Brick by BRICS
Brick by BRICS
Putin emphasized economic cooperation during the BRICS Summit in Kazan
Hello from the Bear Market Brief.
This week in the news:
Representatives from more than 30 countries participated in the BRICS Summit in Kazan on October 22-24.
The State Duma adopted amendments to Russia’s budget code allowing for additional government spending this year.
Ukrainian Prosecutor General Andriy Kostin resigned after a scandal involving disability assessments by regional medical commissions.
— Sara Ashbaugh, Editor in Chief
BRICS Summit in Kazan
Kazan, the capital of the Republic of Tatarstan, hosted a three-day summit of BRICS countries this week. BRICS countries include the group’s five original members (Brazil, Russia, India, China, and South Africa) as well as the five new member countries that joined last year (Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates). In total, representatives of more than 30 states participated in the Summit, including the presidents of China, India, and Iran. UN Secretary General Antonio Guterres also attended and met with Putin, despite the Russian President’s indictment by the International Criminal Court (ICC). The high attendance was considered to be a diplomatic coup in Russia, showcasing that the country is not isolated internationally. However, Putin confirmed that he will not attend the upcoming G20 Summit in Brazil, a country that is party to the ICC and thus would be obliged to arrest him.
Apart from its publicity value, the Summit was also an essential event for Putin to promote economic, financial, and diplomatic cooperation among BRICS countries, and to rival other international institutions that Russia sees as tools to promote Western interests. Iranian President Masoud Pezeshkian, who attended the Summit, openly said that cooperation among BRICS countries is a way to circumvent Western financial sanctions. However, other leaders were more cautious; Brazilian President Luiz Inacio Lula da Silva stressed in a video call that the group was “not against anyone.” Putin also underlined that the total share of global GDP held by BRICS countries is now bigger than that of G7 nations—albeit most of the bloc’s economic weight is due to the size of China’s economy. Russia is currently only the fourth largest economy among the group’s original members. However, several countries are now looking to join the cooperation in pursuit of economic development.
Key among the new institutions discussed during the Summit would be a new international payment system based on an integrated depository and clearing system (instead of a common settlement currency) to rival SWIFT. Major Russian banks have been excluded from SWIFT as part of international sanctions against Russia related to the war in Ukraine. To make the proposal attractive to the countries of the Global South, which Russia has been courting, it includes BRICS precious metals and grain exchanges and an “investment platform”—although it should be underlined that Russia has also been trying to attract foreign, primarily Chinese, investment to develop its remote regions. The Summit declaration did bemoan “coercive measures” and supported “inclusive cross-border payment systems.” However, in practice, Russia has seen a growing number of payment problems this year related to convertibility issues between the rupee and the ruble, the accumulation of rupees by Russian exporters on Indian accounts, and Chinese banks being threatened with secondary sanctions, resulting in a drop in trade volumes. Putin and Chinese President Xi Jinping did discuss these problems at the margins of the Summit, and Xi supported the idea of the new payment system, but the issue itself highlights the differences between the two countries’ approaches to continuing cooperation with the West.
Following the Summit, the Ukrainian government pointed out that Xi, Lula, and Indian Prime Minister Narendra Modi called for peace negotiations and offered to mediate between Russia and Ukraine. This is not the first time that Xi and Modi have stressed their opposition to escalating the war over the past years. This opposition has not, however, prevented their countries from benefiting from their increased importance to Russia due to the war.
— Andras Toth-Czifra
The heads of delegation of several BRICS member countries gathered for a joint photo before the Summit’s plenary session on Tuesday. The heads of state of four of the five founding member countries were in attendance—South African President Cyril Ramaphosa, Chinese President Xi Jinping, Russian President Vladimir Putin, and Indian Prime Minister Narendra Modi—but Brazilian President Luiz Inacio Lula da Silva was forced to participate remotely after an injury prevented him from traveling. In total, representatives of 36 countries took part in the Summit, which was also attended by UN Secretary General Antonio Guterres. (photo: Sputnik / Alexander Kazakov / Pool / Reuters)
High rates, high fiscal pressure
The State Duma adopted amendments to Russia’s budget code this week. These will allow the government to raise spending this year by an additional 1.5 trillion rubles ($15.4 billion) without amending the federal budget. According to the explanatory notes, the money will be spent on “priority goals set by the President.” As Finance Minister Anton Siluanov added, the money is specifically for the Defense Ministry (to cover war-related expenditures) and for the government’s reserve fund, from which the federal government can issue transfers to cover urgent needs (e.g. in case of natural disasters or priority investments, or, as Siluanov explained in an interview this week, to support mortgages at a time of high—and potentially growing—interest rates).
The law does not define the source of this additional allocation. Using the full extent of the 1.5 trillion rubles defined by the law would result in the deficit of the federal budget growing to 3.3 trillion rubles ($33.9 billion) this year (or 1.7% of Russia’s GDP). Also this week, the Duma passed in its first reading the draft 2025 federal budget and fiscal plans for 2026-2027. The draft 2025 budget significantly raises war-related expenditures compared to the 2024 budget, crowding out expenditures on investments and research inside Russia. However, the budget bill may be significantly modified before the second reading, especially since Siluanov admitted that the draft assumed an average key rate of 15.1% for next year. The key rate was increased this Friday from 19% to 21%, as Russia currently has no other tool to rein in inflation.
In order to support priority investment projects at a time of growing economic uncertainty, creeping nationalization, high rates, and squeezed profit margins, the government will tap the resources of VEB.RF, the main state investment vehicle. Over the past week, the federal government adopted a decision that raises the extent to which VEB can participate in issuing 30-year syndicated loans with other banks in the framework of the government’s Project Financing Factory to investment projects worth more than 3 billion rubles ($30.9 million). Earlier, Putin urged making VEB.RF a mandatory participant in public-private partnership projects, and the government lowered the mandatory co-financing rate for investors.
— Andras Toth-Czifra
Alexei Navalny’s memoir, Patriot, was published on Tuesday. The book is divided into two parts: the first is an autobiography of Navalny’s life, and the second contains the diary entries that he kept while in prison in 2021-2022. These start in January 2021, shortly after his arrest, and end with his sentencing on March 22, 2022. Navalny’s widow, Yulia Navalnaya, facilitated the release of the book posthumously. In an interview with the BBC, Navalnaya vowed to continue her late husband’s work, as well as saying she would run for president if she ever returned to Russia. Patriot was published by Alfred A. Knopf in 36 countries and 26 languages, including Russian, but it is not available in Russia or Belarus. (photo: Wojtek Radwanski / AFP / Scanpix / LETA)
Ukraine’s Prosecutor General resigns amid medical commissions scandal
On Tuesday, Ukrainian Prosecutor General Andriy Kostin resigned, taking political responsibility for a series of scandals involving medical and social expert commissions responsible for assessing disabilities. In early October, Ukraine’s State Bureau of Investigation uncovered evidence of illegal enrichment by the head of the medical commission in the Khmelnnytskyi region. During the searches, investigators discovered the equivalent of nearly $6 million in cash in various currencies, along with expensive jewelry and other luxury items. The Bureau also seized a number of fake medical documents, lists of draft dodgers with names and fictitious diagnoses, documents confirming the illegal activities, and evidence of money laundering through various business projects.
In the wake of this scandal, the Ministry of Health conducted inspections and revoked the disability determinations of 74 men issued by the Khmelnytskyi medical and social expert commission. Reports later revealed that law enforcement agencies in the region were aware of the extensive corruption scheme orchestrated by the head of the commission and were complicit in it. A total of 49 prosecutors, including the regional prosecutor, obtained fraudulent disability determinations. The regional prosecutor resigned following the release of this information.
In another incident, the head of a medical commission in the Mykolaiv region was recently caught by the Security Service of Ukraine with over $450,000 in undeclared cash. Additionally, she issued disability determinations for herself and her son, who also holds a Russian passport. As of 2024, 64 state medical commissioners have already received “notes of suspicion,” which are the Ukrainian equivalent of criminal charges that have not yet gone to trial. Following audits conducted by the Security Service, approximately 4,000 disability determinations have been canceled. This is particularly significant because having a disability status prevents males from being conscripted into the military, thereby hindering Ukraine’s mobilization efforts.
In response to these scandals, President Zelenskyy pledged to scrutinize all disability certificates and implement changes to the processes for granting disability determinations. “These decisions include the digitalization of procedures for all stages of medical and social expert commissions; a thorough inspection of the declarations of members of medical commissions; the verification and revision of unjustified decisions on the disability status of officials; and an audit of the relevant pension accruals,” Zelenskyy said.
— Lisa Noskova
On the podcast
Kyiv-based journalist Fabrice Deprez returns to the Brief for another update on the mood in Ukraine, including a report on his recent trip to the frontline city of Pokrovsk.
Quickfire: Regions
Miners of the “Inskaya” coal mine in the Kemerovo Region, Russia’s main coal-producing region, briefly went on a hunger strike to protest unpaid wages. The miners had not received their salaries for the past four months as coal production flagged and the company accumulated more than a billion rubles in debt. The situation was significant enough for the representatives of the regional government to attend a meeting between the owner and the miners, but the parties could not come to an agreement. After a bumper year in 2022, coal producers have faced an escalating crisis this year; exports have ebbed and transportation costs have grown due to the loss of European markets and transit bottlenecks, zeroing out industry profits. In particular, Russian Railways (RZhD) proposed doing away with coal export quotas for every region except for Kemerovo in order to balance the company’s books, as coal-producing regions earlier protested against plans to raise cargo tariffs. The Energy Ministry, however, led by coal lobbyist Sergey Tsivilyov, slapped down these plans, requiring RZhD to increase the quotas instead. Problems in the coal industry can be especially difficult for regions like Kemerovo that rely heavily on mining.
The Federal Security Service (FSB) raided the offices of a company owned by Maxim Vasiliev, a Deputy of the Kursk Regional Assembly. The company was involved in the construction of defensive structures at the region’s border with Ukraine, which failed to stop the Ukrainian army’s incursion into the region in August. At the time, there were rumors about a potential corruption case opened against Minister of Transportation Roman Starovoit, who supervised the project when he was Governor of the region, but Starovoit has so far not been charged or dismissed. It is notable, however, that Alexander Petrochenko, the former Deputy Governor of the Bryansk Region, which also borders Ukraine, was recently arrested for corruption. Petrochenko was in charge of security and procurement in the region, which also included overseeing the construction of defensive lines in that region.
The government held parliamentary hearings on the state of public utility networks at the start of the heating season in Russia after problems with public utilities have already been reported in several regions. In early 2024, cold temperatures led to accidents in many regions, as well as protests against underinvestment into fixing up public utility networks. As the government itself acknowledged, the situation has not improved: 40% of pipes are in a state of critical wear—with the number of accidents increasing by almost 3% every year—and almost a fifth of people surveyed have observed critical deterioration. So far, the government simply transferred responsibility for these accidents onto regional governments. However, regional budgets have not been able to deal with the issue, while raising tariffs is itself a political risk factor. Following this year’s protests, the federal government and Putin himself prioritized investments into utility networks on a rhetorical level, but, due to the prioritization of war-related expenditures in the federal budget, chances of local or regional collapses remain high.
— Andras Toth-Czifra
Quickfire: Ukraine
Ukraine’s President Volodymyr Zelenskyy has called on officials to create an internal action plan to keep the country united during the war and to support the growth of different sectors of the Ukrainian economy. The document will focus on internal decisions across various areas, including the defense industry, security, the economy, social policy, and others. The new plan is not intended to replace the victory plan presented by Zelenskyy last week. While the victory plan primarily addresses Western partners, the new plan will concentrate on the specific actions Ukraine needs to take to secure victory. The source from Zelenskyy’s team commented that the President expects the plan to be prepared and presented to the public by the end of the year.
Meanwhile, key members of the NATO alliance have spoken out against the first point in Zelenskyy’s victory plan: an immediate invitation for Ukraine to join NATO. “A country at war cannot become a NATO member. Everyone knows this, and there are no disagreements on this point. In NATO, invitations are usually quickly linked to membership,” German Chancellor Olaf Scholz said in an interview with ZDF. Germany is not alone; according to an article by Politico, the U.S., Hungary, Slovakia, Belgium, Slovenia, and Spain are also reluctant to fast-track Ukraine’s invitation. “The alliance has not, to date, reached the point where it is prepared to offer membership or an invitation to Ukraine,” U.S. Ambassador to NATO Julianne Smith told Politico. However, both U.S. and German officials reaffirmed their support for Ukraine’s eventual accession to the alliance.
— Lisa Noskova & Sara Ashbaugh