic action by Moscow authorities to defend the Russian currency has failed, as the rouble went into freefall to hit a new all-time low against the dollar.
Although the rouble rallied in early trading, the gains quickly unwound on Tuesday morning, with the Russian currency plunging more than a quarter to a new low of 80 per US dollar.
The further slide in the currency piles pressure on Russia’s central bank, which made a dramatic intervention at 1am last night, raising interest rates to 17%. This was the biggest one-day increase since the 1998 financial crisis that plunged Russia into recession and shook stock markets around the world.
Russia’s central bank said the rate rise was aimed at limiting currency depreciation and inflation risks. The rouble has halved in value in six months, sending inflation surging to 10%.
Central bank governor Elvira Nabiullina said western sanctions and the falling price of oil were to blame for the sharp fall in the value of the rouble. Russian banks are barred from raising money on western money markets as a result of sanctions, while the price of oil, Russia’s main export, hit a five-year low on Tuesday. Russia relies on oil revenues to pay for a little more than half of its state spending and needs oil to be at $100 a barrel to balance the budget.
The central bank said the economy would contract by up to 4.7% in 2015 if the oil price remained at $60 for 12 months.
Timothy Ash at Standard Bank said the Russian authorities had “a full-blown rouble crisis on their hands”, more akin to the ‘Made in Russia’ 1998 financial crisis, than the 2008 global crash. He blamed Russia’s central bank for not acting more decisively to stem the crisis. Last week, the bank raised rates by one percentage point to 10.5%.
Analysts think Russian policymakers could take even more drastic action to stabilise the currency, by stopping people from taking money out of the country.
The Russian government faced further woe, as the benchmark price of oil - its main export - fell below $60 a barrel for the first time since July 2009.
The cost of a barrel of Brent crude fell 2.15% to $59.93 on Tuesday morning, its lowest point since July 2009. Nymex US crude fell through the $60 floor on Monday, with further downward momentum on Tuesday morning taking it down 1.8% to $54.95.
Oil prices have almost halved since June, but the producer cartel Opec is insisting it will not cut output to reduce the glut in supply.
Prices softened after data showed that China’s factory sector had shrunk for the first time in seven months in December, further dampening demand for oil.
On Monday, Opec officials reiterated their opposition to cutting production. Abdalla el-Badri, the Opec secretary general, said the group could manage an oil price slump without amending production. Suhail bin Mohammed al-Mazroui, oil minister of the United Arab Emirates, an Opec member, said there was no need for an emergency meeting of the cartel to help support prices.
The big risk of the Russian central bank’s drastic interest rate rise
As the pressure grows on the rouble and Putin’s regime, the geopolitical temperature goes up
The Guardian, Tuesday 16 December 2014
Burn some speculators and show you’re serious. That’s the thinking behind the Russian central bank’s middle-of-the-night hike in interest rates from 10.5% to 17%. As with Norman Lamont on Black Wednesday in the UK in 1992, the challenge is to maintain credibility. Red Monday, as it is already being dubbed, could backfire in similar style.
The Russian authorities’ desire to do something dramatic is understandable. The rouble plunged almost 10% on Monday, indicating a loss of confidence that goes beyond a plunge in oil prices. Moscow, in the face of tightening US-led sanctions, looked weak and its economy at the mercy of the foreign exchange markets.
The alternatives to a rate hike were unpalatable. Doing nothing – or allowing the rouble to find a market level – was an invitation to more selling. As the currency fell, more inflation was being imported. A recession worth, say, 3% of GDP was in danger of becoming a nailed-on 5% slump, or worse.
Alternatively, Moscow could have imposed currency controls. But what’s the point? Controls might simply provoke panic and could also be ineffective since, in Russia, there are always ways around most official diktats. So a rate hike was the only plausible way to make a statement.
Is it credible though? The cost of 17% interest rates, if sustained for long, is the destruction of a large part of the domestic economy. In the UK in 1992, George Soros et al knew the Tory government of the day would not ruin UK mortgage-holders for the sake of currency stability with Germany.
Russians’ pain threshold is greater under Putin, one assumes. Even so, 17% demands an immediate rally in the rouble, or else the policy looks risible. The Russian central bank’s only other tactic is to spend foreign reserves to prop up the currency, a tactic with equally uncertain prospects.
Until now, the City has seen as the decline of the rouble as irrelevant in market terms. A collapsing Russian economy was seen as too small to make a difference to the global outlook; investors were keener to count the wider blessings of a lower oil price.
That theory needs a rapid qualification. Interest rates at 17% illustrate the extreme pressure on the unpredictable Putin regime. As the oil price falls, the geopolitical temperature is rising.
BT verdict on hold
The winner of BT’s reverse auction is a surprise: it was the German and French owners of EE, not the Spaniards behind O2, who were more desperate to sell. And desperation is the right word. At £12.5bn, EE is being sold debt-free at just 7.8 times its top-line earnings before interest, tax and depreciation. That’s not much for the UK’s biggest mobile provider.
Deutsche Telekom will take a 12% stake in BT and Orange 4%. That still leaves about half the purchase price, or £6.25bn, to find in cash. If a rights issue is required, it shouldn’t be a problem. Investors clearly back chief executive Gavin Patterson’s analysis that more consumers will want to buy home and mobile telecoms packages from the same supplier.
Yet BT shareholders shouldn’t celebrate their bargain too merrily. Their company is attempting to advance on many fronts simultaneously, which is not a risk-free strategy. It has splashed out on football rights in a direct challenge to Sky. Buying EE will trigger a response from Vodafone, Liberty (owner of Virgin) and Telefonica’s O2. One way or another, there will be a backlash.
There is also the regulator. An awful lot of spectrum will be housed within BT if the EE purchase is completed. Some level of forced disposals is a possibility to boost competition. In short: this looks a decent deal on day one, but judge its success only when BT knows how many of EE’s 24.5 million mobile customers it has retained three years from now.
You can’t go wrong investing alongside the great Sir Philip Green and the great Mike Ashley, right? Wrong.
MySale, the Australian “flash” sale website backed by the brace of retailing billionaires, saw its share price crash to 81.5p, versus June’s float price of 226p, as the company’s first gift to the London stock market was a mighty profits warning. This year’s profits will be “materially below” expectations, shorthand for awful.
Green paid 146p a share for a 22% stake in the month before the float, so the Topshop titan is down by the thick end of £20m, which is embarrassing for him rather than financially painful. Ashley paid a little more per share for Sports Direct’s 4.8% holding. He can also afford to take the paper loss on the chin. But his recent punting record now seems even worse; Sports Direct’s other little wager, on Tesco, is not looking good either.
Optimists may say that MySale must be a bargain at its shrunken valuation of just £130m (including £33m of cash). Not so fast. Green can give its founders a kick, but the basic problem may be fundamental. The MySave model is designed to work by shifting between northern and southern hemispheres to capitalise on selling seasons. Nice idea, but a lot of money will have to be spent on new websites to discover if it actually works in practice.
The falling rouble – all you need to know about Russia’s currency crisis
Economic and political headwinds are battering Russia whose currency has been weakened by the freefalling oil price and western sanctions
The Guardian, Tuesday 16 December 2014 10.34 GMT
The Russian central bank raised interest rates to 17% in an attempt to prevent the rouble’s collapse. But the dramatic move failed to stem the decline, with the currency hitting new all-time lows against the dollar.
Why has Russia’s central bank raised interest rates?
Russia’s central bank has taken the drastic step of raising its main interest rate to 17%, a rise of 6.5 percentage points. The announcement – made around 1am local time – is a desperate attempt to restore confidence in the rouble, which has almost halved in value against the dollar in six months. Last week, the central bank raised rates by 1%, but this failed to calm jitters about an economy that is suffering from falling oil prices and western sanctions.
Did the rate hike work?
No. A strong early rally in the value of the rouble soon went into reverse, sending the currency to an all-time low against the dollar of $66.59. The rouble is worth 3.6% less since the central bank’s emergency rate rise.
What options do Russian policymakers have now?
Only bad ones. The central bank can continue to defend the rouble, by spending its foreign exchange reserves to support the currency. Although Russia sits on some of the largest foreign exchange reserves in the world because of its oil and gas earnings, its cash pile is shrinking fast. In 2014, it spent $80bn supporting the rouble, around one-fifth of the value of its reserves.
The bank could raise rates again, but this would be painful for borrowers, worsening the country’s economic slowdown.
The other option is currency controls – stopping people from taking money out of the country. But this could turn a crisis into a full-blown panic.
How bad is the situation?
It’s bad - Timothy Ash at Standard Bank says Russian authorities now have “a full-blown rouble crisis on their hands”.
The dread scenario for Russian policymakers is a re-run of the 1998 financial crisis, a currency panic that plunged Russia into a deep and painful recession, sending shockwaves through financial markets around the world.
In August of that year, fears of a rouble devaluation led to the collapse of Russia’s stock, bond and currency markets. The central bank unveiled emergency measures, but were unable to beat the markets. The rouble lost three-quarters of its value in three weeks. The bank eventually hiked rates to 100% and Russia defaulted on its debts. The following year inflation spiked at 85% and people were demonstrating in the streets about high food prices.
Does this mean western sanctions against Russia are working?
Partly, but sanctions are only part of the story. Russia’s central bank governor, Elvira Nabiullina, on Tuesday blamed falling oil prices and western sanctions for the pressure on the currency.
Oil prices have fallen below $60 a barrel, a huge problem for Russia, where oil and gas revenues finance more than half of the state budget. Russian authorities were banking on oil prices of $100 per barrel in 2015 to balance the books and are forecasting a sharp recession if prices remain at current levels.
At the same time Russian banks are frozen out of western capital markets, as a result of EU and US sanctions over Russia’s actions in Ukraine. As a result, banks must turn to the central bank to help them refinance their debts, further straining resources.
Russian central bank raises interest rate to 17% to prevent rouble’s collapse
Bank’s decision, sparked by fears plunging global oil price would devastate country’s economy, follows day of market stress
Larry Elliott, economics editor
The Guardian, Monday 15 December 2014 23.37 GMT
Russia’s central bank has taken drastic action to halt the rouble’s freefall on the foreign exchanges by raising interest rates by 6.5 percentage points to 17%.
After a day of turmoil dominated by fears that a crashing global oil price would devastate Russia’s energy-dominated economy, an after-hours meeting of the central bank in Moscow decided emergency action was needed to prevent the rouble’s collapse.
The bank said the increase in borrowing costs – which will deepen Russia’s recession if sustained for a prolonged period – was needed to end currency depreciation and to combat inflation.
Higher interest rates tend to make currencies more attractive to foreign investors and the rouble rose against the dollar in the wake of the surprise announcement.
Earlier, a 10% fall in the value of the rouble against the dollar had badly rattled global markets, with the FTSE 100 index in London closing at its lowest level of 2014.
Investors dumped shares as they weighed up the risk that a deepening economic crisis would destabilise Russia and make it more difficult for the west to deal with its president, Vladimir Putin, adding to geopolitical tensions in eastern Europe and the Middle East.
The huge jump in interest rates was seen by analysts as an attempt by the central bank to show that it was determined to protect the rouble. A smaller one-point rise to 10.5% last week had failed to impress financial markets at a time when the price of oil was plunging to a five and a half year low.
Earlier, Russia bought roubles for dollars on the foreign exchanges but failed to prevent the biggest one-day decline in the currency since Russia’s debt default in 1998.
The fall meant it took 63 roubles to buy a dollar, a decline of 45% since the start of a year that has seen the price of oil drop from $115 a barrel (£73) to barely $60 a barrel.
In London, the FTSE 100 index of leading shares fell for the sixth day in a row, with energy companies particularly hard hit by the drop in Brent crude to about $61 a barrel.
The FTSE has lost 9% since the start of last week and closed at 6182 points. They day’s 118-point fall means it is more than 500 points lower than its level at the start of the year.
Although the near-halving of the cost of crude oil since the summer should eventually boost global growth by increasing consumer spending power and reducing business costs, investors are concerned that lower oil prices reflect softer demand from a weakening global economy.
Major European bourses lost 2% of their value as the rouble fell against the dollar despite the efforts of the Russian central bank.
Neil Shearing, chief emerging market economist at Capital Economics, said there was now speculation that Russia would resort to capital controls to defend the rouble.
Oil and gas account for 70% of Russia’s exports and Moscow needs an oil price in the region of $100 a barrel to balance its budget. Even before the dramatic announcement of the interest rate rise, the central bank said the economy would contract by 4.5% in 2015 if the oil price remained at its current level for the next 12 months.
Oil prices came under renewed downward pressure on Monday after Opec stressed it had no immediate intention of curbing production. Some analysts believe Saudi Arabia and the US are deliberately pushing oil prices lower in order to put pressure on Putin. Washington is contemplating tougher sanctions against Russia for its support to separatists in eastern Ukraine.
Neil Barnett, of the Centre for Policy Studies, said: “The bad news for Russia is that the outlook for oil prices appears weaker and weaker. This week, the International Energy Agency cut its demand growth forecast. In combination with still-growing US production and Saudi determination to keep prices low, it means that prices next year are likely to fall yet further.”
Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The pace of the fall has been breathtaking, with oil-related stocks bearing the worst of the pain. We are now closing in on a technical correction [10% fall] after just six abysmal trading sessions. To give some perspective, we already witnessed a 10% fall in the UK market in September and October of this year, but this took place over six weeks, not six days.”
Russia failing to prevent homophobic violence, says Human Rights Watch
Anti-gay harassment has risen since controversial law banning ‘homosexual propaganda’ was passed last year, report says
Shaun Walker in Moscow
The Guardian, Monday 15 December 2014 16.05 GMT
Gay people in Russia are being subjected to increasing amounts of harassment and violence in their everyday lives, according to a report suggesting that intolerance has risen since a controversial law banning “homosexual propaganda” was passed last year.
“The law effectively legalised discrimination against LGBT people and cast them as second-class citizens,” wrote Human Rights Watch in the report, published on Monday. “Russian authorities have failed in their obligation to prevent and prosecute homophobic violence.”
The report focused on the victims of vigilante groups that have sprung up recently, who often lure gay men into online traps and then film their humiliation.
“They forced me to stand in the middle of the circle they formed around me. They asked me questions about my sex life and sexual preferences, and then they forced me to yell that I was a paedophile and gay,” said one man quoted in the report, who asked to protect his identity.
“They called themselves ‘Athletes against Paedophiles’ and told me: ‘We will catch all of you and we will teach you how to live.’ It was around 5pm, so there were a lot of people in the shopping mall, shopping and dining. But no one stopped them, no one interfered.”
The report also documented violent incidents, many of which were not reported to police out of fear.
One of the main problems is that Russian authorities remain reluctant to classify homophobic attacks as hate crimes. Although Russia does have laws on hate crimes, they tend to be used for more political purposes, such as the sentences handed down to the Pussy Riot group, who were accused of hooliganism motivated by hatred of a religious group for dancing in a church.
When anti-gay attacks take place, however, the authorities tend not to consider them as motivated by hatred, instead qualifying them as hooliganism or assault.
“Violence experienced by LGBT people in Russia is unmistakably motivated by homophobia, but the authorities deliberately ignore that these are hate crimes and fail to protect victims,” said Tanya Cooper, Russia researcher at Human Rights Watch. “Authorities should effectively prosecute homophobic violence, and the authorities should stop engaging in and tolerating anti-LGBT discrimination.”
The release of the report came as one of the country’s most notorious anti-gay crusaders, the St Petersburg politician Vitaly Milonov, again made headlines as he spearheaded a raid of a gay club over the weekend.
Milonov arrived at the venue, which was hosting a fetish party, with a squad of riot police, barged in and began checking the documents of all those present, according to local news reports.
“We found around 20 teenagers there who were practically having sex on the stage,” Milonov told a local news agency. He said the nightclub was full of “perverts and paedophiles” and called for it to be shut down. Despite the fact that Milonov appeared to be commanding a group of police in raiding the club, the party continued after they left.
Russia grapples with shocking fall of the ruble: ‘What happened yesterday is a catastrophe’
16 Dec 2014 at 14:30 ET
The Russian currency crashed to unprecedented lows Tuesday trading at 80 rubles to the dollar and 100 to the euro, testing Vladimir Putin’s ability to ride out both the economic storm and his clash with the West.
Moscow’s midnight move to raise interest rates to 17 percent failed to arrest the collapse of the currency. To make matters worse, the White House announced that US President Barack Obama plans to approve tightening sanctions against Moscow.
Western sanctions over the Kremlin’s support for the separatist insurgency in Ukraine have all but closed access to foreign borrowing for Russia and contributed to the crisis.
The almost halving of crude oil prices in the past six month has also been devastating for Russia’s economy, which is heavily dependent on export of natural resources. Even the central bank warned of a five-percent contraction if they remain at the current level.
After dropping by 20 percent during the day, the ruble bounced back slightly in late afternoon trade to around 71 against the dollar and over 88 against the euro.
An emergency government meeting called by Prime Minister Dmitry Medvedev yielded “a list of measures that should help stabilise the situation,” said economy minister Alexei Ulyukayev, dispelling rumours of imminent capital controls.
The worsening economic outlook and looming recession present a serious challenge for Putin, whose pact with voters has been based on years of economic stability and relative prosperity — underpinned by high oil prices.
- ‘Can’t fool markets’ -
Some observers said the reasons behind the vertiginous fall in the ruble could not be explained by economic factors alone.
“The ruble’s worth reflects the worth of Putin’s rule in the eyes of the market,” said political observer Yulia Latynina.
“You can fool a voter but you cannot fool the markets.”
Putin, who has repeatedly dismissed economic trouble as temporary, remained conspicuously silent on Tuesday as Russians rushed to convert their savings, even leading some bank webpages to crash.
His spokesman Dmitry Peskov chalked up the economic turbulence to “emotions and speculative sentiment” and referred all questions to the government.
Prime Minister Dmitry Medvedev called an emergency meeting involving top Kremlin aides and key ministers.
Foreign Minister Sergei Lavrov for his part said he had “very serious reasons” to think Western sanctions were an attempt to force regime change in Moscow.
The collapse of the ruble reflects what many economists call a crisis of confidence in the Russian economy amid Putin’s confrontation with the West and his unwillingness to change tack over Ukraine.
“The government obviously is not keeping up with the negative consequences of political decisions,” said Nikolai Petrov, a professor at the Moscow-based Higher School of Economics.
“It is important not to allow the panic to spread among people.”
Konstantin Kalachev, head of the Political Expert Group think tank, said Russians’ deteriorating living standards would deliver a body blow to Putin, whose approval ratings have been sky-high following a patriotic surge after the seizure of the Crimea region from Ukraine in March.
“A collapse of Putin’s ratings in 2015 is unavoidable,” he said.
- ‘There’s no bottom’ -
While many Russians say the impact of the ruble collapse has yet to sink in, others said they are in a state of shock.
“The economic situation of the past few months has been worrisome and stressful. But what happened yesterday is a catastrophe,” Saint Petersburg resident Yulia Kirillova, 43, told AFP.
“I did not sleep last night, thinking about what to do. My business is on its deathbed. Yesterday’s drop has shown that the situation is deteriorating, that it’s unclear what to expect and there’s no bottom.”
Even without the Ukraine tensions and sanctions eating into support for the ruble, the fall of global energy prices is worrying for a country which takes half its revenues from oil and gas exports.
“It cannot get much worse for Russia,” said Heinz Ruettimann, emerging market strategist at Julius Baer, a Swiss private banking group.
“The final step for the perfect storm would be the introduction of capital controls.”
- ‘Between bad and worse’ -
The head of the Russian Central Bank Elvira Nabiullina tried to put a brave face on events, claiming the currency was undervalued.
The bank’s first deputy chairman Sergei Shvetsov said later in the day that the situation was “critical” and the bank would soon take additional measures.
“Trust me, the choice the central bank’s board of directors made was one between bad and much, much worse,” he said of the controversial decision to hike the rate by 6.5 percent.
Ulyukayev said the move came a little too late but hoped that the new measures to stabilise the foreign exchange market would help.
Respected former finance minister Alexei Kudrin approved the move but said on Twitter that the Russian government should now adopt measures to help win back the trust of investors.
But Russia’s business ombudsman Boris Titov said it did not make sense to save the ruble at the expense of the entire economy.
Rouble crashes to dramatic low amid frantic central bank rate rise
Russians left wondering whether the good times under Vladimir Putin are over as 17% interest rates fail to save the day
Shaun Walker in Moscow and Dan Roberts in Washington
The Guardian, Tuesday 16 December 2014 18.31 GMT
Russians are wondering whether the relative economic stability of Vladimir Putin’s rule has come to an end, as the rouble continued its downward spiral on Tuesday, despite a dramatic overnight rise in interest rates.
“Even in our nightmares we couldn’t have imagined what is happening now a year ago,” said the deputy chairman of Russia’s central bank, Sergei Shvetsov, as the currency slid further against the dollar and euro.
Analysts suggest a combination of falling oil prices and western sanctions over Russia’s actions in Ukraine initiated the rouble’s collapse, while further decline is taking place as investors panic and lose confidence in the currency.
On Tuesday the White House ratcheted up economic pressure against Russia, indicating it would sign into a law a bill passed by Congress to expand sanctions and provide further financial aid to Ukraine.
Obama spokesman Josh Earnest said it regarded the legislation, which was recently passed via voice vote by only a handful of congressmen in the House and Senate, as primarily about “preserving flexibility” for further sanctions rather than triggering immediate increases to earlier moves.
But there was evident delight in Washington at Russia’s economic troubles, which the administration believes is partly due to existing financial pressure and claims Moscow brought it upon itself by defying international opposition to its intervention in Ukraine.
As ordinary Russians watched their savings lose more real value on Tuesday, an unusually bitter polemic broke out between senior government officials. In a system where public disagreement is rare, the outbursts were a sign of how serious the tension is, as officials scrambled to deflect blame from themselves for the rouble’s slump.
The central bank announced a rise in interest rates from 10.5% to 17% after a late-night meeting behind closed doors on Monday in a desperate attempt to stop the slump. After a brief rally on Tuesday morning in response to the move, the rouble continued its fall and has now lost more than 50% of its value against the dollar since the start of the year. The rouble rallied again in the afternoon, recovering from a low point of over 100 to the euro to reach the 90 mark, but that figure still leaves Russians stunned, given the rate at the beginning of this year.
Shvetsov said raising the interest rates had been “a choice between really bad and really, really bad”, describing the situation in the economy as “critical” and reminiscent of the 2008 financial crisis.
That analysis was echoed in Washington, where Jason Furman, chairman of Obama’s Council of Economic Advisers, said: “I would be extremely concerned if I were president Putin’s economic adviser. They are between a rock and a hard place.”
Putin said in his state of the nation address earlier this month that Russians should take advantage of sanctions and the falling rouble to develop domestic industry. However, during the oil windfall years, little of the infrastructure required for entrepreneurship and small businesses to flourish has been set up, with corruption and red tape still major issues. Many said that the increased interest rates would make it even harder for small businesses and potential domestic producers to function, due to the expense of taking out credit.
MP Oksana Dmitriyeva, who sits on the Russian parliament’s budgetary and tax committee, was scathing about the rate rise: “What the central bank is doing now is not just a mistake, it’s not just financial illiteracy, it’s not even just unprofessionalism. Its actions are close to schizophrenia, to madness, to complete incompetence.”
Others said the bank was left with little choice, and suggested other branches of the government could be to blame.
“The central bank’s decision to raise the rate to 17% was forced on them by the current climate and is the right one,” wrote Alexei Kudrin, who was finance minister until 2011, on Twitter. “The fall of the rouble and the stock market is not just a reaction to the low price of oil and to sanctions, but also due to a lack of confidence in the government’s economic policy.”
Kudrin specifically criticised Rosneft, the state-controlled oil giant, for a huge bond issue last week that many have suggested could have contributed to the rouble’s fall.
Rosneft’s spokesperson Mikhail Leontiev hit back, saying the central bank itself had been responsible for “pushing Russia towards recession”, and compared the interest rate rise to shooting dead someone who has a small cut to the finger, in order to alleviate the pain.
Rosneft’s head Igor Sechin, who is close to Putin and is often seen as the leading figure among Kremlin hawks, went even further, insisting the company had not done anything wrong, and using Stalinist language to denounce Kudrin.
“We must deal with intrigue-mongers and provocateurs. We must find out who these people are, these Navalnys, Nemtsovs and Kudrins, and whose interests they are pursuing,” said Sechin, lumping in Kudrin with Alexei Navalny, the anti-corruption campaigner and opposition politician who is currently under house arrest, and Boris Nemtsov, another long-standing opposition politician.
The fall in the rouble continues to affect ordinary Russians. With a large share of food and consumer goods imported, purchasing power has been severely affected by the large drop in the currency. Russia enjoyed years of growth under Vladimir Putin’s presidency. As the economy benefited from high oil prices an increasing numbers of Russians have grown used to a higher quality of life, imported products and foreign travel, which makes the sudden reverse of fortunes come as a shock. The giant state-run energy company Gazprom, which employs nearly half a million people, denied a report by Interfax news agency that it is due to cut one quarter of all staff.
There were no obvious signs of panic in Moscow, where people have been slowly coming to terms with the falling rouble all year, but at certain shops people were rushing to buy up stock imported before the currency fell, and still being sold off at old prices.
The question on everyone’s mind was just how much further the slump could go. Most analysts had insisted that, while sanctions and oil prices had an obvious effect on the currency, Russia’s sizeable foreign currency reserves and other fundamentals meant it was in a reasonable position to weather the storm. Instead, the currency has plummeted further than anyone predicted.
“Beyond questions about the fundamentals, this is now about animal spirits,” said Russia analyst Sam Greene. “This is people’s emotions guiding their investment and financial behaviour.”
Apple closes Russian website because of rouble crisis
US-based tech company says online store ‘unavailable while we review pricing’ owing to extreme fluctuations in value of currency
Wednesday 17 December 2014 09.45 GMT
Apple has stopped selling products on its Russian website because of massive fluctuations in the rouble.
The Russian currency has lost 20% of its value against the dollar since the start of the week, smashing records for all-time lows on Monday and Tuesday.
As Russians rushed out to spend their roubles before prices went up on imported televisions, washing machines and smartphones – Apple announced it was closing its online store.
“Due to extreme fluctuations in the value of the rouble, our online store in Russia is currently unavailable while we review pricing,” the company said in a statement. Visitors to the site were greeted with the message “we’ll be back” in several languages.
Apple does not have stores in Russia, although it does sell its tablets and smartphones through local retailers. This is the second time the California-based tech company has closed its Russian website. At the end of November the site was shut for about 24 hours, before reopening with prices 20-25% higher.
Russians are big fans of Apple’s gadgets and before the latest currency crisis were ready to pay about a third more for the latest iPhone model than customers in the US.
Apple sold 1.57m iPhones worth $1bn (£630m) in Russia 2013, according to Bloomberg, which first reported the story. But Apple is not the most popular brand in Russia – Samsung sold six times more handsets in 2013, according to market researchers IDC. But Apple has more cachet among Moscow’s modish cultural elite.
Dmitry Medvedev, the Russian prime minister, who served as president in 2008-12, was known for his love for Apple gadgets. He was given an iPhone by the company’s founder, Steve Jobs, while on a visit to Silicon Valley in 2010, using it to send his first tweet. Medvedev has since had to swap his iPad for a Samsung device, since the Russian government switched from Apple to the South Korean firm earlier this year, citing security concerns.
One person unlikely to be fazed by Apple’s decision is Vladimir Putin. Russia’s president does not send text messages and rarely uses the internet.
Some car dealers were reported to have stopped all sales of foreign brands. The head of the dealers trade body, Vladimir Mozhenkov, told the Russian daily Kommersant that members selling brands including BMW, Ford, Honda, Škoda and Nissan had stopped sales.
One source at the Major Auto group of car dealers told the paper that when the euro reached 99 roubles, the sales team were forbidden to complete sales, even for people who had signed a prepay agreement.
Putin Holds Late-Night Talks on Ukraine with European Leaders
by Naharnet Newsdesk 17 December 2014, 09:52
Russia's President Vladimir Putin and his French, German and Ukrainian counterparts agreed in a phonecall early Wednesday that they wanted talks between Kiev, Moscow and rebels controlling parts of eastern Ukraine to resume as soon as possible.
The telephone conversation came after the White House confirmed that U.S. President Barack Obama will sign into law fresh sanctions against Russia.
The Kremlin said in a statement that the leaders "continued discussion of the crisis situation in Ukraine" and stressed the "necessity of a stable ceasefire" in conflict-hit eastern Ukraine.
They also noted "the importance of holding a meeting of the contact group as soon as possible in the interests of carrying out the Minsk pact," the Kremlin said, referring to a peace deal reached in September.
The so-called trilateral contact group includes representatives from the separatist side, Ukraine, Russia and the OSCE.
The leaders agreed to "continue telephone contacts in the near future," the Kremlin statement said.
The eight-month-old conflict between government forces and pro-Russian separatists in eastern Ukraine has left at least 4,634 dead and 10,243 wounded, and displaced more than 1.1 million people, according to new U.N. figures.
Source: Agence France Presse
Obama Signals Support for New U.S. Sanctions to Pressure Russian Economy
By PETER BAKER
DEC. 16, 2014
WASHINGTON — With Russia already staggering under the weight of one of its worst financial crises in years, the United States signaled on Tuesday that it would further increase the economic pressure with a new raft of sanctions targeting the Russian defense, energy and banking industries.
President Obama said through a spokesman that he would sign newly passed legislation expanding measures intended to cordon off large Russian state firms from Western financing and technology while also providing $350 million in arms and military equipment to Ukraine as it battles a pro-Russian insurgency in its eastern regions.
The legislation had concerned the president, who has tried not to get too far out in front of European allies on sanctions and resisted sending lethal aid to Ukraine. But Congress passed the bipartisan measure without opposition, making a veto politically untenable, and administration officials said they were satisfied that enough discretion was incorporated into the bill to give the president room to maneuver.
“The president does intend to sign the piece of legislation that was passed by Congress,” said Josh Earnest, the White House press secretary. “But we do have some concerns about that legislation because while it preserves flexibility, it does send a confusing message to our allies because it includes some sanctions language that does not reflect the consultations that are ongoing.”
The new sanctions come as Russia’s economy is reeling from the collapse of the ruble, the increasing flight of capital investment and the specter of recession. Past rounds of sanctions imposed by Mr. Obama and the European Union in response to Russia’s military intervention in Ukraine have contributed to a broader economic and political instability that has been exacerbated recently by the plunge in the price of oil, on which Russia is deeply dependent.
Mr. Earnest said the turmoil was the result of President Vladimir V. Putin’s own actions. “It’s a sign of the failure of Vladimir Putin’s strategy to try to buck up his country,” Mr. Earnest said. “Right now, he and his country are isolated from the broader international community.”
Russian officials have lashed out in recent days at the prospect of new sanctions. “Russia will not only survive but will come out much stronger,” Sergey V. Lavrov, the foreign minister, told France 24, the television network. “We have been in much worse situations in our history, and every time we have got out of our fix much stronger.”
He said there were “very serious reasons to believe” that the United States was pursuing a strategy of regime change, designed to topple Mr. Putin’s government, and he disparaged American lawmakers. “If you look at U.S. Congress, 80 percent of them have never left the U.S.A., so I’m not surprised about Russophobia in Congress,” Mr. Lavrov said.
Even without Congress, Mr. Obama has already authorized several rounds of sanctions that have largely cut off major Russian banks from American credit markets, blocked the transfer of technology for long-term energy exploration, and frozen the assets of a number of Mr. Putin’s allies and barred them from traveling to the United States. Mr. Obama has been careful to coordinate the measures with European allies, who have been reluctant to escalate the confrontation with Russia because of closer economic ties.
The administration reached out to European officials in recent days to assure them that Mr. Obama would implement the new legislation as part of their joint efforts to keep Mr. Putin from driving a wedge among the Western nations. European officials are talking about imposing new sanctions in the coming days specifically related to Russia’s annexation of Crimea, but they almost certainly would not go as far as the new American legislation contemplates.
Some analysts said Mr. Obama had little choice but to sign the legislation since Russia has continued to violate the terms of a cease-fire negotiated months ago in Minsk, the capital of Belarus.
“Given Russian military resupply of the separatists in Ukraine during the last month, the U.S. had to raise the economic costs to Putin for his outright aggression,” said R. Nicholas Burns, a former diplomat and undersecretary of state under President George W. Bush. “Combined with the collapse of the ruble, sanctions will hit Putin’s government where it is most vulnerable — its very shaky economy.”
But it is not clear how much of the authority granted under the legislation Mr. Obama will invoke. The bill requires the president to impose at least three sanctions from a menu of nine options on Rosoboronexport, the main Russian state arms exporter, and other military companies accused of fostering instability in Ukraine, as well as in Moldova, Georgia and Syria. But it includes a provision allowing him to waive the requirement if he concludes that doing so would be in the nation’s security interest.
The legislation also authorizes the president — but does not require him — to impose sanctions on international companies that invest in certain types of unconventional Russian crude-oil energy projects and to further restrict the export of equipment for use in Russia’s energy sector. And it authorizes the president to bar investment or credit to Gazprom, the Russian state energy giant.
In addition, the legislation authorizes the provision of lethal arms to the Ukraine government, including antitank weapons, tactical surveillance drones and counter-artillery radar. Mr. Obama has resisted sending weaponry to Kiev on the theory that it would only escalate the fighting in eastern Ukraine, so it is not clear whether he will follow through on the authorization.
The measure went beyond only penalties to authorize $10 million in each of the next three fiscal years to counter Russian propaganda in the former Soviet Union and prioritize Russian-language broadcasting in Ukraine, Moldova and Georgia. And it authorized $20 million in each of the next three years to promote democracy, independent news media, uncensored Internet access and anticorruption efforts in Russia.
But under pressure from the Obama administration, lawmakers removed elements that would have tied the president’s hands, including a provision that would have barred lifting sanctions until Russia was not only out of Ukraine but Moldova and Georgia, too, where lingering conflicts are not likely to be resolved soon.
“President Putin bears responsibility for any outcomes that flow from his actions and breach of the international order,” said Senator Robert Menendez, Democrat of New Jersey, the chairman of the Foreign Relations Committee, who pushed for the sanctions along with the panel’s senior Republican, Senator Bob Corker of Tennessee. “The United States Congress stands with Ukraine in the face of Russian aggression,” Mr. Menendez said.
Rouble rise prompts hopes that Russian economic crisis is easing
Higher oil prices and Kremlin measures to shore up banks leads to sharp rally in currency ahead of Vladimir Putin’s annual address
Larry Elliott and Shaun Walker in Moscow
The Guardian, Wednesday 17 December 2014 18.17 GMT
Hopes rose on Wednesday night that Russia might be over the worst of its currency crisis after higher oil prices and measures to shore up struggling banks prompted a sharp rally in the value of the rouble.
Concerted efforts by the Kremlin, the Russian central bank and the finance ministry helped push the currency back to the level at which it started the week, ahead of Thursday’s opportunity for President Vladimir Putin to pronounce on the recent economic and financial turmoil at his annual press conference.
Putin said earlier in the month that a falling rouble was good for the Russian economy, but senior policymakers in Moscow showed on Wednesday how seriously they were taking the threat of a rouble freefall.
Putin’s prime minister, Dmitry Medvedev, sought to assure the country that Russia had the tools to cope with a currency that had fallen below its “comfort” level, while the finance minister said it was buying roubles on the foreign exchanges with $7bn (£4.5bn) of its reserves.
Later, the central bank said it would relax accounting standards, allow banks to disguise the true extent of their losses, and allow them to value their assets in the third quarter of 2014, before the currency turmoil began. There are also plans to pump more capital into the banks during 2015.
Further respite for the rouble was provided when the cost of crude rose by $3 to $63 a barrel following news of lower inventories in the US. In New York trading, it cost just less than 60 roubles to buy a dollar compared to 80 roubles when the sell-off was at its height on Tuesday.
Even so, the rouble has lost around half its value against the dollar since the start of the year and the economic stability that has been the cornerstone of Putin’s promises to the Russian people appears seriously under threat. Analysts say falling oil prices have combined with structural problems and the effect of western sanctions to create a “perfect storm” that has battered the rouble. A hike in interest rates from 10.5% to 17% late on Monday failed to halt the slide, and the central bank has been burning through its foreign currency reserves in at attempt to stem the fall. The central bank has spent more than $80bn in foreign reserves this year propping up the currency.
Shops in Moscow are putting up prices rapidly to keep up with the plummeting rouble, and Apple closed its online shop in Russia. There has been a flurry of retail activity as Russians scramble to buy goods imported before the currency crash and still priced at the old rate. Others cancelled foreign holidays, realising how little their roubles were now worth abroad, while those with euro or dollar mortgages and loans are particularly exposed.
“In the last couple of days several people have come up to me and asked if I could find them jobs abroad,” said one western banker in Moscow. “And I’m talking about people who even a month ago were very patriotic and supportive of everything going on here.”
Kremlin watchers will be looking closely to see if Putin adopts a more conciliatory tone or comes out fighting on Thursdayt. In his state of the nation address earlier in the month, Putin was combative, blaming the west for trying to destroy Russia and justifying the annexation of Crimea as the return of “sacred Russian land”.
Putin’s spokesman, Dmitry Peskov, said the president would not comment on the rouble before his press conference. Earlier this month, he blamed the rouble fall on speculators, whom he said would be identified and punished.
Medvedev said at a televised cabinet meeting on Wednesday: “All the economic and production goals that you have set yourselves, the country has the currency resources to achieve them.”
He added that the government had no plans to use capital controls.
Nicholas Ebisch, currency analyst at Caxton FX, said: “The finance ministry of Russia is now echoing the central bank’s calls that the rouble is undervalued against its major trading partners. This move is the next phase of attempts to strengthen the currency to stop the rouble’s slide, which has alleviated the rouble for the time being, although exchange rates with other currencies remain volatile.
“However, this move is akin to putting a plaster on the wall of a dam that is about to burst.” He said the underlying economic strength of Russia’s economy is still in grave doubt as oil prices slide.
Rouble crisis - the Kremlin has a cunning plan
Moscow’s moves have stoppped the rouble’s rot in the short term only – the crisis is only just starting, writes Nils Pratley
Finally – a sign the Moscow authorities understand what a hole they’re in. Monday’s midnight rate hike from 10.5% to 17% was a panic measure that, on its own, was never going to be enough to halt the decline of the rouble. Now come the reinforcements: a vow to recapitalise the banking system; modest selling of foreign reserves; and some fancy footwork on the accounting front to allow lenders to hide a few losses. Cue an afternoon rally for the rouble.
It’s a plan, which is something Russia did not have on Tuesday, when the handwringing and muttering about “really bad choices” was making the rouble a one-way downwards bet.
Is it a good plan, though? Two parts are clearly sensible: pump capital into the banking system and rule out capital controls. That’s the best way to maintain the credibility of the banks and limit withdrawals by panicked depositors.
The rest of it, though, is simply unclear. Suspending normal accounting rules invites the suspicion that the banks are being used as a backdoor mechanism for refinancing stricken oil giants, such as Rosneft, which have dollar-denominated debts. In the long-run, that will not inspire confidence in the banking system. As for deploying foreign reserves, at some point the market will want to know if Moscow is serious; Wednesday’s $7bn (£4.5bn) intervention was peanuts.
The hard truth is that Moscow is a hostage to the oil price and the international sanctions that prevent the likes of Rosneft accessing international capital. There was relief on the oil front on Wednesday as the price of Brent rebounded 5% in the afternoon to $63. If $70, then $80, follows, the air of a crisis might ease a little. Sanctions, though, are another matter. Only a retreat from eastern Ukraine can make that problem go away.
In the meantime, interest rates remain at 17%, which will ruin the economy if sustained for long, and the rouble has merely returned to where it stood on Monday morning. “We are working seriously on stopping this bacchanalia on the currency market,” said one of President Putin’s advisers. It was a nice line for domestic consumption. Unfortunately, the financial markets are not intoxicated. They are making a cold assessment that Russia’s economy can’t cope with $60 oil plus sanctions. This crisis is just developing.
“It is another step in reducing our national debt and in getting taxpayers’ money back,” claimed George Osborne as he unveiled plans to sell more of the state’s shares in Lloyds Banking Group.
Spare us the spin, please, chancellor. Flogging £3bn-worth of Lloyds shares will barely be noticed in terms of the national debt. The official forecasts, minted only a fortnight ago and unveiled in the autumn statement, require borrowing (which is added to the national debt) of £75.9bn next year. If the figure now turns out to be £72.9bn, that’s a slight improvement, but hardly cause for celebration. The timing on the announcement – during a mid-afternoon appearance at the Treasury select committee – was also odd.
As for “getting taxpayers’ money back”, yes, it’s true that the government will not sell below the state’s purchase price of 73.6p, versus Wednesday’s closing market price of 75.3p. But Lloyds, with its horrible HBOS inheritance, was saved for the nation in 2008 and hasn’t paid a dividend since. A negligible return on investment over six years is not a triumph. Just be straightforward about it: recapitalising the banks was done to save the economy.
Beyond the spin, the actual plan for shedding Lloyds shares looks perfectly reasonable. Instead of a placing with City institutions, which is how £7bn-worth has been sold to date, shares will be dribbled into the market over the next six months. That’s how the US Treasury does it and, all being well, the technique may deliver a slightly better sale price for the state.
So good marks for market practice; zero for the over-blown boasts.
Roberto Quarta has for a while been chairing two FTSE 100 companies – Smith & Nephew, the healthcare group, and IMI, the engineer. So in a sense it’s no big deal that he’s departing IMI and plans to take on the chairmanship of advertising titan WPP instead.
But IMI and WPP are hardly alike. The former is worth £4bn and will slip out of the FTSE 100 on Friday, almost unnoticed. The latter is valued at £17bn and tends to find itself in regular quarrels with its shareholders, especially when chief executive Sir Martin Sorrell’s pay comes under the microscope every year. WPP is a bigger job – much bigger.
Does Quarta have the time to chair both WPP and Smith & Nephew, a £10bn company, as well as being a partner at private equity giant Clayton, Dubilier & Rice?
Well, he obviously believes he does, otherwise he wouldn’t have taken the post. And, note, there is not an iron rule that says one person can’t chair two FTSE 100 companies at the same time. It’s only when one of the companies is a bank that outsiders tend to be sniffy (as Sir John Peace, chairman of Standard Chartered and Burberry, knows).
All the same, Quarta, after waxing about how it is “a great honour” to join WPP’s board, should have done the polite thing: explained to his new shareholders, and Smith & Nephew’s, how he’ll find the hours.
The Guardian view on Russia’s economic turmoil: a good time to talk to Vladimir Putin
With the fall of the rouble, the Russian president is cornered. Creative western diplomacy must prevent him from pulling his country further into nationalism and military adventures
Guardian G logo
The Guardian, Wednesday 17 December 2014 18.59 GMT
Financial crises of the kind now hitting Russia are not new, but they are always spectacular. They usually involve a currency in freefall, stocks knocked sideways and panicky central bankers jacking up interest rates and spending millions to shore up their currency. So far, so familiar: Russians themselves went through something very similar just over 15 years ago. The rest of the ballet normally goes like this: businesses begin pulling back their operations (as Apple has shut down its Russian online store); the central bank keeps burning through its war chest (which in Moscow’s case is huge: it’s spent $90bn so far this year, and has over $400bn spare); then there is talk of a bank run, or of the government imposing capital controls. All of this is running to the script. But were this any other country, there would be one more act to come: market participants would be counting down the days until the IMF was called in. The twist here is that it is almost impossible to imagine Vladimir Putin begging Washington to come to his aid.
One thing is for certain: the consequences of Russia’s economic rut will be felt beyond its borders. Even if Russia has long since ceased to be the Soviet superpower, it does retain both a nuclear arsenal that compares to that of the US and considerable international reach. Mr Putin has put great effort into reminding the world of this, and not only through inflammatory speeches. Military aggression against Ukraine and the annexation of Crimea this year brought Russia’s assertiveness to a spectacular climax. The Kremlin embarked on a policy that amounted to disrupting Europe’s post-cold-war order, complete with the scrambling of military jets over Nato skies.
Whether a cornered Mr Putin will become more mellow or, on the contrary, resort to still more provocations is anyone’s guess. An upcoming press conference will be scrutinised for answers. Initial indications are that the regime is gearing up public opinion to withstand economic hardships, with much exaltation of the nation’s history of resisting the onslaught of external foes. But nevertheless, it is clear that Mr Putin’s domestic narrative for the last 15 years – the strongman stepping on democratic rights in return for higher living standards – is now at risk of being shattered. The cronyism and the lack of modernisation that have characterised his rule are coming back to haunt him, as both the oil price and the rouble crash.
Some in the west will now calculate that the wounded bear should be wounded some more so that he relents. It is not hard to see the case. The September ceasefire in Ukraine exists only on paper, because there has been no Russian military withdrawal. Brash behaviour could backfire on Mr Putin. His reaction to sanctions – an embargo on European food – has only contributed to higher domestic inflation. Also, Russia can ill afford to threaten anyone with cutting off gas supplies, when it so desperately needs foreign currency revenues just now. On the Middle East, Russia would risk more than it could gain by going confrontational. After all, Mr Putin can only be satisfied with current US policies on Iraq and Syria, seeing as they don’t contradict his strategic aim of keeping Bashar al-Assad in power. Nor is there is any desire in Moscow to kill off the international talks over Iran’s nuclear programme, which are aimed at preventing proliferation.
Yet instead of hastily concluding that it would cost nothing to treat a financially weak Russia as a complete pariah, the time may have come for a burst of diplomatic creativity. The crisis in Russia provides the west with the best possible circumstances for combining smart pressure with new openings for dialogue. Pressure is important if one wants to be taken seriously by a Russian regime that has made great use of western hesitation. So there should be no lifting of sanctions as long as the conflict in Ukraine festers on. But dialogue is equally crucial.
Any talks must be open-eyed, and must not compromise on values that form the core of Europe’s architecture, as Russia tries to assert some regional influence. Reaching out to Mr Putin would deprive him of the possibility of claiming he has no other option but to pull Russia further into insular nationalism and military adventurism. It is precisely when the bear is down that more effort should be put into communicating with him.
EU Bans Investment in Crimea, Targets Oil Sector, Cruises
DEC. 18, 2014, 7:42 A.M. E.S.T.
BRUSSELS — The European Union banned investment in Crimea on Thursday, halting European help for Russian Black Sea oil and gas exploration and outlawing European cruise ships from calling at Crimean ports.
The new measures, which EU governments have signed off on and will take effect on Saturday, reinforce the EU's policy of not recognizing Moscow's annexation of Ukraine's Crimea region in March.
EU leaders, who meet in Brussels later on Thursday, will pledge to keep up pressure on Russia over its role in Ukraine despite Russia's currency crisis and ailing economy, diplomats said.
The EU is outlawing investment in Crimea, preventing Europeans and EU-based companies from buying real estate or companies in Crimea or financing Crimean companies, the bloc said in a statement.
As Reuters reported on Dec. 10, the new measure bars EU companies from exporting goods and technology used in the exploration and production of oil, gas and minerals in Crimea as well as for the transport, telecommunications and energy sectors.
European companies are also prohibited from offering technical assistance, brokering, construction or engineering services related to infrastructure in the same sectors.
Companies will no longer be allowed to offer tourism services in Crimea. European cruise ships may no longer call at ports in the Crimean peninsula, except in an emergency.
The measure applies to all ships owned or controlled by a European or flying the flag of an EU member state. Existing cruise contracts may be still be honored until March 20.
The 28-nation EU has previously banned the import of goods from Crimea and barred new investment in infrastructure projects in the transport, telecommunications and energy sectors and investing in oil and gas ventures.
The annexation of Crimea gave Russia rich oil and gas resources in the Black Sea, depriving Ukraine of energy resources. Russian state-owned energy company Gazprom has proposed to develop Crimea's oil and gas sector.
(Reporting by Adrian Croft and Robin Emmott; Editing by Larry King)
Putin Says Ukraine in 'Punitive' War against Rebels
by Naharnet Newsdesk 18 December 2014, 13:16
President Vladimir Putin on Thursday branded Ukraine's attempt to crush a Moscow-backed separatist uprising in the east of the country a "punitive operation" and said Russia was fighting for its right to exist.
"It is indeed a punitive operation. But it is being conducted by the current Kiev authorities," Putin told his annual end-of-the-year news conference, side-stepping a question from a Ukrainian journalist.
The reporter from Ukraine's UNIAN news agency stole the limelight at the news conference, accusing Putin of conducting a punitive operation in the east of Ukraine.
The reporter also asked how many regular troops the Russian president had sent in to prop up the separatist insurgency there and what would he say to families of those sent to Ukraine.
Putin conspicuously chose not to reply to the Ukrainian journalist's question on Russian regular troops, simply saying:
"All people who perform their duty following the call of the heart or participate in the fighting voluntarily including in the southeast of Ukraine are not mercenaries because they are not getting any more for it."
The Russian strongman also ratcheted up his anti-Western rhetoric, accusing Moscow's partners of treating other countries like their underlings.
"Our (Western) partners have not stopped. They decided that they are winners, they are an empire now and the rest are vassals and they have to be driven into a corner," Putin said, referring to raging tensions with the West over Ukraine.
He accused the West of wanting to tame the legendary Russian bear, saying the real goal was not to punish Moscow for seizing Crimea from Ukraine in March, but to neutralise the country's independence.
"As soon as they have torn out its claws and teeth, then the bear won't be needed at all -- they will make a stuffed dummy out of it."
"This is not about Crimea, the thing is that we are protecting our independence, its sovereignty and its right to exist."
The Sochi Olympics legacy: ‘The city now feels like a ghost town’
The Russian winter games passed off successfully enough. But with Russia in political and economic turmoil, what next for the Black Sea resort – and its unfinished white elephants?
Wednesday 17 December 2014 19.41 GMT
The Winter Olympics in Sochi were meant to be the culmination of Vladimir Putin’s 14 years in charge of Russia; a sign that the country was able to host major world events, and the chance to create a world-class winter resort hub. In the end, the games were overshadowed by subsequent events in Ukraine, and Sochi itself was given a major makeover, but the alleged huge corruption involved in the construction and the “white elephant” nature of many of the stadia has left locals wondering if it was worth it.
That the games themselves went off more or less successfully was beyond dispute. The venues were impressive, even if the Olympic park lacked atmosphere, and the worries about excessive security proved unfounded. Dressing up the notoriously unhelpful and over-zealous Russian police in purple tracksuits worked a treat psychologically, and security procedures were on the whole unobtrusive.
Few athletes who made it to Sochi wanted to make an issue of Russia’s laws banning “homosexual propaganda”, and the games came and went largely without the issue coming up. It transpired that Sochi’s only gay club, far from being closed down by authorities ahead of the games, had been given preferential treatment by the mayor, who wanted to make sure it stayed open at all costs, to receive western journalists and gay athletes during the games and dispel the accusations of homophobia. The club, which features drag acts and is also popular among straight locals, remains open.
Russia was furious that western media made such a big issue of the fact that many of the hotels were not finished on time – journalists arrived to find the doors to their rooms being attached, or rooms with no heating, internet or phone reception.
Whatever the successes and pitfalls of Sochi, the Winter Olympics seem destined to be a mere footnote in the history books when people look back in years to come at 2014 in Russia. The games were eclipsed by events in neighbouring Ukraine: at the opening ceremony, Viktor Yanukovych was there draped in a Ukrainian flag, by the closing ceremony he had been deposed after snipers had killed more than 100 people in Kiev. Within a month, Russia had annexed Crimea, and any international goodwill accrued by the Olympics was vaporised and then some, as Russia and the west entered their frostiest period of relations since the end of the cold war.
Many Russian officials believed there was an organised campaign to discredit Russia over Sochi, and the lack of world leaders who travelled to the games was also seen as an obnoxious snub to Russia and Putin. More than one Russian official has suggested privately that if the reaction to Sochi had been different, Putin may have taken a less uncompromising line in Crimea and Ukraine.
When the Olympics left town, the next big showpiece event was meant to be the G8 summit in June, which would have seen Barack Obama and other world leaders travel to the Black Sea resort. Putin’s dacha is nearby, and he has hosted world leaders in Sochi for years, but holding the summit was meant to cement the city on the diplomatic as well as the sporting map. With the annexation of Crimea, however, Russia was kicked out of the G8, and the summit did not take place, and instead of G8 the town made do with F1, as the first Russian Formula One race was held in a newly built track in October.
Environmentalist Evgeny Vitishko remains behind bars, ostensibly for spray-painting a fence, though rights activists believe the three-year sentence he received was aimed at shutting him up before the Olympics and deterring others from protesting. Vitishko and a small, hardy band of colleagues had documented environmental abuses and official corruption in the run-up to the games. There has been no real investigation into the extraordinarily high costs behind the most expensive Olympics ever (most estimates are around the $50bn mark), which was widely believed to be down to corruption.
The main feeling for residents and visitors is that the spread-out nature of the stadiums and arenas, and the still-unfinished construction, gives areas of the city the feel of ghost town. With Sochi home to just 300,000 people, the vast majority of infrastructure had to be built from scratch. Whole residential districts were constructed. Many buildings were not finished in time for the games – and probably never will be.
However, with the deteriorating economic situation in Russia, there could be an unexpected bonus for Sochi, with the winter ski season in the nearby slopes shaping up to be better than anyone expected. With the rouble losing around 50% against the euro over the course of the year, holidays in Europe have become prohibitively expensive for many Russians, and skiing breaks in the Caucasus will be seen as an increasingly affordable alternative.
Danger in the Skies as Russia, NATO Play Cat-and-Mouse
by Naharnet Newsdesk 18 December 2014, 07:06
Recent close shaves between Russian fighters and civilian aircraft highlight the dangers of the cat-and-mouse game being played out between Moscow and the West in European skies amid the crisis in Ukraine, analysts say.
In the latest incident, Sweden said Friday that a Russian military jet nearly collided with a passenger plane south of Malmoe shortly after take-off from Copenhagen International Airport.
Both countries called in their Russian ambassadors to protest, only to be told that a huge increase in Russian military activity in recent months was "a response to NATO's activities and escalation in the region."
Russia later accused Swedish authorities of being under the influence after smoking too much cannabis.
But such incidents are no joke for European authorities, with memories still fresh from the shooting down of Malaysia Airlines flight MH17 over Ukraine by a missile that the West alleges was fired by pro-Russian separatists.
The European Aviation Safety Agency (EASA) has begun an investigation into a series of near-misses with Russian military aircraft not using the transponders which identify them and tell other planes of their position.
This practice is particularly dangerous, analysts said.
- Transponders turned off -
"While Russia claims that its military aircraft remain in international airspace, to do so while turning off transponders and swooping close to other aerial platforms is very dangerous," Brooks Tigner, chief editor and policy analyst at Security Europe, told Agence France Presse.
"That is disruptive to accepted international air safety rules and a risky game for Russia to play," Tigner said.
NATO aircraft, in contrast, usually keep their transponders on, he said.
"Safety is the top priority for aviation," the International Air Transport Association said.
"There are clearly established rules to ensure the safety of all aircraft when flying in controlled airspace. One of these is that all aircraft -- military and civil -- should have functioning transponders."
Russia and US-led NATO each stepped up their military activity and readiness as the Ukraine crisis plunged ties into a deep freeze reminiscent of the worst days of the Cold War.
A key development is that an increase in defence spending since 2008 has given Russia upgraded aircraft, said Douglas Barrie, military aerospace expert for the International Institute for Strategic Studies in London.
NATO has reported a "substantial increase" in Russian operations, with nuclear-capable bombers and fighter escorts out in force over the Baltic Sea and ranging far and wide into the Atlantic, prompting scores of intercepts by alliance aircraft along the way.
- Fears of disaster -
Video footage has shown some very close encounters and stoked fears of a serious misunderstanding or even a repeat of Cold War disasters such as the Russian shooting down of a South Korean passenger jet in 1993 with the loss of 269 lives.
Complicating the situation is the fact that because planes have avoided Ukraine's airspace since MH17 in July, air traffic in some other neighbouring regions has soared by more than 20 percent, according to Eurocontrol, the air traffic management organisation.
NATO foreign ministers agreed earlier this month that "at this time of tension there is a need for regular communications among NATO and Russian military to avoid any incidents."
"NATO military authorities should keep channels of military communications open and use them when necessary to avoid any possible misunderstandings related to military activities," it said.
The trouble is that Russia has not shown any interest in dialogue so far, the alliance said, and worryingly, there had not been any direct contact with Russia's top brass for more than six months.
Analysts said there is unlikely to be any immediate improvement in the situation.
"Russian and NATO aircraft have dogged each other for years but they always know where the other is because their radars lock on to the opponent with precision," said Tigner of Security Europe.
"This cat-and-mouse game is par for the course. The risk of escalation here is more political than military."
Source: Agence France Presse
EU's Mogherini urges Putin to make 'radical change' in attitude
by Naharnet Newsdesk 18 December 2014, 17:48
BRUSSELS (AFP) - EU foreign policy chief Federica Mogherini on Thursday urged Russian President Vladimir Putin to make a "radical change" in attitude to end the crisis sparked by Moscow s intervention in Ukraine.
"The fact that Russia is in a difficult situation from a financial point of view is not good news, Mogherini told reporters, referring to the collapse of the Russian ruble, partly due to western sanctions.
"It is not good news for Russian citizens, but also it is not good news for Ukraine, and also it is not good for Europe, or for the rest of the world," she said.
But she added: "President Putin and the Russian leadership should reflect seriously about the need to introduce a radical change in attitude towards the rest of the world, and switch to a cooperative mode," she said.
Mogherini, the former Italian foreign minister, added that the world had "never been as unstable and dangerous as it is now."
Putin Says his Grip on Power is Firm and Economy Will Rebound
by Naharnet Newsdesk 18 December 2014, 13:16
President Vladimir Putin vowed Thursday that Russia would rapidly recover from its financial crisis and said his grip on power was firm, even as new Western sanctions and a run on the ruble pile on the pressure.
The Russian strongman, who is locked in a confrontation with the West, showed no willingness to change tack on Ukraine and dismissed the possibility of the country's elite turning against him.
Sanctions-hit Russia is grappling with a ruble collapse seen as a major test for Putin, whose pact with voters has been based on the relative prosperity brought by years of high oil prices.
"Yes, these are not easy times," Putin told his end-of-the-year news conference, acknowledging that oil prices could keep falling.
He said Russia would adjust to low oil prices, but he gave no recipe for turning the economy around.
"Under the most unfavorable world conditions, such a situation can last two years," Putin said.
"It could improve earlier, too," he said, praising efforts by the central bank and the government to stabilize the ruble.
Putin appeared tense at the start of the three-and-a-half-hour news conference but quickly recovered to show he was a man in control and even said he didn't regret letting his archrival Mikhail Khodorkovsky out of prison last year.
"Godspeed, let him work," Putin said, referring to the former billionaire who has said he is ready to replace Putin and lead Russia in times of crisis.
The president also laughed off the threat of a coup.
"As for palace coups, calm down," Putin said in response to a question about whether he could be ousted.
"We don't have palaces therefore we cannot have a palace coup. We have the Kremlin official residence, it's well-protected, and this is also a factor of our state stability."
But more importantly, Putin stressed, a majority of Russians supported him.
"People in their hearts and minds feel that we and me in particular act in the interests of a majority of the Russian population."
Signs have been emerging over the past weeks of discontent among some officials in the top echelons of power over Putin's confrontation with the West and mounting economic trouble.
In a hugely bold interview with Vedomosti business daily published Thursday, economy minister Alexei Ulyukayev admitted that the government lacked a coherent plan to deal with the crisis.
"I guess we found ourselves in a perfect storm, and I guess it's not an accident," he said. "Because in some way we prepared this storm ourselves," he added, noting that US sanctions would likely last for decades.
The governor of the southern Krasnodar region, Alexander Tkachev, said that Russia was now paying for its "political conquests".
Putin admitted that Western sanctions over Moscow's involvement in the conflict in Ukraine -- where 4,700 people have died in fighting between Kiev's forces and Moscow-backed separatists -- contributed "25-30 percent" to the economic turmoil.
But he said Russia's troubles should not be put down to the annexation of Crimea, asserting that the West's goal was to undermine Russia's independence.
"Crimea has nothing to do with this," Putin said, accusing the West of treating the rest of the world as "vassals" and comparing Russia to a bear.
"As soon as they have torn out its claws and teeth, then the bear won't be needed at all -- they will make a stuffed figure out of it."
"We are protecting our independence, our sovereignty and our right to exist."
The Russian strongman made clear that his position on Ukraine has not changed, branding Kiev's military campaign against Russian-backed rebels in the east a "punitive operation".
"It is indeed a punitive operation. But it is being conducted by the current Kiev authorities," Putin said, side-stepping a question from a Ukrainian journalist.
The reporter accused Putin of conducting a "punitive operation" in Ukraine and asking how many regular troops the Russian president had sent in to prop up the separatist insurgency there.
Putin conspicuously chose not to reply to the journalist's question on Russian troops, saying instead: "All people who perform their duty following the call of the heart or participate in the fighting voluntarily are not mercenaries because they are not getting any money for it."
Putin sought to fight off an accusation by a Russian journalist that his policies are deeply polarizing and have triggered mounting tensions in Russia.
"All my actions are aimed at bringing our society together and not dividing it," he said.
Western sanctions over Moscow's interference in eastern Ukraine got even harsher on Thursday.
The European Union voted in new measures aimed at isolating Crimea, while U.S. President Barack Obama is set to sign into law fresh sanctions against Russia and authorization for weapons deliveries to Ukraine.
Source: Agence France Presse