IN THIS ISSUE

PAGES 4-5

PAGE 2

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POLITICS & BUSINESS

SPECIAL REPORT

Ruble ReboundsRussia’s currency regains lost ground after 2014 collapse

Victory Day in Russia WWII holds a central place in Russia’s national self image

MONEY & MARKETS

FEATURE

I’m Yelling “Timber”Russia may become China’s top timber exporter as a cheaper ruble promotes exports

PAGE 8

Travel: Visit Russia’s ‘Hero Cities’

Russian cities still bear scars and monuments of WWII

This supplement is produced and published by Rossiyskaya Gazeta (Russia) and did not involve the news or editorial departments of The Wall Street Journal

Saturday, May 9, 2015Distributed with The Wall Street Journal

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Officials in Moscow hope a weaker currency boosts sales of Russian products in foreign markets, and that structural reforms help promote investment.

As 2015 began, the Russian econ-omy found itself in a recession for the fi rst time in fi ve years.

Headwinds had mounted throughout the previous year, blow-ing in from multiple sources to cre-ate a near-perfect storm. The price of oil, Russia’s most important ex-port, fell precipitously in 2014, drag-ging the value of Russia’s national currency, the ruble, along with it.

Meanwhile, a dispute over Rus-sia’s role in spiraling civil unrest in neighboring Ukraine brought tit-for-tat economic sanctions between Russia and the West. Rising infl a-tion appeared set to hit double-dig-its in 2015, prompting policyma-kers to simultaneously contend with slowing growth, rising infl ation and a falling currency.

Despite the difficulties, Russia avoided recession in 2014, eking out 0.6% economic growth for the year. But in March 2015, Russia’s econ-omy shrank by 0.4%, as the World

Russia hopes to encourage investment and diversify exports by liberalizing its economy

Bank forecast an annual contrac-tion this year of between 2.9% and 4.6%.

Attracting investmentRussian officials say they are gear-ing up to fight back, aiming for nothing less than a restructuring of the country’s economy away from its reliance on exports of oil and natural gas. Officials say they are working on a raft of measures akin to those long recommended by in-dependent economists: liberalizing the economy and making structur-al changes to boost private invest-ment.

Yet such talk has come from Rus-sian officials before, and observers note it remains to be seen whether the current crisis is the necessary catalyst to spur Russian officials to turn words into deeds. Policymak-ers say they don’t underestimate the task.

“The difficulty of the challenges facing us demands a lot from the state apparatus, and also the coor-dination of work between the var-ious branches of government,” Rus-sian First Deputy Prime Minister Igor Shuvalov said in a recent con-ference in Moscow.

Among Russia’s problems are

sanctions from the U.S. and Europe that effectively seek to isolate im-portant parts of the Russian econ-omy, such as its energy industry, from international debt markets.

Yet economists say Russia’s big-gest economic problems stem from domestic, structural issues rather than from Western sanctions, mean-ing the country can indeed make domestic changes that will help boost economic growth on its own.

Institutional reform, economists say, will be a crucial test.

“The key issue is in increasing the productivity of labor and ob-taining effectiveness of production,” says Scientifi c Director of the High-er School of Economics Evgeny Yasin.

One of the major obstacles to in-creasing investment is a lack of ac-cessible credit.

In December 2014 the key rate, a reference point for banks, was in-creased from 9.5% to 17%. Towards the end of April 2015 it was de-creased to 14%, but fi nancing costs remain high by international stan-dards.

According to the Gaidar Insti-tute, the volume of credit given to corporate borrowers was reduced by almost a quarter to 3.98 trillion

Russia Battles Recession, Aims to Spur Investment

Russia has entered recession for the

first time in five years, as officials

seek to foster a new economic

growth model based on

encouraging private investment.

ALEXEY LOSSANRBTH

rubles ($78.2 billion) in January-February 2015, compared to the same period a year ago, when it amounted to 5.18 trillion rubles ($101.6 billion). Credit activity di-minished the most in the fi eld of construction, by 63%, while in ma-chine building and metallurgy it fell 40%.

Moreover, after the western coun-tries introduced sanctions against Russia, Russian players were de-prived of access to inexpensive Eu-ropean and American credit.

According to Anton Soroko, an-alyst at Finam Investment, the peak of dollar repayments on corporate loans occurred in December 2014.

After this Russian borrowers practically stopped attempting to access European or U.S. debt mar-kets. As an alternative, some Rus-sian firms are seeking capital through selling shares. Magnit, Rus-sia’s largest retailer, sold 1% of its shares to international investors on the London Stock Exchange in Feb-ruary 2015 for 9.8 billion rubles ($192.35 million). Other players are courting Asian markets. Russia’s third-largest bank by assets, Gaz-prombank, and Gazprom have an-nounced they may seek a bond sale in China.

Victory Day is celebrated on May 9.

When invading Nazi forces reached the outskirts of Moscow in late 1941, the stakes couldn’t have been high-er for the Soviet Union. Hitler con-sidered Slavs an inferior ethnic race. Nazi records suggest that if Ger-many had been successful, tens of millions of Russians would have

May 9 Russia notes the anniversary of the end of WWII amid tensions with America and Europe

faced a genocidal regime of enslave-ment and forced exile.

The statistics around the Battle of Moscow defy belief. Estimates of Soviet casualties alone range as high as 1.2 million people for that single engagement — almost dou-ble the number that the United States lost in all of World War One, World War Two, the Vietnam War and the Korean War combined.

Comparisons like these help dem-onstrate why the Second World War still looms so large in the minds of Russians — in a way that Western visitors to Russia sometimes fi nd

surprising. “World War II is an event very

different in the minds of Russians than in the minds of Americans and

WWII Anniversary Looms Large in RussiaThe Second World War has a central

place in Russia’s national zeitgeist.

A blockbuster celebration is set for

the 70th anniversary, amid new

tensions with its former allies.

DAVID MILLERSPECIAL TO RBTH

Europeans,” Paul Goble, a political analyst who once advised former U.S. Secretary of State James Baker, wrote in a recent analysis for the Russia Direct website. “For Rus-sians, World War II is and remains the central act of their history dur-ing the last century…. For Ameri-cans and Europeans, that confl ict is increasingly a matter of history.”

On May 9, Russia commemorates victory over Nazi Germany with a zeal that is almost surely unequalled anywhere else in the world. Schools and fi nancial markets close. Mos-cow’s main thoroughfare becomes a pedestrian promenade bedecked with fl ags and black-and-yellow ribbons, the Russian symbol of mil-itary valor.

CONTINUED ON PAGE 4

Discover

the Unknown War

in the pages of this issue

and find out much more at

unknownwar.rbth.com

‘It is impossible to imagine how

the Soviet economy would have

functioned without these sup-

plies’OLEG BUDNITSKY, HISTORY PROFESSOR

‘Money talks,

and it seems that in the future,

it will frequently speak

Chinese.’

VLADIMIR MIKHEEV, EXPERT

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from the USSR are estimated to have died during the Second World War, more than from any other country

and self-propelled guns took part in the Battle of Kursk in June 1943, still the world’s biggest battle of its kind

was how long the Battle of Stalingrad las-ted. It was a major turning point in the war that cost the lives of more than a million Red Army soldiers and civilians

27m people

6000tanks

200days

VLADIMIR SMIRNOV / TASS

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NEWS IN BRIEF

• Russia-focused funds have gained $362 mil-

lion in investment since the start of the year, Kommersant reported, citing data from Emerging Portfolio Fund Research (EPFR). Increased inter-est in Russia came even as investors shied away from funds focusing on other parts of the devel-oping world. Funds concentrating on Russia gained $182 million in investment in the week ending April 22, more than three times the amount attracted the week before.

• Russia has begun building a railway line

that will bypass Ukraine on its way from north-ern to southern Russia as tensions between Mos-cow and Kiev smolder, news agency Interfax re-ported. Russians’ ability to travel through Ukraine has been complicated by a political clash between the two countries, precipitated by the overthrow of a Russia-friendly regime in Ukraine last year.

• Russian meat producer Cherkizovo plans

to increase poultry exports to reap the benefits of a weaker ruble as domestic prices come under pressure from faltering consumption, its chief ex-

ecutive said. The company, which is a top-three poultry and pork producer in Russia, will aim to export 10%, up from between 1 and 2% currently, and target consumers in the Middle East, Africa and China. Company’s base-case scenario implied meat consumption in Russia would decline to 67-68 kilograms per capita in 2015 from 71-72 kilograms last year as Russia slips into recession. Poultry ac-counts for around 50% of all meat consumption in Russia.

• Gazpromneft plans to double output at Rus-

sia’s sole Arctic offshore oil project, the Prira-zlomnoye field, the company said. Last year, oil production at the field totaled 300,000 tons. Gaz-prom Neft, the oil arm of Russia’s top natural gas

producer Gazprom, has also been exploring an-other Arctic offshore oilfield, Dolginskoye, where it drilled its fourth exploration well last year. In 2014, Gazprom Neft’s total hydrocarbon output rose by 6.4% to 66.3 million tons of oil equivalent.

• The cost of a cabbage in Russia has almost

tripled in less than six months. The Russian sta-ple — and a key ingredient in traditional dishes such as the famous shchi soup — leads the field among foods suffering from inflation because of huge ruble devaluation in 2014 and a Kremlin ban on food imports from the United States and Eu-ropean Union. Cabbages now cost over 40 rubles (80 cents) a kilogram in most stores.

• Former managers and employees of Trust

Bank have been charged with fraud for spiriting millions of dollars away through offshore compa-nies, the Interfax news agency reported. The Cen-tral Bank gave Trust Bank — the first bank bailed out by the state during Russia’s ongoing financial crisis — an emergency 30 billion ruble ($590 mil-lion) loan and put it under supervision in Decem-ber after a sharp devaluation of the ruble sent shockwaves through the Russian banking system. The regulator believes that the actions of the bank’s former owners and managers precipitated its later financial difficulties, Interfax reported.

• Russia will not scrap pension fund contri-

butions, preserving a key pool of investment cap-ital, in an apparent victory for economic liberals in the government who had united in vocal opposi-tion to proposed changes. “The accumulative pen-sion system will be preserved,” Prime Minister Dmi-try Medvedev announced.

Following an historic collapse in 2014 amid heightening military tensions in Ukraine and darken-ing economic horizons, Russia’s na-tional currency, the ruble, has staged a recovery that made it tem-porarily the best-performing cur-rency in the world.

From the beginning of February 2015 to the end of April, the Rus-sian ruble strengthened 28.7%, making it the fastest-rising cur-rency in the world, UFS IC chief analyst Alexei Kozlov told RBTH.

The turnaround is all the more striking in that it exceeded the in-crease in value of Russia’s main export, crude oil. During the ru-ble’s plunge in 2014, many analysts noted that the currency seemed to be declining alongside a drop in the value of oil.

According to Kozlov, as the ruble rose 28.7% from February to April, North Sea Brent crude oil rose from a minimum value in the same pe-riod by only 16.7%, from $53.50 per barrel to $64.20.

The comparison suggests that the ruble’s historical dependence on oil

Russia’s Currency Last year the ruble staged historic declines, setting the stage for a turnaround

prices may be decreasing, Kozlov said.

Main causesThe Russian ruble is strengthen-ing due to the combination of a series of positive factors, accord-ing to the head of the Stock Mar-ket and Financial Engineering De-partment a t the Russ ian Presidential Academy of National Economy and Public Administra-tion, the main institution which in-fl uences the fi nancial policy of the Russian government, Konstantin Korischenko.

Korischenko, who is also the for-mer deputy chairman of the Cen-tral Bank, said the main reasons for the rise include foreign curren-cy loans by Central Bank to banks totaling $30 billion, a decrease in the Russian Central bank’s key rate from 17 to 14%, and a reduction of military tension in the east of Ukraine.

“All this has made investment in the ruble and ruble assets spec-ulatively more attractive,” Korish-chenko said.

According to Kozlov, the ruble’s rebound can be partly explained by a more general increase of in-terest among investors in emerg-ing markets as well.

According to Anton Soroko, an analyst at Finam Investment Hold-ing, the Russian currency could fur-

ther strengthen in the near future if oil prices rise, and if clear dip-lomatic terms for lifting interna-tional sanctions against Russia ap-pear on the horizon.

“The situation in Ukraine at the moment, as a whole, appears to be stable, so that there seem to be no reasons for tightening rhetoric from the EU and the U.S.,” Soroko said.

Analysts also pointed to anoth-er positive factor: agreements with individual EU countries, including Greece and Turkey, on the construc-tion of the gas pipeline Turkish Stream from Russia to southern Europe.

According to Alexei Kozlov, a large share of the credit for the strengthening of the ruble goes to the Central Bank, which has man-aged to build a monetary policy in such a way as to make currency volatility noticeably fall. At the same time, the analyst notes, de-

spite the strengthening of the ruble, the overall interest of investors in the broader Russian economy has not yet grown accordingly.

Prospects for investmentExperts are not yet sure if the sharp strengthening of the ruble will con-tinue as a long-term trend.

“Claims that the value of the ruble is no longer pegged to oil pric-es are not quite appropriate,” Ko-rischenko said. “Rather, one could speak of a different [ratio] of ru-ble-to-oil prices for 2015.”

According to Korischenko, the situation of the international oil prices is also unclear, and could depend on political developments. If the United States and its nego-tiating partners reach a diplomat-ic deal with Iran over its bid to de-velop nuclear power and remove sanctions on Iran, oil prices might force prices to go lower. However, an escalation of the confl ict in the middle eastern country of Yemen might have the opposite impact. Either event could have a large in-direct impact on the direction of the ruble.

Meanwhile, problems in the Rus-sian economy may continue to re-strain the ruble’s growth.

“Banks’ lack of capital, the lack of economic growth, the tendency for an increase of the public sec-tor in the economy – all this can-not but cause concern and restrain optimism about the future value of the national currency,” Ko-rischnko said.

If oil prices don’t rise and the outfl ow of capital from Russia con-tinues, the prospects of the ruble in 2016 may signfi cantly deterio-rate.

Meanwhile, the Central Bank hopes to restrain excessive strength-ening of the ruble because of the adverse effect on the competitive-ness of Russian companies. Depu-ty head of the Central Bank, Kse-nia Yudayeva, was recently quoted by news agencies as saying the the ruble’s strong run may be over.

Ruble Rebounds: Once a Turkey Now a PhoenixFrom the beginning of February

2015 to the end of April, the

Russian ruble has strengthened by

28.7%, making it the fastest-rising

currency in the world.

ALEXEY SERGEEVRBTH

Major events that infl uenced the Russian ruble since April 2014

Russian Ambassador to the U.S. Sergei Kislyak speaking in New York.

In many ways, New York and Wash-ington couldn’t be more different in how they view sanctions.

While the Washington foreign policy elites are pushing to ramp up sanctions against Russia, arm Kiev and ostracize Russia on the world stage, it’s a completely dif-ferent scene in New York, where multinational managers, venture capitalists and institutional inves-tors are looking for ways to roll back sanctions, fi nd new avenues for business cooperation and inte-grate Russia into the global econ-omy.

At Russia Forum New York 2015, hosted in March at the Princeton Club in midtown Manhattan by Russian Center New York and spon-sored by the Gorchakov Fund, Eth-nomir and the Congress of Russian Americans, these differences be-tween how the elites of Washing-ton and New York view Russia came into stark contrast.

As Ambassador Kislyak noted in his opening remarks, Russia is still “open for business” and there’s no

Viewpoint: New York and Washington are at odds over Russia policy

need to fear a return of the Cold War even if the U.S. is attempting to isolate Russia both diplomati-cally and economically. The good news, Kislyak says, is that Russia

is redoubling efforts at diversify-ing and modernizing its economy, including more emphasis on diver-sifying by geographic region.

As a result, the ruble has stabi-lized, the Russian economy is show-

ing signs of positive growth in 2015 (even if it’s “miserably low”) and the feared credit crunch of Febru-ary 2015 (when Russian companies were scheduled to pay back signif-icant amounts of dollar-denomi-nated debt) never materialized. In fact, Kislyak says, trade between the U.S. and Russia is still very much active, and actually increased by almost 5% in 2014, despite the U.S. economic sanctions against Russia.

And it’s not just that economic sanctions against Russia aren’t hav-ing their desired effect. The U.S. policy of isolating Russia on the world stage may end up boomer-anging and hitting the very people

Sanctions Against Russia: a Tale of Two CitiesAt Russia Forum New York 2015,

business leaders weighed the

ineffectiveness of sanctions against

Russia, suggesting they threaten

the core of any future US-Russian

relationship.

DOMINIC BASULTORUSSIA DIRECT

it was not supposed to impact – multinational companies that have invested in Russia for the long-haul, smaller companies, entrepreneurs, and young Russians who have em-braced both globalization and in-novation.

The hope in New York invest-ment circles, of course, is that these changing geometries of capital fl ows will lead to changing geom-etries of political thinking.

In other words, in a global fi nan-cial system no longer created, run and controlled by America, there might be need to reassess where Russia stands in the global econ-omy.

Even some Russian foreign pol-icy insiders in Washington are start-ing to make this point.

The most eloquent case for re-thinking sanctions was recently made by Samuel Charap, senior fellow for Russia and Eurasia at the International Institute for Stra-tegic Studies, and Bernard Sucher in an op-ed for the New York Times: “Why Sanctions on Russia Will Backfi re”. Charap and Sucher argue that sanctions are impacting the wrong people, and that they un-fairly punish Russia for integrat-ing into the global economy and embracing the American-led glob-al fi nancial system.

So if sanctions against Russia don’t make any sense, why pursue them?

The short answer is that sanc-tions are a form of low-hanging fruit for American politicians and diplomats, eager to show that that they are doing something – any-thing – to punish Russia for its an-nexation of Crimea and involve-ment in Eastern Ukraine.

Russia is still “open for business,” said Ambassador Sergei Kislyak.

The ruble rose this much from Feb-ruary to April. However, problems in the Russian economy may restrain the currency’s growth in the future.

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NEWS IN BRIEF

• Russia and Argentina signed documents

deepening energy cooperation, underlining Mos-cow’s drive to develop ties with South America since coming under Western sanctions over the Ukraine crisis. Russian state-owned gas producer Gazprom signed a memorandum on cooperation with Argentinian state oil company YPF.

• Heineken will start producing kvas, the tra-

ditional Russian bread-based drink, as the coun-try’s beer market battles a steep downturn, the brewer said. Production of the mildly alcoholic bev-erage will help fill empty capacity in its breweries. The Dutch brewer saw Russian beer sales plum-met 10% in the first quarter, the Kommersant news-paper cited the company as saying, as Russians cut their beer consumption amid an economic downturn and laws aimed at curbing alcoholism.

• Russian airlines flew 15.6% fewer passen-

gers on international flights in the first quarter of this year as demand plummeted due to a sharp devaluation of the ruble, according to data pub-lished Wednesday by Russia’s Federal Air Trans-

portation Agency. In the first three months of this year 7.4 million passengers flew with Russian air-lines on international routes, down from 8.8 mil-lion in the same period last year, the data showed. Carriers have been hit hard by the decline in the value of the ruble.

• Russia has seen a 68% drop in permits for

U.S. workers in first quarter. In the first three months of the year, companies were granted the right to employ 411 Americans under Russia’s for-eign worker quota system, 68% fewer than in the same period last year, RBC reported. Quotas given for EU citizens dropped 37% to 10,628 people.

• Russia’s Skolkovo Foundation and Chinese

investment group Cybernaut have agreed to

launch a $200 million venture fund and joint

business incubator, bringing a wave of new coop-eration between Russia and China to the world of high technology. The incentives were clear for Cy-bernaut, an eight-year-old fund that currently man-ages $5 billion in assets. The $200 million venture fund will invest in companies based in Skolkovo that work “in the sphere of IT and robotics as well as space technology and telecommunications,” the two companies said in a press release cited by RBTH.

• The number of donations from individuals

in Russia has increased and now represents 90% of all money given to charitable foundation Zhivoi (“Alive”). Many donations are small, between 5 ru-bles (0.1 cent) to 150 rubles ($3). Even as Russia’s economic crisis sees corporate donations decline dramatically, charitable organization are seeing more and more ordinary Russians step up to the plate.

• Russian tycoon Roman Abramovich is in-

vesting $15 million in music app Music Mes-senger, co-founded by Israeli entrepreneur O.D. Kobo. Other backers include Benny Andersson from pop band ABBA, artists David Guetta, Will.i.am and Avicci, and Gee Roberson, man-ager of Nicki Minaj, who is also an investor. Music Messenger allows users to create multiple play-lists and send music to each another’s mobile phones for free.

Officials hope that the economic downturn comes with a silver lining: a cheaper ruble that will boost exports

Russian policymakers are seeking to turn economic headwinds into new advantages for export growth, after a steep plunge in the value of the ruble in 2014 made Russian products more attractive in inter-national markets.

The fall of the Russian currency presents a window of opportunity for Russian companies to dramat-ically increase the export of goods beyond Russia’s traditional reliance on oil and natural gas, analysts said.

“The goals pursued by the sanc-tions [imposed against Russia in connection with the Ukrainian cri-sis] have not been achieved. It is impossible to isolate the Russian economy,” said vice-president of the Russian Chamber of Commerce, Georgy Petrov, during a public dis-cussion on Russia’s economic pros-pects at the Open Russia forum in Moscow this spring.

The ruble factor“Prospects on the whole are very

good, but this is mainly due to the weak ruble, which makes exports attractive, as expenses for export-ing companies are mainly in ru-bles,” said UFS IC chief analyst Ilya Balakirev.

As a result, he said, all export-ers are trying to increase the share of products shipped to foreign mar-kets, this applies to metallurgists, food producers and other indus-tries. .

However, redirecting domestic supplies to foreign markets may also create shortages and price in-creases within Russia, Balakirev added.

In particular, it is for this reason that the Russian authorities im-posed export duties on grain at the beginning of 2015, and did not rule out similar moves in the metals in-dustry in the future.

“Growth of Russian non-oil ex-ports is possible, especially in the export of agricultural products, in-cluding grains and products with a low degree of processing,” said RANEPA Associate Professor Ivan Kapitonov. According to him, ma-nufacturers have improved their

Russia is seeking to diversify its economy away from relying on oil and gas production

conditions against the backdrop of the weakening ruble. “Processing industries are underdeveloped in Russia,” Kapitonov continued. “The quality of goods does not al-ways meet the requirements of de-veloped Western countries”, pro-fessor said.

18 IndustriesRussia is developing plans for

substituting imports with domes-tic production in 18 industries by the end of June 2015, including lo-calizing foreign companies in Rus-sia, according to the director of the Analytical Center for Foreign Trade

of the Russian Ministry of Indus-try and Trade, Roman Lyadov.

One particular area of focus will be the high-tech industry.

To this end, Russia will intro-duce a “special investment contract” – a form of the agreement between the government and private com-panies, in which the government will insist that the investor create jobs and production facilities for high-tech products.

Another instrument will be the Industry Development Fund, which already received 20 billion rubles ($347.8 million). The Fund will pro-vide loans to Russian companies with 5% interest per annum. By comparison, the key rate for the Central Bank, accessible by private banks in Russia, was 14% at the end of April 2015.

“As of today, the import of high-tech products into Russia exceeds export by [a factor of] 11 times,” said Skolkovo Foundation vice-president Vasily Belov.

The weakening of the ruble helps, but it will also be necessary to im-prove the quality of research at ac-ademic institutions, Belov said.

Russia Seeks Growth in New Export AreasRussia is attempting to diversify its

economy away from energy

exports as a falling ruble boosts

the chances of success for its

products in foreign markets.

ALEXEY SERGEEVRBTH

Russian imports, exports and trade surplus

Russia may become China’s biggest timber supplier by next year.

For decades, Russian leaders have fretted over the need to reduce the country’s oversized reliance on ex-ports of oil and gas, which consti-tute more than half of the coun-try’s export revenues.

Last year, amid news of interna-tional sanctions against Russia due to its alleged role in the Ukrainian confl ict, sputtering economic sta-tistics, plummeting oil prices and a cheaper national currency, poli-cymakers also expressed hope in a silver lining: that the crisis might provide a framework to move be-yond reliance on energy exports.

The declining ruble, in particu-lar, might make other Russian prod-ucts more attractive on interna-t i o n a l m a r k e t s - o r s o policymakers hoped.

Now, one of the fi rst signs of such a trend is emerging in an area that was Russia’s sixth-biggest export sector in 2013: Timber and wood products.

The volume of Russian timber exports increased by 7.9% in 2014, making the industry one of Rus-sia’s fastest-growing international trade areas, according to a report prepared by the Lesprom Network

Rising timber exports support Moscow’s hopes that a lower ruble will boost exports

Analytic Agency. In particular, China, the largest importer of Rus-sian timber, increased the volume of orders in 2014 by 17.6% to 9.24 mln tons. Currently, Russia is Chi-na’s second-biggest supplier of tim-ber. Accessible prices help Russian production stay ahead of the Chi-nese competitors in European and U.S. markets. By the end of 2015, Russia may surpass New Zealand to become China’s biggest timber supplier, according to Lesprom Di-rector Alexei Bogatyrev. In his words, New Zealand’s timber out-put faces constraints due to gov-ernment policies against timber export.

The devaluation of the ruble gave Russian companies an edge in ne-gotiations with competitors on the global market, says Sales and Mar-keting Director of the Arkhangel-sky Pulp Mill, Alexei Dyachenko. The fall of the ruble against the main world currencies at the end of 2014 stirred a demand for Rus-sian plywood, whose prices fell by 40% from September 2014 to Feb-ruary 2015, says the Lesprom Net-work report. As a result, the export of unprocessed timber increased by 9.8%, boards by 7.5%, plywood by 13.3% and cellulose by 4.2%.

Russian timber producers like-wise had reason to cheer in 2013, when export duties were abolished and the U.S. experienced a revival in the pace of economic growth.

“The American real estate mar-

ket quickly recovered after the cri-sis and already in 2013 demonstrat-ed enormous growth in the demand for boards,” says Bogatyrev. “As a result, Canada redirected a sub-stantial part of its export from China to the U.S.”

Nevertheless, besides making Russian products more attractive on international markets, the de-cline of the ruble also puts pres-sure on Russian companies’ costs. “Russia imports most of the tech-

Russian Exports: A Bright Spot in Timber TradingRussia has drastically increased

timber exports, as a cheaper

currency boosts the

competitiveness of one of the

country’s top non-oil exports.

KIRA EGOROVARBTH

nological and auxiliary equipment and the devaluation of the ruble in this case leads to an increase in the payback period,” explains Boris Kaznacheev, Deputy General Di-rector of the Russia-Chinese RosKitInvest Company.

The search for partnersRussia’s main suppliers for the

Asian markets of China, Japan and South Korea are regional produc-ers located in Siberia and the Far East, who have been evaluating multi-million investment propos-als from prospective Asian part-ners.

The largest example of Russian-Chinese cooperation today is the construction of the Asinovsky tim-ber industrial park in the Toms-kaya Region with an annual tim-ber procurement and processing volume of 4.5 million cubic meters.The main investor is the Chinese AVIC International, which manag-es the project through its Russian branches, RosKitInvest and Khen-da-Siberia.

“The total investment volume from China to that project may reach 80 billion rubles ($1.57 bil-lion),” says Boris Kaznacheev of RosKitInvest.

The total amount Chinese investors may put into the biggest project in Russia’s timber industry.

Russian timber exports growth in 2014, making the industry one of Russia’s fastest growing export areas.

$1.6 Bn

7.9%

IN FIGURES

The murder of opposition politician Boris Nemtsov fundamentally changed the landscape of Russian politics. Both Western and Russian commentators have weighed in on what this means for the fledgling Russian opposition movement and for the Kremlin as well. The latest report contains an overview of the landscape of political forces in Russia today and their reaction to Nemtsov’s murder.

MAPPING RUSSIA’S POLITICAL LANDSCAPE AFTER NEMTSOV

March Monthly Brief

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Russia Direct is a forum for experts and senior Russian and international decision-makers to discuss, debate and understand issues in geopolitical relations at a sophisticated level.

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thanks to American military equip-ment.

If we speak not only about the sup-

ply of military equipment, but also

industrial appliances and accesso-

ries, what was the volume of coop-

eration here?

One of the main areas of coopera-tion was aviation fuel. The USSR could not produce gasoline with high octane. However, it was this fuel that was used by the equip-ment supplied by the Allies. In ad-

dition, the Achilles heel of the So-viet Army was communication and transport. The Soviet industry sim-ply could not meet the demand ei-ther in number or in quality.

For example, the army lost 58% of its vehicles in 1941 alone. To re-cover these losses, the Allies sup-

How great was the economic impor-

tance of military cooperation be-

tween the USSR and the U.S.? What

is the importance of the Lend-Lease

for the formation of economic rela-

tions between our countries?

It was large-scale military techni-cal assistance from the Allies, es-pecially the U.S., but also the UK and Canada. Volumes of this sup-port are assessed differently. In the Soviet tradition, it was assumed that it was 4% of the total produc-tion capacity of the USSR, but the latest research shows that in real-ity the level was as high as 7%. The importance of economic coopera-tion with the U.S., UK and Cana-da cannot be overestimated. Ac-cording to the dollar rate of 2003, the infl ation-adjusted value of these supplies amounted to $130 billion. These supplies were critical in some key areas. For example, in the be-ginning of 1942, Western tanks fully replenished Soviet losses, and ex-ceeded them by three times. About 15% of the aircraft used by Soviet air forces were supplied by Allies, including the Airacobra fi ghter and Boston bomber. The Allies supplied 15,000 state-of-the-art machines at that time; for example, famous Soviet ace Alexander Pokryshkin fl ew Airacobra, as did the rest of his squadron. He shot down 59 enemy aircraft, and 48 of them were

Q&A LEGACY OF THE LEND-LEASE PROGRAM

ALLIES GAVE

SOVIETS $130

BILLION UNDER

LEND-LEASEHISTORY PROFESSOR OLEG BUDNITSKY SPEAKS ABOUT THE

ECONOMIC ASSISTANCE THE U.S. GAVE THE USSR IN WWII.

Soldiers

parade

on Red

Square as

part of

the annu-

al Victory

Day cele-

brations

in Mos-

cow.

Every year, Russia’s leadership throws out all the stops for a mas-sive military parade on Red Square, and typically invites dozens of heads of state to join them in mark-ing the occasion.

Indeed, the Soviet Union endured the highest casualties of any coun-try in the war, with estimates rang-ing from around 20 million to 28 million.

The colossal human sacrifice made by the Soviet Union has led many average Russians today to feel their country paid the lion’s share of the cost for defeating Nazi Germany.

This year the ceremonies come at a time when Russia is at bitter odds with the West over the armed confl ict in Ukraine, and as econom-ic sanctions threaten to force av-erage Russians into making sacri-fi ces due to Russia’s standoff with the West.

During a recent meeting of the committee organizing the 70th an-niversary celebrations this year, Russian President Vladimir Putin lashed out at unnamed critics he accused of attempting to downplay

Russia’s role in the Second World War — which is known as The Great Patriotic War in Russia.

“Unfortunately, today we see not only attempts at distorting the events of that war, but also un-masked cynical lies and impudent defamation of an entire generation of people who gave up everything for this Victory, who defended peace on earth,” Putin said. “We should constantly, fi rmly, persistently and with reason assert the truth about

the war, about the colossal contri-bution of the Soviet people to the Victory.”

Years after the Soviet Union col-lapsed, Putin himself revived the May 9 military parades on Red Square, the historic open space next to the Kremlin in Moscow, in an event that features tanks, missiles, and hundreds of marching soldiers.

Indeed, in recent years, atten-

For Russia, 70th WWII Anniversary Looms Large

CONTINUED FROM PAGE 1

THE WAR IN FIGURES

What the USSR built during the war

Today, as many American politicians express concerns about Russian mil-itary patrol fl ights stretching to the East Coast of the United States, it seems impossible to imagine that there was a time when 19% of Rus-sian military aircraft were built in the U.S.

In October 1941, the Lend-Lease Act, which provided U.S. military aid to the UK and China, was ex-tended to the Soviet Union. From October 1, 1941 to May 31, 1945 the U.S. provided the Soviet Union nearly half a million vehicles, 2 mil-lion tons of gas and oil and nearly 4.5 million tons of food, along with more than 8,000 aircraft.

There were several paths by which American goods reached Soviet ter-ritory, but the most direct was the Alaska to Siberia air route, known as ALSIB, which reached from the Ladd Army Airfi eld in Fairbanks, Alaska to Soviet pilot training fa-cilities in Krasnoyarsk – a distance of nearly 4,000 miles. Starting in 1942, nearly 8,000 planes were fl own to Russia via the ALSIB route.

As part of the Lend-Lease pro-gram, the U.S. supplied the Soviet army with the Douglas C-47 Sky-

Lend-Lease American pilots retrace the route

train, the Douglas A-20 Boston/Havoc and the legendary Bell P-39 Airacobra, the principal American fi ghter aircraft of the time.

The Airacobra was popular among many Soviet pilots, includ-ing World War II hero Alexander Pokryshkin who shot down 48 Ger-man planes while fl ying one: “I liked the Airacobra, because of its ap-pearance and powerful weapons,” Pokryshkin wrote in his 1986 au-tobiography “Know Yourself in Combat.”

During the war, the Soviet Air Force scored more kills per pilot with the Aircobra than pilots using any other type of U.S. fi ghter plane.

This year, the Bravo369 Flight Foundation, with the support of Russian aviation company Rusavia, plans to trace the entire route of the ALSIB route, starting not in Alaska, but at Great Falls, Montana, which was a staging area for many of the planes eventually shipped across Siberia. Jeff Greer, the pres-ident and executive director of Bravo369, told RBTH: “We have found that very few people includ-ing historians, government officials, military personnel, students, or the general public have ever heard of ALSIB or know of its importance...nor are they aware of the friend-ship and cooperation that existed between the Soviet Union, Canada, and the United States during that time.”

Flying into Lend-Lease history An American foundation and its

Russian partners hope to retrace

the historic Lend-Lease route from

Alaska to Siberia.

ALEXANDER BRATERSKYSPECIAL TO RBTH

plied more than 400,000 vehicles, mainly trucks, to the USSR. Dur-ing the occupation, the German concern Daimler Benz set up a ve-hicle assembly line at a factory in Minsk (now the capital of Belar-us). After the liberation of the city, the assembly of American vehicles under Lend-Lease was organized there.

It was not only supplies of fi n-ished products, but also raw ma-terials that were extremely impor-tant – metals, chemicals and products, which were either not produced in the USSR or lost to the enemy. For example, more than half of Soviet aircraft were pro-duced using aluminum supplied by the Allies.

What portion of these supplies served

military needs directly, and can we

talk about a fully-fledged civil part-

nership?

In the fi rst protocol of the Lend-Lease (there were four of them), only 20% of deliveries were in military equipment, while 80% were related to industrial and food production. The Allies sup-plied 1900 locomotives to the USSR, while only 446 locomotives were produced in the country it-self during the same period, as well as 11,000 carriages, while only a few more than 1,000 were

dance by foreign leaders at the May 9 parade can be viewed as a bell-wether for Russia’s relations with other countries.

In late March, Russian Foreign Minister Sergei Lavrov said lead-ers of 26 countries plan to attend the Victory Day celebrations in Moscow in 2015, including Chinese President Xi Jinping and North Korean leader Kim Jong Un.

British Prime Minister David Cameron has declined Russia’s in-vitation. In early March, British Foreign Secretary Philip Hammond said Russia may pose the greatest threat to British national security.

By contrast, U.S. and British troops joined Russian soldiers in marching across Red Square in 2010, while former U.S. President George W. Bush traveled to Mos-cow in 2005 to sit right next to Putin for the 60th anniversary.

Meanwhile, German Chancellor Angela Merkel, a Russian speaker who has led diplomatic attempts to negotiate peace in Ukraine, has said she will not attend the mili-tary parade on May 9, but will in-stead join Putin in laying a wreath at the Tomb of the Unknown Sol-dier beneath the the Kremlin Wall on May 10.

The move is being seen by po-litical observers as walking a fi ne line between acknowledging the importance of the occasion to Rus-sia while also avoiding the politi-cal pitfalls of spending an after-noon admiring Russian military hardware on parade.

Even some post-Soviet countries are walking a complicated politi-cal balancing act when it comes to noting the May 9 ceremonies. Pres-ident Alexander Lukashenko of Belarussia, long an ally of Russia, announced in late April he won’t attend the Victory Day events in Moscow on May 9 because he’ll be attending another event in the Be-larussian capital of Minsk, but added that he will “probably” visit Moscow on May 7 or 8.

“World War II is an event very different in the minds of Russians and Americans,” said Paul Goble, political analyst.

In the first protocol of Lend-Lease, only 20% of deliveries were military equipment, while 80% were related to industrial and food production. The Allies gave the USSR 1900 locomotives and 610,000 tons of sugar.

In 1989, as part of preparations for the 45th an-niversary of Allied victory in the World War II, the State Statistics Committee of the USSR was in-structed to study the scale of the losses the Soviet Union had suffered during the war. To that end, da-ta on human losses that were kept in state archives were declassified. Ahead of the 70th anniversary of the victory, the Russian Federal State Statistics Ser-vice has expanded the data and released them in a dedicated publication.

made in the USSR. It is impos-sible to imagine how the Soviet economy would have functioned without these supplies. For ex-ample, the telephone cable pro-vided by the Allies could wrap the Earth at the equator. The Al-lies’ aid was also critical in the reconstruction of production in the liberated regions of the coun-try, including the role of seeds for the resumption of agriculture. Specifi c products were also sup-plied; the Allies delivered 610,000 tons of sugar to the USSR, where-

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as the USSR itself produced lit-tle more than 1.46 million tons.

How serious was the decline in co-

operation after the war?

The fall was quite sharp, in the fi rst place because the Lend-Lease had ended. The equipment destroyed during the fi ghting was written off, but what was left was to be re-turned. Before ending the war, the USSR and the U.S. were negotiat-ing loans for the restoration of the national economy. In particular, the U.S. offered to the Soviet leader-ship a large-scale loan for 35 years at 2% per annum. There were coun-ter-pleas from the Soviet govern-ment, specifi cally Foreign Minister Vyacheslav Molotov tried to nego-tiate a loan for $6 billion for 30 years, but economic ties failed to develop. The USSR was afraid to get into economic dependence on the West, since the Soviet leader-ship did not believe in the sincer-ity of help from the Allies.

Prepared by Alexey Lossan

Oleg Budnitsky is Doctor of His-torical Sciences, Senior Fellow of the Institute of Russian His-tory of the Rus-sian Academy of Sciences and Director, International Center for Rus-sian & East European Jewish Studies.He has authored or edited over 150 publications on 19th- and 20-centu-ry Russia.

While the tragic history of European Jews during the period from 1933 to 1945 is well known to many, the achievements and sacrifi ces of Soviet Jews who took part in the military struggle against Nazi Germany is, perhaps, one of the lesser-known parts of that story.

Uncovering the lives of these Soviet Jews and their life during wartime is the goal of the Blavatnik Archive Founda-tion, founded by Leonard Blavatnik in 2005. Blavatnik, who made a fortune in the oil, petrochemicals and plastics in-dustries via his holding company Access Industries, was born in Odessa to a Jew-ish family but emigrated to the United States in 1978.

More than half a million Soviet Jews were either drafted or volunteered to fi ght in the Red Army after Hitler’s forces in-vaded the USSR in June of 1941.

Others fought in partisan regiments in parts of Ukraine, frequently in the area that had once been the ‘Pale of Settle-ment’ for Russian Jews during Tsarist times.

More than 200,000 of them died on the battlefi elds. Between 2 and 2.5 million Jews who died in the Holocaust came from Soviet territory – half the Jewish population of the Soviet Union on the eve of the war.

The goal of the Blavatnik Archive is to tell the stories of Jews in the war through the remembrances of those who fought.

Over the past 10 years, archivists have visited 11 countries and created more than 1,100 video recordings of individ-ual stories told by Jewish veterans.

The veterans talk about their youth, about the humanitarian disaster that fol-lowed the Nazi invasion, about wounds and death, about friendships on the front forged by blood, about grieving the dead and longing for their families.

Besides the video recordings of the in-dividual recollections, the archive con-tains thousands of pages of personal di-aries, letters from the front, documents and photographs from the war period.

“I am convinced that the historical ma-terial preserved in the archive can truth-fully illuminate a little-known page in the history of Soviet Jews,” says Blavat-nik. “Tens of thousands of Soviet Jews fi ghting in the Red Army were honored with orders and medals of the Soviet Union. We should always remember the

New York An archive is preserving the stories of Soviet Jews who fought during WWII

deeds of the war generation with grati-tude, a generation that with unprece-dented in history courage and self-sac-rifi ce rose to defend mankind’s better future.”

The archive, which is based in New York, maintains contacts with museums and educational institutions in Russia, Canada and Israel.

Oleg Budnitsky, Head of the Interna-tional Center of History and Sociology of World War II at the Higher School of Economics in Moscow has been a mem-ber of the archive’s academic council for several years.

“The Jews who, especially in the West, are often viewed exclusively as victims of the Holocaust, are presented in the archive as soldiers fi ghting the Nazis, de-fending themselves and avenging their relatives,” Budnitsky says.

Budnitsky points to the Soviet mili-tary as a means for Jews to engage in massive, organized and active resistance to the Nazis.

However, Budnitsky notes that the ar-chive project is also unique in that the subject of the Holocaust itself was not as widely discussed during the days of the Soviet Union as it was in the West.

Soviet authorities sought to portray their vast and multi-ethnic country as a place in which all nationalities were treated as equal citizens of the Soviet state.

That meant that emphasizing the suf-fering of Jewish people during the war was not considered by officials to be pa-triotic, he says.

“In places where mass murders of Jews took place, there were signs about the death of Soviet citizens killed by the Nazis, which of course is true, however, they were killed only because they were Jewish,” Budnitsky says.

Archive Director Yulia Chervinskaya says that the project’s objective is to “pre-serve a picture of life on the front and make a contribution to a better under-standing of World War II,” adding that there was not one family in the entire territory of the former Soviet Union that was not affected by the tragic events of 1941-1945.

Some material in the Blavatnik Ar-chive, including interviews with veter-ans, can be found online.

The Archive has also recently published the fi rst in a multi-volume, bilingual se-ries about Soviet Jews in the war.

It hosts exhibitions and makes its ma-terial available to researchers upon re-quest.

More information about the Blavatnik Archive can be found on its website: Bla-vatnikarchive.org.

Here, then, are selections from some of the stories of the Jewish veterans, told in their own words:

Abram Abramovich Litvin

Born in Odessa, Ukraine, in 1924. Inter-viewed in Odessa in 2009, he recalls his route from Bryansk to Berlin.

“I was never in the rear, always on the front line. During the war, I was a 19-year old guy, platoon commander. I was award-ed the Order of the Red Star, the Order of the Patriotic War 2nd class, and the Order of the Red Banner which was considered the second honor after the Order of Lenin. I’m from Odessa and [my commander] as-sumed that I was an excellent swimmer. That’s what he assumed, though I would take third place [as a swimmer], behind a hammer and an iron. I was an awful swim-mer. But crossing a river? I was afraid that someone might say or might think… I’ve already heard this talk, that Jews are all in Tashkent, that all the Jews are [hiding] somewhere in evacuation… The thing was that I was afraid that someone might say that I’m afraid. And that’s how I was from Bryansk to Berlin. I was wounded four times.”

Simeon Grigoryevich Shpiegel Born 9 February, 1923 in Kiev, Ukraine. Shpiegel returned to Kiev after the war, where he lived until he emigrated to New

York in 1994. He was interviewed in New York City in 2007, during which he re-called fi ghting in Stalingrad.

“We slept in the basements of these houses, destroyed houses. But you could sleep in the basement. Once, my com-mander, Fyeodr Podisemoff, told us that in one basement the people had left, and there were blankets and pillows and we could spend the night there. We slept and in the morning we discovered that there were corpses under the blankets. Those were the conditions we lived in.

“Many say that it wasn’t frightening at the front. I repeat: It was frightening.”

Soviet Jews in the Red Army: Archiving Personal HistoriesAn archive based in New York is

dedicated to recording and preserving the

memories of Jewish military veterans who

fought alongside Soviet forces during

World War II.

ALEXEI TIMOFEICHEV, RBTH LEONID REINES, SPECIAL TO RBTH

The Order of the Patriotic War, established in 1942, was the Soviet Union’s first military award of the conflict. Given for heroic deeds by troops, security forces and partisans, it had two versions, first and second class. Until 1977 it was the only Soviet order that could be retained by relatives after the death of a recipient. All others had to be returned to the state.

One of the most presti-gious wartime awards is The Medal for the Capture of Berlin. Given to all those involved in the storming of the capital of Hitler’s Third Reich or its organi-zation, more than a millon were issued. There are also medals from other campaigns as the Red Army swept to victory across eastern Europe in 1944 and 1945.

The most common Russian wartime award is the medal For the Victory Over Germany in the Great Patriotic War 1941–1945. Established on Victory Day, May 9, 1945, more than 15 million people qualified as recipients.

THE HEROES OF VICTORY ONLINE

During nearly four years of fighting in what was for the Soviet Union total war, Red Army soldiers won more than 38 million awards, orders and medals for bravery and for taking part in various campaigns. Sadly, in many cases the award never reached the ser-viceman or servicewoman who had earned the honor through their sacrifice and courage. New technology now allows the families of veterans – and surviving veterans themselves – to check online to see if there are awards due to them. In the 70 years since the end of the war, its survivors and their descendants have scat-tered across the world. The goal of the Zvezdy Pobedy (Stars of Victory) project is to provide a way for these far-flung former Soviet citizens to check if they have missed out. There are more than 8,200 names listed in the database, which can be read in Russian at rg.ru/zvezdy_pobedy. With the help of readers, RBTH editors have already found the families of five women listed in the database. If you have Russian friends who live in your country, you are an émigré or a descendant; or if any of your relatives, male or female, fought or served in 1941-1945, please visit the websi-te and check to see whether you or they are among those still awaiting an award. RBTH will update readers with details of those veterans who have been found through the online database. Please let us know if you think you or people who you know missed out, by emailing info@rbth.com

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Discover the Unknown War

in the pages of this issue

and find out much more at

UNKNOWNWAR.RBTH.COM

Oleg Budnitsky

DIRECTOR OF THE INTERNATIONAL CENTER FOR THE HISTORY AND SOCIOLOGY OF WORLD WAR II AND ITS CONSEQUENCES AT THE HIGHER SCHOOL OF ECONOMICS

HIS STORY

The U.S., UK and Canada sup-

plied the USSR with some

$130 billion worth of supplies

during WWII.

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Money & Markets

Alexey LossanRBTH

For a long time, entire sectors of the Russian econ-omy were made up entirely of imports from abroad. But sanctions from the U.S. and EU, along with the sharp 50% drop in the value of the ruble

at the end of 2014, have forced Russia to rethink its developmental model. Previously, the Russian market sought to protect itself from an influx of higher-qual-ity foreign goods with import duties. That strategy, at last, went out the window.

The reduction of the population’s purchasing power and the weakened ruble now protect Russian pro-ducers better than any duty could.

This spurs hope for the growth of exports of prod-ucts beyond raw materials.

Russian imports in January 2015, immediately after the fall of the ruble against the American dollar, plum-meted by 41% to $11.19 billion compared to January 2014.

In the automobile and equipment sectors, the de-cline was 45%. Imports of food products fell 42%. Russian individuals and legal entities started buying products from abroad in much smaller ammounts than before.

To be sure, the volume of Russia’s total exports also fell, since the lion’s share of that trade consists of oil and gas. In the last year the price of oil fell by more than 50%.

However, Russian exports in January 2015 fell by only 30% year-on-year to $27.5 billion, as the export of energy resources shrunk by 33%. Meanwhile, the export of certain goods increased.

Russian firms began selling more grain, fertilizer and food abroad, as the falling cost of these goods based in foreign currencies made them more com-petitive on the world market.

This tendency leads to the fact that Russia’s trade balance remains positive, despite the financial crisis and the economic recession.

Some pundits have sought to draw a comparison between Russia’s current economic malaise and the Soviet dysfunction of the late 1980s, when a sharp drop in oil prices slammed the Soviet economy. At that time, the Soviet Union responded by increasing imports, creating an unsustainable imbalance that hastened the collapse of the Soviet economy. But now, having drastically devaluated the national cur-rency, the Russian government has been able to avoid repeating the mistake.

Alexey Lossan is a reporter for rbth

VIEWPOINT

Why today’s Russia isn’t the 1980s Soviet Union

Russia’s national payments processing system aims to buttress the country’s independence from global finance.

Visa and MasterCard have begun processing payments in Russia’s new domestic payment processing system, lending credibility to the program at a time when Russia is battling to overcome Western sanc-tions aimed at isolating the coun-try from the international fi nan-cial networks.

The U.S.-based payment process-ing companies joined Russia’s new-ly-created National Card Payment System (NCPS) on April 1 in what is being seen by analysts as the fi rst step towards the creation of an au-tonomous fi nancial system in Rus-sia.

“The national system has already been introduced, quickly and at lit-tle cost, and it has fully resolved the problem of payments inside the country,” says Sergei Khestanov, professor of fi nance and banking at the Russian Presidential Acad-emy of National Economy and Pub-lic Administration.

Finance Visa and Mastercard enroll in Russia’s new officially-mandated local payment system

If Visa and Mastercard do not fulfi ll the requirements of the Cen-tral Bank, they will have to pay a security deposit, whose size will be linked directly to the turnover of the credit card systems. Morgan Stanley estimated the fi gure at $950 million for Visa and $500 million for MasterCard.

The Russian government moved to place all settlements under do-mestic control after the interna-tional payment systems blocked the cards of several banks in March 2014, following the imposition of sanctions on Russia by the U.S. in response to Moscow’s takeover of Crimea.

But difficulties remainAccording to Khestanov, process-ing Visa and Mastercard transac-tions through the national system should be viewed as something of a middle-path between indepen-dence and connectivity with the global fi nancial infrastructure: The Russian government’s control of the transactions will strengthen, but international systems will con-tinue to operate in Russia.

“The potential of the develop-ment of the Russian cashless pay-ment market is still enormous,” ex-

plains Anton Soroko, an analyst at Finam Investment Holding.

Visa signed the agreement with the new system only on Feb. 19 of this year, while MasterCard has been on board since Jan. 12.

For the time being, experts say the success of the new system is still unproven. In addition, the two companies haven’t moved at the same pace: Visa’s integration has been more difficult, as the

company’s protocols are seen as being more complex than Mas-terCard’s. “We will see if this will be successful only after the in-frastructure assumes the full bur-den,” says chief analyst at UFS IS Ilya Balakirev.

The next stage should be the Rus-sian national payment system’s is-suance of plastic cards, which is slated for December 2015.

The picture is further complicat-ed by the emergence of Asian op-

Russian Payment System Ramps Up

Visa and MasterCard have started

processing payments in Russia’s

new national processing system,

launched in response to U.S.

sanctions against Russia.

ALEXEY SERGEEVRBTH

erators as an alternative to West-ern payment systems.

Immediately after the introduc-tion of sanctions against Russia by the U.S., the Chinese bank card sys-tem UnionPay entered the Russian market in April 2014, followed in March 2015 by Japan Credit Bu-reau (JCB). By 2017 Russia plans to issue about two million Union-Pay cards and three million JCB cards.

Banks are insuring themselvesLarge Russian banks have warned their clients of possible interrup-tions in the servicing of payment cards. In particular, on March 30, the largest issuer of banking cards in Russia, state-owned Sberbank (102 million cards issued), started transferring internal Russian Mas-terCard transactions to the nation-al system.

Meanwhile, the Russian news agency Interfax cited Director of Banking Card Management and Cash Settlement Services at Sber-bank, Rostislav Yanykin, as saying that the transfer of Visa card trans-actions will take up to two weeks.

Representatives of Raiffeisen-bank were even more pessimistic. “The success of carrying out trans-actions in the given situation de-pends on several participants of the settlements, including the Na-tional Card Payment System, which is why it may take a while to solve the problem,” the Raiffeisenbank press office said.

Small banks were the first to adopt the new system, with the St. Petersburg-based Bank BFA an-nouncing its full transference to the National Card Payment Sys-tem on March 27.

On March 25 the Tatfondbank in the city of Kazan, 800 kilome-ters east of Moscow, announced it had successfully tested card trans-actions using the national system.

According to the scheme adopt-ed by the Central Bank of Russia, the authorization - meaning the is-suance of permission for conduct-ing transactions with particular cards - will be given by Visa, while the clearing of payments will be handled by the national system.

By comparison, MasterCard has already transferred all its opera-tions to the NCPS.

Observers said MasterCard’s transfer over to the national sys-tem proceeded rather smoothly, while Russian banks reported they did not register signifi cant com-plaints from cardholders.

With Visa, however, the division of authority and clearing between Visa and the NCPS may create ad-ditional difficulties for banks and cardholders.

“The national system has already been introduced, quickly,” says Sergei Khestanov, finance professor.

A high-speed rail line may eventually connect Moscow with Beijing.

Chinese investors may provide 300 billion rubles ($6 billion) in fi nancing towards the construc-tion of a 770 kilometer high-speed rail line from Moscow to the re-gional city of Kazan, in what would be the fi rst stage of a mas-sive new link between Moscow and the Chinese capital of Bei-jing.

If completed, the high-speed rail would represent the initial stage of a futuristic version of the legendary Trans-Siberian Railway, which has connected Moscow in Western Europe with Vladivostok on the Sea of Japan since 1916, and is currently the longest railway in the world.

The majority of the proposed funds, about 250 billion rubles, would come in the form of 20-year loans from Chinese banks, Russian news agency RIA Novos-ti reported, citing unnamed sourc-es familiar with the Chinese pro-posal.

Construction of the fi rst link from Moscow to Kazan, the cap-ital of Russia’s majority-Muslim Tatarstan region, is scheduled for completion by 2020 according to Russian newspaper Kommersant, which cited Alexander Misharin, the vice president of Russia’s state-owned rail holding, Russian Railways.

Russian Railways, in coopera-tion with the German engineer-ing company Siemens, has already launched a high-speed train be-tween Moscow and the relative-ly close regional city of St. Pe-tersburg.

But this route used existing railway infrastructure.

High Speed Rail Russia and China are working on plans for a massive, high-speed rail connection

StandstillThe project to start building a long-distance high-speed rail link stretch-ing across Russia’s vast interior and connecting the capitals of Russia and China has been under consid-eration since 2012, and the proposed Chinese funding may help push the project forward out of its current impasse. The Russian government has long debated fi nancing the cost-ly pro-ject from the state budget.

In February 2015, the head of Russian Railways, Vladimir Yakunin, threatened to abandon the project if the company did not receive the first tranche of funding from the Russian state in the fi rst quarter of the year. In response, the Ministry of Economy proposed that Russian Railways split the cost “approxi-mately in half” with the government.

Further expansion may stretch the rail line on to China either through the Central Asian country of Ka-zakhstan, or else through the Rus-sian section of the Altai mountain range in Siberia, Russian Railways has said.

Russia to China, at High SpeedRussia is gearing up to build its

first new high-speed rail system,

potentially backed by $6 billion in

Chinese investment, according to

media reports.

KIRA EGOROVARBTH

Whose rail? At present, China has the world’s largest network of high-speed rails with a total length of 15,400 kilometers (9,625 miles) and a top speed of 350 kilometers-per-hour.

Despite the report of Chinese proposals for fi nancing, Russia’s bid to gain strong support for the larger project from Chinese part-ners looks doubtful, said Konstan-tin Trofimenko, director of the Center for Study of Transport Problems of Mega-Cities at the National Research University Higher School of Economics in Moscow.

“Usually, Chinese investors work under the following scheme: they offer their money, but at the same time oblige the partner to buy Chinese technologies and hire Chinese workers – providing that the money returns to the econo-my of China,” he said. The Rus-sian government should therefore consider building the link with its own money, he added.

Chinese funding for

Russian rails?

Russia and China have been holding discussions on constructing a mega-long-distance, high-speed rail connec-tion between the two countries’ capi-tal cities since 2012. But plans stalled as Russia’s economy entered recession, and funding for the project began to look doubtful amid a decline in Rus-sia’s currency, the ruble. Talk of mov-ing forward on the early stages of the project, an initial link from Moscow to the regional Russian city of Kazan, us-ing Chinese funding, gained credibility in October 2014 after the two govern-ments signed a memorandum of un-derstanding on the project. Potential Chinese partners include the China Investment Corporation, the CREC Construction and Engineer-ing Company, as well as one of China’s largest manufacturers of railway trains, China CNR Corporation Limited.

The amount that Chinese investors may provide in financing the con-struction of the first high-speed rail line in Russia.

The length of the line from Moscow to Kazan. This is the first stage of a massive new link between Moscow and Beijing.

$6 billion

770 km

THE NUMBERS

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Opinion

AFTER UKRAINE: AN ERA OF DANGEROUS MULTIPOLARITY

RUSSIA WILL SAVE ITS BANKS, LIKE THE U.S. AND THE EU DID

CHINA-LED BANK FACES U.S. RESISTANCE

The year that has passed since the com-mencement of large-scale military opera-tions in Eastern Ukraine has been marked by many signifi cant events in the fi eld of

international relations. But the main conclusion that presents itself, whether solicited or not, is that the international community was funda-mentally unprepared to deliver an adequate res-ponse to different scenarios for developments on the ground.

It so happened that in March 2015, within days of each other, two high-ranking interna-tional officials effectively admitted that today’s global institutions are unable to cope with the new challenges and threats facing the world in the twenty-fi rst century.

First, NATO Secretary General Jens Stolten-berg told Sky News in London that, since Ukraine was not part of NATO, the latter would not interfere in the “Ukraine confl ict.” Stolten-berg stressed that the North Atlantic alliance was responsible for protecting and defending its allies, of which none was under attack. Ne-vertheless, he said that NATO could not agree with or accept what Russia was doing in Ukraine, for which reason the alliance had of-fered Kiev its strong political backing.

It is unclear what these words highlight more: the failure to fully grasp the severity of the cur-rent threats, the aspiration to unconditionally comply with statutory provisions, or the inabi-lity of the alliance to make its impact felt in the fi eld of international security. Perhaps it is a bit of all three. However, such blunt utterances provoke not only surprise, but also anxiety that

China’s decision to set up a $100 billion Asian Infrastructure Investment Bank is coming to fruition. Chinese officials claim that at least 35 countries will join the

new umbrella fi nancial group. The move is starting to look more and more

like a watershed event marking a new fl exible and sophisticated approach by China to engage with both developing countries in need of loans and the industrial nations.

America has sought to keep its time-honored allies from joining the China-led fi nancial struc-ture, as could have been expected.

This pressure refl ects the logic of America’s zero-sum approach to China’s ascension to glob-al prominence. It is also an indication of the slow erosion of the U.S. grip on global fi nanc-es.

To be sure, several factors have combined to undermine the credibility of the international dominant fi nancial institutions, including sanc-tions between Russia and the West, trouble around the globe from the Middle East to Hong Kong, and attempts by the United States to bring economic relief to its own citizens by strik-ing a comprehensive trade deal with the Euro-

The Russian government has adopted an anti-crisis plan for a $20 billion recapi-talization of the Russian banking system. By doing so, the Russian government is

repeating the success of the U.S. and the EU. The fi rst thing the U.S. did when the crisis began in 2007 was give assistance to banks, providing them with additional capital and beginning a large-scale asset buying program, starting with mortgages. The EU carried out similar mea-sures during the 2011 crisis, as Japan did in its own crisis during the 1990s. Active state sup-port of the banking system during such times is a necessity, because banks are the “circula-tory system” of the economy, and the “blockage of blood vessels” can have the gravest of consequences.

Why should the government allot $20 billion? First of all, this concerns the necessity of sup-

port for the growth of the economy, which can-not recover without the increase of business credit. In 2014 the volume of money in circu-lation (M2) grew by only 2%, which is extre-mely little for guaranteeing the growth of the economy and is actually a sign of a restrictive monetary policy. In many respects the problem of credit growth is due to the increase of bad loans in the banking system. Consequently, the level of capital sufficiency in the system ap-proached 11%, which is an indicator that ad-ditional capital is needed very badly. It is im-possible to provide credit within the economy without capital, even given the presence of very attractive borrowers.

Moreover, the condition of today’s market doubtfully presents the hope that a sufficient number of quality borrowers will be found among the population and among small and medium businesses, those that will be able to borrow tens of billions of rubles a month ac-cording to today’s high rates.

Therefore, the stabilization of infl ation and the value of the ruble are very important condi-tions for the success of the recapitalization of banks.

For the sake of being just, we need to under-line that not only the government but also the Bank of Russia and Parliament understand the signifi cance of the banking system for the re-covery of the Russian economy very well, which refl ects in the measures being adopted on all fronts.

Konstantin Korischenko is Director of the Department of Stock Markets and Finance Engineering at the RANEPA Faculty of Finance and Banking. He is also ex Vice President of Central bank.

a world of violent confrontation and fragmen-tation is becoming the norm.

Where once there was a bipolar confronta-tion between opposing systems on ideological grounds, today’s poorly structured modern world is gradually stoking a confrontation based on the Hobbesian principle of “all against all,” re-plete with all the rapidly changing confi gura-tions, objectives, interests, unions, and centers of attraction and repulsion that ensue.

Speaking at a symposium on the 70th anni-versary of the United Nations at the U.N. Uni-versity in Japan, Secretary General Ban Ki-moon addressed that very issue. In particular, he sta-ted that the security landscape was becoming increasingly complex. There are a few players on the battlefi eld, but many more acting behind the scenes.

Consequently, as underlined by Ban Ki-moon, the U.N. Security Council has been unable to frame a common position on Syria and Ukraine. The only way out of the “Ukraine crisis,” in his view, is through the “genuine willingness” of the warring parties to “implement the Minsk-2 cea-sefi re agreement.”

On that point he agrees with Stoltenberg, who believes that “the most important thing now is to support the implementation of the Minsk cea-sefi re agreements, to guarantee the withdrawal of weapons from the front line, and maintain control over the process. However, both inter-national officials, wittingly or otherwise, are lea-ding the global community, their esteemed in-ternational organizations and themselves astray. The Ukraine-Russia confl ict (which, for the sake of correctness, is what the processes occurring in the east of Ukraine should be called) did not initially presuppose the existence of a mecha-nism for a peaceful settlement.

What Russia was (and is) doing in respect of Ukraine in no way provided for a possible re-turn to the preaggression status quo or even for a compromise solution. Everything is tailored not for a peaceful return to the past, but for the violent overthrow of the existing order with the prospect of an endlessly expanding zone of instability and general havoc to come.

This confi rms yet again the inference that Crimea and the escalation of tension in eas-tern Ukraine was merely a detonator for the time bomb planted under the existing system of international relations and an anti-han-dling device intended to stymie efforts to res-tore security within the framework of global reality.

The situation is aggravated by the fact that

pean Union at the expense of European busi-ness and taxpayers.

On top of that, the U.S. Congress has short-sightedly prevented China and the emerging econ-omies having a bigger say in running the Inter-national Monetary Fund. This opposition has led to a backlash resulting in an unexpected back-ing of Beijing’s promoted Asian Infrastructure Investment Bank.

However, the idea of joining a Chinese bank has triggered off a barrage of criticism from the United States, created a split within the trans-Atlantic alliance, and raised both hopes and fears about the prospect of ruining the Washington Consensus.

Just to remind you, the Washington Consensus represents a packaged prescription for reforms in the third World which had been elaborated jointly by the Washington-based institutions such as the International Monetary Fund, World Bank, and the U.S. Treasury Department.

The Asian Infrastructure Investment Bank is designed specifi cally to source fi nances to build roads, rail and power projects, and thus presents an alternative to the World Bank and other U.S.-linked fi nancial institutions.

It would also compete with a similar loan-pro-vider in Japan, Asian Development Bank (ADB), which used to serve as a major donor for the na-tions in Asia.

Vladimir

MikheevEXPERT

Konstantin

KorischenkoEXPERT

In order to avoid accusations of taking a heavy-handed approach to lending money while lack-ing transparency, China pledged to take into ac-count different opinions and even granted the participants veto powers.

Beijing’s moves created confusion among sev-eral staunch allies of the United States. Eventu-ally, some of them broke ranks and decided to jump on the band wagon, apparently out of fear of being left out in the cold.

The United Kingdom, Germany, France and Italy applied to join the China-led mega bank. This demonstrative act of desertion infuriated Washington for quite good reasons.

Yet, there can also be a different interpretation of the volte-face by the Europeans.

At present, the money markets are dominated by two giants, the World Bank and the Interna-tional Monetary Fund. Both emerged as a prod-uct of the Bretton Woods system in 1944 which established the supremacy of the American dol-lar as the one and only common denominator in the world of fi nances. This pecking order re-mained unchallenged until recently when grad-ual changes in the hierarchy of economic pow-ers provoked trade and currency wars.

Money talks, and it seems that in the future, it will frequently speak Chinese.

The author is an independent journalist.

Petr

KopkaEXPERT

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all this is happening against the backdrop of the complete and irrevocable collapse of the mechanisms designed to ensure the smooth run-ning of the balance-of-power system. Above all, it pertains to the system of international treaties, or rather the mechanism to control compliance therewith.

The latest evidence of this is perhaps Rus-sia’s decision to withdraw from the Joint Consul-tative Group on the Treaty on Conventional Armed Forces in Europe (CFE). As emphasized in a statement by the head of the Russian de-legation at the talks in Vienna: “Russia’s an-nounced suspension of the operation of the CFE Treaty in 2007 is hereby complete.”

The suspension of the Treaty adds additio-nal complexity to the already less-than-ideal mechanism for conventional arms control in Europe.

All this requires that the international com-munity, primarily in the shape of a consolida-ted Europe and the United States, should give its undivided attention to fi nding a new global architecture of international relations, inclu-ding, fi rst and foremost, the creation of new, or radically reformed, mechanisms and institu-tions for ensuring international security.

These mechanisms should include not only censure of any form of aggression whatsoever, but also coercion to desist from it. And this, as Ukraine shows, should not be limited to eco-nomic sanctions.

If one proceeds from the statement by for-mer U.S. Secretary of State Henry Kissinger in his latest book that the international system of the twenty-fi rst century will be characterized by an apparent contradiction — fragmentation amidst increasing globalization, one can only conjecture how complex relations between na-tions will be.

Given the far greater complexity of today’s state of play, the sooner the international com-munity wakes up to the need to start develo-ping and building a new architecture of inter-national relations, the sooner the world will come into the possession of new mechanisms to settle arising confl icts.

Petr Kopka is the head of research programs at the Center for Operational Strategic Analysis (COSA).

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KURSK:

THE KURSK ARCH MEMORIAL COMPLEX AND TRIUMPHAL ARCH

The Battle of Stalingrad marked a turning point in the course of World War II, but its success would not have been consolidated without the July 1943 Battle of Kursk (457 kilometers from Moscow). Its geopolitical sig-nifi cance went well beyond the So-viet-German front, as it put pressure on the Germans and ruptured their alliances. The Battle of Kursk also made history as the biggest tank bat-tle ever: about two million people, 6,000 tanks and 4,000 planes partic-ipated.

The monumental Battle of Kursk memorial park is located in the north-ern outskirts of the city. The park is set up in the form of an alley one ki-lometer long with a Triumphal Arch, a monument to Red Army Marshal Georgy Zhukov, the Church of St. George, the Tomb of the Unknown Soldier and an eternal fl ame. There is a memorial stele in the shape of a Doric column with a cartouche with the Russian President’s text bestow-ing the title of Hero City to Kursk. The complex also includes an exhi-bition of military equipment, a can-non, howitzers, a T-34 tank, a “Zveroboy” mobile artillery piece and the famous Katyusha rocket launch-ers.

NOVOROSSIYSK:

THE MALAYA ZEMLYA MEMORIAL COMPLEX

The dramatic events of World War II also affected Russia’s South. The most famous episode from this part of the front was an amphibious op-eration launched by the Red Army in February 1943. It resulted in the es-tablishment of a bridgehead called Malaya Zemlya (Little Land) south of Novorossiysk (1,466 kilometers from Moscow). The heroic defense of this strip of land lasted 225 days and ended on the morning of September 16 with the liberation of Novorossi-ysk from the Nazis. A consequence of this victory was that a counterof-fensive, which played a crucial role in defeating Germany in the Battle of the Caucasus, was launched.

The Novorossiysk Malaya Zemlya State History Museum is located on the Black Sea coast. Malaya Zemlya’s main monument is a huge spatial composition in the shape of the prow of a ship heading towards the shore at full speed. From here a view opens up on Tsemess Bay where much of the ruthless fi ghting took place. To this day near the monument you can still fi nd remnants of the 1943 battle: communication trenches, ditches and observation and command posts. In-side the monument there is a muse-um and an exhibition of military equipment from World War II is lo-cated nearby.

RUSSIA REBORN

HISTORY BECKONS: VISIT RUSSIA’S “HERO CITIES”

RUSSIA’S MAJOR CITIES HOST

STRIKING MONUMENTS TO WWII

Moscow in a soldier’s greatcoat

Moscow has preserved many of its mem-ories of World War II. They include the June 1941 mobilization, the endless air raids and evacuation, the enemy’s with-drawal and the return of the soldiers from the front, and most importantly, the Vic-

tory Parade in June 1945 that signified the end of the war.In May 2015 Red Square will host a parade in honor of the 70th anniversary of the victory over fascism. RBTH has prepared a special route through the city that en-courages visitors to see Moscow through the eyes of ordinary Muscovites that lived through the bombs and longed for victory together with the whole country.

Follow the QR-code and

take a walk through the

city’s military history of

World War II.

Read more at

travel.rbth.com

In 1945 the USSR was a country worn out by war. Many

of the cities lay in ruins. Today, 70 years later, the sites

of these terrible battles host memorial complexes that

are visited by travelers from all over the world.

YULIA SHANDURENKORBTH

Few cities in Russia went untouched by the devastation of World War II. Many, like Stalingrad, became battlefi elds, while others were turned into shelters for refugees or homes for relocated factories. The nine cities that suffered the most from the war were later officially recognized, taking the title of “Hero City” – Moscow, St. Petersburg, Volgo-grad, Tula, Smolensk, Murmansk, Kerch, Novorossiysk and Sevastopol. Here, RBTH looks at several of these cities’ most impressive war memorials.

ST. PETERSBURG:

PLOSHCHAD POBEDY (VICTORY SQUARE) AND THE MUSEUM OF THE DEFENSE AND SIEGE OF LENINGRAD

While the inhabitants and defend-ers of Stalingrad were dying in battle, Leningraders had to endure an equal-ly horrifying experience: the 872-day siege of their city from September 8, 1941 to January 27, 1944. Of those that died 97 percent didn’t suffer from in-juries, nor did they fi ght on the front-line, but perished instead of hunger and disease. As noted by American po-litical philosopher Michael Walzer in his book “Just and Unjust Wars,” “in the Siege of Leningrad more civilians died than in the hells of Hamburg, Dresden, Tokyo, Hiroshima and Naga-saki combined.”

The monument to the defenders of Leningrad is located in St. Petersburg’s Victory Square and constitutes the cen-ter of this architectural composition. This is the most famous memorial de-voted to the heroic deeds of city resi-dents during the tragic days of the siege. Under the monument there is an underground Memory Hall muse-um, embellished by two huge mosaics called “The Siege” and “The Victory.”

In the hall, historic radio broadcasts from Moscow can be heard, while on screens two silhouettes appear of the city under siege. A short documentary fi lm is shown accompanied by Dmitry Shostakovich’s Symphony No. 7, which he completed in late 1941 and dedi-cated to the residents of Leningrad. It became popular as a symbol of resis-tance to Nazi militarism.

At the Museum of the Defense and Siege of Leningrad you can get a more personal sense of what life was like during the blockade through the eyes of ordinary Leningraders. There’s a re-construction of a Leningrad fl at at the time of the siege and on display are examples of weapons and personal items belonging to the city’s defend-ers, while piercing air raid signals ring out through the museum.

The pitiful rations that Leningrad-ers existed on are also explained here: for example, a 125 gram piece of ‘siege bread’ was made on the whole from rye fl our of rough grinding stock and hydrocellulose.

VOLGOGRAD:

MOTHERLAND CALLS SCULPTURE AND MEMORIAL COMPLEX IN MAMAYEV KURGAN

Stalingrad (913 kilometers from Moscow), later renamed Volgograd, was the location of the bloodiest battle in world history, with an estimated 2 mil-lion casualties. In July 1942 the Red Army defeated Hitler’s Eastern front army in the battle of Mamayev Kur-gan, a fi ght that changed the course of World War II. Stunning monuments have been erected on the spot where those events took place, which today serve as the city’s proudest landmarks.

Most of these monuments are con-centrated in three areas located not far from each other: Heroes’ Alley, leading from the Embankment to the Square of the Fallen Fighters; around the Pan-orama Museum of the Battle of Stal-ingrad; and in the area of Mamayev Kurgan. The best way to go from one place to the other is by the Metrotram that goes both above and below ground.

When the city’s Motherland Calls sculpture was erected in 1967, it was included in the Guinness Book of Re-cords as the tallest statue in the world at 85 meters tall (not counting the ped-estal). By comparison the Statue of Liberty in New York is 46 meters tall, and the statue of Christ the Redeemer in Rio de Janeiro stands at 38 meters.

Of course, you could learn all the frightening details of the Battle of Stal-ingrad in books or online. However, your impressions will be somewhat in-complete. Make a visit to the sites of Mamayev Kurgan and walk the 200 steps (one for each day of the battle) from the Memory of Generations mon-ument up to the base of the Mother-land Calls statue. Each step you take will act as a solemn reminder to you of the horrors of this battle and war.

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