Neutral no more
Sweden joins NATO, Russia threatens retaliation
Hello from the Bear Market Brief.
This week in the news:
Sweden officially joined NATO on Thursday, after finally securing the support of member states Turkey and Hungary.
Russian authorities are taking steps to increase voter turnout for the upcoming presidential election.
The Russian government is working on tax and debt reforms, in part to lessen the burden on regional budgets.
Ukrainian military intelligence reported a successful attack on the Russian Sergey Kotov patrol ship in the Black Sea.
A fire broke out at the Osokorky ecopark in Kyiv on Tuesday, sparking rumors of arson.
— Sara Ashbaugh, Editor in Chief
Sweden joins NATO
After nearly two years of delays, Sweden became the 32nd member of the North Atlantic Treaty Organization (NATO). Its official accession took place on Thursday, when the Swedish government approved NATO’s invitation and Swedish Prime Minister Ulf Kristersson filed the relevant documents with Washington. “This is a historic day,” NATO Secretary General Jens Stoltenberg said. “Sweden’s accession makes NATO stronger, Sweden safer and the whole Alliance more secure. Today’s accession demonstrates that NATO’s door remains open and that every nation has the right to choose its own path.”
Sweden and Finland applied to join NATO together in May 2022, shortly after Russia’s invasion of Ukraine. The two historically neutral states were prompted by Russian aggression to seek membership in the mutual defense alliance. Finland’s application was ratified relatively quickly, becoming NATO’s 31st member less than a year later, in April 2023. Sweden’s accession, however, was delayed by NATO countries Turkey and Hungary. Turkey objected to Sweden’s lax treatment of the Kurdistan Workers' Party (PKK), which Turkey considers a terrorist group. In response, Stockholm passed new anti-terrorism laws and also relaxed policies related to arms exports to Turkey. The Turkish Parliament finally ratified Sweden’s bid in January 2024, and Hungarian Prime Minister Viktor Orban assured Stoltenberg that Hungary was not far behind.
In late February, Kristersson traveled to Budapest for a final diplomatic push. During his visit, a new Swedish-Hungarian defense deal was negotiated; Sweden extended the time period for providing support and logistics assistance to Hungary for Swedish-made Gripen C aircrafts and also agreed to sell four more to Hungary’s small airforce. Shortly after, the Hungarian Parliament approved Sweden’s NATO application nearly unanimously. Orban denied that this was related to the defense deal, however, instead claiming that Hungary was simply holding out for “a mutual trust of cooperation, which is the basis of guaranteeing of each other's security.” “It’s not a business deal,” he said.
The Russian Foreign Ministry announced that it would retaliate against Sweden now that the country has joined NATO, but it did not give any specifics. According to the Ministry, it depends on how Sweden engages with the alliance, including which NATO weapons and military units it deploys. “We’ll closely monitor what Sweden does in the aggressive military bloc, how it will implement its membership in practice,” Foreign Ministry spokesperson Maria Zakharova said. Sweden’s accession means that NATO practically encircles the Baltic Sea, hampering Russia’s access to the strategically-important region.
A flag raising ceremony to add the Swedish flag to NATO’s headquarters will take place on March 11.
— Sara Ashbaugh
Russians celebrated International Women’s Day on Friday by giving out flowers to women across the country. A member of Rosgvardiya, the Russian Federal Guard, can be seen here handing out tulips to women in Moscow. President Putin also gave a speech for the occasion in which he emphasized childbearing as women’s main purpose. “The most important thing for every woman—no matter what career she chooses and what she is able to achieve in it—is family,” he said. He also promised more support for young mothers, likely in an attempt to prop up Russia’s plummeting birth rates. (photo: Yaroslav Chingaev / Moskva News Agency)
Turnout problems
Russia’s presidential election will take place between March 15 and 17. There is no doubt that Vladimir Putin will be crowned winner of the vote according to the official count, beating designated also-rans Nikolay Kharitonov of the Communist Party, Leonid Slutsky of the Liberal Democratic Party, and Vladislav Davankov of the New People Party. As expected, Putin did not participate in any pre-election debates, but dominated the media—not to mention the Kremlin’s tightening grip on federal, regional, and local election infrastructure.
However, the last weeks of the campaign have also illustrated some of the hurdles that the authorities need to clear in order to engineer the desired result. It appears that the main challenge is ensuring a high voter turnout. This is important not only because it reduces the amount of resources needed for rigging or falsifying the vote, but also because it shows—to those in knowledge of the actual figures—to what extent regional and local officials are able to mobilize voters for Putin. Leaked documents recently reported by an international journalistic consortium also suggest that the Kremlin is worried about turnout and covertly financed a range of programs to increase interest in the election.
There are a number of recent examples. In Khakassia, people waiting in line at a doctor's office were reportedly told by official-looking people that “enemies” of Russia would like to pretend that turnout is going to be low. In a research institute in Cheboksary, as well as in a Gazprom-owned plant in the Astrakhan Region, workers were given instructions on how to vote (a common practice before any election). Independent election observation organization Golos spotted an app through which the ruling United Russia party expects to receive confirmation from voters of their participation in the vote. But Meduza reported that state-owned companies are finding it more difficult to pressure employees to turn out and vote than usual, since threats of getting fired are less effective in Russia’s current tight labor market.
The opposition’s strategy is also unclear. Davankov was endorsed by Moscow opposition personality Maxim Katz over the past week, prompting a dispute between him and the team of the late Alexei Navalny. Navalny’s team has asked voters to turn up at polling stations at exactly 12:00 pm on March 17 and vote for anyone but Putin in order to showcase opposition to his choreographed re-election. Independent observers will also play an important role in the vote, although their participation has been severely restricted over the past few years by legal means. Some officials go even further; in the Vladimir Region, polling stations were reportedly asked to compile a list of “undesired observers.”
— Andras Toth-Czifra
Upcoming Event: Why Putin's Rigged Election Matters
Tuesday, March 12, 2024 12:00PM - 1:00PM EST
This is a virtual event that will take place on Zoom.
Join FPRI’s Eurasia Head of Research Robert Hamilton, Bear Market Brief’s András Tóth-Czifra, and Olga Khvostunova as they discuss the evolution of Putin’s regime during his almost quarter century in power, the state of popular resistance, and what the future might hold for a post-Putin Russia.
Taxes and debt
The Russian government reportedly started working on implementing promises made by President Putin in his speech before the Russian parliament last week. According to the sources of business newspaper Vedomosti, while there are no final plans yet, the government may raise the corporate income tax rate, as well as introduce higher tax brackets for personal income tax (while also keeping the current rate of 13%). This could be an indication that the government is ready to negotiate with employers, who have repeatedly complained over the past year about the government’s erratic tax and customs policies. Examples of such policies include the introduction of new export duties, a new taxation of oil exports, and a tax on “extra profits,” which increased unpredictability for businesses. The latter tax suggests that the government is out to get a cut from any profit that may arise in Russia’s rapidly restructuring economy.
It is unlikely, however, that a tax reform will resolve all uncertainties, e.g. those related to forced re-nationalization of companies in industries considered key for the war effort, which the Bear Market Brief has repeatedly highlighted. According to a fresh investigation by Novaya Gazeta, the state has taken control of 180 private companies over the past two years, including 27 legal cases last year and 7 this year. This week, the government approved a list of six “economically significant” holding companies for which the government can initiate the suspension of foreign shareholders’ rights. Another draft order will give regional governors (as well as the Commissioner for Children’s Rights) the right to conduct extraordinary inspections of companies without requesting approval from the Prosecution.
Putin also promised a write-off of two-thirds of regional debt on loans from the federal budget. According to official calculations, this could save regional budgets a total of 200 billion rubles ($2.2 billion) per year between 2025 and 2028, which they could then spend on infrastructure development and other similar projects. Indeed, in the days following Putin’s address, a series of regional leaders flocked to express their gratitude and share what lofty plans they intend to finance with the funds. In reality, this will likely depend on directives received from Moscow.
The debt write-off suggests that the government may indeed have reached the limits of its previous policy to reduce regions’ debt servicing costs: replacing market loans with cheap budgetary loans. By the end of 2023, 77% of regional debt was held by the federal government, with bank loans representing only 4%. Overall indebtedness grew by 14% in 2023, while regional incomes only grew by 10.1%. For 2024, the total debt servicing cost of regions would have quadrupled to more than 208 billion rubles ($2.3 billion), all while both transfers and regions’ own incomes are expected to stagnate or drop. At this point it is also unclear whether, in the framework of the tax reform, the government will change the distribution of personal and corporate income tax receipts between regional budgets and the federal budget. Since shortages in municipal finances have been discussed at the federal level for several months, the government may also expect some regions to cede a larger share of their tax receipts to municipalities.
— Andras Toth-Czifra
Russia has intensified its attacks on Odesa. On March 2, Russia attacked the Ukrainian port city with drones. Debris from one of the drones hit an apartment block, killing 12 people (including 5 children). On Wednesday, Russia carried out another missile strike on Odesa right as President Zelenskyy was giving a tour of the war-ravaged city to Greece’s Prime Minister, Kyriakos Mitsotakis. Five people were killed during the attack. During a joint press conference, Mitsotakis (pictured here alongside Zelenskyy) said that hearing the explosions was “a very intense experience.” “It's really different to read about the war in newspapers, and to hear it with your own ears, see it with your own eyes,” he added. (photo: Reuters)
Ukraine attacks another Russian vessel
On Tuesday, Ukraine’s military intelligence agency reported that the Russian Sergey Kotov patrol ship was hit with Ukrainian Magura 5 naval drones near temporarily-occupied Crimea. The same type of drones were used back in February to destroy the Russian landing ship Caesar Kunikov. This was not the first time the Sergey Kotov vessel has been attacked; it previously sustained damage and underwent repairs following a drone strike by the Ukrainian Armed Forces in September 2023.
According to the military intelligence agency, the value of the ship is about $65 million, and it has the capacity to carry cruise missiles and up to 60 crew members. Ukraine’s military intelligence also published an intercepted conversation during which a Russian commander said that there was a helicopter on board the Sergey Kotov ship. On Wednesday, the agency reported that at least 27 crew members were injured as a result of the attack and another 7 killed. This information, however, has not been verified independently.
Andriy Yermak, Head of the Office of the President of Ukraine, commented that the “Russian Black Sea Fleet is a symbol of occupation,” adding that it “cannot be in Ukrainian Crimea.” Russia’s Ministry of Defense did not comment on the reported attack.
— Lisa Noskova
Kyiv ecopark on fire
A fire broke out at the Osokorky ecopark in Kyiv on Tuesday afternoon. According to the Kyiv City State Administration, the grass and reeds caught fire in an open area near lake Tyagle, causing the fire to spread to an area of three hectares. It took firefighters almost seven hours to extinguish the fire.
The Osokorky ecopark is a public organization run by environmental activists and Kyiv residents looking to preserve the area’s wetlands. The activists claim that the fire was started by arson, pointing out that it broke out in an area that borders the Stolitsa Group development. Back in February, activists said that the Stolitsa Group was destroying the forest near another lake. This led to protests against the developer’s actions by Kyiv residents. In a recent social media post, the ecopark wrote that it had received threats of arson a few days prior to the fire. The police are currently investigating the case.
— Lisa Noskova
On the Podcast
Despite Western economic policy, Russia has been able to continue its war against Ukraine, and even seen economic growth. Join as we kick off our season with Nick Trickett and Iikka Korhonen investigating what's driving Russia's economy these days, and whether sanctions are "working."
Quickfire: Regions
The repression of independent journalism and the non-systemic opposition continues in the regions. This week, Roman Ivanov, a journalist of the RusNews site, was sentenced by a Moscow region court to seven years at a prison colony for sharing information on social media about the massacre carried out by Russian soldiers in Bucha, as well as sharing a UN report on human rights violations in the war. His colleague, Maria Ponomarenko, had earlier been sentenced to six years for sharing information about Russia’s bombing of Mariupol. In Bashkortostan, meanwhile, the local prosecutor's office requested a re-trial in the case of Liliya Chanysheva, the former coordinator of Alexei Navalny’s campaign, who was sentenced to 7.5 years for “extremism.” The prosecutors now want her to be sentenced to 10 years in prison.
On March 2, in the city of Karabulak in the Republic of Ingushetia, a shootout occurred between security forces and unknown people. The standoff, which lasted for several hours, ended with the killing of six militants and the introduction, briefly, of a “counter-terrorism regime” in the district. The attackers reportedly belonged to a group that attacked a police post in the Republic last year. While they do not occur every day, such shootouts are also not uncommon in Russia’s North Caucasian regions and mostly do not have to do with local movements for emancipation or independence. Ingushetia last saw major protests in 2018-2019 against an agreement demarcating its border with neighboring Chechnya. Furthermore, unlike in the recent case of anti-Semitic riots in Dagestan, the local security services seemed to be in control of the situation from the start.
The Ministry of Industry is postponing the planned completion of a program aiming to replace foreign-made civilian aircrafts with domestic ones by two years. It appears that Russian factories have so far been unable to produce sufficiently light and durable planes or acquire machine tools in the necessary quantities, which would mean reduced range. According to industry experts quoted by Kommersant, another problem is that military needs are currently prioritized, both in terms of financing and personnel. This makes even the now-postponed deadline questionable. It also means that, barring the establishment of an alternative supply chain for civilian aircrafts, the frequency of domestic flights (which several regions and the domestic tourism industry rely on) will likely have to be cut further.
— Andras Toth-Czifra